Value Portfolio

Harte-Hanks closed on its acquisition of 3Q Digital, a privately held company that specializes in paid search and social advertising. The company’s list of clients includes Square, Minted, Wine.com and Symantec.

Harte Hanks already offers search, social and mobile marketing services but 3Q will add SEM (search engine marketing), SEO (search engine optimization) and video advertising expertise as well as add to its existing portfolio.

The specific terms of the deal were not closed, but Harte Hanks says it paid an initial amount with deal incentives based on achievement goals over the next three years. The transaction is expected to be accretive to Harte Hanks’ earnings in 2015.

Robert Philpott, Chief Executive Officer of Harte Hanks said:

The most critical points in a customer journey are the moments when an individual interacts with one of our client’s brands. Harte Hanks believes the relevance and connectivity of these interactions are fundamental to driving marketing performance. 3Q Digital strengthens our capabilities and expertise to effectively manage these interactions in the paid digital world.

Harte Hanks has set a goal to achieve $1 billion in revenues in five years through organic growth and acquisitions. It plans to invest about $200 million in acquisitions in the next 2-3 years.


Sanderson Farms may be the perfect contrarian investment right now. Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, recommended buying financial assets when there was “blood in the streets.” More recently, Sir John Templeton recommended buying at the point of “maximum pessimism” and Warren Buffett recommends buying “when others are fearful.”

The poultry business is very scary right now given the widespread and seemingly uncontrollable bird-flu epidemic spreading throughout the United States — the worst case in more than 30 years! Scientists are baffled at the unprecedented speed at which the virus is spreading. Jim Sumner, president of the USA Poultry & Egg Export Council, stated in March that wild migratory birds are heading north as the spring approaches, so there is “just an unbelievable amount of risk out there” for infection. Descriptions of the viral outbreak as a “catastrophe” are disturbing to hear.

On March 12th, Sanderson CEO Joe Sanderson said that the company’s chicken flocks were “bird-flu free“and that the company was taking precautions to make sure they stayed that way. As of April 14th, Sanderson Farms appears to still be bird-flu free since its plants are in Mississippi, Texas, North Carolina, Georgia, and Louisiana — none of which are included in the 12 states that have reported infection. Although a few countries (China, Russia, South Korea and Thailand) have banned all poultry imports from the U.S., most other countries are taking a more nuanced approach and only banning poultry imports from specific states that have reported infection — and some are banning imports only from select counties within these states. 

Lastly, history proves that bird-flu outbreaks disappear almost as quickly as  they appear and the long-term damage is slight. As one commentator puts it:

I believe this is the perfect opportunity for value investors with a long horizon to accumulate a position in some of these companies.

The company may agree, as it recently announced increasing its stock repurchase authorization by 700,003 shares. Banks don’t appear worried, as they have increased Sanderson’s line of credit by an additional $150 million. 

One set of people that is worried are short sellers, who have shorted so many shares of Sanderson stock that the short-interest-to-float ratio is now an astronomical 44.9%. Although short sellers are smart on average, when the short interest ratio gets this extreme it typically marks a panic-stricken bottom for the stock price with a powerful short squeeze likely in the near future. The company remains very profitable and the balance sheet sports virtually no debt. I think the shorts will get fried.

Stepan Co. skyrocketed more than 13% in a single day after reporting better-than-expected first-quarter earnings growth of 63% on April 28th. Earnings per share were $0.90, beating consensus estimates by a whopping $0.33 — more than 50% higher than expected. Apparently, the company’s cost-cutting restructuring initiatives announced back in Febraury are starting to pay off. Although revenues were down slightly, this was entirely due to a 6% revenue decline caused by foreign currency effects (i.e., a stronger U.S. dollar). Absent currency effects, revenues would have been higher by a mid single-digit percentage. Investors are rightly looking past temporary currency effects and appreciate the solid fundamentals of the underlying business. CEO F. Quinn Stepan, Jr. was very upbeat about the rest of 2015, stating:

While we are pleased with the year over year improvement in the first quarter, our focus remains on delivering meaningful growth during the remainder of this year and beyond.  In 2015, we expect continued profit gains from improved operations, increased geographic presence particularly in the functional markets for Surfactants and higher rigid polyol volumes for the insulation market.

Stepan Co. has been a “best buy” in the Roadrunner Value Portfolio for a while now and today’s 13% price surge underlines why. Value investing requires patience and investing in Stepan will prove rewarding over the long term.

Momentum Portfolio

Anika Therapeutics has stagnated, but a strong drug pipeline and reasonable valuation suggest strong price appreciation is likely in the near future. As one commentator recently wrote:

Anika’s development pipeline is strong with an increased focus on regenerative medicine and product concepts that have the potential to expand its market opportunities dramatically. The company has recorded substantial growth in the last few years, and its future growth prospects are extremely high. Moreover, Anika has compelling valuation metrics; its enterprise value/EBITDA ratio is very low at 7.32, and its PEG ratio is exceptionally low at 0.53. In my opinion, ANIK’s stock has plenty of room to grow, and it is a Buy right now.

G-III Apparel reported fourth-quarter adjusted earnings per share jumped 55% to $0.96 per share. Revenues for the quarter rose 9% to $514.3 million driven by both its wholesale and retail businesses.

For the full year, earnings for the year came in at $110.4 million, or $4.97 per share, up from $77.4 million or $3.71 per share in fiscal 2014. Revenues for the year rose 23% to $2.12 billion due to the strong sales of its G.H. Bass & co brand.

Morris Goldfarb, G-III’s Chairman, Chief Executive Officer and President, said:

Fiscal 2015 was another strong year of sales and profit growth for G-III. We drove strong performances across our portfolio of businesses, solidified our market position, and successfully executed across a range of strategic initiatives, including the integration and repositioning of the G.H. Bass business we acquired in the fourth quarter of last year. We are pleased to have achieved another record year for both net sales and net income per share.

Management expects the momentum to carry into next year releasing an outlook for fiscal 2016 which included revenues of $2.37 billion, which represents a 11.7% increase from 2015. Earnings are expected in a range of $116 million and $122 million, or $5.05 and $5.25 per diluted share. The top range of the guidance is ahead of analysts estimates polled by Thomson Reuters of $2.34 billion in revenues and EPS of $5.16 per share.

Last month G-III entered into a whole sale license agreement with Genesco to design, distribute and market G.H. Bass footwear in North America. Shipments are estimated to begin in the spring of 2016 season. Management said its growth strategy moving forward will combine organic growth with acquisitions.

GIII has gained 173% since joining the portfolio in May 2013 and its price continues to reach all-time highs. 

Platform Specialty Products reported fourth-quarter adjusted EBITDA jumped 47.6% to $65.7 million. Recurring free cash flow growth was 51.4% to $148.2 million. This represents about 70% of its adjusted EBITDA.

Fourth-quarter revenues jumped 47.7% to $273.6 million, with sales from specialty-chemical manufacturer MacDermid accounting for about $185.6 million of it.

Full-year adjusted EBITDA rose 17.8% to $212 million with margins at about 25.2% margins. Organic growth of its EBITDA was up 9% driven by its MacDermid business. Revenues for the full year rose 13% to $843 million, net revenues from its core business MacDermid rose 1.2% to $755.2 million. The company’s recently acquired AgroSolutions  the prior quarter contributed $88 million. Despite growth to its top line, PAH’s reported loss widened from $203.5 million in 2013 to $262.7 million last year.

Daniel H. Leever, Platform’s Chief Executive Officer said:

Our remarkable performance in 2014 continued into the fourth quarter. MacDermid delivered record top- and bottom-line results and both CAS and Agriphar added meaningful contributions. Importantly, we achieved these results in spite of currency headwinds and increased investments back into the business. With the Arysta acquisition —our third and largest AgroSolutions acquisition— completed we have expanded our leadership capabilities and have already accelerated our integration plans.

In the fourth quarter, the company closed on its acquisitions of Agriphar, Chemtura AgroSolutions and announced its acquisition of Arysta LifeScience which will drive future cash flow growth.  Due to its integration of its businesses, management projects synergy savings of about $65 million to $80 million over the next three years.

The Ensign Group announced last month that it added Coral Desert Rehabiliation and Care, a 60-bed all-private/Medicare skilled nursing facility in Utah. The long-term lease of the center became effective as of April 1, 2015. The center had an occupancy rate of 68% at the time of acquisition and is expected to be partially accretive to earnings in 2015.

Ensign also announced it acquired Panorama Gardens Nursing and Rehabilitation Center, a 149-bed skilled nursing facility in Panorama City, California. Both acquisitions bring the company’s total portfolio to 144 healthcare facilities.

 In the fourth quarter 2014, the company made a number of other acquisitions including 13 skilled nursing operations and four assisted living operations. 

Last month, analysts at Wells Fargo upgraded ENSG from a rating of “market perform” to “outperform.”

VCA Inc. announced that its laboratory division Antech Diagnostics acquired the assets of AVRL (Abaxis Veterinary Reference Laboratory) for $21 million in cash last month. Abaxis produces blood analysis and diagnostic systems which work in conjunction with Antenc’s lab services. Both companies have a collaborative effort to continue to market its joint products and services.

Josh Drake, President of Antech said:

We see great benefit in the relationship between two demonstrated leaders in veterinary diagnostics and this only strengthens the respective sales and marketing capabilities of Antech Diagnostics and Abaxis. We are confident that this relationship will further the goals of both companies in providing a complete diagnostic solution offered through our extensive distribution partners to the veterinary community. Abaxis has proven to be a great partner for us and we look forward to working with Abaxis for many years to come.

VCA hit an all-time high price of $55 on March 31 and currently trades near this all-time high.