PSB Portfolio Update September 2011

| September 15, 2011

September 20, 2011

More Uncertainty Ahead?

On the bright side, the markets are performing better than they did in August.  Both the S&P 500 and the Russell 2000 are up over 6% for the last month.

But so far, it hasn’t resulted in lower volatility.

Lately, whenever it appears the markets are going to settle into a narrow trading range, some event occurs to rattle investors and roil stocks.

If the stock market’s focus in August was US politics, September has been the month of the Euro concerns.  The European debt crisis is certainly keeping investors on their toes.

And most likely, volatility levels aren’t going to significantly decrease until we see some headway on the other side of the Atlantic.

European leaders are dealing with skyrocketing debt, possible defaults, divisive politics, and uncertain monetary policy.  Sound familiar?

To be fair, the US didn’t have to contend with an entire country possibly going bankrupt during the 2008 financial crisis.  Although, Greece’s GDP is around $300 billion… and Lehman Brothers’ assets were over $600 billion.  So maybe the EU is getting off easier.

Regardless, a looming Greek default, as well as serious debt issues in Portugal, Spain, Italy, and Ireland, is creating chaos in Europe.  And with how intertwined global finance is these days, that chaos is spreading to the US markets.

Will a Greek default cause a US stock market crash?

Possibly… but not likely.  The US should be insulated well enough to prevent a financial catastrophe.  Not to mention, most investors assume a Greek default is in the cards at this point.

Still, there’ s enough uncertainty about Greece and its impact on Europe that stock prices will likely remain volatile for the time being.

So what’s it mean for your penny stock portfolio?

For one, there’s no reason to panic.  Good companies, like the ones in our portfolio, will weather this storm just like they always do.

More importantly, the fear-based, broad market selling is creating great opportunities for us.  We have the rare chance to buy into great penny stock companies at bargain prices.

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.

. . . . SkyPeople Fruit Juice (NASDAQ: SPU) – Sell

SPU got a nice bump recently after an article came out about how the CEO is regularly buying shares.  Insider buying is usually well regarded by investors.

However, we’re going to use this surge in the stock price to sell our shares.

The company’s revenues are decreasing.  And with smaller companies, revenue growth is too important to ignore.

We feel there’s still a lot of risk holding SPU at this time.  Let’s conserve our capital for companies with stronger growth potential.

. . . . China Marine Food Group (AMEX: CMFO) – Sell

It’s time to close the book on CMFO.

News on this company has slowed to a trickle.  And we’ve given them more than enough time to right the ship.  With no reason to expect any new catalysts in the near future, now’s the time to sell our shares of CMFO.

Let’s save our money for more lucrative opportunities.

. . . . Telecommunication Systems (NASDAQ: TSYS) – Buy up to $4.60

Despite the challenging economy, TSYS continues to close deals.

The company recently received a $9.3 million order from the US Army.  Moreover, the Army is providing $20.7 million of funding to TSYS to expand their satellite solutions development.

The company is also receiving funds from the US Marines Corps in order to develop wireless, integrated communication systems.  The funding could amount to as much as $140 million.

Clearly, the US military wouldn’t be buying from or funding TSYS if they didn’t develop top notch products.

We really believe in the long-term upside of this company.  So, we’re moving the buy-up-to price to $4.60.  Grab your shares now if you haven’t done so.

. . . . Culp (NYSE: CFI) – Buy up to $9.00

CFI is headed in the right direction.  While recent earnings were something of a mixed bag, the path ahead looks promising.

Last quarter’s revenues climbed nearly 8% year over year.  But at the same time, profits fell.  The lower profits were due to tax expenses.

Here’s the thing…

The tax expenses are a non-recurring item.  And with the company growing revenue, profits should rebound in the near future.

What’s more, management is increasing their share repurchase plan by an additional $2 million.  Remember, share buybacks are typically very positive for investors.

Bottom line… CFI’s struggles are related to non-recurring expenses and broad market selling.  The company’s in good shape and their future looks bright.

We’re moving CFI’s buy-up-to price to $9.00.  Now’s a good time to buy the shares if they’re not yet in your portfolio.

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

MAG is a perfect example of a great company dealing with significant overselling.

You see, the broad market selloff pushed MAG’s market cap below $50 million.  And at that valuation, they’re violating the listing requirements for the NYSE.

Unfortunately, the NYSE’s delisting warning to MAG caused further selling in the stock. And now the shares are trading at dirt cheap levels.

But that’s great news for us.

The company is doing extremely well in a tough economy.  And we now have the opportunity to buy shares of MAG at an incredible value.

Check this out…

In the most recent quarter, MAG’s revenues increased a solid 28%.  Operating income jumped by 150%.  And the company’s cash position nearly doubled.  Not to mention, they have over $12 million in cash and no debt!

Most importantly, MAG shares are trading at just 8.7x earnings.  At such a great price, we’re moving MAG back to a buy.  Now’s your chance to grab your shares of this promising company at rock bottom prices.

Action To Take

  • Sell SkyPeople Fruit Juice (NASDAQ: SPU)
  • Sell China Marine Food Group (AMEX: CMFO)
  • Move Magnetek (NYSE: MAG) from Hold to Buy

Category: PSB Portfolio Updates

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