Flushed Away

You know the familiar sound of the toilet? The sound of going down the drain? That pretty much sums up my 1st week of 2008. My portfolio had been making a valiant comeback. I had been 86k behind the benchmark and over 40k under breakeven. Then I had crawled to just 50k behind the benchmark and was actually several thousand in the black. Woosh! I dropped 6% faster than you can say "Jack Robinson" and I now trail the benchmark by about 67K and am about 39K underwater. Yes it is depressing and I'd rather not think about it.

So I'll talk about my new computer I got over the holidays and I am typing on right now. It is a Dell XPS and it is wonderful! Sleek, nice feel and fast.

Let me touch upon some newsworthy items regarding my stocks.

JTX - This was pretty depressing. They dropped about 20% on Thursday... it took me some time to understand why they dropped (IRS Action Hits Tax Preparers). They did bounce back, up 12% on Friday... but still a bad week.

CHCG - they announced that they have teamed up with Carrefour to sell electronics in China (China 3C Group to Open Stores in Carrefour). The fact that such household names are partnering with them seems very positive to me.

At the turn of the New Year, I did write a little analysis of my MFI stocks and why I owned each stock along with my ranking of the stock. I'll post it now to give us all fortitude that there are reasons to own these stocks, and at 6% less they are even a better value.

Analysis of Current MFI Stocks

I find it helpful to score my stocks 1 through 4 per Jim Cramer.

“1” – means you’d buy some more today if you had $.

“2” – you’d buy some more if the price were to drop a little bit.

“3” – you’d sell on any move up in price.

“4” – sell immediately.

The second step of the exercise is to write a sentence or two on why you own the stock.

Stocks that I rate a “1”

KSW (6.97) – this company provides contracting services in the NYC area. I like them because this seems like a wide-open area as there is little consolidation or big players in this space. They are also growing nicely and turn a decent profit.

WSTG (8.99) – they provide programming services. Their last quarter was a bit weak and I feel their stock price has been unfairly punished, down 33% since the end of the 3^rd quarter. They also pay a 6.5% dividend which I think will be safe.

AEO (20.77) – they sell clothing and accessories in mall stores primarily to 15-25 year old crowd. Their stock price has dropped 23% since June even though they’re growing (about 7% in past quarter). Concern is slowdown in consumer spending. My opinion is that they are one of the best run retailers and their price has dropped further than appropriate.

WNR (24.21) – a refiner based in El Paso. Recently went through a merger with Giant Industries. Their stock has dropped from over $60 this summer. The past quarter was not good as refining margins retracted and they had some shutdowns for maintenance. My opinion is that refining margins have seasonality and the refining plants will be re-opened, thus the selling is overdone. I suppose secondary risk is that if we go in a recession energy demand will drop… though other refiners have not dropped as sharply as WNR.

BBSI (18.01) – they provide business services (like performing payroll functions). The stock is down about 30% from last quarter as the market fears a recession will hit these types of firms hard. BBSI is extremely well run and has a strong balance sheet. Any weakness in this sector may help BBSI as they can buy their weaker competitors. Also they grew 19% YoY. This is a very cheap quality stock.

KG (10.24) – they are a pharmaceutical company. I like them as they are unbelievably cheap and a defensive play in a recession. They made over $600m in past 12 months with an EV of under $1.8b.

IAR (17.56) – they publish yellow pages and run online local yellow pages. Not a very exciting company and they do have a lot of debt. However, their income stream seems very steady and as long as it stays steady they’ll be in great shape. Stock price has dropped about 50% in 2007 and Barron’s thinks they are worth the risk at this price.

CHCG (3.42) – they are involved with selling electronics in China. They are the middleman between the manufacturers and the retailers. Stock price is down more than 50% as they “only” grew 35% the past YoY. Best Buy has contracted with them. They will be applying for listing on Nasdaq in 2008. Earned 44 cents per share from operations in past 12 months so under 10x p/e ratio… this is an extremely cheap growth company.

Stocks that I Rate a “2”

PACR (14.60) – they help transport companies be more efficient. Down over 40% from where I bought them. Pay a decent dividend. Trades under 10x ttm earnings. I don’t see much downside.

RAIL (35.00) – they make freight cars for trains, largely coal. Positive side is that coal business is booming and people like Buffett are taking interest in trains and train manufacturers. Also, just a domestic industry, do not have to worry about foreign competition. Problem is that their backlog has really dwindled and they have relatively large fixed costs. They have an extremely large cash position, almost $15 per share.

DGX (52.90) – they perform diagnostic tests for hospitals and HMOs. Their price has been stuck as they lost a large account to LH (the other large player). I like them as they are a defensive play if we have a recession or slowed growth. I also feel the bad news is priced in and any wins could pop the price.

THO (38.01) – manufacturer of RVs. Some fear that higher gas prices will slow this market. However, they have an all-time high backlog and business is booming per their financials. My opinion is that the demographics of retiring baby boomers trumps the higher gas prices.

GVHR (7.69) – kind of like BBSI, but in Florida instead of NW. They don’t seem as well run as BBSI, have had recent turnover in senior management. That being said, their stock price is down over 50% this year and indications are that the stock is oversold (has bounced back nicely in past 3 weeks).

JTX (31.75) – they are a tax preparer, like HR Block. I like them as they have a largely untapped market and have been taking market share from HRB (kind of like you would have wanted to own Lowe’s instead of HD a few years ago). Still cheap and they pay a nice little dividend as well.

NOOF (5.50) – they are a distributor of adult content. I think I phrased that nicely. They have had a few delays recently that has made their earnings uneven and their stock price has been punished. I am counting on them getting back to their old earnings stream and getting back towards $8.

VALU (40.72) – they are one of the oldest publishers of stock reports through Valuline. I own them because they are cheap, pay a nice dividend and have a lot of untapped value if acquired by a more modern company (think Fox).

UG (10.41) – small company engaged in manufacturer personal healthcare products and cosmetics. They seem confident in their future cash flow and have a 5.5% dividend. Hard to get too excited about this company, but at this price a larger company could buy them and be accretive to their earnings.

USHS (5.36) – sell home improvement products, largely through Home Depot (think new kitchen cabinets). With the decline in housing sales, anything ancillary has been crushed as well. The price is cheap, company has aggressive buyback going. In my opinion they have hit bottom.

LRCX (43.23) – they manufacture semi conductor manufacturing equipment. As a US company, they may have advantage in international sales with weak $. They have been embroiled with a back dating issue, I think when that is resolved, stock could pop 10%.

TCK (35.71) – large Canadian Mining company. Their price slid a lot this fall when they were not given the green light on a new project. If they can overcome the govt (and I think they eventually will) and the price of metals stays strong (I think it will) then they should recover nicely.

KFY (18.82) – intl job placement company. Had great quarter recently. But stock is still below 52 week high by 30% as fears of recession will impact job placements. I think I can wait that out and there have been no signs of slowdown yet.

HSII (37.11) – pretty much a ditto with KFY.

LCAV (19.97) – they perform laser eye surgery. The stock is down more than 55% as fears of recession and the discretionary component of eye surgery. Still the stock is now extremely cheap and they pay a nice dividend. Economy will eventually recover.

ACN (36.03) – large consulting firm. The stock had dropped on fears that with the credit crisis that people will use consultants less. I think they’ll actually need to use them more as it seems a sure bet that there will be additional regulations etc (think Sarbanes Oxley). They recently had a terrific quarter and good outlook for 2008.

TRID (6.56) – they manufacturer chips largely for high-end TVs. Quite a bull/Bear debate on TRID as cheaper HD TVs seems to be growing faster in sales than the more expensive ones. Still with over $3 in cash and an outlook for profits in 2008 TRID doesn’t seem to be likely to fall under $6.

HOC (50.89) – my second refiner along with Western. They are about 35% off their highs for the same reasons (reduced refining margins). I expect margins to expand in June/July as we head into driving season. I may likely sell WNR and HOC early if that happens.

TGIS (7.43) – provides contracting services to the govt. Their growth has stalled out and the stock price has suffered. I am hopeful that this is simply part of being a small company and that growth will return. Meanwhile, they are cheap and pay a 5.4% dividend.

UNTD (11.82) – they run the low-end internet access, for those without broadband. It isn’t a growth industry, but they are making good $ and have some other opportunities. Quite cheap and pay a 5%+ dividend.

Stocks that I rate a “3”

PNCL (15.25) – they provide regional jet service, largely with Northwest. They make a solid profit. Not sure that they have much upside with high fuel costs.

TGB (5.18) – another Canadian mining company. This has almost been a double for me as they have tailwind of higher profits, plus they now think they have more reserves (about 42%) than they thought a year ago.

VSNT (29.09) – they provide niche software in what has been a booming market. They had a great 2007 and gave a very good outlook for 2008. But I am up over 50% and am worried what would happen if they disappointed (see WSTG).

HGG (13.76) – this was a 2007 IPO. Think Best Buy or Circuit City for upper middle class people that want better service. I think it is an under served market that is largely fragmented. That being said, I do worry that best Buy and Wal Mart are using big entertainment as loss leaders and whether HGG can compete with their superior service.

MSTR (95.10) – had a terrific quarter after several disappointments. I am just not sure how much upside remains, that is why I rate them a “3”.