Why cash may be leaking out of bonds and into stocks

The Concentrated GARP portfolio model returned 3.2% (net of fees) for the month of January, beating the S&P 500 Index (SPX), which rose by 3.1%.  

The distinct aspect of this portfolio is its focus on companies which we believe are in a good position to grow. There are one or two holdings which might be considered value or turnaround type situations, but the concentrated aspect of the portfolio is based on companies which in our opinion hold strong positions in their respective industries.

With respect to the future, the interesting situation in the market is whether or not institutions are starting to leak out of the bond market.  If so, and it is premature to consider it a fact, there may be very strong flows headed the equity markets way.

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Gigamedia (GIGM) has about $100 million of cash on the balance sheet. The company’s new GigaCloud business may begin operations in March.  If the valuation would just get to the cash on the balance sheet, we believe the stock would double.

DigitalGlobe (DGI) is a satellite provider of commercial earth imagery and information services.  Digital Globe reported they closed their acquisition of competitor Geoeye.

Corelogic (CLGX) is an information provider which specializes in data about real estate-related industries. A large part of their data centers on property and mortgage information services. In addition, they provide credit information in a variety of industries as well. The company raised and updated their guidance for 2013.

Cass Information Systems (CASS) provides information, invoice, and payment processing services to a wide variety of enterprises in the United States. Cass has a small banking division as well. The company reported earnings in line with expectations.

Dolby Laboratories (DLB) provides audio and video products for the entertainment industry on a global scale. Much of their revenues come from licensing their technologies on personal computers, laptops, tablets, and smartphones.

In addition, they make sound systems for a wide variety of customers, from movie studios, theatres, and network and satellite television providers. The company reported earnings which were better than expected estimates.

Jamba Juice (JMBA) is a health food and beverage retailer with a presence in 26 states domestically and operations in Canada, the Philippines, and South Korea. Jamba Juice reported earnings on November 1, 2012.

Cash America (CSH) is the largest operator of pawn shops in the United States. The company reported solid fourth quarter 2012 earnings and announced a buyback.

Build-A-Bear Workshop (BBW) is a provider of build your own teddy bears for small children. In my opinion, the company is a value-based play since its stock, which has been decimated, is dirt cheap. The company pre-announced fourth quarter 2012 earnings and the CEO is announcing her retirement.  The balance sheet appears strong with $45 million in cash and no debt.

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The investments discussed are held in client accounts as of January 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.