PSB Portfolio Update May 2011

| May 17, 2011

May 17, 2011

Is The Game Changing?

There’s been a theme to the market these past few months.  This theme involves the relationship between three major asset classes.  In particular, I’m talking about commodities, the US Dollar, and stocks.

Basically, here’s what’s been going on…

The dollar drops… commodities move higher… and finally… stocks climb.

The commodity/dollar relationship is par for the course.  In other words, it’s fairly common for the dollar and commodities to move opposite each other.

But what’s really interesting is how the commodity/dollar relationship has been sending stocks higher.  It hasn’t always been the case historically.  In fact, it’s a dynamic which could be considered inflationary… and has traditionally hurt stocks.

Here’s the thing…

The game might be changing.

Commodities experienced a major selloff in recent weeks.

You see, the CME jacked up margin requirements on both silver and oil.  And several smaller speculators were forced to liquidate their positions.  At the same time, the dollar reversed… and shot higher.

Commodities sold off across the board as investors headed for safer investments.

What’s more, stock investors took the reversal of commodities and the dollar as a sign to take profits.  So it’s no surprise, we’re seeing the major stock indices pull back as well.

However, this is nothing more than a short-term selloff.

The commodity/dollar reversal also signals something very positive for investors. Inflation is not a major concern.

The recent run up in food and energy prices were taking their toll on the US economy.  But now, the big picture is looking much more tolerable.  Commodity prices have returned to more reasonable levels.

It’s just a matter of time before investors move back into stocks.  And it should give our portfolio a nice boost.

Now, on to the position updates…

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.

. . . . TeleCommunications Systems (NASDAQ: TSYS) – Buy up to $5.24

TSYS is off to a solid start.  The shares are up over 10% since our buy recommendation. Not too shabby.

Remember, the company just posted great numbers…

And the best is yet to come.

The company is the sole ground services provider for Cisco System’s (CSCO) new internet in the sky technology.  Adding higher end clients like Cisco is a great sign for TSYS.

If you haven’t done so, pick up your shares of TSYS now while they’re still in our buy range.

. . . . The Hackett Group (NASDAQ: HCKT) – Hold

HCKT is off to a great start.  The shares jumped over 10% right out of the gate.

Fortune favored us in this case.  HCKT shares pulled back right before we issued our report.  So, many of you got in on the dip.

What’s driving the shares higher?

First quarter revenue jumped to $52.9 million… a solid 13% year over year increase. And, earnings per share jumped by a superb 40%!  Demand for the company’s services is clearly on the rise.

What’s more, the company’s estimating total revenue for the second quarter to be in the $55 million to $57 million range.  That’s a solid increase from first quarter numbers.

It gets even better…

Hackett just purchased over 670,000 shares of their own stock.  It’s always a bullish sign when a company does this.  And, HCKT’S Board of Directors is approving another $5 million of share buybacks.

Improving fundamentals and stock buybacks bode well for HCKT.  We see the shares moving a lot higher from here.

With HCKT now trading above our buy up to price, we’re moving it from Buy to Hold.  Hang on for greater gains.

. . . . Carriage Services (NYSE: CSV) – Hold

CSV continues to prosper.

Strong earnings propelled the shares to a recent high of $6.57.  That’s a terrific 21% gain in just over a month.  So far so good.

Here are the details…

First quarter revenue climbed to $50.9 million… a solid 9% year over year bump.  What’s more, net income hit $3.3 million.  That’s good for a healthy 19% increase.  The company’s seeing higher demand for all of their products and services.

And, we had a nice surprise as well…

Management just announced the company’s first dividend!

When a company pays a dividend, it signals they’re in good financial shape.  And, CSV’s new 3% dividend proves it beyond a shadow of a doubt.

We think the stock’s just starting a big move higher.  The shares have already moved above our buy range, so we’re moving CSV to a hold.

Hang on to your shares of CSV for further upside gains… and keep an eye out for your quarterly dividends!

. . . . Magnetek (NYSE: MAG) – Hold

MAG continues to shine.  The share price rocketed to a recent high of $2.34.  That’s an impressive gain of over 37% since mid-March.

So what’s driving the shares higher?

Outstanding Earnings!

Third quarter revenues jumped to $27.8 million… a stellar 45% year over year increase. What’s more, the company’s sales of renewable energy products doubled from last year. Meanwhile, sales into the material handling markets increased by a strong 30%.  Clearly, the company’s products are in high demand.

Even better, MAG’s a profit machine.

Operating income more than doubled over last year, producing a $0.04 per share gain.  The gains were the result of increased sales and bookings for services.

Here’s the best part…

Management expects sales to increase even more in the fourth quarter.

We think MAG will climb higher from here.  Hang on to your shares for bigger gains.

. . . . FSI International (NASDAQ: FSII) – Hold

FSII is on a tear!

The shares hit a recent high of $5.41 for a superb 53% gain.  And we see even more upside ahead.

Here’s the deal…

Fantastic earnings are driving the stock higher.

Second quarter sales jumped to over $30 million… good for a robust 62% year over year gain.  Strength in the semiconductor industry is driving the company’s growth.

And that’s not all…

Net income climbed to $4.9 million.  That’s an astonishing 700% increase!  And earnings per share jumped from $0.02 to $0.13.  Clearly this company is on the right track.

What’s more, management expects third quarter net income to fall between $4.5 to $5.5 million.  Look out… another great quarter ahead!

Hang on to your shares of FSII for bigger profits ahead.

. . . . Nova Measuring Instruments (NASDAQ: NVMI) – Hold

NVMI continues to be a stock market standout. The shares have soared over 170%since we recommended it.

First quarter revenues jumped to $28.2 million… an eye-popping 76% year over year increase.  What’s more, the company posted record net income of $8.1 million.  Clearly, their products are in demand.

And the future looks even brighter.

NVMI is expecting revenues of $28.5 to $31.0 million, thanks to record bookings and backlog.

We think NVMI is going to continue its impressive move higher.  Hold on to your shares for more profits ahead.

. . . . Summer Infant (NASDAQ: SUMR) – Hold

SUMR is on fire!

SUMR shares hit a recent high of $9.48.  That’s a solid 36% gain.  And it’s just the start.

The company’s first quarter revenue increased a stellar 33% year over year.  Even better, SUMR had a nice increase in gross profit of 16%.  The increases were driven by gains across most of the company’s major products.

And don’t forget…

The company just finished purchasing BornFree, a leader in baby feeding products.  By adding BornFree, SUMR will increase their exposure in the infant industry.

We really like SUMR’s direction… and the results so far are backing us up.

Hang on to your shares of SUMR for bigger upside ahead.

. . . . Commtouch Software (NASDAQ: CTCH) – Hold

Good news for CTCH.

The stock price has pulled back recently.  But, look closer and you’ll see the shares are positioned for a big move higher.


Strong Earnings.

First quarter revenue climbed to $5.5 million… a solid 35% year over year increase.  Even better, the company’s adding an impressive list of new clients.  CTCH just signed a contract to provide services for Cox Communications and Superb Internet.

And that’s not all…

CTCH’s earnings per share increased by a healthy 33%, resulting in a $0.04 per share profit.  One of the reasons… customers are using more than one of their products at a time.

And CTCH’S future is looking bright…

Management expects 2011 revenue to reach $22.5–$23.5 million… an impressive 25%-30% increase over 2010 sales.

We believe the shares are poised to climb a lot higher.  Continue holding CTCH for bigger profits ahead.

. . . . Phoenix Companies (NYSE: PNX) – Buy up to $3.00

Solid news for PNX.

First quarter revenue came in at $488 million… a slight decline from last year.  However, operating income climbed to $14.8 million, an impressive 53% increase.  Improved equity markets drove the gains.

And there’s even better news…

The company received over $200 million in annuity deposits during the first quarter. That’s an amazing jump from the $19 million they brought in the year ago quarter!

Demand for insurance products is clearly on the rise.  And, as the economy improves, sales of life insurance and annuities will continue to grow.

Of course, PNX is in a great position to benefit.

If you haven’t done so already, go ahead and pick up your PNX shares before they take off.

. . . . Aurizon Mines (AMEX: AZK) – Buy up to $7.90

Mixed news from AZK.

First off, first quarter revenue climbed to $47.2 million… good for a 19% year over year increase.  Even better, gross profit jumped to $18 million.  That’s a superb 43% increase.  Higher gold prices drove the gains.

Here’s the thing…

Gold production fell a little short of expectations.  And it led to a pullback in AZK shares. Don’t worry though, it’s only temporary.

You see, there was an unexpected challenge with ground conditions at the company’s Casa Berardi mine.  And it caused a slowdown in production.

However, AZK has changed its method for gold extraction in the troublesome area.  So, it shouldn’t be a problem moving forward.

And with gold prices soaring, the company’s likely to see soaring profits ahead.

If you haven’t done so, grab your shares of AZK while they’re dirt cheap.

. . . . Rodman & Renshaw (NASDAQ: RODM) – Buy up to $3.21

RODM’s hit a bit of rough patch recently.  But don’t worry, the company’s got a bright future ahead.

Here’s the deal…

First quarter revenue was $29.7 million… a slight decline from last year.  So far, 2011 has been a challenging environment for PIPE deals.

However, RODM’s still the largest PIPE dealer in the country.  And, they’ve completed 33 deals raising $1.1 billion in the first quarter alone.  That’s a solid 22% increase in funds raised from a year ago.

More importantly, as the market environment improves, RODM is in great position to benefit.

Continue holding your shares for now.

Action To Take

  • Move The Hackett Group (NASDAQ: HCKT) from Buy to Hold
  • Move Carriage Services (NYSE: CSV) from Buy to Hold

Category: PSB Portfolio Updates

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