TPS Position Update – September 13, 2016
. . . . Barnwell Industries Inc. (BRN) – SELL
We recommended the stock in June at $1.42. Today, it closed at $1.52.
Right now we are asking the same question of every penny stock in our portfolio. “Will this company be able to ride out a short-term market setback?”
In a different market environment, we would be happy to hold Barnwell because profits have been surging.
For the quarter ending June 30, 2016, net income was $775,000 after two quarters of significant losses. Barnwell lost $1.6 million the previous quarter and $1.4 million the quarter before that, so it’s been quite a turnaround.
Revenue growth is back on track. The trick will be keeping it there. To do this, margins will need to grow, which has been proving difficult… not just for Barnwell, but for virtually everyone in the energy business. The net margin for the most recent quarter was 9.43%.
But surging revenue doesn’t mean a safe short-term future is assured. Barnwell is in a business where its fortunes are largely connected at the hip to the price of oil and natural gas. It is also in the land investment, contract drilling, and residential real estate businesses, but these don’t deliver nearly the revenue of oil and natural gas.
We anticipate choppiness ahead for energy prices. We also can’t ignore the recent market volatility.
We’ll take our profits and keep an eye on Barnwell as an opportunity to revisit in the future.
. . . . Netlist (NLST) – SELL
We recommended Netlist in mid-July at $1.51. Today, the stock closed at $1.43.
Why aren’t we holding? Up until the past few weeks, tech stocks have done well, and Netlist has been the beneficiary of the rising tide that lifts all boats.
Now the tide is falling.
We would not be surprised to see tech stocks lose more luster and prices to keep falling.
We did not recommend Netlist simply to catch the rising tide of tech. It is a company on the move. Last month, Netlist reported a solid 2016 quarter.
Revenues for the quarter ended July 2, 2016, were $6.9 million, up 385% from revenues of $1.4 million for the quarter ended June 27, 2015. Gross profit for the quarter ended July 2, 2016, was $3.7 million, or 53% of revenues compared to a gross profit of $105,000, or 7% of revenues for the quarter ended June 27, 2015.
The net loss for the quarter was $1.5 million, compared to a net loss in the prior year’s corresponding quarter of $4.4 million.
Things are moving in the right direction. We like the company, but we don’t like the look of the market for the tech sector. The way the markets have been behaving is unsettling. Before Friday’s losses, we saw a shift of buying out of one sector and into another. Tech was a beneficiary of this, and now that broader markets are falling, we believe this could unfairly hurt Netlist.
We would like to be cautious and sell now.
Action To Take
- SELL BARNWELL INDUSTRIES INC. (BRN)
- SELL NETLIST (NLST)
Category: TPS Update
