Author: Yale Bock, YH&C Investments
Model: GARP
Disclosure: Long GIGM, DGI, CLGX, CASS, DLB, JMBA at time of writing
May 2011 should prove to be an interesting month for the markets as there are several cross currents which will continue to have an effect on where people look for opportunities.
First, corporations have been reporting their results from the previous quarter with the typical fluctuations in performance specific to each company. My portfolio is no different, as some companies have better results than others, and the stock price reacts accordingly.
Another influence is the continued volatility in the commodity markets, where oil, gold, and silver see daily fluctuations based on the perceived strength or weakness of global demand, or the perception of dollar weakness (or strength).
As the summer slogan of “Sell in May, and Go Away” has been adopted by many market participants, I would suspect the usual slowdown in volume will heighten volatility, with the typical surprise in current events only adding to unpredictability. My belief is things will not turn out as the market expects them to, and as such I continue to hold what I currently own.
Covestor Portfolio: The Reasons for Owning the Portfolio Holdings
1. Gigamedia (NASDAQ: GIGM): The company reported its earnings during the first week of May, and the expected full write down of the T2CN business severely affected results, along with an unexpected write down of the IAHGames business regarding poor Blizzard game results.
Business results at Funtown and IAHgames were better than expected, but certainly for a company which is focusing on building this as the center of their operations, much improvement is needed. I was encouraged by management’s comments about selling passive stakes in studios to generate cash, as well as possibly buying back stock and meeting with investors in New York.
Also, it is encouraging management has not given up on getting back the T2CN business in China. It makes no sense to build a business there and have it stolen underneath you, and then give up on getting it back. Certainly, management needs to go out of its way to improve its credibility with the investment community and they have to start somewhere.
More importantly, their comments about releasing the SpongeBob Squarepants game (partnering with MTV) soon is also encouraging for shareholders because hopefully it will improve results in their area of focus, the Asian Gaming business.
Finally, management indicated they are working on improving their Mahjong offerings and are encouraged by the AVA releases through IAHgames, with an additional country added soon. All in all, I am waiting to see what transpires with the new games, stock buyback, efforts to get back the China business, and improve their existing Asian business as any of these developments can be positive for the stock.
2. Digital Globe (NYSE: DGI): The company reported flat revenues and earnings – (.02) cents per share for the 1st Quarter of 2011. The company indicated 4th quarter 2010 was a good one in closing deals, but because of the complexity of the larger deals they are pursuing and softness in the sales cycle, the rest of the year will see softness in their commercial division.
However, with the continued need for governments and private enterprise to collect data and photos of critical infrastructure, I continue to hold the company. With EBITDA margins north of 50% as of the first quarter of 2011, and no end in site to the necessity of organizations to disaster proof their buildings, there is plenty of opportunity for long term growth at DGI. (Source: Yahoo Finance)
As an example, DGI indicated they picked up a customer (a onetime deal) in Japan during March because of the events there, but it could turn into a long term deal in time.
3. Corelogic (NYSE: CLGX): The company reported first quarter 2011 net income of $.20 cents per share on May 5, 2011. Total revenues increased to $404 million from 394 million in the 1st quarter of 2010.
The premise behind owning Corelogic is the mandatory need of their services from any buyer of real estate information. Operating earnings on a pretax basis were $40.7 million, hurt by 30 million of corporate expense. In the 1st quarter of 2010, pretax operating income was $57.3 million with only $14.5 million of corporate expense.
There are very solid businesses here and when real estate eventually starts to improve, I think Corelogic will have much better operating results.
4. Cass Information Systems (NASDAQ: CASS): The nation’s leading provider of transportation, utility and telecom invoice payment and information services reported record first quarter 2011 earnings of $.60 per diluted share, a 20% increase compared to the $.50 per diluted share it earned in the first quarter of 2010.
Net income increased to $5.7 million. Payment and processing fees increased $1.6 million, or 13%, compared to the year-earlier period. Transportation dollar volume was up 21% and utility dollar volume rose 3% due to new business and improved activity from existing customers. Net investment income increased $1.7 million, or 18%, primarily due to the increase in average earning assets.
This is a very solid company in the transportation industry which has a long history of being shareholder friendly, and I want to continue to own it.
5. Dolby Laboratories (NYSE: DLB): On May 5, 2011 the company reported earnings of $82 million dollars (.72 cents/share) for the 2nd fiscal quarter of 2011.
For comparison, in the 2nd fiscal quarter of 2010, DLB reported earnings of .74 cents per share. Operating weakness was in the PC market as well as in the 3D systems market. The company guided down earnings for the rest of the year to $2.49-2.65 on a GAAP basis.
Growth areas for the company continue to be the mobile, gaming, tablet, digital television, satellite television, and 3D markets, both domestically and globally. The majority of their revenues come from licensing entertainment products, which have huge operating, cash flow, and net margins.
6. Jamba Juice (NASDAQ: JMBA) – The company reports results on May 23, 2011. Notable recent events include signing a letter of intent with Venus Williams to open franchised Jamba Juice locations in the Washington D.C. market. Another positive development is Jamba Juice signing a franchise agreement to open 40 locations in the Philippines, its second such international agreement. The company also opened a new franchise store in Connecticut.
Sources:
Gigamedia press release, May 4, 2011,
Digital Globe press release, 5/3/11,
Corelogic press release, 5/5/11,
Cass Information Systems press release, 4/18/11,
Dolby press release, 5/5/11,
“Jamba Juice and Venus Williams Sign Letter of Intent to Open Jamba Stores in D.C. Market” Press release, 4/20/11,
“Jamba Signs Second International Franchise Agreement to Open 40 Stores in Philippines” Press release, 4/25/11
“Jamba Juice Expands Presence into Twenty-Fourth State with Connecticut Store Opening” Press release, 5/2/11
