PSB Portfolio Update October 2012

| October 18, 2012

October 18, 2012

Earnings Are Taking Markets To New Highs…

Boy, if you were making investment decisions listening to talking heads in the financial media, you may have sold at exactly the wrong time!

Just a week or two ago, they were all rehashing issues such as Europe, China, and even US earnings.  On the earnings front, they were all parroting the same bylines … earnings are set to be a major disappointment in the 3rd quarter this year.

But surprisingly, earnings seem to be coming in better than expected…

You see, S&P Capital IQ was forecasting a contraction of 1.86% in earnings for the current quarter.  With roughly 10% of the S&P 500 reporting so far, earnings are down by just 0.7%.

Considering all the global economic contraction we’ve been hearing about, these results are nowhere near as bad as the analyst have been forecasting.  What’s more, a number of companies are seeing revenue and earnings expectations higher than even they had forecast.

For example, toymaker Mattel (MAT) handily beat estimates in the third quarter as earning jumped 22%.  EPS came in at $1.04 versus the forecast of $0.99 per share.  More importantly, revenue grew in the US and internationally, even though profits were trimmed due to the stronger US Dollar.

Here’s the thing…

If an international company such as MAT grew revenue outside the US, global economic issues probably aren’t as bad as newscasters may have led us to believe.

More importantly, if we see earnings continue to beat estimates, the major stock averages will no doubt jump to new highs for the year… and that will certainly fatten up our portfolio.

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.

. . . . Golden Star Resources (NYSE: GSS) – HOLD

Gold mining stocks continue to rally, and our trade from last month continues to climb higher and higher.  In fact, shares of GSS hit a high of $2.11 earlier this week.  That’s good for a gain of more than 39% in just over a month!

With the US Dollar looking like it will continue to slide, I’d say gold will continue its rally. That’s going to keep shares of GSS moving higher right along with it.

Continue to hold GSS for even more gains ahead.

. . . . Culp (NYSE: CFI) – HOLD

CFI shares continue to carve out new highs, including one hit just yesterday.

The latest push was a result of the company securing copyright protection for their ‘Palance’ fabric design.  They also registered the copyright with the US Customs & Border Protection, so no knock-off copies can be imported in from outside the US.

What’s really exciting about CFI is their continued low valuation by the market… even as they make new highs.  Right now, Culp shares carry a price to earnings ratio of just 10.8x.

Let’s keep holding the undervalued shares of CFI for even greater gains.

. . . . Nautilus (NYSE: NLS) – HOLD

Shares of Nautilus are recovering nicely after a major selloff in early August.  Since then, NLS has hired a new CFO and continues to make progress on product development.

Remember, all debt was paid off in March of this year.  And the company is sitting on $16.1 million in cash as of June 30th.  This will go a long way to help the company with their pipeline of new launches that are starting this quarter and will continue into 2013.

Let’s hold NLS as these new products hit the market.  Hold shares of NLS.

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

We just love watching shares of CSV continue to rally over the $10.00 level.  Considering we own these shares at a cost basis of just $5.30 a piece, we’re looking at nearly a double in this stock.

As of right now, shares are trading near the highest levels we’ve seen them.  And the best part… the forward P/E still values the company at just 11x earnings!

Continue holding shares of CSV for more gains to come.

. . . . Ambassadors Group (NASDAQ: EPAX) – SELL

Ambassador Group’s stock price has finally recovered to a few cents over breakeven for us.  And even though earnings grew slightly, we’re still going to sell shares of EPAX.

Financial reports from this past quarter showed revenue fell for both the three month and six month periods by 12% and 9% respectively.  Earnings growth was minimal last quarter, as a direct result of cost cutting and income tax provisions.

This stock has not turned out as we’d hope.  Let’s go ahead and put this capital to better use elsewhere.  Sell shares of EPAX.

Action To Take

  • Sell Ambassadors Group (NASDAQ: EPAX)
  • Move AmeriServ Financial (NASDAQ: ASRV) from a Buy to a Hold

Category: PSB Portfolio Updates

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