PSB Portfolio Update October 2014

October 16, 2014

Has Fear Taken Hold Of The Market?

Well, it had to happen sometime, right?  The equity markets finally were hit with something like a correction these past couple weeks.  The S&P 500 has dropped over 5% in the last week and is now up just 2% on the year.

Perhaps more importantly, volatility has really taken off.  The VIX (aka the fear index) closed above 30 for the first time since 2012.  In other words, there was real concern among investors, at least for a brief period.

One of the interesting aspects of this selloff is the lack of a clear, definitive reason behind the drop.  It’s really a combination of different factors.

On one hand, you have depression-like conditions in Europe and an economic slowdown in China.  On the other hand, there’s the fear of Ebola spreading and the conflict against ISIS.

And perhaps even more worrisome, the US economy may even be slowing down as well. Although, it’s really too early to tell and the jobs numbers still look good.

On the bright side, small caps had already basically “corrected” this year.  As such, they seem to be rebounding a bit faster than large caps.  That could bode well for our portfolio moving forward.

In the meantime, we’re in wait and see mode.  And of course, we’ll continue to roll out trades each month.

Now, here’s a closer look at some of our positions.

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.

. . . . GAIN Capital Holdings (NYSE: GCAP) – Hold

We really couldn’t have picked a much better company to add to our portfolio this month than GCAP.  You see, the company actually thrives off of financial volatility!

Currency trading tends to become highly active during equity selloffs, or just when there’s a lot of market action.  We’ve certainly had our share of action the past couple weeks.

So, while other stocks were selling off, investors were buying GCAP.  There’s an excellent chance the company’s revenues are going to improve significantly this quarter.

More importantly, the stock price has climbed as high as $7.74, good for a 21% gain in just two weeks!  With the recent move, we’re moving GCAP to Hold.

. . . . MicroFinancial (NASDAQ: MFI) – Hold

Another surprising development during this market selloff has been the success of MFI. The stock is up 9% for our portfolio after climbing 6% this past week.

In this case, the rise is due to better than expected earnings.  Revenues increased 3.1% from a year ago to $16.2 million.  And, net income climbed 11.9% year-over-year to $2.9 million.  Basically, the company’s business improved across the board.

Clearly, that’s a good sign looking ahead.  And, with the recent climb, we’re moving MFI to Hold.

. . . . Art’s Way Manufacturing (NASDAQ: ARTW) – Hold

Finally, let’s talk about ARTW.  The stock has stagnated for awhile, with a steady decline over a several month period.  At least, until yesterday.  ARTW shares exploded higher, briefly climbing above $7 before pulling back.

Why the big move?

The company posted surprisingly strong earnings.  In fact, revenues increased 24% from the same period last year.  And, net income soared to $558,000 from just $26,000 a year ago.

The good news was driven by strong agricultural sales as well as an increase in backlog in every segment.  The backlog news is especially encouraging for future sales.

It’s nice to see this position finally move higher.  Let’s continue to hold and see if it can get back into positive territory for good.

Action To Take

• Move GAIN Capital Holdings (NYSE: GCAP) from Buy to Hold.
• Move MicroFinancial (NASDAQ: MFI) from Buy to Hold.

 

Category: PSB Portfolio Updates