Updating JIMS CRAB FEST Portfolio

 | Sep 14, 2011 | 12:00 PM EDT
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The last time I did an update on the performance of my JIMS CRAB FEST portfolio for cheapskates was on July 1. It was sucking wind vs. its benchmarks and I was not all that surprised. There is rarely instant gratification in deep-value land. We saw it big-time back in late 2008 and early 2009 when many names were priced for the scrap heap, but that has been the exception and not the norm. When you are buying companies that have a wart or two, you have to do so with confidence in your research, an iron stomach and longer-term time horizon.

Since its inception on Dec. 12, JIMS CRAB FEST, which is an equal-weighted portfolio of 15 names, is down 12.8%, which is nothing to write home about. However, it now eclipses the Russell Microcap Index (which is down 13%), and has closed the some of the gap with the S&P Small Cap Index (which has declined by 9%). Overall, the names in this portfolio have been holding up fairly well since the market began its volatile roller coaster ride.

The last two members of the portfolio that I have taken positions in are great examples. Troubled footwear company Skechers (SKX) is up 11% since the end of the second quarter, while Ingram Micro (IM) is down about 4%. While being down 4% is typically nothing to be proud of, even holding your own in these choppy waters is not bad. Frankly, that's what you would expect from companies that trade at relatively low multiples of net current asset value, hold relatively large amounts of cash and are either still profitable, or have the wherewithal to return to profitability. While neither Skechers nor Ingram has had a gangbusters performance, both have navigated this market environment quite well, in my view.

Skechers has taken a great deal of flack, and deservedly so because inventories grew but revenue and earnings did not follow. It has become a company that many love to hate, but that's what you get when you poorly judge demand for your products and miss consensus earnings estimates badly, as the sneakers pile up in the warehouse.

The punishment is a beating in the stock price, which is where some value investors may enter the picture. Taking a position in such a situation is not done because you believe that all is well at the company, but rather because you believe that the market has gone too far in its punishment. You buy a name like this because it has $251 million in cash, or about $5.20 per share, trades at 0.86x tangible book value per share, and 1.59x net current asset value. You also buy it with the presumption that management has learned some lessons, and is taking steps to right the ship.

Skechers' third-quarter earnings release, expected to be reported on Oct. 26, should be an interesting one. While I'm typically not overly concerned with a single quarter, in this case, given the company's recent track record of disappointment, I will be paying more attention. Analyst estimates are all over the place for the quarter; while the consensus is calling for earnings of $.03 per share, there is a fairly wide berth between the high (+$0.12) and the low (-$0.14) estimates.

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