Value Portfolio

Insider selling of UTHR has picked up recently, so the stock is a bit more risky than before, but it offers a good value if you can buy it under $87.50. The FDA won’t approve Selexipag until mid-2015 at the earliest and that gives UTHR a solid 18-months headstart with Orenitram.

Weyco Group. On April 30th, the shoe seller raised its quarterly dividend by 6% to $0.19 per share, marking the 33rd consecutive year the dividend has been raised. The company is a Dividend Aristocrat, which should help buttress the stock during the next market correction. During both the 2000-2003 and 2007-2009 bear markets, Weyco outperformed the S&P 500.

First-quarter financials were solid, but earnings were flat because, as CEO Thomas Florsheim put it:

While first quarter sales of our BOGS winter boots benefited from the long harsh winter in the U.S. and Canada, we believe the weather slowed the overall retail environment and challenged our retail and wholesale shoe businesses.

Momentum Portfolio

HomeAway. We were less than thrilled to learn that travel giant The Priceline Group, which owns Booking.com, was jumping into HomeAway’s space with both feet. And mounting competition to our small cap momentum play HomeAway is one reason the stock looks a whole lot less attractive now.

HomeAway is still a great business and remains the world’s leading online marketplace of vacation rentals, but the price momentum of its stock has been tripped up by competition and work needed on its Internet platforms. With more and larger competitors entering its market, it’s become apparent that HomeAway has to fight off the invaders with more marketing expense while simultaneously investing more cash into an upgraded e-commerce system infrastructure.

All of these added expenses are affecting profitability. A recent J.P. Morgan report cut estimated 2014 EBITDA to $111.8 million from $119.1 million. Consensus analyst estimates for full-year 2014 average 61 cents a share for a P/E of 56 at its current price of $34.50, which could be justified if earnings were growing more quickly than they actually are. The market sees this, and has taken HomeAway off the fast track. I’m selling HomeAway.

PriceSmart is the Costco of Latin America, but unlike Costco, PriceSmart’s comparable sales growth is weakening. Monthly comps have actually been declining from double digits seen in 2012, to the high single digits last year to the mid and low single digits this year. This softening has been reflected in the stock price, which peaked above $120 late last year, but has settled down below $90 now. The current price may be smart as a long-term value play, but not as a momentum play.  Emerging markets are hot right now, so I’m willing to give the stock a bit more time to rebound, but the leash is short. I’m downgrading PriceSmart to a hold.  

SolarWinds has had some nice earnings surprises since we recommended it last fall and the price peaked in February at $49.95 a share. But since that time the price has settled down in a sub-$40 range.  Problems digesting acquisitions, salesforce hiring and marketing expenses involved in peddling new products has taken the wind out of SolarWinds’ price momentum. I’m selling SolarWinds.

Valmont Industries cut its earnings outlook and said three of its four main business segments are weak. The company warned its second quarter profits will be in the $2.35 to $2.40 range, versus analyst expectations of $2.79 a share. And 2014 doesn’t look good overall for the Omaha, Neb.-based metal products maker. It now thinks full-year earnings will drop to $9.35 to $9.65 per share, versus the $10 to $10.50 it had signaled earlier. I’m selling Valmont Industries.

Western Refining. The oil patch may be booming, and  the company’s Texas and New Mexico locations are perfect for leveraging West Texas Intermediate (WTI) crude oil at its refineries, but the refiner’s geographic edge isn’t translating to the bottom line. Also, new rulings that may allow broad oil exports from the US after a 40-year ban could erode margins at refiners, including Western Refining.

After rising from about $25 a share around $40 in January, Western Refining’s earnings and its stock momentum have stalled – it’s been waffling around $40 since. And the possible sea change in oil export policy would only hurt this refiner struggling to improve profitability. I’m selling Western Refining.