PSB Portfolio Update November 2012

November 15, 2012

Fiscal Cliff Sends The Markets Off A Cliff…

I was just reading last month’s update and can’t believe what a difference a month can make.

We were setting new highs in the Dow and S&P 500 just four weeks ago.  Now here we are, mid-November, and the DJIA is testing support levels put in place back in June, July, and August.

Clearly the “fiscal cliff” is sending all stocks off a cliff.  The good news is stocks can recover from this selloff.

Many experts are now saying once Congress grows up and resolves the issues with the US budget and deficit, stocks will rally hard once again.

But others are not so sure members of Congress will learn how to compromise.  They feel recent speeches from the Republicans and the President show no signs of advancement. In essence, no “olive branches” have been extended.

The bottom line is this…

Some deal will be announced, just like when the debt ceiling negotiations came down to the wire.  In the 11th hour, compromise was made.  I have full faith our leaders will get the job done- even if it is with a proverbial gun to their heads.

Now, once the overall market recovers, we’ll see some of our recent positions move higher as well.  As you’re aware of, many of our newest positions are at a paper loss.  It’s just going to take some time to regain lost ground.

Everything has been sucked lower in the downdraft of the fiscal cliff…

To prove my point, I’m going to show you the chart of one of the stocks in our portfolio. Take a look at the four month chart on Nautilus (NLS) below…

As you can see, we purchased our shares right before a major drop- which was caused by a weaker than expected earnings report.  Of course, being a penny stock, moves in either direction often get overdone… and shares dropped hard.

Now, you’ll notice the big selloff pushed the stock below our stop loss.  I advised we should continue holding when this happened, as the long-term fundamentals of the company had not changed.

Just yesterday, our patience has paid off and shares reached our initial buy price.  If we over-reacted to one missed earnings report, we could have lost over 20% on our investment.

That’s not what we’re doing here…

Hopefully you can see that a long-term strategy with penny stocks can pay off if the fundamentals remain intact.  And as far as the recent investments in our portfolio go… that’s what we have– unchanged strong fundamentals.

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.

. . . . Metalico (AMEX: MEA) – SELL

Metalico has taken a turn for the worse since reporting earnings last week.  With a swing from a gain to a loss of $0.22 a share, MEA is trading at new 52-week lows.  What’s more, sales fell 21% to $133 million from $169 million.

Fundamentals have changed with MEA, as demand in some segments is falling.  For example, Platinum Group Metal sales fell to 9,000 troy ounces from 29,200 troy ounces.

It appears that a turnaround in the scrap metals market may be a ways off.  Let’s put our capital to better use, selling Metalico shares.  Sell MEA.

. . . . L&L Energy (NASDAQ: LLEN) – BUY

The markets reached a short-term apex when we called for a buy on these shares.  Since then, the market has done nothing but move lower.

With the transition of power in China to be announced today, the outgoing leaders have held off on making any policy changes or announcing monetary stimulus.

The dramatic drop in LLEN share price has more to do with outside issues than the company metrics.  In addition, the CEO has just injected another $1 million to speed up the companies logistical capabilities.

What’s more, the P/E has now fallen to a super cheap 2.9x.

Let’s buy the undervalued shares of LLEN for a snappy turnaround and move higher as China is finally gets their political house in order.  Buy LLEN.

. . . . Nautilus (NYSE: NLS) – HOLD

As we discussed earlier, NLS has seen a nice rebound from the bottom and continues to make excellent progress with product rollouts.

In fact, Nautilus just launched their Peak Fit System home fitness DVD product.  Peak Fit System is an interval style training program that offers a “body transformation” type result.  Of course, the increase in earnings per share to $0.04 from $0.01 announced just last week did help the share price rise.

Growth going forward looks promising, so let’s hold NLS to finally capture gains.  Hold shares of NLS.

. . . . Triangle Petroleum (AMEX: TPLM) – HOLD

If you’ve been watching this stock, you may be worried with the recent decline.  Well, relax… this is a long-term play that has huge upside potential.

TPLM is a Bakken driller with low debt, and the recent stock price move is simply a reflection of the drop in crude prices combined with the overall market selloff.

Continue to hold TPLM as we anticipate a market turnaround and higher crude prices as the winter months drive up demand once again.  Hold TPLM.

Action To Take

• Sell Metalico (AMEX: MEA)

Category: PSB Portfolio Updates