PSB Portfolio Update June 2014

June 26, 2014

Could Geopolitical Risk Derail the Bull Market?

Overall, it’s been a quiet month for US equities.  Volatility has been extremely low and even somewhat meaningful news has done little to move stocks significantly one way or the other.

Over the last month, the S&P 500 is up just around 2.5%, and has climbed a bit under 7% for the year.  Meanwhile, small cap stocks – as measured by the Russell 2000 – are up roughly 3.5% over the past month.  However, small caps are up just over 2% on the year.

That’s not to say the summer has been uneventful.

The biggest news over the last few weeks has been the situation in Iraq.  Fighting between the government and extremists in Iraq has caused the price of crude oil to spike. Moreover, oil prices could remain high as this scenario isn’t likely to be settled quickly.

Meanwhile, precious metals prices have risen on renewed inflation concerns.  However, the Fed doesn’t seem concerned about inflation and is continuing its pledge of low rates until 2015.

The bottom line is despite the activity, there’s very little volatility in the financial markets. In other words, investors just aren’t that worried right now.

Let’s see what the next few weeks bring.

Now, here’s a closer look at some of our positions.

Position Updates

Please Note:  We don’t necessarily update every open position each month.  We focus on the positions experiencing significant news, notable price movement, or a change in recommendation.  Please refer to the Performance page on our website for our current buy, sell, or hold recommendation for any positions not mentioned in the Update.

. . . . RadioShack (NYSE: RSH) – Sell

No, we haven’t forgotten about RSH.  A couple months ago I wrote that the beleaguered company was going to need time to recover.

I basically told you to ignore the stop loss on RSH because I felt a turnaround was going to happen.  My feeling is the company will be acquired at a significant premium to the current price.

Unfortunately, while we waited, the share price continued to plummet. Now words like “bankruptcy” and “delisting” are being thrown around – which of course terrifies investors. It’s very difficult to fight against popular sentiment.

I’m not worried about RSH being delisted.  And, while bankruptcy is a possibility, I don’t think it’s imminent.  I believe it’s more likely RSH will be bought out or survive its current restructuring in much better shape.

Nevertheless, we’re changing our recommendation on RSH to sell.  It’s never fun to watch a company in your portfolio take this kind of beating.  We’re going to move on from this one and focus on other opportunities.

. . . . American Electric Technologies (NASDAQ: AETI) – Buy up to $7.00

AETI has been mostly quiet since we bought it in May.  But, the share price is slowly but surely creeping higher.

The stock price has now broken through the 50-day moving average.  From there, the next stop is the 200-day moving average which is just under $8.00

Basically, the rising price of crude oil is putting the spotlight on the energy industry once again.  As oil and gas companies look for ways to increase efficiency, infrastructure companies like AETI are the ones that benefit.

If you haven’t purchased shares of AETI yet, you can do so up to $7.00.

. . . . Vonage (NYSE: VG) – Buy up to $4.00

VG has mostly struggled since we bought it back in March.  However, a turnaround finally looks like it could be taking place.

The share price has recently broken through both the 50-day and 200-day moving averages.  That suggests a rally could be in order.  Investors are starting to find some value in the VoIP industry.

We still have faith that VG is going to be a sound investment in our portfolio over the long haul.  As such, we’re lowering the buy up to price to $4.00.  We think buying in at these levels will definitely be worthwhile.

For those who haven’t purchased the shares yet, now’s your opportunity to do so, up to $4.00 per share.

Action To Take

• Sell RadioShack (NYSE: RSH)
• Move Vonage (NYSE: VG) buy up to price to $4.00

 

Category: PSB Portfolio Updates