Monday, August 13, 2012


Friday I pitched an old friend, Smart Balance [SMBL], as I believed it had risen too far, too fast. I enjoyed the ride, but the stock had moved from about $5 to $11.50 in a little over two months. It rode on the back of momentum and hope, not earnings or sales growth. Two acquisitions of gluten-free products vaulted the company into the orbit of organic foods and the race was on.

But the basic spreads business has been stagnating and the milk business has not really taken off and depends on heavy couponing. The move into gluten-free is a change of game plan. Additionally, they will be facing higher input costs going forward and they already sell high priced products. So I became nervous and satisfied at the same time which meant sell.

My sell decision often means that a buy order is appropriate for others as stocks continue to rise longer than they should. Also, Steve Hughes will sell SMBL at sometime and I could be really disappointed that I missed the deal, but for now I'm content on the sidelines.

Where did the proceeds go? Some went into PFXF, a new ETF that owns preferred stocks of "non-financial" companies that has a good yield. It really does own financial companies, just not banks, as it has some REITS and insurance companies. Some more went into another old friend that I had divorced a year or so ago, Neutral Tandem, IQNT. It has become obvious, at least to me, that they are setting the stage to be acquired. Several months ago they hired an advisor and recently announced that they will be making a special dividend of about $5 in the Fall and buying back stock. Their returns will look better with a lot of the cash gone and they sound confident that they will have enough cashflow to fund ongoing capex. The earnings shouldn't be under any additional pressure the ROE and cashflow/EV returns will be more attractive. Even though the price will decrease with the dividend, I will at least have some money back and hopefully the company will have found a suitor.

Time to sign off as I'm becoming increasingly interested in a beaver that is sitting in a tree in my backyard. I'm pretty sure it is a beaver but I didn't know they climbed trees and eat leaves. This one is stripping limbs and chomping on leaves and is fat. Since it is hard to type and peer through binoculars, I'm going to stop typing.

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