Why I’m bullish on Under Armour

There is no debating that January was a rough month for the equity markets. Turmoil in emerging markets, mediocre corporate earnings results, weak economic data, and bad weather all created a tough start of the year for the stock market.

The Dow Jones Industrial Average (DJIA) was down 5.3% and the S&P 500 Index (SPX) declined 3.46%. That’s the worst monthly percentage declines for both indices since May of 2012. The NASDAQ Index (COMP) weathered the storm better, declining only 1.7%, but it still had its worst month since October 2012.

The mid-cap indices also did not go unscathed, with the S&P Midcap 400 Index declining 2.2% and the Russell Midcap Index sliding almost 2%.

Despite a challenging market environment, the Mid Cap Quant portfolio managed to eke out a positive return in January, delivering a return of 1%. Portfolio performers in January included SolarCity (SCTY), Under Armour (UA), and Alkermes (ALKS).

SolarCity (SCTY) is one of the pioneers in residential solar leasing and is poised to benefit from accelerating industry growth as retail electricity customers switch to solar and an increasing number of states in the U.S. attempt to achieve grid parity by 2016.

Deutsche Bank, who just initiated coverage with a buy rating, expects the company’s installed base of solar customers to double by the end of 2014. The solar industry is very competitive, however declining costs, coupled with rising volumes, has increased scalability and operating leverage.

Shares of portfolio holding Under Armour (UA) rose to an all-time high after posting exceptionally strong earnings results. Results were boosted by the recent cold weather, but the company has posted at least 20% revenue growth over the last 15 quarters.

Under Armour continues to be an innovator in athletic apparel, having just launched a new line of ColdGear apparel and its lightweight Speedform running shoes. Having successfully built the brand in the U.S., the company expects to extend its reach globally over the coming quarters.

Drug manufacturer Alkermes (ALKS) also performed well for the month, as it continues to benefit from integration of its Elan acquisition.

It recently received an additional infusion of cash from an investment by Invesco Perpetual, which may set the stage for more opportunistic acquisitions in the CNS (central nervous system) drug space. The company already has many promising drugs in its late-stage CNS pipeline, including one to treat schizophrenia and another for major depressive disorder.

Admittedly, not all the stocks in the portfolio avoided the January downturn in the market. Portfolio holdings Groupon (GRPN), Fifth and Pacific Companies (FNP), and Ubiquiti Networks (UBNT) all suffered declines in January.

Groupon and Fifth and Pacific, both retail related stocks, were hurt by the bad weather blanketing most of the country. Ubiquiti’s decline was likely attributable to profit-taking and de-risking in the current market environment, after experiencing strong returns in 2013.

DISCLAIMER: 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. Past performance is no guarantee of future results.