PSB Portfolio Update November 2011

| November 15, 2011

November 15, 2011

The Drama Continues

This has been one of the more memorable Fall seasons in recent history for the financial markets.  Funny thing is, most of the drama is happening overseas.

I’m sure you’ve seen the headlines…

First it was Greece.  Now it’s Italy.  The situation in Europe is tenuous at best and the news seems to change by the hour.

Will Eurozone countries get their debt under control in an orderly fashion?  Or are we doomed to piecemeal solutions and rampant volatility?

Only time will tell.  But certainly, European leaders are doing nothing to help themselves. The lack of decisive leadership is probably the most frustrating part of the whole mess.

A strong, unified response to the debt problems of Greece and Italy (among others) would go a long way toward calming the markets.

In the meantime, the US markets have to deal with the uncertainty.

Fortunately, the economic picture in the US is looking up.  In particular, the job market seems to be improving, albeit slowly.

Moreover, several companies have posted impressive earnings, with a robust 62% of companies so far beating estimates.  That’s a higher percentage than both the first and second quarters… and a good sign overall.

If the economic picture continues to improve – and Europe doesn’t fall to pieces – we should start seeing investor dollars rush back into penny stocks.

And since our portfolio is loaded with first-rate, well managed penny stock companies… well, let’s just say we’re perfectly positioned for the return of penny stock buyers.

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.

. . . . Vonage (NYSE: VG) – Sell

Vonage triggered our stop-loss earlier this month, so you may have sold your shares.  If not, now’s the time to do so.

The company hasn’t performed as well as we hoped.  And management’s earnings outlook is fairly dismal.  There’s just too much macro pressure on the telecom industry for the time being.

Sell your VG shares now.  Let’s preserve our capital for better opportunities.

. . . . (NASDAQ: WWWW) – Hold

WWWW is surging higher!

In just over two months’ time, the shares are up a solid 31%.  That’s a lot better than the overall market during the same period.

What’s driving the gains?

The company’s aggressive acquisition strategy is producing strong performance.

Here are some details…

Last quarter’s revenues climbed to $43.9 million, a 34% increase year over year.  And non-GAAP net income hit a record $8.6 million, a superb 62% increase.

Even better, reaffirmed their revenue guidance for 2011 at $125 million.  That’s up from $86.2 million a year ago.

Bottom line…

WWWW is in good shape and the future looks even brighter.

We’re moving WWWW to a Hold on price.  Hang on for bigger profits ahead.

. . . . Krispy Kreme Doughnuts (NYSE: KKD) – Hold

KKD continues to thrive.

The shares hit a recent high of $7.84, good for a 26% gain.  That’s an excellent return for just 6 weeks’ time.

While nothing specific is driving the upward move, the company has released a steady stream of positive news in recent weeks.

For instance, KKD is expanding their presence in the Philippines.  They plan on opening up 23 stores over the next five years.

If the company continues to grow in an intelligent and methodical fashion, we could see impressive revenue and profit numbers in the months ahead.

With KKD shooting above our buy up to price, we’re moving it from Buy to Hold.  Continue holding for more upside.

. . . . Manitex (NASDAQ: MNTX) – Hold

Another rock solid earnings report from Manitex!

Third quarter revenue increased by an impressive 49% year over year to $37 million.  Net income jumped 54% to $1 million, or $0.09 per share.  And, the company’s order backlog increased 58% to $63 million.

What’s not to like about those numbers?

The strong performance was driven by high demand for heavy machinery in the energy and mining sectors.

Moreover, the company now expects 2011 total sales to slightly exceed guidance of $140 million.

Clearly, MNTX has significant upside potential.  Continue holding your shares.

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

Great news from SUMR!

Despite challenging economic conditions, the company had a stellar third quarter.

Revenues increased 27% year over year to $63.3 million.  Meanwhile, net income was $2.7 million, or $0.15 per diluted share.  That’s a nice 36% year over year increase from $0.11 per share.

The growth was driven by expanded customer product offering and penetration into a larger number of stores.

What’s more, the company has been successful in continuing their debt reduction program.

Summer Infant debt has decreased $6.4 million since March, driven by positive cash flow from operations.

And more importantly…

The company expects full year 2011 revenue to exceed the high-end of the previous range of $240-245 million.

SUMR is doing extremely well in a tough economy.  Hang on to your shares for bigger gains.

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

Although global economic conditions weren’t ideal for the consulting business, HCKT managed to eke out a strong quarter.

Here’s the deal…

Third quarter revenues increased 11% year over year.  And EPS came in at $0.09, the high end of guidance.  What’s more, management reaffirmed their fourth quarter outlook.

If the company can post solid numbers in a sluggish economy, imagine what they’ll do as the economy improves.

Hang on to your shares for bigger upside potential.

Action To Take

  • Sell Vonage (NYSE: VG)
  • Move (NASDAQ: WWWW) from Buy to Hold
  • Move Krispy Kreme Doughnuts (NYSE: KKD) from Buy to Hold

Category: PSB Portfolio Updates

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