PSB Portfolio Update May 2012

May 17, 2012

Buy While Others Are Fearful…

There’s no doubt, the stock market is rife with fear these days.

If we look at the performance of both the Russell 2000 and the S&P, you’ll see both are down significantly from their 2012 highs.  The S&P, once up over 11% earlier in the year, is now up just 2.2%.  And the Russell 2000 is up a mere 0.5%.

Talk about a reversal of fortunes.

So what’s causing the selloff?

While there are many factors that influence the markets, most of the selloff can be attributed to Greece.  Once again, this tiny EuroZone country is wreaking havoc on stock global markets.

In fact, we’re watching a slow steady decline as issues drag out across the pond.  For instance, we’ve had a string of down market days that includes the Dow moving lower for 11 of the past 12 trading days.

The fear is, if Greece pulls out of the EuroZone and stops using the Euro… it will trigger a string of horrible financial events.  One of these concerns includes possible contagion spreading to other financially weak Euro-member countries.  Another is a major selloff in European stocks… dragging the US market down even further.

The bottom line… fear is causing panic in the marketplace.

For us, that could be a huge positive.  Obviously, we don’t want to see our current holdings lose value.  What you need to do is see this weakness as an opportunity to buy stocks you wish you had bought before the rally took off earlier this year.

I think it’s a smart move right now.  We’re approaching a technical support level on both the S&P 500 and the Russell 2000 (the S&P is in red).

Take a look at the blue line on the chart below…

In addition, we’ve seen a pullback of nearly 10% on the S&P.  That represents a true correction in a bull market… a healthy breather before the markets continue moving higher.

While others are fearful and selling, the market is handing us an opportunity to buy low.

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.

. . . . Information Services Group (NASDQ: III) – SELL

Information Services Group shares continue to struggle even as they reported revenues increased by 15% last quarter.  In addition, management continues to repurchase shares, yet all the positives have failed to turn a profit for us.

After giving III nearly two years to prove its worth, we’re going to pull the plug on this stock, saving our capital for better opportunities.

Let’s go ahead and sell III.

. . . . Triangle Petroleum (AMEX: TPLM) – Buy up to $7.17

TPLM continues to move lower.  The catalyst for this stock right now is the significant drop we’re seeing in oil prices.

Here’s the thing…

The independent energy producer has a number of excellent assets.  And they’re predicting strong production growth for 2012.

What’s more, energy prices are entering oversold territory.  As energy prices normalize, the stock should get bid higher along with the price of oil.  And improving fundamentals should push the stock higher later this year.

Right now TPLM is a great buying opportunity.  Continue to buy TPLM up to $7.17 if you haven’t already.

. . . . Mindspeed Technologies (NASDAQ: MSPD) – SELL

After a disappointing quarter, we’re finally letting go of MSPD.  We’ve been holding out for a rally in MSPD shares for some time.  But after a 10% drop in product revenue over the last six months, we’re going to sell our shares and preserve our capital for a better opportunity.

We traded below our stop loss of $3.50, so go ahead and sell shares of MSPD.

. . . . US Concrete (NASDAQ: USCR) – Hold

US Concrete shares are performing well right now, currently up over 15%.  The latest quarter beat analysts’ estimates with a loss of just $0.84 versus a forecast of $0.91.

What’s driving the improvements?

Simply put… solid revenue.

You see, warmer weather in the US has allowed USCR to increase sales by 39.7% over the same quarter last year.  And as the housing market improves and new homes continue to be built, we’ll see USCR’s bottom line strengthen.

Hang onto USCR for bigger gains.

. . . . Ultra Clean Holdings (NASDAQ: UCTT) – SELL

Shares of UCTT have failed to gain traction, and recent events don’t bode well for the near-term prospects of this stock.

In their latest quarter, Ultra Clean Holdings has seen sales fall by $16.1 million… or 12.7%. In addition, profits were down by $1.9 million, a 14.2% decrease.

With over 75% of revenues coming from just 2 large clients, significant revenue growth may be hard to come by without the addition of a new customer.

What’s more, analysts have downgraded UCTT from a buy to a hold rating after seeing a reduction in semiconductor capital equipment spending.

In the light of recent events, we’re going to put our capital to use in a trade with more potential upside.  Let’s sell shares of UCTT.

Action To Take

• Sell Information Services Group (NASDAQ: III)
• Sell Mindspeed Technologies (NASDAQ: MSPD)
• Sell Ultra Clean Holdings (NASDAQ: UCTT)

Category: PSB Portfolio Updates