June 2010 proved to be a typical summer month in the stock market as volume was typically light. There were a few days of volatility, but generally stocks stayed in a trading range. I usually do not like the summer months as trading is light and unusual events can occur for no reason. July will be the start of earnings season for the second quarter. Stock performance is based on earnings, especially over the long term, so these are times when an investor has to pay attention to the earnings reports of their holdings, especially the commentaries on operations. My strategy is to stock with what I already own, as many of these holdings are small companies with good businesses, businesses which are in good financial shape, or businesses which have good balance sheets which are implementing operational changes.
YH&C Covestor Model: The Reasons for Owning the Portfolio Holdings
1. Gigamedia (GIGM): GIGM sold 60% of its online site to Mangas Gaming for 100 million dollars, and the transaction is complete GIGM has 100 million dollars of net cash on the balance sheet and bought a well regarded software company to help improve operations in Asia. The next six months should show an emphasis on integrating the Mangos user base in France and Italy to migrate to the Everest Poker site. In Asia, integrating the new games from the purchased company to the existing platform is the plan. There will be a transitional period, but operations should start improving in the next few months.
2. Digital Globe (DGI): Same rationale as each prior month, the reason for ownership of the company is the continued increasing demand by governments and private enterprise for digital photography from satellites, to help with defense, intelligence, and information collection.
3. NASDAQ (NDAQ): Same rationale as in prior months, however, another reason for optimism is the legislation in congress which is trying to move private party derivative transactions to centralized exchanges like NASDAQ. The company should benefit from the continued demand for data from companies, as well as for derivatives on equities, indexes, bonds, power, carbon, companies seeking to go public, and interest rate swaps. As volatility has spiked up during the second quarter, this should help earnings in a few months.
4. Cass Information Services (CASS): Reported earnings of .50 cents per share, which was better than the .42 cents per share a year ago. Revenues came in at 22.8 million dollars, 5% better than a year ago. When interest rates start to rise, Cass is in very good position to benefit from wider spreads. Cass is a very thinly traded stock; probably less than 10K shares a day trade on average.
5. Kona Grill (KONA): The company reported revenues of 21.1 million dollars and a loss of 6 cents a share on operations, which does not include 3 cents a share of special charges. Same store sales came in at a -2.50%, compared to the expected -8.0%. The key for Kona is continued operational improvement with concentrated efforts on social networking and targeted local marketing to drive traffic. (*note: this position is not replicable due to market cap suitability filters.)
6. Mesa Laboratories (MLAB): Mesa Laboratories develops, acquires, manufactures and markets electronic instruments and disposables for industrial, pharmaceutical and medical applications. Results were reported on May 25, and net income for the year decreased less than one percent to $4,769,000 or $1.45 per diluted share compared to $4,790,000 or $1.48 per diluted share one year ago. We bought the shares at a P/E ratio of about 15, and given the small size of the company, it has much room to grow. I believe this is a high quality company and will only hold or buy more unless something drastic occurs. (*note: this position is not replicable due to market cap suitability filters.)
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