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Barry Randall spent five years as a technology stocks analyst and 10 years managing funds that include small-cap growth and technology portfolios as large as $650 million. Prior to earning his MBA in 1993,he spent six years as a professional computer programmer.

Barry who has over 20 years of professional investing experience and manages the Crabtree Technology portfolio on Covestor and provides this update on Rogers Corp. (ROG), ESCO Technologies Inc. (ESE) and Cascade Microtech Inc. (CSCD):

3 small-cap, tech stocks that thrill me

The fourth quarter earnings season, which used to last from mid-January to, say, Groundhog Day, now stretches interminably into late February and even early March.

Credit or blame can be allocated equally to former Senator Paul Sarbanes and former Representative Mike Oxley, whose eponymous legislation passed in 2002.

Sarb-Ox

“Sarbanes-Oxley” made going public and staying there an even more expensive and time-consuming proposition than it already was. More “I”s to dot and more “T”s to cross, I guess.

But a silver-lining of “Sarb-Ox” is the earnings conference call. Yes, public companies have held conference calls for many years.

But thanks to Sarbanes-Oxley (and the rise of the webcast) virtually every public company’s earnings call was now available for your listening pleasure – or your reading pleasure, owing to transcription.

This is especially valuable to money managers like me, who specialize in smaller capitalization companies.

Sure, the entire participant roster of some of these conference calls could fit into a Tesla Model S, but it’s a big improvement from the bad old days of ‘selective disclosure.’

And so here we are in mid-March. Practically every public company has now reported its December quarter and their analysts have raised or lowered 2015 earnings estimates.

Portfolio managers have culled their portfolios, added new positions to replace the dearly departed and even raised their allocations to our favorite names.

My Trio

Here are three that look promising at this time.

Rogers Corp. (ROG); Market Cap: $1.4 billion; 2014 revenue: $610 million)

Rogers is a Connecticut-based maker of printed circuit boards, specialty materials and high-power electronics. On the face of it, Rogers wouldn't seem to be on the leading edge of technology.

But the nearly 200-year-old company is getting a lift from several major trends, including the voracious appetite for wireless infrastructure and the popularity of hybrid electric vehicles.

Only, instead of needing a brand new product line-up every three months like your typical mobile handset maker, Rogers can work with longer product cycles and still deliver high-technology solutions.

How high-tech? Well, instead of putting the Rogers’ technical ‘chops’ in terms of “nano”-this or “giga”-that, consider its fourth quarter gross profit margins were 39.5%, a nice mark-up and a lot closer to white hot players like NXP Semiconductor (45%) than to even blue-chip contract manufacturers like Jabil Circuit (6%).

R&D Muscle

High gross margins are a measure of product quality and scarcity and reflect well on the 4% of revenues that Rogers is spending on R&D.

Oh, and Rogers’ Q4 gross margins were over two full percentage points higher than in its year-earlier quarter. What else was good about Q4?

Non-GAAP earnings of $0.89, which was not only well ahead of the $0.72 consensus, but also ahead of the company’s own $0.64 – $0.76 guidance.

And its outlook for the current year was sufficiently positive that Street earnings estimates for 2015 have gone from $3.50/share to $3.77 in the last month.

Double-Digit Growth

ESCO Technologies Inc. (ESE); Market Cap: $1.1 billion; 2014 revenue: $527 million)

ESCO is an industrial technology supplier. Based in St. Louis, the company offers highly engineered products in fluid filtration, electromagnetic shielding and utility-scale test and measurement.

Overall business can be choppy at times for ESCO and sales in its December quarter actually declined about 3% from the same period a year earlier.

But the company’s book-to-bill ratio exiting December was a whopping 1.26, reflecting a re-acceleration of business.

Moreover, on its conference call, management reiterated confidence in achieving 10% revenue growth for the full year of 2015.

Cash Flow

And, in my opinion, EPS growth seems likely to be as good or better, with stock buybacks and opportunistic M&A, both driven by solid cash flow.

After ESCO reported on February 9, its stock fell slightly. Perhaps that was a reaction to its March quarter guidance that was a bit below some aggressive analyst expectations.

What I see is a good operator trading at a reasonable valuation (less than 2x sales) whose business is accelerating hard.

Tech Specialist

Cascade Microtech Inc. (CSCD); Market Cap: $200 million; 2014 Revenue: $136 million)

Beaverton Oregon-based Cascade develops and sells equipment used by semiconductor makers to test their products while still in wafer form – just after manufacturing but before packaging.

Cascade makes the test machines themselves, plus consumable products used during testing, and provides various installation, training and maintenance services.

In its December quarter, Cascade reported Non-GAAP earnings per share of $0.26, well ahead of the $0.18 analyst consensus. Revenue in the quarter was $36.6 million, a record for the company and in-line with its previous guidance.

Fourth quarter gross margin of 53.4% was near an all-time high and bookings were a record, leading to a 1.27 book:bill ratio.

On its earnings conference call, it provided conservative guidance for its March quarter, owing simply to normal seasonal patterns.

This has caused the share price to retreat, making it even easier to buy shares of a very solid technology supplier.

This post originally appeared on Smarter Investing by Covestor

Photo Credit: Derek Gravey via Flickr Creative Commons

Mark Holder has more than 18 years of investment industry experience and is a member of the Oklahoma Society of CPAs.  Mark believes that the best opportunities may arise from ideas that are not fully understood or appreciated by others in the market and manages the Net Payout Yield portfolio on Covestor and provides this update on IBM, a current holding:

Why unloved IBM is actually a great buy

IBM (IBM) is owned by Warren Buffett, yet disliked by the broader market.

At the same time, the stock trades near multi-year lows, providing an interesting opportunity to own the stock close to recent lows.

The reasons the Net Payout Yields portfolio owns the stock are mostly different than Buffett.

Buybacks

However, we share an appreciation for the perceived value of a long-term technology franchise.

While Buffett does acknowledge large stock buybacks as part of the reason for owning IBM, it is the primary reason this portfolio owns the stock. The Net Payout Yields portfolio focuses solely on stocks with a high combination of the net stock buyback yield and forward dividend yield to signal an attractive value in a stock.

Buying Opportunity

In my opinion, a stock like IBM that has declined from around $190 to below $155 (as of March 16) in less than six months is more attractive now.

The lower the stock goes, the more the company can reduce the outstanding share count with an equivalent amount of cash. The less shares outstanding the more an equal level of earnings will increase the earnings per share.

With a dividend yield of around 2.8%, IBM needs a large stock buyback to remain in the model that targets large cap stocks (market value in excess of $10 billion) with yields in excess of 8%.

In essence, IBM needs to reduce the share count by over 5% per year to make the stock attractive to this model.

In the last four quarters IBM has repurchased the following amounts of stock, according to its investor relations website:

Q114: $8.17 billion

Q214: $3.66 billion

Q314: $1.72 billion

Q414: $0.13 billion

In total, the company has repurchased about $13.7 billion worth of stock in the last four quarters.

Dividend Yield

Subtracting the value assigned to the issuance of stock options, the net stock repurchases are closer to $13.0 billion for the last four quarters.

With a market value of around $152 billion, the net buyback yield sits at around 8.3%. Add the 2.8% dividend yield and the Net Payout Yield (NPY) hits a very attractive and robust 11.1%.

With 10-year Treasury yields around 2.1%, IBM is a very attractive stock in my opinion that has returned 11% of capital to shareholders in my opinion.

Selling Trigger

The reason to sell a NPY stock is that the yield drops below the target.

This occurs for two prime reasons: large stock gains that reduce the impact of a stock buyback or corporate decisions to eliminate a stock buyback, dividend or a combination of both.

In the case of IBM, the prime concern for this stock is the low stock buyback during Q4 along with declining cash flows and higher debt.

Unless the technology company spends over $8 billion on stock buybacks during Q115, the yields decline.

IBM approved another $5 billion for stock buybacks back in October and has over $6 billion still authorized after a limited Q4 buyback.

Clearly the yield will decline some after the Q1 buybacks, but it should still provide an attractive yield.

Takeaway

While the fundamental story in IBM is admittedly shaky, the NPY concept helps investors focus on the valuation inherent in a stock with the financial ability to substantially reduce the outstanding shares while paying a solid dividend.

Even better, a stock like IBM benefits from buying stock at lower prices after the recent stock slump. Now if the company fails to use the lower stock price to buy more shares, than we’ll use that information to re-analyze the position.

With a major shareholder like Buffett talking up the buybacks that doesn’t appear to be the case and that’s why we still own the stock.

This post originally appeared on Smarter Investing by Covestor

Photo Credit: Patrick via Flickr Creative Commons

Disclosure: Long IBM.  The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.   .

Gregg Giboney, CFA has been investing professionally for nearly three decades. His career includes 20 years at First Interstate/Wells Capital Management. Mr. Giboney founded Timberline in 2005 to continue to provide quality investment advice.

Gregg manages the Dividend & Growth portfolio on Covestor and makes the case for interest rates being raised mid-2015:

The Fed is on pace to raise rates in July

The Bureau of Labor and Statistics released monthly employment data in early January.  In general, the news is good with headlines items favorable with some underlying data one might consider concerning.

To start things off, headline numbers of +252k of nonfarm payroll growth and an unemployment rate that fell to 5.6% were both better than expectations (+240k and 5.7% respectively).

Jobs report

There was also a nice decline in the unemployment rate that includes underemployed individuals that fell from 11.4% to 11.2%.

In addition to December numbers, there were positive revisions to job growth in the previous two months with 18k jobs added to October’s total and 32k added to November.

December results represented the 11th straight month of job growth over 200k, a 6-month average of +258k, and the strongest calendar-year growth in jobs since 1999.

For the month of December, job growth was led by Professional and Business Services (+52k), Construction (+48k), Food Services & Drinking (+44k) and Healthcare (+34k).

Wage growth

Beneath the headlines were less inspiring items. It was reported that 300k people left the labor force which had a positive effect on the unemployment rate calculation.

This exit of workers also led to a decline in the labor force participation rate to 62.7%, a 37 year low.

Wage growth, an area under great attention as an indicator labor market strength, was weak with average hourly earnings falling by $.05 and represents annual growth of only 1.7%.

Another key indicator, average workweek hours, was unchanged at 34.6 hours.

Slack

As mentioned, the overall report was good but the wage growth number have many wondering why strength in job growth is not translating into wage growth.

Economists have pointed to the continued slack in the labor force (the labor force participation rate supports this), global labor and technology alternatives, and cases where businesses are having a hard time finding qualified workers.

Despite this, the numbers support current expectations of the Fed starting to increase short-term rates around June of this year in my opinion.

Nevertheless, the nature of wage growth has to have Fed officials concerned. I also wonder how oil prices will work its way into the situation.

Energy prices

There could be rapid layoffs in oil producing states that have been the source of much of this country’s job growth.

Over time, I believe lower energy prices will be a net positive but the net positives may take time to develop.

Given this, we could see some interesting developments in future employment statistics. At this time, equity markets are weak with some saying there is a focus on wage growth.

This post originally appeared on Smarter Investing by Covestor

Photo Credit: Day Donaldson via Flireative Commons

Barry Randall spent five years as a technology stocks analyst and 10 years managing funds that include small-cap growth and technology portfolios as large as $650 million. Prior to earning his MBA in 1993,he spent six years as a professional computer programmer.

Barry who has over 20 years of professional investing experience and manages the Crabtree Technology portfolio on Covestor and provides this update on Verizon Communications:

Why I still like Verizon

On December 8, one of our holdings in the Crabtree Technology portfolio, Verizon (VZ), provided a mid-quarter update on its business. The company noted some distinctly positive developments, like continued growth in its post-paid wireless business.

However, it also indicated that aggressive promotions from Sprint (S) and T-Mobile (TMUS) were causing operating profit margins to be lower than expected. Moreover, the company’s “churn” rate has risen recently as it gains and loses customers more frequently.

Dollar share

Verizon’s stock declined about 4% on this news, which is understandable.

Sprint and T-Mobile are desperate to maintain relevance and while neither is profitable, both are growing more quickly than AT&T (T) and Verizon and taking incremental market share from the two larger competitors.

We estimate that the U.S. telecommunications services market is about $400 billion annually; Verizon and AT&T each have about 30% market share, based on their current revenue run-rates. Sprint and T-Mobile have about 9% and 7% respectively.

At our firm, we really like companies that grow market share, or perhaps merely hold on to share in an industry that is growing quickly. Which begs the question: why are we holding on to our Verizon position when they are probably losing market share?

The answer lies in the difference between market share and what I call, “dollar” share. Market share is easily defined: the proportion of revenue from a distinct industry or sector that belongs to an individual company.

Steady performance

Google (GOOG), for example, has about 65% market share in the on-line search business; the balance is held by Microsoft (MSFT), Yahoo (YHOO)and some much smaller firms.

Yet Google’s market share has remained roughly steady for several years.

The 20-25% revenue growth rate they’ve sustained over that same time frame has occurred because online advertising in general (and search in particular) is itself taking dollar share from other areas of advertising, like television, radio and newspapers.

And while that helps boost Google’s top-line, the search engine giant is losing some dollar share to Facebook (FB) and other social media sites, the content of which Google generally can’t index and therefore can’t search. It’s never easy.

Back to Verizon. Verizon’s growth top-line growth rate (and that of its wireless business – both about 5% year-over-year in its most recent quarter) roughly matches U.S. and worldwide telecom service growth.

And as noted earlier, they’re on track to lose 1-2% points of telecom services market share this year in the U.S.

Video revenue

But telecom services growth itself is being driven by immense amounts of data – particularly video – that is migrating away from traditional media channels. And that video stream contains advertising.

This year, $50 billion will be spent in the U.S. on all forms of online advertising. Of this, 6%, or $3 billion will be video ads (e.g., those pre-ads you get before watching a YouTube video).

In short, the second screen in your hand or your lap is becoming the primary screen for many people.

Back when Verizon and its predecessors were phone companies, all they carried was voices. And they weren’t paid by the syllable.

Now they carry bits. And while Net Neutrality rules limits their ability to charge by the bit, Verizon’s average revenue per customer account is rising as they and their telecom competitors capture dollar share.

Real deal

It would be great if Verizon were gaining market share, but for that to happen, Sprint and T-Mobile will need to stop their price war. How might that come about? Both of the smaller players are losing money.

Thus, it might eventually occur to regulators that it would be better for the two of them to merge into a third, well capitalized competitor (something Sprint tried to bring about earlier this year).

This would surely be preferable than to have both wither and potentially fade, losing money and market share and leaving the U.S. with Verizon-AT&T duopoly.

Or T-Mobile or Sprint’s foreign overlords, Deutsche Telekom (DTEGY) and Softbank (SFTBY) respectively, might discreetly nudge their subsidiaries to revert to a rational pricing model and operate profitably in an unspoken but convenient collusion.

For now, we’re content to hold on to our stake in Verizon. We get direct exposure to the mega-trend of wireless communications.

Cash flow

Prodigious operating cash flow is meeting debt service and providing a 4.7% yield, although dividends reflect past performance and there is no guarantee they will continue to be paid.

And the larger company serves as a nice counterweight to the more volatile names in the Crabtree Technology portfolio.

Hey, if the wait drags on, we can always entertain ourselves with some online cat videos, delivered via our smart phones.

This post originally appeared on Smarter Investing by Covestor

Photo credit: Mike Mozart via Flickr Creative Commons

Bill Peattie is the Founder of Peattie Capital Management a RIA in Stamford, CT.  Previously, Bill was a portfolio manager at SF Sentry and managed portfolios at Montgomery Securities. He also spent 10 years working as an institutional fixed income trader at Credit Suisse First Boston.

Bill manages the Reasonable Price portfolio on Covestor and provides this bullish outlook for US equity:

10 reasons the stock market rally still has legs

The market’s sell-off and subsequent rally have so far played out in textbook fashion with a nearly 10% drop in many major U.S. stock indices.

While it’s impossible to say whether we’ve seen the low for the year, the recent rally from mid-October suggests to me we have.

The good news is that the median rise to the next peak of this bull market may be about 17.5%. If so, that would mean another nine percentage point gain from the closing level at the end of October.

The bear will need to wait.

I’m still bullish on equities. And here are 10 reasons for my optimism.

1) Profits

Earnings have been beating estimates and profit growth for the quarter is 7.5% for the 360 S&P 500 companies that had reported through October 30, according to my research.

2) Midterm Pop

Historically, the six-month period following the mid-term elections is the strongest six-month period for share prices during the the four-year presidential cycle.

3) US Economy

The economy continues its slow and steady expansion, with real GDP growth expected to near 3% in the second half of 2014 and between 2.5% and 3.0% in 2015.

4) Sentiment

Overly optimistic sentiment indicators corrected with the September/October sell-off. While they didn't reach extreme pessimism, they did retreat significantly.

5) Recession Fears

Signs of a pending recession are nowhere to be found.

6) Oil

The drop in oil prices will provide a solid tailwind for increased consumer spending, which is roughly 65% of U.S. GDP.

7) Jobs

Unemployment rates are trending down.

8) Japan

Last week the Bank of Japan, in a surprise move, increased its version of quantitative easing, a move that extends the favorable liquidity environment.

9) Bonds

Returns on bonds remain negligible and make stocks more attractive.

10) The Dow

Both the Dow Jones Industrial and Transportation Indices set new highs last week, which many people have traditionally believed is a bullish signal.

Barry Randall spent five years as a technology stocks analyst and 10 years managing funds that include small-cap growth and technology portfolios as large as $650 million. Prior to earning his MBA in 1993, he spent six years as a professional computer programmer.

Barry who has over 20 years of professional investing experience and manages the Crabtree Technology portfolio on Covestor provides some color to the recent events surrounding his holding in Shutterfly:

Shutterfly: A takeover mystery unraveled

Professional money managers, like investors everywhere, occasionally wake up to good news.

In my case, I woke up on July 2 of this year to some very welcome news about one of our holdings, Shutterfly (SFLY), the Internet-based image publishing service. (Think holiday cards, family photos, and funny pet images.)

Detective work

I thought you might find it interesting to see how we’ve handled a fluid and at-times bizarre situation. Feel free to pass judgment.

Bloomberg reported back on July 2 that the web-based printing firm had hired the investment bank Qatalyst Partners to shop it around. Shutterfly stock immediately rose from around $43 per share to $50.

Typically, news of a possible sale like this is leaked by the investment bank or the company itself as a strategy for determining a fair price for the company.

Sometimes this occurs when the company being shopped around has attracted no interest, and the investment bank uses this strategy to make sure any potential buyers are aware of the situation.

I believed, however, that Shutterfly had likely attracted some interest, so the leak of the information was being used to home in on an equitable price.

Mating dance

There were no guarantees that Shutterfly would find a buyer. Even if it did, there was no guarantee that the buyer would offer more than the $50 per share at which it was suddenly (and happily) trading.

But by early July, Shutterfly was firing on all cylinders. With its prodigious cash flow and unique business model, it would be an accretive acquisition for many suitors. So we chose to hold on to our shares.

On July 30, Shutterfly reported earnings for the second quarter that ended on June 30. They modestly beat expectations and offered in-line guidance for the third quarter.

The stock rose about 4% the next day. This strengthened our conviction in holding on to the shares, even at the risk that a deal might not be consummated.

On August 14, TheStreet.com reported that several private equity firms, including TPG Capital and Carlyle Group, had either made private bids to Shutterfly’s board or intend to do so.

The source was the obligatory “people familiar with the situation.”  Which we believed was either Shutterfly itself or Qatalyst.

With these leaks, the principals were clearly trying to log-roll a deal. And given Shutterfly’s dominant position in its industry and its prodigious cash flow, a deal seemed very likely to happen. So we continued to wait.

On September 5, Heath Terry, Goldman Sachs’ Shutterfly analyst published a strangely elaborate analysis of Shutterfly in the context of an LBO takeout, presumably by a private equity firm.

The bottom line: at a hypothetical $60/share takeout offer, the deal offered a stout 20% internal rate of return to the buyer. The implication: there was plenty of headroom for an offer in excess of $60.

Enter Silver Lake

On September 22, Briefing.com reported that Silicon Valley private equity powerhouse Silver Lake Partners was preparing a bid for Shutterfly.

On Friday October 10, Bloomberg reported that Silver Lake Partners had “abandoned” an attempt to acquire Shutterfly, as well as competitor Snapfish, a division of Hewlett-Packard.

In that story, another unidentified source said that, “Silver Lake was valuing Shutterfly at about 12 times its future earnings before interest, taxes, depreciation and amortization.

That implied a purchase price of about $2.57 billion, based on estimates for 2015 EBITDA of $214 million, according to data compiled by Bloomberg.”

This dry bit of I-Banker-ese was actually a snarky swipe at Shutterfly’s board: a market cap of $2.57 billion equated to over $66/share.

Apparently, somebody wasn't impressed that Shutterfly had turned down an offer that was 55% higher than the stock had been trading on July 1.

I can say that I certainly wasn't impressed either. During the time I've known Shutterfly’s management, I've been impressed with their low-key demeanor and impressive operational execution.

Clown show

If in fact they did turn down a huge takeover premium, it would be a black mark against them. But the claim could also be an impulsive swipe by a banker that led the horse to water but couldn't get it to drink.

Maybe Shutterfly’s board thought their investment banker would shop the firm discreetly, not counting on suddenly being paraded across the global auction block like a piece of Kobe beef.

Or maybe, as they say at an auction, the money really wasn't “in the room” and Shutterfly’s bankers were clumsily trying to hang a price tag on their client for the one or two people left in America who weren't yet aware of the clown show.

The following Monday, SFLY shares fell 12%. As I type this in late October, SFLY shares are trading at about $43 per share – the same as on July 2 when this whole process started. We still hold our position.

Do I regret how I've handled the Shutterfly situation? No, not really. In hindsight it’s easy to say we should have taken the $50 and run. But there was ample evidence that a deal would be consummated at a price greater than $50/share. That may still happen.

But so far, it’s been a trick, not a treat. Shutterfly is still a great company, generating cash and taking share from off-line competitors. I believe we’ll be rewarded for our ownership; that reward has simply moved back into the future.

Cue the spooky music.

This post originally appeared on Smarter Investing by Covestor

Photo Credit: Pink Sherbet Photography via Flickr Creative Commons

Darren McCammon is the principal at ProActive Financial LLC in Reno, NV. He has over 20 years of experience providing financial planning to executives, small business owners and families. 

In his most recent investor post he identified this attractive opportunity:

Amid the energy sell-off the ultimate oil tanker play

Oil is the world’s major energy resource and is normally produced far from where it’s refined and consumed. Because of this, tankers and pipelines are critical infrastructure in the energy value chain.

Companies which supply these energy transportation services are commonly referred to as “midstream” companies because they are in the middle between the “upstream” producers and the “downstream” end product sellers and consumers.

Capital Returns

Generally speaking, pipelines are used within a given region whereas tankers are used for trade between regions.

Popular publicly traded pipeline names include Enterprise Product Partners (EPD), Plains All American Pipeline (PAA) and Kinder Morgan Energy Partners (KMP).

However, if you like the 4% distribution available from EPD, the 5% distribution from PAA  or the 6% distribution from KMP, you might really like the 11% distribution from Capital Product Partners (CPLP).

Capital Product Partners is a C-Corp. for tax purposes (U.S. investors receive the standard 1099 form and not a K-1 form) which owns and leases out ships, specifically: 18 product tankers, 4 crude tankers, 7 container ships, and a dry bulk carrier.

Product tankers are used to transport refined oil products (gasoline, diesel, kerosene, jet or fuel oil) to the market. They range in size from 5,000 DWT (Deadweight Tonnage) to around 80,000 DWT. One traditional trading route for product tankers is between North America and Europe.

Crude tankers are mainly used for the deep sea transport of crude oil from production sites to refineries. They range in size from 55,000 DWT up to around 450,000 DWT. The main trading routes are from the production areas in the Arabian Gulf and West Africa to China, the rest of Asia, Europe and the USA.

China To Walmart

Container carriers are a relatively new expansion for CPLP. Container carriers transport standardized steel containers throughout the world. These are then typically trans-loaded on to trucks and trains for transport to their final location.

A standardized container may be filled with finished goods from a factory in China, transported via ship, then rail, then truck to finally be unloaded at your local Walmart.

Dry bulk carrier transport bulk items like iron ore, coal or grain from one region to another (example iron ore from Australia to China).

Similar to pipelines, shipping rents have little to do with the short term price of the product being moved. It’s like utilizing a local bridge or toll road, you don’t pay a lower price to cross simply because your car is worth less. The toll taker doesn't care if you are driving a beat up old Pontiac or a Lamborghini.

Supply and demand for ships, and alternatives of transport available, are what most affects the price negotiated in shipping contracts. These are typically medium to long term contracts signed, in the case of CPLP, with the likes of Hyundai (HYMPF), BP, Overseas Shipholding Group (OSGB), Cosco (CSCMY), or Capital Maritime & Trading Corp (CPLP’s parent management group).

Thanks to the recent fall in oil prices, investors have been indiscriminately selling off oil sector stocks. CPLP has fallen approximately 30% in price over the last 3 months despite having relatively stable revenues.

This has created an opportunity for the informed investor to capture a fairly hefty distribution.

This post originally appeared on Smarter Investing by Covestor

Bruce Kaser & Chris Fasciano run the SMID Cap Value portfolio at Ironwood Investment Management, an employee-owned investment management firm based in Boston. 

They discuss the recent addition of CBS Outdoor to their portfolio in their most recent blog post here:

Why we bought CBS Outdoor Americas

The Ironwood SMID Cap Value portfolio declined 6.89% in September. Stocks in the utilities and financial services sectors were among the biggest contributors to the performance, while energy and consumer staples picks were off during the month.

During the month, we initiated a position in CBS Outdoor Americas (CBSO), which was spun-off from CBS Corporation (CBS) through a partial IPO in March, 2014. The remaining shares will be distributed to shareholders in July.

Outdoor Ads

One of the largest outdoor advertising companies in the U.S., the company has confirmed its conversion to a REIT. In our opinion, this move may boost its price multiple and lead to acquisitions. The company has already completed a $690 million deal.

Under new CEO Jeremy Male, CBS Outdoor aims to improve its operational efficiency, develop its use of digital billboards and pursue other as-yet-undefined opportunities for value creation.

Importantly, the REIT structure will, in our opinion, allow the company to return much of its substantial free cash flow directly to shareholders.

On another front, the portfolio sold off its position in Micron Technology (MU), which we've owned for a while.

We purchased the stock due to our belief that MU’s then-pending acquisition of Elpida would help lead to a more rational DRAM market.

The acquisition also gave MU access to Apple (AAPL) as a customer which would help lead to faster revenue and earnings growth.

We sold the stock in tranches as the transition unfolded and, in our opinion, the fundamental benefits of a better DRAM market were realized.

This post originally appeared on Smarter Investing by Covestor

Barry Randall spent five years as a technology stocks analyst and 10 years managing funds that include small-cap growth and technology portfolios as large as $650 million. Prior to earning his MBA in 1993, he spent six years as a professional computer programmer.

Barry who has over 20 years of professional investing experience and manages the Crabtree Technology portfolio on Covestor sees big challenges ahead for Big Blue. The following is his take:

IBM’s struggles in the cloud computing era

International Business Machines Corp. (IBM) has thrown in the towel. After reporting disappointing third-quarter numbers, the company gave up a long-time earnings target of $20 dollars per share.

IBM’s CEO Virginia Rometty told analysts that it is time for the company to“reinvent” itself for the era of cloud computing services.

Cloudy Outlook

IBM’s basic problem is that the current move to the cloud is deflationary. Twenty years ago, when the technology migration was from the mainframe to client/server computing, IBM adapted by emphasizing services and software, for which profit margins were stable or even growing.

Moreover, even though the mid-1990s hardware was cheaper than ever owing to Moore’s Law, hardware manufacturers, including IBM, still competed for business based on real or perceived technology superiority.

And the needs of the Internet and its immense need for not only computing power but also data storage meant that the total dollars spent were larger than ever.

Now, high performance computing has been almost completely commodified, so much so that putatively non-hardware vendors like Facebook (FB) and Google (GOOG) build their own servers using off-the-shelf hardware running Open Source server and networking software.

So IBM can’t move to the Cloud and hope that the dollar amounts will be the same.

Cloud computing is at its core a utility and for a utility, the primary values are reliability, predictability and low total cost of ownership. These are vastly different than the traditional technology values of productized innovation and a continuous cycle of technology upgrades.

To IBM, “services” typically means holding a clients’ hands while they install IBM products and a phone number to call when things go wrong.

But Cloud Services mean simply a computing infrastructure for which a client pays a low monthly fee and expects never to call the vendor again.

And thanks to a vicious price war among Amazon (AMZN), Google and other cloud service vendors, Cloud services are cheap and getting cheaper all the time.

This post originally appeared on Smarter Investing by Covestor

Robert Freedland has over 40 years of investment experience and is a full-time optical surgeon. He uses his expertise in the medical field to help select healthcare stocks. 

He manages the Healthcare portfolio at Covestor and offers the following 5 ways to deal with market turbulence:

Investing in the time of Ebola

Volatility is back in the market. Whether we are being tossed and turned by the Ebola crisis, Russian aggression in the Ukraine or the ISIL threat in Iraq, the stock market is a challenging place to be.

Here are five ways for an individual investor to deal with this turbulence.

1) Steering

Perhaps it would be helpful to compare the navigation through this chaotic environment with driving a car through difficult traffic. Years ago I recall a driving instructor explaining the Smith System for Safe Driving to a group of high school students preparing to use the automobile simulator.

In investing we can think about our stocks in terms of where any particular stock might be heading longer-term not just the next five minutes, hours or days.

This ability to focus on the horizon in driving as well as investing may help us ride out some of the distractions or “noise” interfering with our ability to assess the real opportunity an investment may represent.

 2) Big Picture 

It is imperative to appreciate the larger issues of our economy, whether it be related to the impact of healthcare reform on profits and businesses or the direction of interest rates and what is happening in China, Japan, Germany or in the United States.

The larger picture will tell us whether we should be more concerned with inflation or deflation. Whether a rise in the dollar will be good for profits and what the impact of the corporate tax rate will be on mergers and inversions.

It is always helpful to understand world events to understand some of the implications for Wall Street.

3) Stay Alert

Just as in driving, we must continually monitor the market, the prices of commodities and the ever changing impact of political and world events on stock markets worldwide.

A great place to identify new names and new companies is the Investor’s Business Daily, which regularly summarizes stocks on the move.

But whether you read the Wall Street Journal or get an investment newsletter, find a way to identify new opportunities and new threats to your portfolio.

Consider using an investing app on your smartphone, enter all of the stocks you might be monitoring, and then flip through their charts regularly.

4) Exit Strategy

It is very important to limit your losses and preserve your gains. That means selling my losing stocks quickly and completely and occasionally selling my gaining stocks–but slowly and partially.

When your portfolio starts showing losses on holdings, consider this a good indicator that you should be parting company with these losing equities and moving your portfolio towards cash.

Most investors are reluctant to sell stocks that have incurred losses through price declines. They likely rationalize that the loss isn’t real but just a paper loss.

Take your losses on a disciplined basis. Remember that every stock that is sold creates the cash that can be the basis for a new investment that may behave much better in the long run.

5) Be Visible

This one is a personal reminder. That in order to gain more followers of my own strategy I shall continue to try to write commentaries both here and on my own blog.

To summarize, it is difficult to navigate a busy traffic system in your own car just as it is challenging to navigate a portfolio through turbulent market conditions.

Rules do help and your own philosophy should guide you even before you make your purchase of individual stocks. Drive carefully.

One topic that comes up over and over again in my conversations with Covestor clients is how to think about past performance when choosing investment managers.

It’s a controversial and complex issue, but I wanted to offer my two cents. 

First off, performance is not a guarantee of future results — it never will be.

However, past performance can be one of many things that investors can look at to understand how a strategy performs in different market conditions. This can help frame reasonable expectations, so long-term investors don’t make the mistake of bolting from a strategy at the first sign of trouble.

Every mutual fund advertisement and prospectus has a disclaimer that says past performance is not indicative of future results. There’s a valid reason for that.

So, it might be helpful to focus first on how not to use past performance.

A recipe for disaster

The big danger of past performance is that investors simply chase the highest returns, whether it’s a stock or an investment manager. That’s usually a recipe for disaster.

As former Vanguard chief investment officer Gus Sauter explains, market segments go in and out of favor.

“In fact, frequently funds that outperform over one period will underperform over the next simply because they were riding a wave that dies out, just like an ocean wave that peters out when it reaches the shore,” Sauter writes.

Past performance can be troublesome because it’s difficult to determine whether good results were due to luck, or skill. That’s one reason why we use risk-adjusted performance for the portfolio managers on Covestor. We also award “badges” to portfolio managers who exhibit consistent, stable performance.

We want to help investors understand how much risk the manager took on to achieve his or her returns. Our transparent platform also lets investors view managers’ past trades to help them understand their investment approach.

In a sense, it’s not surprising that investors get so hung up on past performance. Increasingly, we’re using data to judge individual performance, whether it’s fantasy football or an employee’s value to the company.

No one knows the future, so it seems reasonable to look at the past for clues and guidance. But there is a right way and a wrong way to look at past performance.

Focus on investment process

Past performance is just one of many tools that investors should use to evaluate investment managers.

The most important goal is to understand the manager’s process.

To that end, I believe that past performance can be used as a relative comparison tool to examine how specific strategies have performed during previous market conditions. How did the strategy perform in a bull market? A bear market? Over a full market cycle?

This might give us a glimpse into how that strategy may function if those market conditions were to reappear, if the manager is consistent in his or her approach.

Skin in the game

At Covestor, all portfolio managers have their own money invested. Conversely, in the mutual-fund business, nearly half of managers have no money invested in their own funds.

Also, the performance you see on Covestor is not back-tested, hypothetical returns — but rather the real returns experienced by our portfolio managers with their own money in their own brokerage accounts. 

We believe this should be the rule and not the exception for active portfolio managers who are attempting to beat benchmarks. We require every portfolio manager who runs an investment strategy on Covestor to put their own funds on the line before expecting clients to do so.

Our online marketplace offers something for almost every investor.  At Covestor you can access a variety of specialists managing investment strategies based on their domain expertise, there are passive investing strategies designed to keep costs very low while investing in a well-diversified basket of low-cost ETFs.

The Covestor Core portfolios for example are offered for free with no management fees. 

The bottom line is we don’t think investors should use past performance in isolation to try and pick “hot” managers. Instead, we think full transparency and past performance can help investors understand a portfolio manager’s investing process so they can make informed decisions when choosing who should manage their money.