GEO Investing

Since October of 2010, we have implanted a new feature at GeoInvesting where we periodically offer GeoInvesting users insights into our U.S mock portfolios typically consisting of 10 to 15 stocks.  We did this to make readers aware that we are not solely a China-focused website. In the near future we will introduce numerous mock portfolios based on a variety of themes.

In October 2010, we introduced readers to our first mock U.S. portfolio.

Overall, eight of these selections delivered healthy returns, two selections delivered negative returns and two remained stagnant. All had attained 52 week highs at some point during the two month coverage period. If you had invested in this portfolio you would have achieved returns of 42% applying the high price achieved during the coverage period and 34.2% using December 23, 2010 closing prices.

On January 5th, 2011, we provided investors with revisions to the U.S mock portfolio.

The results are as follows:

BPP CP* HP RCP RHP Average Return
ABG $18.51 $16.97 $20.12 -8.30% 8.70% 0.20%
MERC $7.71 $13.68 $15.27 77.40% 98.10% 87.75%
HNH $12.50 10.3(a) $13.85 -17.6% 10.80% -3.40%
AMOT $7.29 $7.11 $9.25 -2.50% 27.00% 12.25%
CVU $14.02 $13.80 $15.71 -1.60% 13.80% 6.10%
BWS $13.66 $12.35 $13.94 -9.60% 2% -3.80%
KEM $15.22 $14.64 $17.05 -3.80% 12% 4.10%
IEC $7.80 $8.50 $9.88 9% 26.70% 17.85%
USHS $4.88 $4.68 $5.19 -4.10% 6.40% 2.30%
VSR $3.35 $3.09 $3.35 -7.80% 0% -3.90%
NAV $56.49 $65.87 $70.82 16.60% 25.40% 21.00%
RES $18.11 $23.26 $26.00 28.40% 43.60% 36.00%
GTEC $16.46 $24.25 $24.25 47.30% 47.30% 47.30%
ABL $6.75 $11.00 $11.45 63% 69.60% 66.30%
LXU $23.98 $38.29 $40.30 59.70% 68.10% 63.90%
Average 16.41% 30.63% 23.60%
BPP: Beginning Period Price (January 5th, 2011
CP: Current Price as of April 15th, 2011
HP: High Price during the period
RCP: Holding Period return using Current Price
RHP: Holding Period return using High Price

(a) The price for HNH when removed from the mock portfolio on March 15th.

Overall, seven of these selections delivered healthy returns, while eight selections delivered negative returns. All had attained 52-week highs at some point during the three-month coverage period. If you had invested in this portfolio you would have achieved returns of 30.63% applying the high price achieved during the coverage period and 16.41% using April 15, 2011 closing prices.  We would have liked to have seen prices remain closer to their highs, but we are satisfied with these returns, given the recent market turbulence.

We apologize for the delay in updates to the mock U.S. portfolio, but as readers know we have been immersed in the developments taking place in the ChinaHybrid universe.

The 2011 first quarter exploded nicely out of the gates.  But turbulence in the markets, ignited by political conflict overseas, political gridlock here at home, and the devastating earthquake in Japan propelled investors into panic mode pushing shares of stocks in the mock portfolio well off their highs.  Thus far, portfolio holdings have only partially recovered from their price hits. Obviously, we would have preferred that prices would have remained closer to their highs, but we view the price weaknesses in many of these names as an opportunity to back up the truck in anticipation of further gains, albeit volatile, through June– when we see the possibility of third quarter market weakness as it adjusts for the possibility of interest hikes in December. However, we believe that the market will finish the 2011-year in a strong fashion.  Investors should consider the following GeoInvesting philosophy: The objective of fundamental investing is to build wealth over time. This means that adhering to a strict sell discipline is essential, especially in volatile times when the price swing between highs and lows are extreme.  It also means letting go of stocks that have not delivered on expectations.  For a refresher on various sell type strategies please go here.  We have always liked the Methodical Liquidation Rule, which forces one to sell shares slowly as prices increase.  For investors that crave technical analysis, we suggest that they take a look at Renn Valo’s OBOSS, a market indicator that, as a fundamental investor I hate to admit, has been quite accurate in predicting short term market trends.

Now let’s get down to business.  What follows are updates to the mock portfolio that will include deletions of certain equities as well as new suggested selections.

Companies to remain in the GeoInvesting mock portfolio:

Asbury Automotive (NYSE:ABG) (see alerts) Price: $18.51**; Coded as a GeoSpecial at $16.72.

Original notes:

One of the largest automotive retailers in the U.S.

  • Was mentioned in 2010 third quarter earnings watch article.
  • GeoSpecial
  • In addition to earlier reasons there are a few more that drive our bullish outlook:
    • GPR of 4***
    • Stock buy back
    • Sells non-core assets
    • Makes accretive acquisition
    • Seeking to reduce leverage
  • Stock has had a nice run which could lead to a short-term pull back which we believe would create additional buying opportunities.
  • Short-term price target based on a P/E on 15 on analyst 2011 EPS expectations of $1.81:  $27.15

Post article Update — Current Price*: $16.97

ABG looked like it was about to stage a significant price break out during the 2011 first quarter, after reaching a 52-week high, but hit a brick wall– retreating close to its original mentioned price. However, the company now has a GPR of 8 and has completed the sale of some of its non-core assets. A potential problem is that the company has been meeting EPS estimates, rather than exceeding them. Thus, we will await the release of the 2011 first quarter financial results before making a decision to add shares. We may buy puts as protection.

Mercer Intl (NASDAQ:MERC) (see alerts) **Price: $7.71; Coded as a GeoSpecial at $6.93

Owns and operates a diverse pulp and paper business in the southern German states of Saxony and Thuringia, in the former East Germany.

Original notes:

  • GPR of 3
  • Currently a GeoSpecial
  • Just restructured facilities, resulting in more efficient operation of mills
  • New stable source of revenue through the sale of surplus energy generated by mills
  • We are somewhat concerned that the fourth quarter may see a sequential drop in earnings from a very strong third quarter, but believe the company will make impressive strides in 2011.  We also have to be aware that MERC’s revenues are dominated in Euros and could be affected by a currency fluctuations.
  • Short-term price target based on a P/E of 7.5 on our 2010 EPS expectations of $2.32: $17.40

Post article Update *Price $13.68

Fueled by a strong 2010 fourth quarter financial showing and a flurry of analyst upgrades, MERC  saw its shares explode to new highs. We still believe that the stock has enough fuel in the tank for further gains, as pulp prices remain at high levels, a situation that management expects to be maintained in the near to mid-term. We added on dips.

Allied Motion Tech (NASDAQ:AMOT) (see alerts) **Price: $7.29; Initiated a short-term trading position at $6.40

Allied Motion designs, manufactures and sells motion control products into applications that serve many industry sectors.

Original notes:

  • GPR of at least 3
  • Sales have Just returned to pre recession sales levels. However, margins are better then previous levels which should drive EPS growth for a few more quarters even with minimal revenue increases.
  • Just made accretive acquisition which could help increase GPR
  • Stock breaking out to new highs
  • Short-term price target based on a P/E of 25 on our 2010 EPS expectations of $0.46: $11.50

Post article Update *Price $7.11

To our surprise, AMOT sold off after it reported strong 2010 fourth quarter financial results. The likely culprit: results were sequentially lower than strong 2010 third quarter numbers.  We view this scenario to be one of investor ignorance, as the possibility for several quarters of 30% plus EPS growth could be in the cards for this company, aided by improving margins and a recently completed accretive acquisition.  We added on dips.

Cpi Aerostructures (NYSE AMEX:CVU) (see alerts) **Price: $14.02; Coded as a GeoBargain at $5.00.

Engaged in the contract production of structural aircraft parts for leading prime defense contractors, the U.S. Air Force, and other branches of the armed forces.

Original notes:

  • May have a weak fourth quarter, but GPR becomes a solid 4 in 2011
  • GeoBargin
  • EPS is expected to grow 85% to $1.35 in 2011
  • Very shareholder friendly management
  • Predictable backlog that could provide upside to EPS targets.
  • One of our favorite stocks for 2011
  • Short-term price target based on a P/E of 15 on analyst 2011 EPS expectations of $1.35: $20.25.

Post article Update: *Price $13.80

CVU gave investors a scare on January 21, 2011 when it announced 2010 fourth quarters numbers which at first glance did not look impressive:

As previously announced, the termination of the T-38 program one release year earlier than expected, resulted in a revenue adjustment based on a change in estimate for the fourth quarter and the year. This non-cash adjustment is a GAAP change in estimate, and conforms to the procedures used for the percentage of completion method (“POC”) of accounting.”

However, the company reiterated its bullish 2011 EPS guidance and actually exceeded 2010 guidance, absence of the one-time adjustment. None withstanding, shares retreated over the next few days. We saw this as opportunity and alerted GeoInvesting readers that we were picking up trading shares under $13.00– a move than panned out for us. CVU remains one of our favorite holdings for 2011. CVU has a GPR of 4.

Kemet (NYSE:KEM) (see alerts) **Price: $15.22; Coded as a GeoSpecial at $10.50

“Applies world-class service and quality to deliver industry-leading, high-performance capacity solutions to its customers around the world.”

Original notes:

  • GPR of 4.
  • GeoSpecial.
  • Restructuring process still in early stages.
  • Upside to growth goals, since does not take into account a meaningful increase in volumes.
  • Gross margins improving, but striving for further gains.
  • Fiscal 2011 third quarter revenues are expected to be on par with fiscal 2011 second quarter, but has some upside .
  • Break even point is lower than ever, giving the company the ability to withstand market downturns.
  • Very interested in increasing investor awareness.
  • Successfully completed a secondary offering of stock from investment group (K Equity, LLC) that has removed overhang.
  • Stock has had a nice run which could lead to a short-term pull back which we believe would create additional buying opportunities.
  • Short-term price target based on a P/E of 15 on analyst 2011 EPS expectations of $1.77: $26.55.

Post article Update *Price $14.64

KEM shares experienced an immediate bounce after it released 2010 year end numbers, but sold off for two reasons. 1.) Although the company still sees strength going forward, it commented  that 2011 first quarter numbers may be sequentially down from the 2010 fourth quarter. 2.)  Overhang due to the possibility that a large institutional shareholder may sell its shares.  Despite these issues, we will keep KEM in the mock portfolio.  While we do have some concerns that EPS growth may begin to taper off soon, it looks like the company can attain at least two to three more quarters of above average EPS growth. Also, the institutional seller has commented that it will significantly reduce the amount of shares it desires to unload.

Iec Electronics Corp (NYSE AMEX:IEC) (see alerts) **Price: $7.80; Coded as a GeoBargain at $4.98.

Original notes:

Provides contract electronic manufacturing services to advanced companies primarily in the military and aerospace, medical, industrial and computing sectors.

  • We believe a GPR of 4 is in the cards
  • GeoBargain
  • One of our favorites for 2011
  • Successful integration of recent acquisition
  • 12/17/10 announces another acquisition which will boost revenues about 21% from current base.
  • Expects to be many times bigger then they are today
  • Recent acquisitions strategy enforces our  belief IEC can achieve 30% EPS growth.  Company had expected to grow earnings at about 17% which is below GeoBargin requirements, but we believe acquisition goals makes this guidance conservative.  Furthermore,  per a recent power point, growth objectives have been raised. Now expects revenue to grow 35% in fiscal 2011
  • Short-term price target based on a P/E of 25 on Fiscal 2010 September EPS results of $0.48: $12.00. Fiscal 2011 December first quarter results will give us more insight into 2011 near-term EPS growth expectations at which time we will adjust our price target.

Post article Update *Price $8.50

IEC shares sold off during the first quarter. Fiscal 2011 first quarter results showed EPS growth rising 38% to $0.11, but apparently investors were not impressed with numbers that were sequentially below fiscal 2010 fourth quarter results. We were not too worried: 1.) The first quarter is typically a weaker quarter for IEC. 2.) Recent acquisitions had not begun to materially impact operations.  Last Friday we were pleasantly surprised by preliminary fiscal 2011 second quarter revenue information announced by the company.

“The Company expects to report revenue of approximately $35 million for the fiscal 2011 second quarter, up 22% from revenue of $28.6 million in the first quarter ended December 31, 2010 and almost 40% from the second quarter of 2010.”

Applying current company margins, we calculate that IEC will report fiscal 2011 second quarter EPS of at least $0.14, up 27% from the same period last year.  However, we believe that there is strong possibility that EPS could reach $0.20+. Recall that the 2011 first quarter included about $270k of one-time expenses. This leads us to believe that margins will experience a significant margin improvement and put IEC on track to easily exceed full year 2011 analyst EPS estimates of $0.62.  A GPR of 4 still appears to be in the cards.

Us Home Systems (NASDAQ:USHS) (see alerts) **Price: $4.88; Coded as a GeoBargain at $4.29.

Manufactures, procures, designs, sells and installs custom quality specialty home improvement products.

Original notes:

  • GPR of 5
  • GeoSpecial
  • Fiscal 2011 analyst EPS estimates of $0.50 indicate growth of 100%, assuming the company meets 2010 estimates of $0.25.
  • Strong EPS performance for each of the last four quarters
  • Operates in a sector that often benefits from consumers’ choice to upgrade their current dwelling as opposed to purchasing a new home during recession periods.
  • Major risk is it’s heavy reliance on their relationship with Home Depot.
  • Short-term price target based on a P/E of 15 on analyst 2011 EPS expectations of $0.50: $7.50.

Post article Update *Price $4.68

USHS shares remain stagnant since the original inclusion into the GeoInvesting mock portfolio. GPR has now improved to 7 and we are hopeful that gradual U.S. economic recovery will continue to benefit financial results. The major reliance on its relationship with Home Depot could limit P/E expansion.

Versar (NYSE AMEX:VSR) (see alerts) **Price: $3.35; Coded as a GeoSpecial at $3.01

International professional services firm supporting government and industry in national defense.

Original notes:

  • GPR OF 5
  • GeoSpecial
  • Turnaround story. Company has rectified problems that plagued it during fiscal 2010
  • Company has quickly returned to profitability after dismal 2010
  • Stock has sold at much higher levels in the past, when the story line was not as strong as it is now.
  • Insider buying
  • Strong backlog
  • Short-term price target based on a P/E of 15 on our 2011 EPS expectations of $0.35: $5.25.

Post article Update *Price $3.09

VSR shares weakened during the first quarter. After a string of quarterly losses, the company has now turned in two consecutive quarters of robust EPS growth, prompting insiders to accumulate shares. So we decided to do the same. We are postulating that some of the current share weakness has resulted from the company doing a poor job of communicating how the strong fiscal 2011 second quarter financial results, where the company reported EPS of $0.10 vs. a prior year loss, was driven by a one-time item. We calculate that the company still would have reported EPS of around $0.06.  We have told the company that it needs to be clearer about such matters in the future. (Recent price action has not been positive, giving us some pause as we await March 2011 financial results).

Rpc (NYSE:RES) (see alerts) **Price: $18.11; Coded as a GeoTrade at $16.48

Provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of oil and gas properties throughout the United States

Original notes:

  • Improving economy will lead to increase in demand for oil exploration
  • Was one of our recent successful short term trades
  • Stock has pulled of highs likely because investors have lightened up on post split shares.  We see this as a buying opportunity to reestablish a position.
  • Increased dividend
  • 2011 EPS expected to grow 62%, but stock sports only a PE of 11.6 on $1.56 split adjusted EPS estimate.
  • Short-term price target based on a P/E of 15 on analyst 2011 EPS expectations of $1.56: $23.40. (conservative)

Post article Update *Price $23.26

RES has taken us on a volatile ride where fortunately every dip has been an opportunity to add shares.  After locking in profits from our first trade on December 14, 2010, shares dipped in late December following a 3 for 2 stock split.  This is a common trend post forward splits, as investors adjust portfolios. On December 31, 2010,  we established our second trading position in RES shares seeing a nice rise to a 52 week high of $26. In February we decided to code shares as a GeoSpecial: 1.) Stock now has a GPR of 4.  2.) Company purchased nearly $1 million shares of its common stock.  We believe that RES could benefit from higher oil prices and a possible domestic push to reduce the reliance on foreign oil.

American Biltrite (NYSE AMEX:ABL) (see alerts) **Price: $6.75; Short-term trading position at $5.85; coded as a GeoSpecial at $6.88.

Operates domestically through two businesses, the Tape Division and K&M Associates L.P. ”ŒThe Tape Division produces adhesive-coated, pressure-sensitive papers and films used to protect material during handling or storage.a. K&M is a designer, supplier and distributor of a wide variety of adult, children’s and specialty items of fashion jewelry.

Original notes:

  • GeoSpecial (Special situation play)
  • Stock price has been depressed due to legal issues related with one of its past flooring subsidiaries (Congoleum).  Issue revolves around asbestos lawsuits against this subsidiary.
  • Per recent successful chapter 11 proceedings of Congoleum, the company no longer has an ownership interest in Congoleum.
  • Claims to have more then adequate insurance coverage for future claims tied to its past involvement with old subsidiary.
  • Stock is thinly traded and will move quickly if company can put together a string of strong profitable quarters similar to its 2010 third quarter when it reported 2010 third quarter EPS of $0.59 vs $0.11 in the 2009 comparable period.
  • Although we expect to see some PE expansion, we do not see maximum expansion due to lingering affect of legal issue that will last for many years and a risk that claims could exceed insurance coverage. Company will still be exposed to past litigation due to involvement with old subsidiary.
  • Challenge going forward will be to achieve reasonable revenue growth in a mundane industry.
  • We are banking that the a repricing of risk premium (via P/E multiple expansion) will occur now that Congoleum is not part of ABL business.
  • Short-term price target:  TBA

Post article Update *Price $11.00

ABL shares have slowly risen,  nearly doubling over the past few weeks. The company reeled in strong 2010 fourth quarter results, reporting tax adjusted EPS of $0.19 vs. $0.12 in the comparable 2009 period.  We were somewhat surprised that the stock did not pull back, as financial results were sequentially lower than adjusted EPS of $0.33 reported in the 2010 third quarter.  2010 Tax adjusted EPS came in at $0.75. We are banking on the hope that ABL can attain a P/E of 20 on trailing EPS as the risk premium on its shares is reduced by the market.  If this scenario plays out, shares could reach $15.00. Risks to this story include. 1.) The expected continued increase in raw material costs and, 2.) No specific forward looking guidance.

We have taken some shares off the table.

Stocks added to mock portfolio Group (NASDAQ: WWWW)(see alerts) *Price $14.86; Coded as a GeoSpecial at $13.87

A provider of internet services and online marketing solutions for small businesses.

Coding WWWW as a GeoSpecial

  • 2010 Fourth quarter EPS came in at $0.26, easily eclipsing analyst estimates of $0.17
  • GPR of 3
  • EPS for five of the next six quarters are expected to grow at least 20%
  • Adjusted 2011 EPS is expected to grow 48.6% to $1.04
  • Beautiful steady up-trending chart
  • Should benefit from the increased use of the web by small business to market products and services as economy improves
  • Very positive 2010 year end conference call

We could not code WWWW as a GeoBargain

  • Debt to equity ratio is over 1
  • Current ratio is under 2 to 1 (current assets divided by current liabilities)

Potential short-term price target scenario: $15.60 to $17.50 (outside chance of $21.00)

PDF Solutions (NASDAQ:PDFS)(see alerts) *Price $6.53; Coded as a GeoSpecial at $6.46

A provider of yield improvement technologies and services for the IC manufacturing process life cycle.

  • Reported strong 2010 fourth quarter results.
  • Has a GPR of 8, one of the best we have come across.  2011 EPS are expected to grow 114.3% to 0.60 followed by another 41.7%in 2012 to $0.85.
  • Has exposure to Asia

On October 19, 2010, authorized an extension of and an increase in the stock repurchase program.
Pursuant to such action taken by the Board of Directors, the stock repurchase program has been extended for two more years until October 29, 2012, and the aggregate amount available for repurchase under the stock repurchase plan, as amended, has been increased to $10.0 million of the Company’s common stock.

  • Will benefit from smart phone trend

Subject to the current general economic environment, demand for consumer electronics and communications devices continues to drive technological innovation in the semiconductor industry as the need for products with greater performance, lower power consumption, reduced costs and smaller size continues to grow with each new product generation. In addition, advances in computing systems and mobile devices have fueled demand for higher capacity memory chips.

  • Management issued encouraging commentary in its 2010 year end conference call, saying that sales will continue to rise commensurate with industry trends and that net income will grow faster than sales.

Short-term price target based using a P/E of 15 on 2011 analyst EPS expectations of $0.60: $9.00

We would have coded the stock as a GeoBargain if our short-term valuation target would have been higher. However, we believe that there is a good chance that analyst estimates will be exceeded due to industry dynamics. We also believe there is an outside chance that the stock could reach $12.00 using a P/E multiple of 20 on 2011 EPS estimates.

Super Micro Computer (NASDAQ:SMCI)(see alerts) *Price $15.71; Coded as a GeoSpecial at $13.91

“…server technology innovation and green computing, provides customers around the world with application-optimized server, workstation, blade, storage and GPU systems.”

  • GPR of 6
  • EPS has grown at least 30% for five consecutive quarters
  • Company is a best of breed targeting a sexy market segment: the leader in server technology innovation and green computing
  • SMIC may have a cloud computing angle
  • Risk: Company has had periodic instances of missing analyst financial estimates

Core Molding Technologies (AMEX:CMT)(see alerts) *Price $8.13

A compounder of sheet molding composites (SMC) and molder of fiberglass reinforced plastics.

  • Reported EPS of $0.25 for the 2010 fourth quarter. Although EPS was flat when compared to 2009, it was by far the best quarter in 2010.
  • Since third and fourth quarters are CMT’s seasonally weakest quarters, we see a good possibility that the company will experience sequential improvements in EPS for the 2011 first and second quarters.
  • A GPR of 3 could be in the cards.
  • Demand for its products should remain strong throughout 2011 and 2012: Industry analysts and the truck customers are collectively forecasting meaningful growth throughout 2011 and into 2012.
  • Public companies, NAV and PCAR, are two of the company’s biggest customers and are expected to grow EPS by at least 40% over the next two years. In fact, PCAR just reported strong financial results and has a GPR of 7, while two analysts just raised their price targets on NAV.
  • Major risk: NAV and PACR comprise the majority of CMT’s revenues. This fact could also limit P/E expansion.
  • S-T target based on a P/E of 20 on trailing EPS of $0.60: $12.00

Tor Minerals (NASDAQ:TORM)(see alerts) *Price $17.95; Coded as a GeoSpecial at $13.50

Recently coded as a GeoSpecial

Company manufactures and sells specialty mineral and pigment products, used as coatings in high performance applications.

  • Until recently the company served customers whose pigmentation and quality needs were not as demanding as others in the industry.  Thus, the company has been a low price provider.  Generally, the company’s focus had limited its market opportunity
  • Two basic trends have opened up TORM’s market.  In an effort to cut costs, higher end players that would never have used TORM low end products are now doing so.  The company has also developed patented process(es) enabling TORM to expand operations to include high-end quality product lines, allowing them to be considered  by customers who would  have never considered TORM’s lower quality product line. More importantly, TORM can offer this product line at lower price points than its customers.
  • Company should be able to finance growth from internal cash flows.
  • Company recently completed a badly needed financing transaction.
  • Major risks: 1.) May have to locate a new source for its raw material at higher price points.  2.) Company may have difficulty passing on increasing commodity input costs to its customers (although management has indicated it expects to be able to pass through costs in 2011). 3.) Quarters can tend to be lumpy.

TORM is one of those plays that could go either way and is the wild card in our mock portfolio. 2011 first quarter financials will likely set investors’ psychological trend for the year. The wild card impacting EPS growth will be if growth in net income will be able to offset the 50% increase in the share count resulting in a recent financing arrangement that essentially saved TORM from succumbing to serious operational challenges. If not for dilution, we believe that TORM would be a slam-dunk.

Stocks deleted from mock portfolio

Brown Shoe Co (NYSE:BWS) (see alerts) *Price: $13.66; Coded as a GeoBargain at $14.15.

A $2.5 billion global footwear company.

Original Notes

  • GPR of 5
  • GeoBargain
  • Strong visibility as indicated by management’s willingness to provide 2011 EPS guidance in the range of $1.31 to $1.43.
  • Company recently crushed earning estimates
  • Issued 2011 guidance well above estimates
  • 2010 third quarter conference call was very bullish
  • Stock is still well off of its high despite recent good news.
  • Short-term price target based on a P/E of 15 on analyst 2011 EPS expectations of $1.31: $19.65.

Post article update:

BWS was the big disappointment of the quarter.  The company reported 2010 fourth quarter EPS of $0.11, missing analyst estimates of $0.15.

“We faced challenges in the second half related to sourcing and supply chain inefficiencies as well as the systems migration within our Wholesale business in the fourth quarter.”

To make matters worse, the company will not attain an acceptable GPR (of 3) until the conclusion of the second quarter. Luckily, full year 2011 EPS estimates remain intact and management bought back shares when the stock sold off sharply on earnings.  We did the same.  We only choose to remove BWS from the mock portfolio to make room for what could be more timely selections.

Handy & Harman Ltd Common Stoc (NASDAQ:HNH); formerly WXCO. *Price: $12.50

A diversified global industrial company…

“…delivering value through the WHX Business System which drives innovation, operating excellence and superior customer service. Our companies are organized into six business segments: Precious Metals, Tubing, Engineered Materials, Arlon Electronic Materials, Arlon Coated Materials and Kasco. ”

Original Notes

  • Remains in mock portfolio
  • The company followed its 2010 second quarter performance with another blow out EPS outing for its 2010 third quarter: $0.49 vs $0.08.
  • Lowered borrowing costs

“We also refinanced in October substantially all of WHX’s indebtedness principally with our existing lenders or their affiliates.  This refinancing will lower our ongoing borrowing costs compared to our prior financing arrangements and extend the maturity date of almost all of our indebtedness,” Mr. Kassan stated.

  • The company serves markets that will directly benefit from a gradual economic recovery:

medical, semiconductor fabrication, aerospace and instrumentation industries refrigeration, automotive, and heating, ventilation and air conditioning (“HVAC”) industries building and roofing material wholesalers military/aerospace, wireless communications, transportation, energy generation, oil drilling, general industrial, and semiconductor markets

The Stainless Steel Tubing Group’s capabilities in long continuous drawing of seamless stainless steel coils allow this Group to serve the petrochemical infrastructure and shipbuilding markets.

“The increase in demand as compared to 2009 for WHX’s products and services that we reported in the first half of 2010 continued in the third quarter, resulting in 22.1% quarter-over-quarter sales growth, and 22.9% sales growth on a year-to-date basis versus 2009,” said Glen Kassan, Vice Chairman of the Board and Chief Executive Officer of WHX. “The increased sales volume across all operating business segments was driven by the improvement in the world-wide economy, with increased demand from the electrical, replacement roofing, petrochemical and commercial construction markets.”

We will consider adding HNH to the GeoSpecial list.

  • Short-Term Price Target: TBA

Post article update:

HNH closed out 2010 with disappointing financial results.  The company has offered us a luke warm response to conducting an interview with our team. The company also is mired with substantial interest expense and does not issue much in the way of financial guidance.  The Company is selling assets to pay down debt, which is why we will, at the very least, still track developments to this story.

Navistar Intl Corp (NYSE:NAV) (see alerts) *Price: $56.49; Initiated a short-term trading position at $58.06

A holding company whose subsidiaries and affiliates produce international brand commercial and military trucks

Original Notes

  • GPR would be at least 8 if not for fiscal third quarter ending July 2011, when EPS growth temporarily slows.
  • EPS expected to grow 50% in each of next two years to $4.63 and $7.07, respectively.
  • Stock has yet to react to positive fiscal 2010 fourth quarter results.  Missed estimate on GAAP basis, but astute investors will realize that they beat on non-GAAP basis.
  • Direct economic recovery play.
  • Short-term price target based on a P/E of 15 on analyst 2011 EPS expectations of $4.63: $69.45.

Post article update:

We have had fun trading NAV over the past several weeks as it ran to a 52 week high of $70.82, slightly passing our short-term target. We mainly decided to remove NAV from the mock portfolio since it may be getting a little pricey for our readers. However we still own shares in this name and now feel shares could hit $82 this year and eventually pass $100 in 2012. NAV has a GPR of 1 and could see some resistance until the company enters its fiscal 2011 fourth quarter when the GPR goes to a solid 5. Investors will also be prone to risk due to the wide EPS guidance of $5.00 to $6.00, which could set up investors for a disappointing quarter along NAV’s growth path.  We may explore the possibility of purchasing long-term call options, a new strategy we have employed that is working well for us.

Global Defense (NASDAQ:GTEC) (see alerts) *Price: $16.46; Coded as a GeoSpecial at $15.33

A full-service IT and government solutions firm with a strong track record of past performance supporting mission-critical US intelligence, defense and law enforcement programs in highly secure environments

Original Notes

  • GeoSpecial
  • Operates in an industry that will see increased demand as the company addresses homeland security solutions.
  • Company claims to have several advantages such as having an intimate relationship with customers and an ability to quickly respond/resolve customer emergencies/operational breakdowns. Focus is on predictable work and superior customer service. Also targets higher margin and highly technical areas of its served markets.
  • This is a sensitive industry which results in customer loyalty to competent firms.
  • Large predictable backlog.
  • Short-term price target based on a P/E of 25 on analyst 2011 EPS expectations of $0.89: $22.25. We have not yet valued GTEC on 2011 estimates of $1.15, as we believe they are conservative.

Post article update:

GTEC was one of the highlights of the 2011 first quarter. On March 3rd, 2011 the company accepted a $24.25/share buy offer from Ares Management.  Coincidently, the take out price was right at our short-term price target. GTEC is another example of a growing list of  GeoBargain/GeoSpecial stocks to be acquired over the last 2 and a half years.

Lsb Industries (NYSE:LXU) *$23.98 Initiated a preliminary position at $24.81

Manufactures and sells commercial and residential climate control products, such as geothermal and water source heat pumps, as well as chemical products for the mining, agricultural and industrial markets.

Original Notes

  • Recent EPS history has been lumpy, but GPR is a solid 5.
  • Seeing strength in markets that will continue to improve with economic recovery.

Jack Golsen, LSB’s Board Chairman and CEO stated, “We are seeing positive signs in our Climate Control Business in sales, new orders and backlog. Our Climate Control backlog also continues to move in the right direction, with sequential quarterly improvement since year-end 2009. We are encouraged by the improvement in our commercial products order level and we believe our aggressive advertising and marketing campaign and the enactment of federal tax credits for geothermal heat pumps have had a positive impact on sales of those highly energy efficient and green products.”

Turning to LSB’s Chemical Business Mr. Golsen continued, “The current outlook points to positive supply and demand fundamentals for the types of nitrogen fertilizer products we produce and sell, although, during the third quarter, our agricultural product sales were impacted by weather conditions in certain areas of our markets. We are, of course, pleased that the prior Facility is producing ammonia and look forward to the contribution it will make in the years to come. We are also optimistic about improvement in the industrial and mining markets we serve as the economy continues to recover.”

  • Backlog is significantly up from prior year.
  • Appears pricey at a P/E of 31.2 on 2010 EPS analyst estimates of $0.77 and a P/E of 14.1 on 2011 EPS estimates of $1.70. However, the company has been beating analyst estimates and given 2011 estimate EPS growth rate of 121%, we are willing to value shares at a P/E of 20 on 2011 EPS estimates.
  • Short-term price target based on a P/E of 20 on analyst 2011 EPS expectations of $1.70: $34.00.

Post article update:

Given the stock’s strong run and that shares eclipsed our short-term price target, we have removed LXU from the mock portfolio.  We still feel the stock has some more momentum left to the upside, but we decided to add room for more virgin entries.  We still own shares and think there is a good chance that LXU will continue to exceed estimates. LXU has a GPR of 3 and we now feel shares could reach $41.40, or 15 times 2011 analyst EPS estimates of $2.76.

Top Selections: Overall we are excited about AMOT MERC CMT CVU IEC and mildly concerned about TORM VSR

*Price as of business close on Friday, April 15, 2011

**Price as of business close on January 5th, 2011

***For more on GPR, please see this.