Author: Yale Bock, Y H & C Investments
Covestor model: GARP
Disclosure: Long GIGM, DGI, CLGX, CASS, DLB, JMBA
June 2011 will probably be very similar to May in that some of the direction of the market will be based on the perception of a resolution to the sovereign debt crisis in Europe. Given that most of the earnings season is behind us, the market should ebb and flow based on factors like perceived dollar weakness or strength, commodities markets, and whether global growth is indeed slowing or not.
However, the reality is most corporations are doing very well, corporate balance sheets are loaded with cash, the deal-making environment is pretty favorable with cheap financing, and stocks are certainly not egregiously priced relative to bonds. So, all in all, I continue to be happy with what I own, and expect the summer to be full of low volume and high volatility, as has been the case for many of the most recent summers.
Covestor Portfolio: The Reasons for Owning the Portfolio Holdings
1. Gigamedia (NASDAQ: GIGM): The company reported its first quarter earnings during the third week of May and the news was pretty much the same.
However, I am encouraged by the announcement of a stock buyback, and hoping for good execution regarding the release, launch, and development of their new games. Finally, management indicated they are working on improving their Mahjong product through new iPad offerings, and are encouraged by the AVA release through IAHgames, with Indonesia added in June.
All in all, I am waiting to see what transpires with the new games, stock buyback, efforts to get back the China business, monetizing their existing passive investments, and improve their existing Asian business, as any of these developments can be positive for the stock.
I expect more patience will be needed, but at the very least, there is much to be monitored here, all of which could be very good. I continue to be more concerned about the Asian business development side versus the Internet Poker (Mangas partnership) segment, as I think the whole legalization of poker issue is a mess which will not be resolved for a few years, at the very least.
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 reported results on May 23, 2011.
It’s notable that revenues were strong and business has been improving on both a sequential and year over year basis.
Also positive is the signing of a franchise agreement to develop 80 Jamba Juice stores in Canada over the next 10 years.
Sources:
Gigamedia press release, 5/25/11
Digital Globe press release, 5/3/11,
Corelogic press release, 5/5/11,
Cass Information Systems press release, 4/18/11,
Dolby Laboratories press release, 5/5/11,
Jamba Juice press release, 5/23/11
“Jamba Signs Master Development Agreement to Open 80 Stores in Canada“ Jamba Juice press release 3/23/11 https://finance.yahoo.com/news/Jamba-Signs-Master-bw-3039966263.html?x=0&.v=1
