Monday, January 12, 2009

Buy of 50 Shares of GPX: Limit at 4 filled-investing only cash flow

I am constantly refreshing my list of potential investments in the small cap sector, adding and deleting names.  As a result, only about 1/2 of the names on my current monitor list for small caps were present on the list a year or so ago.  I just went back and examined my tax returns for 2006 and 2007  to see if I might be interested in a few companies that I sold at a profit and now could buy the shares back at a much lower price. (I had at least five transactions sold due to an acquisition of the company)   As I expected, all of the companies that I remember are now selling far below where I sold them in 2006-2007 but most of them currently hold no interest for me.  I am not even sure why I bought or why I sold them, which may be due to their lack of their importance in the scheme of things or old age infirmities creeping up on me again. The ones that I have some very modest interest in revisiting, but have not done so yet are the following:

American Software (AMSWA)
Radiant Systems (RADS) 
Opnext (OPXT)
Novatel Wireless (NVTL)
Landec (LNDC) 
Taseko Mines (TGB) 
Harmonic (HLIT) 
Napco Securities (NSSC) 
NetScout Systems (NTCT)
Brooks Automation (BRKS)
Stealthgass (GASS)

All of those companies were sold at far higher levels than the current price and all were sold for a profit.  Many of these are software or tech related, and are consequently being hurt by the slowdown.  Any buy of a security sensitive to the health of the economy will have to be held at least a day before the long term capital gain period, and then assessed at that time whether or not to take a loss or hold for a long term capital gain.  So I am already looking into January 2010 with any of these small cap names that I will buy this month.  I expect some losses.  I will  treat them as a class. I will therefore not be so concerned by the ups and downs of each member of the class as how the total class of securities is performing over the course of the next year.  

Of the ones sold, I now own only Delek, and only 50 shares of that one after selling the 50 in an IRA as well as the one that I just bought with my cash flow received today, G P Strategies (GPX), having previously sold 100 in March 2007 at a profit,  at over 9.  I bought just 50 today at a limit price of 4.  I did not buy 100 due the companies concentration of revenue in the automobile industry.   I am about 1/2 way looking at another and may buy it later this week after completing my review.   

I was checking over the weekend the lists of stocks over 50 million in market capitalization at the "Magic Formula" web site and it was on the Magic Formula list.  Magic Formula Investing
This site screens for stocks using the formula strategy advanced by Joel Greenblatt in The Little Book That Beats the Market, which I read and gave to one of the young ones.  GP Strategies was one of the names on the list of 100 with market caps over 50 million.
I remembered the name G P Strategies, their business, and the fact that I once owned it so I looked at it again.  The long term chart did not look so hot to me.  However,
the current P/E is a tad over 6, with price to book and price to sales of less than 1. GPX: Key Statistics for GP STRATEGIES CP - Yahoo! Finance  It has been cut in half from my prior sell at over 9 almost 2 years ago.  This is a link to their web site.Corporate Overview | Investor Relations   The analysts' estimate for 2009 is $.79 on 295 million and the market cap is just over 71 million.  GPX: Analyst Estimates for GP STRATEGIES CP - Yahoo! Finance  Revenues are erratic from year to year looking at the yearly numbers over the past five years, which is unfavorable. The current earnings estimate would price GPX with a forward P/E of about 5.5 assuming the company hit the estimate for 2009 based on a 4 and change price.  There are only two analysts.  There is no reason to describe what the company does since Yahoo finance does a good job of it. GPX: Profile for GP STRATEGIES CP - Yahoo! Finance   The balance sheet shows 3.8 million in cash.  The balance sheet from 9/30/08 shows short term borrowings of 8.279 million (see p. 1 recent 10-q filing). It appears to me that the short term borrowing were incurred in part to pay off a convertible debt issue that matured on 8/14/08 issued to the Gabelli group where the conversion price was $8 and a larger obligation to ManTech International in May 2008. (pp. 9-10 of recent 10-Q)
The last earnings release shows no adverse impacts, yet, from the economic downturn. GP Strategies Reports 20% Increase in Third Quarter Earnings per Share: Financial News - Yahoo! Finance  That report shows the company is still using cash flow to buy back stock.  It also made an announcement to extend its buyback by 5 million dollars.   GP Strategies Announces Increased $35 Million Credit Facility and Board Approval of Additional Share Repurchases Under Buyback Program: Financial News - Yahoo! FinanceGPX was able recently able to add 10 million to its credit facility bringing the total to 35 million which looks good to me in that the company was able to do that in November 2008. GP Strategies, Dialysis Corp. land more credit in tight times - Baltimore Business Journal:
I was familiar with the company from reading the local paper a few years ago and it apparently lands a few contract in my state like the one described in this press release. General Physics Corporation Receives 100% Award Fee From Arnold Engineering Development Center, Arnold Air Force Base, Tennessee: Financial News - Yahoo! Finance
I probably became aware of the company after reading a local news story since they have had other contracts with governmental entities in this state including the state's Health department at one time.General Physics Corporation Awarded Environmental Services Contract by State of Tennessee. | North America > United States from General Physics Corporation Is Awarded Tennessee Hospital Influenza Exercise Program Contract. | North America > United States from   It may have been this story that brought GPX to my attention and led to my first purchase after doing my research as always. General Physics Corporation Expands Services to Include Bridge Inspections. | North America > United States from  AllBusiness is a good web site for older news about a company, and it is owned by D & B. 

The primary reason for the current price has to do with the company's concentration of business in the auto industry, which currently accounts for almost 30% of its revenue with GM providing 19% (p.13 of 10-q).  The account receivables from GM were at 8.478 million at the end of the September quarter. (p.13)    It is fortunate that I re-read the 10-q, having not reviewed one from this company in a couple of years, because I had forgotten this major problem.  The problem is alleviated somewhat due to the presence of a large number of Democrats in Washington now apparently intent on helping GM survive.  If they allow it to fail, then the negative impact on this small company would be very material, and this concern probably accounts for a good chunk of its depressed price. (see company web site:Automotive: Manufacturing)

 The Sandy Training and Marketing business acquired in 2007, which has provided custom sales training primarily in the auto industry for 30 years, did increase revenues in the September quarter but did suffer some declines from parts of its business that appear to be directly related to the woes of the auto industry (p.21 of 10-Q)  Another problem is the government business where there is a constant expense of bidding for new contracts to replace the ones expiring as well as the risk that expiring contracts can not be renewed or replaced.  

Given the fact that I already logged a profit on my last transaction and I was looking to take a risk with the cash flow received today, I decided to proceed with this purchase, notwithstanding some of the significant negatives, but limited my risk exposure to just a tad over $200 by buying only 50 shares.  The balance of opportunity and risk tilted just in favor of opportunity with some downside risk possibly to 2. My target is 7 to 9.  I do not have a high confidence level that the upside target will be hit in a year particularly if the recession lasts for all of 2009. If GM was healthy and prosperous, I would have bought 100 shares.  I would not have bought any if Senator Corker was President with the GOP in control of Congress.    This was a close call.  I look at $200 the same way that I would $2000 or $20,000.   

Since I have to leave HQ, I will not make a decision about SE until tomorrow.  Any further small cap adds will be on the 15th.  (There is some comfort in many of these small cap names at their current levels just knowing that net cash (after subtracting any debt) comes close to the current market cap for some of them.  If the business is still has positive cash flow and/or earning a profit, then the business such as it may be can be had for close to the cash on its balance sheet.)

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

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