Wifts Investment Group

For July 2010, our portfolio returned 7.41% compared to 6.83% for the S&P500. Our portfolio outperformed the S&P500 by 0.58%.

Portfolio Movers

As we mentioned in our last post, a private equity group has made an offer of $55 for NBTY Inc (NTY). As a result, NTY was up 58% for the month. After a rough couple of months Omega Protein (OME) ended up almost 30% for the month. Aceto Corp (ACET) gained 19% and our latest purchase StarTek Inc (SRT) ended the month up 18.5%.

On the other hand, our largest holding Gilead (GILD) was down 2.8% for the month when the overall market gained quite a bit. Bank of America (BAC) was down 2.3%.

Transactions

There were only two transactions for the month of July.

Sold LACO at $1.94: We had bought Lakes Entertainment (LACO) just last month and it was probably the most risky position we were holding. We ended up selling it after it was up 35% for us in less than a month.

Bought more GILD at $32.80: GILD keeps going down and we keep buying. With this addition, GILD now makes up 20.81% of our portfolio with an average price of $36.86.

Our current cash position is 12.62% of the portfolio.

The partnership NAV for the month ending July 2010 is $10.60.

The Carlyle Group, a private equity firm,  is paying $55 a share for NBTY Inc. NBTY makes nutritional supplement and we bought some of it’s stocks in May. Here is what we said in our May update:

NBTY Inc makes and markets nutritional supplements. They have been growing rapidly in the last decade, and still generates good income. They provided lower guidance for the year and the stock took a beating. $32.50 was a good entry point for us. It could easily go above $40.

$55 represents a 47% premium over it’s closing price of Wednesday. For us, it would represent a gain of 69.2% based on our average cost of $32.5.

For June 2010, our portfolio returned -3.83% compared to -5.62% for the S&P500. Our portfolio outperformed the S&P500 by 1.79%.

Portfolio Movers

Forest Laboratories (FRX) was up 6% in an overall down month. Friedman Industries and Archer Daniel Midland (ADM) were up a little over 2% each. On the other hand, Kindred Healthcare (KND) was down 17%. They said revenues will be lower due to changes in Medicare. AAR Corp (AIR) went down 15% after dropping 19% in May due to lower earning guidance. Omega protein (OME) and LMI Aerospace (LMIA) were both down about 9.5%.

Transactions

Sold EMMS at $2.28: As we mention in our last post, we had bought EMMS at $2.25 because there was a tender offer outstanding for $2.4. However, we needed the cash to get into other opportunities. So we sold EMMS for $2.28 for a gain of 1.33%.

Sold RIG at $48.20: We decided to sell RIG since there was so much uncertainty about the cost of the oil spill for RIG or BP. It was a loss of 10.5%.

Bought more GILD at $34.9: Gilead makes up almost 17% of our portfolio with an average cost of $38.39.

Bought more AMN at $60.7: We like Ameron International because it has a strong balance sheet. It now makes up 11.16% of our portfolio with an average cost of $61.57.

Bought LACO at $1.43: Lakes Entertainment Inc runs Indian Casinos properties in various part of the country.  The stock has been hammered as of late because they have lost money in the last two quarters. However, the balance sheet looks pretty good and they had positive cash flow in those quarters. So we decided that it was worth the risk at $1.43. It makes about 3% of the portfolio.

Bought SRT at $3.75: StarTek, Inc. provides business process outsourcing services to the communications industry. SRT had a bad quarter so it was beaten down. But balance sheet and cash flow still looks good. May be it will turn around next quarter. It makes up 3% of our portfolio.

With all these transactions and new contributions, our cash position is now at 14.83%. This includes the cash we are supposed to receive for OSIP, which was bought out.

Our partnership NAV for the month ending June, 2010 is $9.87.

For May 2010, our portfolio returned -6.2% compared to -8.20% for the S&P500. Our portfolio outperformed the S&P500 by 2%.

Portfolio Movers

May was a terrible month for all stocks. Except for LMI Aerospace (LMIA), all the stocks in our holdings were down. LMIA stayed relatively flat for the month ending the month with a gain of 0.64%. AAR Corp (AIR) was down 19.2% in May. As we mentioned in the previous post, AIR has lowered their earning guidance for the current quarter and next year. Omega protein (OME) continued it downward trend which started after the oil spill in the Gulf of Mexico. OME depends on fishing in the Gulf for their operations and the oil spill put everything on hold. It was down 17.2% for the month. Bank of America  (BAC) and Vicon Industries (VII) were both down about 11.5%.

In other portfolio news, Astellas Pharma bought OSI pharmaceuticals (OSIP) for $57.50. They had offered $52 per share in March, but once they raised the offer, the deal was done. That gives us a handsome return of 99% in a year on OSIP.

Transactions

Added more GILD at $38.5 and $37.9: We kept adding shares of Gilead as the price kept going lower. Our average price for GILD is now $39.55 and it makes 14% of our portfolio.

Bought FRD at $5.67: We added some more shares of Friedman Industries to our position. FRD looks good financially.

Bought VII at $4.6: We added more VII. The balance sheet looks good, but if they do not improve earning, we’ll probably sell it within the next few quarters.

Bought NTY at $32.5: NBTY Inc makes and markets nutritional supplements. They have been growing rapidly in the last decade, and still generates good income. They provided lower guidance for the year and the stock took a beating. $32.50 was a good entry point for us. It could easily go above $40.

Bought RIG at $53.85: Transocean has been down so much since the oil spill. We thought under $55 was a good price. However,  it has continued to go down. It’s probably the most risky company we hold, but RIG is probably in a better position than BP right now.

Bought EMMS at $2.25: There is a tender offer of $2.40 for EMMS’s share and we think we can make a quick 6%. If we find a  better opportunity for the money, we’ll sell EMMS. It has not gone down with the market due to the offer, so it’s protecting our cash for now.

Sold  TRID at $1.7:  We sold TRID at $1.7 for a gain of 13.33%. We did not realize that they had issued additional shares this year to raise money. It no longer looked like a good value for the risks we were taking.

GILD is our largest holding with 14% of our portfolio. ACET, AMN and VII make 8.5% each. So our top 4 companies make up 40% of our portfolio.

Cash position is at 13.08%.

Our partnership NAV for the month ending May, 2010 is $10.26.

Shares of AAR Corp (NYSE: AIR) fell as much as 18% today after the company lowered their 2010 fourth quarter earning guidance to $0.25-0.30 per share . Here is the press release they issued:

AAR CORP. (NYSE: AIR), today commented that results for the fourth quarter ending May 31, 2010, will be below its expectations due to a slower than expected recovery in demand for commercial aviation after-market support. The Company expected additional strength in its commercial parts supply businesses during the quarter to more than offset an expected decline in volumes and margins at its mobility products business.

Fourth quarter results will also be negatively impacted by $0.02 per share, compared to third quarter, due to one-time transaction costs associated with a business acquisition. Including the above, the Company expects fourth quarter sales to be $355 to $365 million and diluted earnings per share of $0.25 to $0.30. This compares to third quarter sales of $310 million and fully diluted earnings per share of $0.26. The Company is forecasting stronger cash flow from operations for the fourth quarter compared to the third quarter.

“While we have seen signs of recovery in some of our businesses that support commercial aviation, we expected a more meaningful pick-up in our parts business which has not yet materialized,” said David P. Storch, Chairman and Chief Executive Officer of AAR CORP. “Although the pace of recovery in our commercial markets is less robust than we expected, I am very pleased that we continue to generate cash significantly greater than our earnings.”

Storch continued, “I remain encouraged with the prospects for our commercial aviation business, while our defense and government services businesses continue to perform well and meet our expectations. I am also pleased with the early performance and integration efforts surrounding our new acquisition, Aviation Worldwide Services. Based on the business activity in front of us and our continued strong cash flow performance, we will enter our new fiscal year expecting double-digit year-over-year diluted earnings per share growth.”

The news is not all that bad. Revenue and EPS is still  increasing compared to the third quarter and the company is generating cash. Generating higher cash flow from operation compared to earning is always a good signal. For 2011, the expected EPS is $1.82 which makes the forward PE around 10. We started buying AIR last year and our average price is $14.20. Currently it makes around 6% of our portfolio (after it dropped almost 30% from it’s peak).