A Follow-Up: How My '11 Stock Picks for 2011' Are Performing

by: The Keating Letter

On January 17 I wrote the following article for Seeking Alpha: 11 Stock Picks for 2011: My Top Holdings. These were the top holdings for my firm's primary portfolio, then called The Freedom Fund. The six month mark hit on July 16, and I thought it would be worthwhile to review the performance of these stocks so far this year.

In May the portfolio was re-branded as the Arquitos Value portfolio to better reflect the strategy involved. The strategy and historical information remains the same. A portion of the portfolio is in value stocks, a portion is in stocks that have superior leadership, and a portion is in special situations. I've bought and sold some stocks since the article, and traded around others. We continue to hold eight of the eleven stocks. Prices mentioned below are as of the close of the trading day on January 14, and the close of trading on July 15. Because of weekends and holidays the time period reflects six months of trading data. For comparison's sake, the S&P 500 ETF (NYSEARCA:SPY), was up 2.3% over the same time period.

I also want to put in the disclaimer that these gains or losses do not necessarily reflect the gains or losses that my firm or the portfolio experienced. In the majority of cases, some sort of trading was done in the stocks below. These are not currently my firm's top 11 holdings. To learn more about the portfolio's performance and discussion, please see Arquitos Capital Management's Q2 investor letter.

Barnes & Noble (NYSE:BKS): Barnes & Noble has had a wild ride these past six months. At the close on January 14, Barnes & Noble was at $16.88. It ended July 15, at $17.29 for a 2.4% gain. That masked a plunge as low as $8.89 and a rise as high as $20.41. Ultimately my thesis that there would be a buyout proved true. The bidder came from a very unexpected source, though, John Malone at Liberty Media. The buyout price was also much lower than expected, at $17 per share. Activist investor Ron Burkle bought more shares after the offer and above $17. It remains to be seen whether the bid will be accepted or whether it will be adjusted. Recently, I wrote extensively about our experience with Barnes & Noble. We no longer own shares.

Synovus Financial (NYSE:SNV): Shares closed at $2.77 on January 14 and ended at $2.06 on July 15. This was a 26% drop. Synovus has had a rough go of it these past six months. It has yet to repay TARP and may have to raise more money. I expected its progress to be better at this point. However, loan loss metrics are moving in the right direction. We continue to hold shares.

Biglari Holdings (NYSE:BH): Shares closed at $449 on January 14 and ended at $396.18 on July 15. This was an 11.8% drop. As I mentioned in the previous article, I expected 2011 to be an investment year for the company with flat to down earnings. While the stock price is down, operating and net earnings are sharply up so far this year. We continue to enthusiastically hold shares.

Bank of America (NYSE:BAC): Shares closed at $15.25 on January 14, and ended at $10 on July 15. This was a painful 34.4% drop. Bank of America has been hurt from every angle. Regulations are crimping revenue, legal settlements are eating in to reserves, and government investigations seem to be never ending. Sentiment could not be more poor. On the positive side, though, loan quality continues to improve and net charge offs continue to decline. This is a difficult period for the company as it cleans up the mess that Ken Lewis left. The pendulum has swung far too negative for Bank of America, in my opinion. It has tremendous earnings power and once it can have some semblance of certainty, the stock price will begin to reflect fundamentals. We continue to hold shares.

Huron Consulting (NASDAQ:HURN): Shares closed at $26.70 on January 14, and ended at $29.60 on July 15. This was a 10.9% gain. Huron continued its turnaround and recovery from its 2009 scandal. We sold shares to redeploy capital elsewhere and no longer own the stock.

SuperValu (NYSE:SVU): Shares closed at $7.39 on January 14, and ended at $8.98 on July 15. This was a 21.5% gain. SuperValu had gotten all the way up to $11.38 on May 2, before falling over the last few months. The company continues to pay down debt and generate a high amount of cash. We currently have an $18 price target on the stock and continue to hold shares.

Greenlight Re (NASDAQ:GLRE): Shares closed at $28.02 on January 14, and ended at $25.68 on July 15. This was an 8.4% drop. Shares declined as David Einhorn's hedge fund, Greenlight Capital, saw sub-par returns over the first half of the year and as financials had a broad decline. We continue to hold shares.

Neutral Tandem (NASDAQ:TNDM): Shares closed at $15.65 on January 14, and ended at $16.61 on July 15. This was a 6.1% gain. During this time period Neutral Tandem held a dutch auction to repurchase outstanding shares. The company ended up purchasing about 9.5% of outstanding shares for $16.25. We continue to hold shares.

Protalix (NYSEMKT:PLX): Shares closed at $10.06 on January 14, and ended at $6.79 on July 15. This was a 32.5% drop. Shares fell as the expected approval of the company's Guacher disease drug was delayed. Because of this delay, it diluted shareholders with a 4 million share stock offering on March 23. The good news is Protalix is building a pipeline of other drugs and it is still expected that the Gaucher disease drug will be approved, although the timeline is uncertain. We continue to hold shares.

Compass Diversified (NYSE:CODI): Shares closed at $18.50 on January 14, and ended at $17.02 on July 15. This was an 8% drop. CEO Joe Massoud left the helm over this time period to deal with a regulatory inquiry unrelated to the company. Because of Massoud's departure, we no longer hold shares.

Feihe International (NYSE:ADY): Shares closed at $10.53 on January 14, and ended at $7.61 on July 15. This was a 27.7% drop. The stock continues to be hurt as the company pays down redemption shares to Sequoia Capital. There is concern it will be unable to make the full repayments or will have to dilute shareholders. We continue to hold shares.

Disclosure: I am long ADY, BAC, BH, GLRE, PLX, SNV, SVU, TNDM.

Disclaimer: This article is for informational purposes only and does not constitute a complete description of our investment services or performance. This article is in no way a solicitation or offer to sell securities or investment advisory services. Information throughout this article is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing in this article should be interpreted to state or imply that past results are an indication of future performance.

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