Author: Barry Randall, Crabtree Asset Management
Covestor model: Crabtree Technology
It was hot in July here in the Midwest, where a persistent drought has raised corn prices to all-time highs. It was only lukewarm, however, in the stock market, as the S&P 500 index (SPX) rose only 1.5% and the Nasdaq Composite Index (COMP) was essentially flat for the month.
Also lukewarm was earnings season, as companies reported their June quarters starting in mid-July. A consistent theme among companies of all kinds was the effect of a global slowdown, blamed on Europe, but felt worldwide.
As for the Crabtree model, we had plenty of action to track. The following Crabtree holdings reported June quarter performance during the month July:
· Calix (CALX),
· ICU Medical (ICUI),
· IBM (IBM),
· Verizon (VZ),
· Entegris (ENTG),
· Electronics for Imaging (EFII),
· Hexcel (HXL),
· Computer Task Group (CTGX),
· British Telecom (BT),
· Stamps.com (STMP),
· LSI (LSI),
· CONMED (CNMD),
· Teledyne Technologies (TDY),
· Liquidity Services (LQDT),
· Teleflex (TFX),
· Medidata Solutions (MDSO),
· Heartland Payment Systems (HPY),
While a couple of our holdings were disappointing (I'm looking at you, Calix!), we had solid performances from most and really strong performances from IBM (beat and raise); LSI (solid beat and raise, share buyback and a huge increase in cash flow); Teledyne Technologies (which beat by $0.07) and Liquidity Services, which beat by $0.10 and raised guidance for the full year 2012 to well above current consensus.
In particular, I'd like to highlight the performance of Stamps.com. It managed to beat June quarter consensus by $0.03 and offered full year 2012 revenue and earnings guidance that was in-line with current consensus, despite difficult comparisons against very strong revenue growth in the latter half of 2011.
But beyond the headline numbers were so other solid metrics. For example, STMP's total paid customer count rose 14% to a record high of 418,000. And paid enterprise (i.e., large businesses) revenue was up 42% year-over-year.
Now place that in the context of the U.S. Postal Service's difficulties, and plans to reduce service and close less-trafficked post-offices. This is a multi-year secular trend that will continue to drive businesses to utilize Stamps.com's desk-top postage services.
There can almost be no doubt that 10 years from now, Americans will simply view the US Postal Service very differently than they do now. And that will likely be to Stamps.com's benefit. And ours, as shareholders.
August has already brought the second half of earnings season, with reports from:
TNS (TNS),
Catamaran (CTRX)
Measurement Specialties (MEAS),
Tetra Tech (TTEK),
Cambrex (CBM)
Hickory Tech (HTCO),
Amdocs (DOX)
Zillow (Z)
Along with our own holdings, we continue to monitor the technology battles among Apple (AAPL), Amazon (AMZN) and Google (GOOG), as these three battle aggressively for market share in the white-hot tablet space.
Apple (iPhone 4S) and Samsung (KR:005930) (Galaxy S III) are duking it out for smartphone supremacy. And VMware (VMW) recently announced the acquisition of Nicira, a private company acknowledged as a leader in Software Defined Networking. This trend, similar to Open Source software, threatens the highly proprietary products offered by current networking leaders Cisco (CSCO) and Juniper Networks (JNPR).
Lastly, let us review of the Crabtree Technology model's performance in July. The model declined 2.5% during the month. This compares with the S&P 500's 1.3% gain and the Nasdaq Composite's gain of 0.2%, as previously noted.
Our internal benchmark, the Merrill Lynch Technology 100 (MLO) declined 0.9% in July. One trend we noticed in July was that the "risk-off" trade was suddenly back, made noticeable by the underperformance of smaller cap stocks in general during the month: the Russell 2000 Index (RUT) was down 1.5%.
Oh well, we've benefitted overall from Crabtree's usual small-cap bias, and we have no plans to change that, even with our mid-August rebalancing coming up. Our philosophy is to avoid chasing hot trends.
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