Portfolio Performance Update: November 2009

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 |  Includes: BOLT, DISK, EVLV, GGP, INSM, KTII, PDII, SALM
by: Jae Jun

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Portfolio Performance

In November, the Old School Value portfolio ended up 18.6% compared to the market 5.4%. The absolute return since inception is now 40.87% compared to -1.26% for the market.

YTD, I am finally above 200%, but I’m more keen on continuing to maintain a portfolio of highly under-priced companies.

Portfolio Movers

Big movers in November were Image Entertainment (OTC:DISK) and Professional Detailing (NASDAQ:PDII) which moved about 25% in the wrong direction. DISK really is a dog, and I just want to sell it, but it’s so small that the commission makes up about 5%. Although it’s probably one of my worst ideas, at least my asset allocation was correct and I haven’t lost much.

PDII, on the other hand, has been going down without much news and since I like the business model and still believe it is very cheap, I’ll continue to keep it. My margin of safety applied to the buy price is what makes this position still +20%.

The big gainers this month were Gen Growth Properties (GGWPQ.PK) and Salem Communications (NASDAQ:SALM).

Distressed opportunities, i.e. bankruptcies, turnarounds, and unfairly beaten stocks, are one of the most profitable investments one can make, provided you buy when there is panic. GGWPQ has now overtaken my ValueVision Media (VVTV) stake as the highest gainer at 1239%, while VVTV is running second on 958%. SALM isn’t too shabby at 330%.

GGWPQ

News spread that Simon Property Group (NYSE:SPG) hired a financial advisory firm to look into buying GGWPQ properties, and more news that the debt restructuring looks to close early and on possibly good terms, gave the price a good bounce not far below $7.

VVTV

There hasn’t been huge news on VVTV yet but its latest quarterly report showed that it's increasing the conversion rate of visitors into customers. As a person that runs a retail operation, the ultimate goal is conversion. You could get huge amounts of traffic but if it amounts to no sales, it’s useless. With the Black Friday Thanksgiving sale here in the U.S. and the now popular “Cyber Monday”, VVTV increased traffic, conversions and customers.

One of the golden rules of retail being 'it is much easier to sell to an existing customer than a new one', if the shopping experience was pleasant, I wouldn’t be surprised to see VVTV’s online presence continue to grow.

Its new credit facility is another good sign as it provides cash.

SALM

I place SALM along with all of my radio stocks in the distressed pile because it was under immense pressure in 2008 with the lack of credit available to refinance its debt, but things sure have changed.

Knowing that these companies were throwing off big chunks of FCF, they were able to pay down debt aggressively from their organically generated cash from operations and keep up with their payments.

SALM has gone ahead and done better as the company was able to successfully tender its “old notes” which were due 2010. The new notes are due 2016, which positions it to focus on the business and provides room to breathe. It also received a credit upgrade which will only help with future borrowings.

These distressed/turnaround/cheap stocks remind me of David Dremen’s rule no.12

Rule 12: (A) Surprises, as a group, improve the performance of out-of-favor stocks, while impairing the performance of favorites.
(B) Positive surprises result in major appreciation for out-of-favor stocks, while having minimal impact on favorites.
(C) Negative surprises result in major drops in the price of favorites, while having virtually no impact on out-of-favor stocks.
(D) The effect of an earnings surprise continues for an extended pe­riod of time.

Portfolio Trades

More selling than buying in November.

1. Bought more Insmed (NASDAQ:INSM)

After reviewing the quarterly report and financial statements for the 3rd quarter, things look to be going pretty good at the company. It's been paying back debt and cash burn isn’t a worry at this point.

I’ll just have to continue waiting to see what its strategic plan is. I wish it would just decide what it plans to do and stop paying its financial advisors.

2. Sold K-Tron International (KTII) @ $101.39 for a 87% gain

My latest review of the company as I went through the 2009 best small companies list showed that the latest figures indicate KTII is worth around $125. My mistake for not reviewing my investment. I'm watching to see if it goes back down to the $80 range where I can hopefully pick a new entry point. Intrinsic value just seems to steadily increase.

Although growth is planned to come from acquisitions, it hasn’t made any moves for a while, so I believe that it;s always concentrating on the business and looking for the best possible decision without wasting our shareholder’s equity.

3. Sold a little over half of my position in SALM @ $3.95 for roughly 220% gain.

Sold it as I believed it was very close to my intrinsic value but volume was very thin, so I wasted about $40 on commission because I didn’t know orders were considered new again even if you use the “until canceled” option.

4. Bought Bolt Technology (NASDAQ:BOLT)

Missed my original entry point by a couple of cents but just increased the order a few percentage points and locked in my new position.

Solid company with strong fundamentals and history. A niche player that reminded me of KTII. It’s currently in an industry-wide down cycle and unduly punished to a great entry for value investing.

I originally mentioned the idea in the value stock picks section of the value investing forum.

5. Cash slightly reduced to 21%

Disclosure: I hold all stocks mentioned except sold positions.