Algorithms and Market Inefficiencies (UFPT, WXCO)

The Focus Value model, managed by Analytic Investment, uses algorithms to help them take advantage of mispricing opportunities due to market inefficiencies. The algorithms assist by continually computing a relative value for stocks based on their fundamental factors, which allows the model managers to quickly spot price-based opportunities brought on by market inefficiencies and buy or sell accordingly. The model has a high turnover.

The top position in the model is UFP Technologies Inc (NASDAQ: UFPT), a company that creates foam and plastic products along with specialty fabrics. They have a relatively low price to earnings ratio when compared to peers. Their net revenues dropped from $110 million in 2008 to $99.2 million in 2009, and their total liabilities grew from $16.8 million in 2008 to $20.4 million in 2009. Their quarter two 2010 financial results showed their liabilities dropping to $19.9 million and reflected a 43 percent increase in sales from the same quarter during 2009. The stock hit a low closing price of $3.54 on March 9th, 2009, a low it hadn’t seen since it closed at $3.55 on May 8th, 2006.

The next largest holding in the model is WHX Corp (NASDAQ: WXCO), an industrial company that delivers its products globally. WXCO has a relatively high price to earnings ratio compared to competitors and their net revenues fell to $534.4 million in 2009 from $725.8 million the year before. Their total liabilities fell from $441.4 million in 2008 to $371.6 million in 2009 but their quarter two 2010 financial results show their liabilities rising to $391.6 million. They also reported a 31.8 percent increase in sales compared to the same quarter in 2009. The stock fell to an all-time low on July 21st, 2009, when it closed at a price of $1.20. While it still hit many bumps after that time, the stock closed at $9.85 on October 1st, 2010.