Author: Yale Bock, Y H & C Investments
Covestor model: Concentrated GARP
Disclosure: Long GIGM, DGI, CLGX, CASS, DLB, JMBA
December was a little better month for the portfolio, as most of the holdings held up reasonably well. The portfolio slightly beat both the S&P 500 and the Russel 2000 for the month.
I believe that tax selling of positions which did not perform well in 2011 knocked down the stocks of some companies which did nothing wrong fundamentally in the year.
January starts a whole new year, and it is not out of the realm of possibility the portfolio could rebound very nicely, recovering all its losses and then some. Time will tell, but as Mr. Buffett stresses, eventually stock performance will mirror business results. Let’s hope the business results prove good and I can live with corresponding stock outcomes. 2011 is gone and I expect 2012 to be better, because it cannot get much worse for this portfolio.
Covestor Portfolio: The Reasons for Owning the Portfolio Holdings
1. Gigamedia: There were a few interesting developments recently which give a shareholder reason for encouragement. God bless their hearts that sterling management at GIGM! IAHGames announced an agreement with Cisco to provide their games as part of a cloud based service, which should help reduce operating expenses substantially. Next, in China, on January 2, 2011, the company announced they acquired a company to help them develop social games, the first which should be ready in March. Finally, in news having nothing to do with the management, the Justice Department announced they have a different interpretation of the Wire Act, the underlying law used to prevent internet poker. As a result, individual states in the United States now believe they will be able to offer internet poker legally, and Gigamedia has an operation based in Massachusetts which should be able to partner with a big casino group and get a piece of the action. If the Spongebob game ever gets released as it is supposed to, it is not out of the realm of possibility to see a whole different result with this company, but don’t hold your breath just yet.
2. Digital Globe: The company had a few developments in December. First, they completed a critical review by the National Geospatial Intelligence agency in which the company passed every milestone on schedule. In addition, the company renewed and expanded an agreement with Sohu.com for greater coverage of China.
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 when the opportunity presents itself. The parent company which CLGX was spun out of, First American Financial, has indicated an interest in buying the company and currently owns almost 9 percent of the common. In addition, guidance was raised for the rest of the year. On December 6, 2011, First American reported they would not buy out CLGX.
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 better 3rd quarter of 2011 as revenues increased 7% year over year versus 2010. Again, the same story holds, and it is a matter of sticking with it. 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 net income of $4.1 million on revenues of $57.1 million, a decrease year over year of 13% due to the closing of company owned stores. The company had a good quarter again operationally, as same store sales rose by 3.7%, and both licensed and company owned stores had positive comps. Jamba is slowly building their franchise and licensing strength, opening in new territories, and starting new marketing initiatives. They continue to add new products to their licensing programs, and their licensing and franchise divisions should be a driver of better earnings over the next few years. I still believe 2012 should be a very good year for the company, and with the stock having been beaten up, it does provide a possible opportunity for those who believe in the Jamba strategy and health and wellness market. Starbucks also recently bought a company (Evolution Fresh) in this market to better position themselves for possible growth in this target market. Jamba Juice recently announced it expanded its distribution agreements with US Foods and Sysco’s Sygma division to help improve their supply chain efficiency.
