The Big Mo

I continue to feel there has been a positive shift in momentum since the end of July in the MFI universe of stocks. Some old familiar names that are in my tracking portfolios had some pretty good earnings the past several days, such as GTLS and QCOR. Actually so did SUPG and AFAM! I did have one stock report today... STRA. I'll comment on them in a MOment.

Speaking of "Mo" it can have a double meaning, and tonight I am thinking about USMO, which reported another very solid quarter this morning (USA Mobility Reports Third Quarter Operating Results; Board Declares Regular Quarterly and Special Cash Distribution). Now USA Mobility is perhaps the most boring company in the world. They are in the Pager business. Yes I know, Pagers are so "yesterday". Does anyone even use them any more? That has been my fear, not exactly a growth business, so I have never owned USMO, despite them being on the list since about the beginning. And I am not the only fearful one. MagicDiligence wrote them up about 22 months ago and said to "avoid", for precisely the same reason. Guess what? They're up 62% since then! Not a knock on Steve, I certainly felt the same way.

You may ask, "how can a company with minimal future prospects return 62% in 22 months?"

Cash Flow Baby! USMO has cut their expenses to the bone and then I suspect the attrition has been slower than expected. With a ton of cash on the books and a Earnings yield around 24% they can and do pay a hefty dividend as they don't need to grow their capital to fund growth. I think there is a lesson to be learned here. Our human bias is to discount a stock as it has limit growth opportunities. But if it is a high ROIC business, requiring little to no capital and has a high earnings yield, it can still be a "good" company. The chart below shows USMO's returns at various purchase dates (for one year holding periods):

Date	Stock	Initial Price	End Price	Percent Change
1/26/2007	USMO	$ 16.84	$ 11.82	-30%
2/27/2007	USMO	$ 16.37	$ 10.63	-35%
3/26/2007	USMO	$ 16.08	$ 7.16	-55%
4/27/2007	USMO	$ 17.49	$ 6.80	-61%
7/3/2007	USMO	$ 22.48	$ 7.49	-67%
7/30/2007	USMO	$ 21.33	$ 8.14	-62%
8/30/2007	USMO	$ 15.89	$ 11.27	-29%
9/27/2007	USMO	$ 14.58	$ 11.19	-23%
11/2/2007	USMO	$ 14.00	$ 9.65	-31%
11/28/2007	USMO	$ 12.14	$ 10.43	-14%
12/28/2007	USMO	$ 13.00	$ 10.59	-19%
1/25/2008	USMO	$ 10.33	$ 10.81	5%
2/26/2008	USMO	$ 9.83	$ 10.32	5%
4/25/2008	USMO	$ 5.56	$ 9.80	76%
5/28/2008	USMO	$ 6.43	$ 11.18	74%
7/2/2008	USMO	$ 6.18	$ 12.76	106%
7/29/2008	USMO	$ 6.72	$ 13.10	95%
8/29/2008	USMO	$ 9.51	$ 13.04	37%
9/26/2008	USMO	$ 9.27	$ 12.66	37%
10/31/2008	USMO	$ 7.99	$ 10.90	36%
11/26/2008	USMO	$ 8.86	$ 10.22	15%
12/26/2008	USMO	$ 8.79	$ 11.01	25%
1/23/2009	USMO	$ 8.97	$ 10.88	21%
2/27/2009	USMO	$ 7.58	$ 11.26	49%
4/24/2009	USMO	$ 9.01	$ 14.02	56%
5/29/2009	USMO	$ 10.51	$ 14.08	34%
6/29/2009	USMO	$ 11.95	$ 13.28	11%
8/28/2009	USMO	$ 12.07	$ 15.22	26%
9/25/2009	USMO	$ 11.72	$ 16.15	38%
10/30/2009	USMO	$ 10.09	$ 16.91	68%
11/27/2009	USMO	$ 9.68	$ 16.91	75%
12/31/2009	USMO	$ 10.43	$ 16.91	62%
1/22/2010	USMO	$ 10.31	$ 16.91	64%
2/26/2010	USMO	$ 10.67	$ 16.91	58%
3/25/2010	USMO	$ 12.35	$ 16.91	37%
4/23/2010	USMO	$ 13.55	$ 16.91	25%
5/28/2010	USMO	$ 13.83	$ 16.91	22%
6/29/2010	USMO	$ 12.87	$ 16.91	31%
7/29/2010	USMO	$ 14.40	$ 16.91	17%
9/2/2010	USMO	$ 14.96	$ 16.91	13%
9/24/2010	USMO	$ 16.15	$ 16.91	5%

Overall, 19% per year on average. Not sexy, but respectable. It was overpriced in the early days.
Overview of Strayer Education

Strayer announced their earnings this morning, and as I sucked down my cup of joe, I thought, "this isn't so bad, it is amazing the stock is down over 50% from their highs." Here is the press release: (Strayer Education, Inc. Reports Third Quarter 2010 Revenues and Earnings; and Fall Term 2010 Enrollments).

Some highlights include:

• Revenues +29%
• EPS +42% at $1.72
• Fall enrollment +12%
• Increasing dividend by 33% from $3.00 to $4.00
• $150m share repurchase
• 2011 guidance between $11.30 and 11.50 a share vs $9.65 this year
  

I wish all my stocks had such problems. Then I spit up some coffee as I saw in pre-dawn trading the stock trading down about 7%. How can it be? Surely the "bad news" was priced in with the 50% drop since the summer?

Well, I was right. The stock did not crash and burn. It ended up slightly on the day.

Transactions

I did a little buying and selling today. I sold my VALU for a nice gain (24%). Actually one reason I sold them was because I could. The volume is typically so light on VALU that even a small fish like me has trouble making a sale.

I split my money then between SNDK and STRA, my two newest stocks as I felt they had both had decent earnings that the market did not fully appreciate. That keeps my total # of stocks at 20, which seems to me to be a nice number.