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Portfolio Update

November 10, 2011 Leave a comment Go to comments

People tend to say that girls tends to be fickle and moody. Well, those people never lived through the 2011 market.

There have been a few changes to my holdings in the last few weeks. I have been spending all free time searching for ideas and reading 10K and Qs. Anyways, here are the updates.

I sold out of Hallmark Financial and Goldman Sachs. I like both of these companies and the price is cheap on both of them. Although given the opportunities available, it made sense to go elsewhere.

Harris Interactive

Two weeks ago we bought a stake in Harris Interactive. Harris Interactive is in the opinion poll business, think of the political polls. This is a turnaround play.

Al Angrisani the new CEO is a turnaround specialist. In 2002, Al was brought in as the CEO of Harris Interactive. The company had 100M of revenue and a loss of 14M in FY2002. In 2004, Al left Harris Interactive. In 2004, the company did 146M of revenue and 30M in net profit. The company stock jumped from the mid-$3s to $8 a share during Al’s turnaround. Basically taking a company w/ a 200M market cap to over 450M. Al then left Harris Interactive to work his magic at Greenfield Online. In 2005, Al became CEO of Greenfield. Greenfield had 65M of revenue and a loss of 66M (includes a 91M of restructuring charges). In 2004, Greenfield had 33M or revenue and a loss of 24M. In 2007, Greenfield did 120M of revenue and had a net income of 13M. In 2008, Microsoft acquired Greenfield for $480M. In Q4 2005, the share price was around $5.50. Microsoft bought the company for over $17 a share.

Since Al left Harris Interactive, the company has been going downhill. The share price has dropped from $8 to $1. The profitability has turned into loss. Even w/ the poor performance, the company’s brand the operations are still very good. Harris Interactive has a strong brand in opinion polls. The company still does around 130M of revenues. The company has 14M of cash, about 6M of debt, and is making around 1.5M of EBIDTA per quarter. The market has been pricing the company as if it is going to fail. The company currently has a market cap of 40M, only a month ago it had a lowly 16M market cap. The stock price has jumped over 150% in the last month, although there is huge upside if the turnaround is successful. The company has the right person heading the turnaround, has enough cash to not require dilution, and has a strong revenue base on which to start the turnaround.

Tecumseh Products

I also bought Tecumseh Products is an interesting play at current prices. There are multiple ways to win big. The market is pricing it as if it is going to be a complete failure, but even just simple liquidation will result in huge gains. Plus you have a company that is going to receive 50% of current market in cash tax refund in 12 month and 70% of current market in tax refund in 2-3 yrs. The company has a market cap of around 85M, cash of 45M, and debt of 68M. The company expects to receive 40M of cash in 12 month and another 18M in 2-3 yrs. The company has a new management team in place that is looking at all lines of business with an eye to either turn it around or sell it. I would think in 6-9 months you see the company selling some assets and focusing on running a smaller sized profitable company. The company has a book value of $20 a share, w/ large amounts of land ownership.

The company has plenty of cash on hand for management to turn this company around. You don’t need a huge success on the turnaround for this to be a successful investment.

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