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Summary The V20 Portfolio declined 7.3% against S&P 500’s decline of 3.6%. The biggest position has been trimmed. No purchases were made for Conn’s as the stock has rebounded from its previous lows. Dex Media could be nearing the final verdict. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! The market has become bearish again. This week was one of the worst weeks for the averages in months, with the S&P 500 slipping 3.6%. Unfortunately, the V20 Portfolio followed suit with a decline of 7.3%. However, due to the strong performance in the previous week, the V20 Portfolio is still positive for the month while the index is down 2.6%. Portfolio Update As I mentioned in last week’s update, this week the V20 Portfolio had to endure its biggest test. Our largest position, MagicJack (NASDAQ: CALL ), reported earnings on Monday. Although initial reactions were positive, the stock has since declined 10% to $10.30. I have been talking about trimming the MagicJack position for a couple of weeks now. Third quarter results were the push that I needed. You can read my analysis of MagicJack’s current situation here . The bottom line is that the company has transitioned into a growth stock. Although I don’t like to admit it, core operation has deteriorated (i.e. lower renewal revenue), and if the trend continues, a significant amount of value will have to come from growth. Because third quarter results were not a “smash hit,” there was no reason to maintain a large position in MagicJack. After Q3 earnings, 50% of the position was sold, lowering the portfolio’s exposure from 39% to 19%. Although I trimmed the position, the company is still around 50% cash, so relatively speaking, the downside is limited. Furthermore, new developments (Hoteligent, Movistar partnership) added significant option value to the stock. If executed well, both partnerships could be highly profitable as there is minimal capital requirement. For that reason, I believe that a 19% weight on MagicJack is justified. Moving on to our now largest position, Conn’s (NASDAQ: CONN ). While I would be happy to add to the position if the stock was trading around $19 (as was the case two weeks ago), the fact that Conn’s has rebounded from its lows means that the stock has now become more expensive than before. For that reason, I’ve decided to stay put for now and wait for a better entry point. Although it is my hope that Conn’s will decline in the near future so I can pick up more shares at a cheaper price, the management is currently executing a share repurchase program, exerting upward pressure on the stock. This is probably the reason why the stock didn’t move much in comparison to its typical volatility (only declined by 4% this week). Looking Forward With earnings season now over, there won’t be as many decisions that we have to make in relation to our holdings’ fundamentals. Nevertheless, the stock market will continue to gyrate in absence of any news, so I will continue to monitor the portfolio and seek opportunities to trim or add as I have done with MagicJack this week. There is one thing that we can look forward to however. I haven’t talked too much about Dex Media (NASDAQ: DXM ) since the position is so small (0.4%). You can find a brief overview of the company in the portfolio introduction. The initial investment rationale was that there was a chance that restructuring could provide a favorable outcome for shareholders (e.g. extending maturity). Currently, the sentiment is very negative. Although there were no official news, the stock was down 50% on Friday on rumor that the company will be pushed into bankruptcy. I invested in Dex Media with the knowledge that there was a high risk of bankruptcy, hence I sized the position carefully, so I am not too concerned. Given current prices, it is clear that the market believes that equity holders will be completely wiped out in the resulting restructuring. Of course, if equity holders do get a stake or if maturities are extended, shares could appreciate significantly. With official filing expected in December (according to the rumor), this is definitely something that we should look out for. Given the portfolio’s current weight on Dex Media, this is really a situation where it’s heads I win, tails I lose very little. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Scalper1 News
Scalper1 News