Value Portfolio

Brocade Communications Systems announced fourth-quarter revenues rose 1% to $564 million. For the full-year fiscal 2014 revenues fell 1% to $2.2 billion due to divestment and reposition of its products, specifically the divestment of its HBA (Hot Bus Adapters) business.

GAAP diluted earnings per share (EPS) came in at $0.19 for the fourth quarter and $0.53 for the fiscal year, up 36% and 18%, respectively. Adjusted EPS was $0.24 for the fourth quarter, flat compared to the same period in 2013. Full-year 2014 EPS rose 12% to $0.90.

Fourth-quarter SAN revenue, which reflects product performance, was flat compared to 2013 at $325 million. Full-year SAN product revenue rose 1% to $1.3 billion, up 1% year over year. Excluding the divestment of its HBA business, SAN product revenue was up 2 percent.

IP Networking revenue rose 5% to $152 million and 15% compared to the third-quarter. The increase was due to strong switch and router sales to the US government and the internet service provider market. For the full year, Network product revenue fell 5% to $525 million due to the discontinuation of some of its wireless and network adapter products earlier in the year as the company repositions its product line. Excluding these factors, fourth quarter and fiscal year networking product revenue rose 9% and 1% respectively.

Brocade CEO Lloyd Carney said:

Our focus is on helping customers migrate to the New IP, accelerating data center innovation, building on our software networking leadership, and delivering a world-class customer experience.

Silicon Image received a huge vote of confidence for its technology when wireless giant Qualcomm agreed to acquire a 7% “stratetic” investment in SIMG’s Qterics subsidiary for $7 million. Qterics is the new subsidiary name for UpdateLogic, SIMG’s business division that it acquired in May 2014. Qterics is a leading provider of device management and remote access services already deployed in tens of millions of consumer electronics devices such as TVs, set-top-boxes, and tablets – which form a significant part of the “Internet of Things” — one of the next big megatrends. In July, Qualcomm acquired 60 GHz Wi-Fi pioneer Wilocity and this Qterics investment is the next step in Qualcomm’s quest to dominate the Internet of Things. 

Silicon Image’s stock skyrocketed 15.2% on the December 5th news of Qualcomm’s investment, as well as the likelihood that Qualcomm’s relationship with SIMG may expand in the future. In addition to the investment, Qualcomm and Silicon Image will explore opportunities to collaborate on promoting the AllJoyn open source software framework and developing new Internet of Everything (IoE) services. Back in August, there was some speculation that SIMG could be a takeover target and Qualcomm’s interest in SIMG’s technology supports this speculation. 

RPC Inc. is an oilfield services company and — like all other publicly-traded energy companies — its stock price has gotten crushed over the past couple of months thanks to the crash in oil prices. Most investors are scared of catching a falling knife and won’t buy energy stocks at their current depressed levels, but one cadre of investor are not afraid — corporate insiders. Executives at energy companies are buying shares in their own companies at the fastest rate since 2012 and three insiders at RPC are no exception. On December 9th, the Rollins brothers (Chairman of the Board Randall and Director Gary) collectively purchased 1.33 million shares at an average price of $12.21. Another director purchased 10,500 shares in November at an average price of $15.64. These three insider purchases in Nov. and Dec. 2014 are the first purchases by insiders in six years (since Nov. 2008). The RPC insiders clearly see tremendous value at the the stock’s current depressed price level and so do I.

Consequently, I am making RPC one the Value Portfolio’s five Best Buys.

Werner Enterprises is hit an all-time high of $31.64 in November as the entire trucking industry is benefiting from an improving US economy, rising demand, tighter capacity and a driver shortage.

As the U.S. economy continues to accelerate, increasing the demand for trucking which accounts for two-thirds of nationwide freight tonnage. According to Bloomberg forecasts, GDP growth is expected to grow by 3% in 2015 which will equate to a 1.5% increase in dry-van loadings, and a truckload volume increase of 3.6%.

Analysts at BB&T upgrade shares of WERN to a “buy” from a “hold” with a price target of $36.

In November, Werner gained 10.5% percent and is up 26% year to date.

Momentum Portfolio

BitAuto Holdings announced strong third-quarter 2014 results as increased spending among automakers in China helped drive growth. Full-year revenues rose 60.7% to $99 million. Advertising and subscription and agent service revenue account for $87.6 million and $11.4 million, respectively.

Revenues from company’s bitauto.com advertising business rose 67.8% to $49.9 million as it enjoy its leading market position. Its EP platform business, which provides web-based digital marketing and customer relationship management services, rose 67.6% to $36.4 million due to increase of paid subscriptions..

Non-GAAP profit for the third quarter rose 85.3% to RMB143.9 million ($23.4 million)

 CEO William Li said:

I’m pleased to say that in the third quarter of 2014 our EP platform generated over 15.5 million general sales leads for our auto dealer customers with our mobile product offerings becoming an increasingly important generator of sales leads. We continued our efforts in developing new products and services, including huimaiche.com, which continues to receive positive feedback from the market.”

Moving forward, we will remain focused on developing our mobile product and service offerings and executing on our established core growth strategies. First, we will expand the variety of value-added services on the EP platform and to drive forward our pay-for-performance and transaction services and products. Second, we will continue our brand building efforts and in particular, we will work to further enhance Bitauto’s brand recognition. Third, we will continue to invest in our used car business.

The company expects fourth-quarter revenue in the range of about $117.3 million to $120.6 million, up 48.9% to 53%, respectively. Management also expects non-GAAP profit of about $25.7 million to $27.4 million, up 52.9% to 62.6%, respectively.

Following the strong earnings report, analysts a Brean Capital raised its price target to $102 from $95 per share. Analysts at Oppenheimer also reiterated their “outperform” rating and raised their price target to $102 per share from $78. While BITA’s shares rose sharply by 16% to $92 immediately after the earnings announcement.

G-III Apparel announced third-quarter fiscal 2015 net sales rose 21% t $812 million, compared to $668.7 million in 2014. The growth included a $66 million contribution from G.H. Bass which the company acquired in November 2013. Excluding Bass, net sales grew by 12% year-over-year.

Net income for the year rose to $80.6 million, or $3.53 per diluted share, up from $59.6 million or $2.85 per diluted share.

Morris Goldfarb, CEO of G-III said:

We are expecting a good holiday season for both our wholesale and retail businesses. Diversification across channels is supported by a strong brand portfolio that has resulted in our significant growth over the past several years.

Our team and culture have never been more energized and we remain focused on continuing to implement successful business strategies and creating value for our shareholders.

The company revised its guidance for the full year due to the strong third quarter. It’s now expected net sales of $2.13 billion, up from a prior guidance of $2.11 billion. Net income is expected in a range of $103 million and $106 million, or $4.65 and $4.80 per diluted share, compared to a prior guidance of $90.6 million and $93.9 million, or between $4.00 and $4.15 per share.

Following the earnings announcement, shares jumped 14% to an all-time-high of $98.24.

Analyst Eric Beder at Wunderlich Securities raised his price target for G-III from $100 to $105 and maintained a “buy” on the company. Beder noted:

Management remains aggressive on the acquisition train, and believes they are in the best financial position in recent memory to complete a transaction, with the capacity to do up to a $1 billion purchase. That said, even with an acquisition management believes there are enough key organic growth opportunities to register double digit annual expansion in the near to midterm.

Other analysts at Stephens ($98 to $108), Buckingham ($100 to $115), KeyBanc ($96 to $110), Barclays ($92 to $110), and Cowen and Company ($93 to $104) also raised their price targets. Analysts at EVA Dimensions raised their rating from a “hold” to a “buy”.

Vipshop Holdings announced third-quarter 2014 net revenues surged 130% to $882.6 million driven strong customer and total orders growth. Total active customers rose 136.8% to 9.5 million and total orders rose 117.6% to 25.5 million.

The company reported gross profit for the third quarter of 2014 jumped 136.1% to $219.5 million. Gross margin also improved to 24.9% from 24.2% the previous year. VIPS reported $0.08 earnings per share, beating consensus estimates by one cent.

In its conference call, management offered a preliminary guidance of net revenues for the fourth quarter of $1.20 million and $1.22 million, up 84% to 87% respectively.

Shares of VIPS retreated 5.3% following earnings but have gained 170% year-to-date. VIPS still enjoys a consensus “buy” rating among the 24 analysts following the company. Its consensus price target of $26.59 represents 20.9% upside.