PSB Portfolio Update October 2011

| October 18, 2011

October 18, 2011

Has The Tide Turned?

If investors were expecting a rough October, so far they’ve been pleasantly surprised.  Not that this month has been anything to write home about.  But a non-catastrophe in the markets is better than what many were predicting.

For the month, the Dow Jones Industrial Average is basically unchanged.  As a matter of fact, the Dow is flat for the year as well.

The Russell 2000, a good indicator of the penny stock market, hasn’t fared quite as well. The index is down 3% in October and around 11% for the year.

But, it’s nothing to worry about…

Risk averse investors tend to shed penny stocks from their portfolio before they exit blue chips.  Penny stocks are often considered riskier investments.  And, they typically don’t pay dividends like many of their large cap brethren.

Here’s the thing…

Penny stocks are usually the first to pop when investors pour money back into the market. And fortunately, market conditions might finally be turning positive.

Earnings season is officially underway and several companies have already posted better than expected results.  As long as earnings stay strong, the stock market should continue to be resilient.

What’s more, economic news is starting to turn positive.  Retails sales were much stronger than expected.  And the job market is improving, albeit slowly.

Here’s the bottom line…

We’re not out of the woods yet, but the big picture positives are starting to outweigh the negatives.  And when investors decide to start snatching up undervalued penny stocks, our portfolio is going to get a big 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.

. . . . China Valves Technology (NASDAQ: CVVT) – Sell

China’s growth has not been able to keep up with expectations… and it’s taken a toll on Chinese stocks.

Solid Chinese companies, like CVVT, are unfortunately bearing the brunt of lowered Chinese growth expectations.  It doesn’t really matter how well a company is doing if investors don’t buy into the macro picture.

With that in mind, we think it’s time to exit our CVVT position.  There doesn’t seem to be enough positive momentum to pull the company out of its funk anytime soon.

Sell your CVVT shares now.  Let’s preserve our capital for other opportunities.

. . . . Rodman & Renshaw (NASDAQ: RODM) – Sell

Another company with heavy Chinese exposure, RODM has also been on the losing end of lowered Chinese growth expectations.

Keep in mind, many of RODM’s PIPE deals involve Chinese companies.  Despite the company’s dominance in the PIPE space, investors seem mostly concerned over RODM’s exposure to China.  And it’s clearly weighing on the stock price.

It’s time to stop fighting the tide.  Let’s sell our shares of RODM.

. . . . Krispy Kreme Doughnuts (NYSE: KKD) – Buy up to $7.00

Our most recent pick is off to a great start!

Despite the volatile market, our position in KKD is up a solid 7%.  That’s a respectable return in just two weeks’ time.

What’s more, the company just announced they’ll be opening up 35 more stores in the UK over the next six years.  That’s a significant increase over the 45 currently open.

More importantly, it’s a great sign for investors.  Expansion plans of this magnitude shows management’s faith in the company’s well-being.

With growth prospects improving by the day, make sure you grab KKD shares if you haven’t yet done so.  The stock may not stay at these levels for long.

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

Despite the challenging economy, CSV continues to shine.  As of this writing, the shares were trading for $6.03, a healthy 10% gain… and much better than the overall market.

And that’s not all…

CSV continues to build on their strong market presence.  The company recently purchased Franklin & Downs Funeral Homes in Modesto, CA.

Management is using the down economy to snatch up good deals on funeral homes across the country.  And it’s great for investors when a company has the faith (and the cash) to expand in a sluggish economy.

CSV is a solid company with upside potential and a quarterly dividend.  Hang on to your shares.

. . . . Magnetek (NYSE: MAG) – Buy up to $1.30

MAG preannounced earnings for the fiscal first quarter… and the numbers look great!

Remember, the shares sold off on fears of delisting from the NYSE.  But the company continues to post impressive numbers despite a cheap share price.

Check this out…

MAG expects to pull in $29 million in revenue for the quarter.  That’s significantly higher than the $25-$26 million previously predicted.

Moreover, net income from operations is projected to hit $0.05 to $0.06 per share.  That’s a huge jump over last year’s $0.02 per share for the same quarter.

The increases are being driven by higher sales in industrial markets, such as mining and material handling.

Clearly, MAG is headed in the right direction.

Ignore the delisting fears and grab shares now if you haven’t done so.

Action To Take

  • Sell China Valves Technology (NASDAQ: CVVT)
  • Sell Rodman & Renshaw (NASDAQ: RODM)

Category: PSB Portfolio Updates

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