TPS Position Update – October 4, 2016
. . . . Goldfield Corp. (GV) – SELL
We recommended the stock in May at $1.34. Today, it closed at $2.85.
Goldfield is in the business of providing construction services for electric utility companies. Most of its work is in Mid-Atlantic region, Southeastern states, and Texas.
There is not a stock in the Penny Speculator portfolio we have held longer and we don’t take the decision to sell lightly.
The reason why we believe now is a good time to sell is found in the report that breaks out the company’s backlog of business, projects underway that are scheduled for completion in the upcoming year.
The backlog is shrinking, a signal of declining revenue ahead. The latest backlog report shows a decline from $38.1 million to $30.9 million over the past year.
This is significant. While a new deal can go into the pipeline at any time and drive the number back up, we’re not comfortable with this waiting game.
2016 has been decent for Goldfield. Through the first two quarters, revenue was up 6.3% to $68.0 million from $64.0 million in 2015. Net income for the two quarters soared from $466,000 to $8.1 million.
The stock has been doing well, so we’ll take our profits and move along.
Selling Goldfield at today’s market close of $2.85 gives you a 71% return.
. . . . Broadway Financial Corp (BYFC) – SELL
We recommended the stock in January at $1.47. Today, it closed at $1.73. We were hoping for more, and for a while, that’s what we got. Earlier this year, the stock peaked at $2.08.
But Broadway has never regained lost ground. Even the prospects of interest rate hikes ahead haven’t bolstered the stock.
In early August, when Q2 financial results were reported, the bank turned in a modest profit. Net income was $319,000, down dramatically from Q2 2015 net income of $1.2 million.
Much of the decline stems from accounting and regulatory procedures which gave the bank an attractive tax benefit to record last year. Without this one-time kiss from the “recapture” of loan loss provisions, maintaining the previous year’s profits didn’t stand a chance.
But a profit is a profit and we were happy to see it. What we’re not happy to see, and makes us sellers, is the failure of the stock to climb back above the two-dollar mark. We expected to see this advance over the summer, as investors took the Fed’s talk of interest rate hikes more seriously.
At Broadway, good things are happening operationally. But they are not being reflected in the price of the stock to the extent we would like.
These good things are primarily the amount of loans being made.
The bank wrote $32.1 million in loans during Q2 and $59.9 million for the first two quarters. These loans mean that in the months and years ahead, Broadway’s net interest income will go up, and profits will grow.
But it’s the sluggish growth of the stock price that concerns us. This is a good time to take modest profits and sell. Selling Broadway Financial at today’s market close of $1.73 gives you an 18% return.
Action To Take
- SELL Goldfield Corp. (GV)
- SELL Broadway Financial Corp (BYFC)
Category: TPS Update