Author: Yale Bock, Y H & C Investments
Covestor model: GARP
Disclosure: Long GIGM, DGI, CLGX, CASS, DLB, JMBA
October 2011 was a better month for our portfolio. This wasn’t due to any particular company news from a portfolio holding, but rather because the overall market had a record month. Instead of being scared about the sovereign debt issues in Europe and fears of another U.S. recession, market participants were actually encouraged. Talk about dual personality: Mr. Market definitely has showed its depressive side and its euphoric optimism, all in the span of six months.
As for the portfolio, earnings season will determine how we will fare for the next few months, with several companies reporting.
Covestor Portfolio: The Reasons for Owning the Portfolio Holdings
1. Gigamedia The company reported it is expanding its development of the Spongebob game with MTV to include more of a global reach, and is also including distribution on smartphones. Investors are still waiting on the company to monetize their passive investment stakes which have appreciated in order to add cash to the balance sheet. The company’s founder Arthur Wang resigned from the board of directors. It is the same old story with this company – wait until the Asian business becomes profitable (if it does) and see what happens with SpongeBob in 2012, if it comes to fruition.
2. Digital Globe The company reported revenues and earnings of $81.3 million and $1.1 million or .02 cents per share for the 3rd Quarter of 2011. For the first nine months of 2011 versus 2010, cash flow from operations was up 40% to $157 million from $112 million. The thesis for owning DGI remains the same: private and public enterprises all over the globe will continue to demand high quality pictures from satellites due to security and legal issues. The stock got pounded after the earnings report last week. The company is optimistic about 2012, but investors are concerned about the high capital expenditures relative to cash flow.
3. Corelogic The company reported revenues of $348.4 million for the 3rd quarter of 2011, a 5.5% increase versus the same quarter of last year. Management indicated they are getting out of five lines of business and will opportunistically buy back stock and company debt. In addition, guidance was raised for the rest of the year. The parent company Corelogic was spun out of, First American Financial, has indicated an interest in buying the company and currently owns over 8 percent of the common shares.
4. Cass Information Systems The nation’s leading provider of transportation, utility and telecom invoice payment and information services reported third quarter 2011 earnings of $.64 per diluted share, a 8.5% increase compared to the $.59 per diluted share it earned in third quarter of 2010. Net income increased to $6.1 million and revenues increased 11% to $27.3 million. A very solid company, the company declared a 10% stock dividend and raised the fourth quarter dividend 17% from 15 cents per share to 17 cents a share.
5. Dolby Laboratories The company reported a poor 3rd quarter of 2011 as revenues declined almost 5% year over year from 2010 to $219 million from $230 million. The company is still very profitable, with net income coming in at $61.7 million dollars. 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. The lingering issue here is the ability of the company to find growth areas away from its traditional strength, the PC market.
6. Jamba Juice The Company reported it is maintaining its guidance for fiscal year 2011 with comp store sales up 2-4%, adjusted operating margins around 20%, and openings of 50-70 stores, which it updated with this release. The company will have strung together four consecutive quarters of positive comp store sales, and their licensing and franchise divisions should really start to be a driver of better earnings over the next few years. I believe 2012 should be a very good year for the company, provided they execute their plans. JMBA reports its results on November 9, 2011.
