Peattie Capital Management :: Invested in the Individual

PCM Newsletter Archives

2013 ISSUES

December 5, 2013

Range of Returns	November	YTD

All PCM Accounts	0.5% - 3.0%	22.2% - 29.7%
S&P 500	2.8%	26.6%

Performance review and comment: Another solid month with several big winners

November was another good month for Peattie Capital and 2013 continues to be an excellent year for most portfolios. The only disappointment (and it is a mild one) is that a couple core positions peaked early in the year and have gone sideways for several months, holding back performance somewhat. Two such examples are Macquarie Infrastructure Trust ("MIC") and KVH Industries ("KVHI"), however I consider them excellent long term opportunities and expect to hold them.

The biggest performer in November was ChipMos ("IMOS") which gained nearly 25%. IMOS has returned 80% and 60% since I recommended it in August, 2012 and April, 2013 respectively. With corrections of 39%, 25% and 13% since the original recommendation, this small cap cyclical is not well suited for every portfolio, but it demonstrates the power of good stock picking and the importance of patience.

Two other good performers were JP Morgan ("JPM") and Cedar Fair ("FUN"), both of which gained 10%. These names have returned 11% and 16% since I recommended them in October and August respectively.

My repeated advice to stay invested has helped many client portfolios generate returns above 25% this year, which is particularly gratifying as, generally speaking, most clients are more concerned with protecting their wealth in a downturn than beating the index in a rising market. In the past, I have underperformed (relatively) in sharply rising markets, as I tend to keep a cash position, which is a drag on performance.

Where are we and what happens next?

My view remains that, broadly speaking, leading global economies continue to improve slowly. Parts of Europe are doing better, and China's recently announced policy of becoming more "market friendly" will (eventually) support growth there. The most recent inflation statistics from Japan were the highest in 15 years, demonstrating that Abenomics is succeeding. In the US, falling gasoline prices have aided consumer spending, October's unemployment numbers were very strong, and there have been steady improvements in car sales, manufacturing, and housing starts, among others.

Overall, I think the conditions for equities remain favorable. For example, we still have unusually low interest rates, a positive and steepening yield curve, extraordinary corporate liquidity, underperforming hedge funds under-allocated to equities, a dearth of investing alternatives, funds rotating out of fixed income, a dovish Federal Reserve which may taper relatively soon but isn't close to tightening, and skepticism on Main St., which is a bullish factor as far as I'm concerned.

A mildly overbought market

While I still like the big picture, from a near-term perspective it looks to me like the markets are a bit overbought. For example, sentiment has swung overwhelmingly to the bullish camp, with the AAII poll showing 57% bulls and 15% bears. Not that it's infallible, but this 42 point spread is extreme and bears watching.

In addition, the forward multiple on the S&P 500 has been expanding and is now approximately 15-16x (depending what earnings number you believe). This is not overly expensive, but nor is it cheap. (Note: the "Rule of 20", which asserts that the multiple should be 20 minus the inflation rate supports further expansion.) Fear indicators such as credit spreads and swaps have been tightening, and gold continues to fade. Collectively these data suggest that systemic risk is declining, which may make equities more appealing to an increasing number of investors.

The biggest challenge in 2013 has been to stay invested. Despite lingering concerns about possible financial meltdowns, a government shutdown and one of the weakest economic recoveries on record, the market has gone 530 days without a 10% correction (Source: David Rosenberg, Breakfast With Dave, Nov. 12). While this is a long time, it doesn't compare to the 1,767 days we went without one from October, 1990-October, 1997 (ibid). As I said last month, anyone awaiting such a correction might want to get started with a small portion of their investable assets, and dribble more in over time. In my experience those who wait for a correction don't invest even if one arrives, as they then decide to "wait for things to get a little better."

A number of cyclical sectors within the S&P 500 have been winners. Among them are airlines +70% year to date, autos +50%, media +36%, specialty retailing +35% and semiconductors +25%. While I don't expect the same performance from these sectors next year, I think there are opportunities from a cyclical perspective. To me this indicates a market that expects further growth.

Thoughts for 2014

Most strategists I've read expect a good but not spectacular year in 2014, with the indexes gaining mid to high single digits. That seems reasonable, but consensus is usually wrong.

I'd like to see more volatility, which may come early in the year as Washington addresses budget and debt ceiling issues. Additionally, I have a mild bias for mid and larger cap names, and also cyclical companies that will benefit from improving economies and confidence. More so than usual I am looking for companies that are undergoing some kind of change and that have catalysts for earnings growth, as I think the chances for investment success are better with them than hoping for broad-based market improvement.

Stock picking continues to shine

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from November 29.

This chart shows all PCM's recommendations for the past 29 months showing an average return of +47.5% .
The total return on the S&P 500 from July 2, 2011 through November 29, 2013 was approximately +39.0%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
11/5/13	Royal Caribbean	RCL	Buy	$42.75	$44.05	3.0%
10/2/13	JP Morgan	JPM	Buy	$52.00	$57.22	10.8%
9/6/13	Owens-Illinois	OI	Buy	$29.25	$33.00	12.8%
8/3/13	Cedar Fair, L.P.	FUN	Buy	$43.50	$49.80	15.9%
6/5/13	Macquarie Infra.	MIC	Buy	$53.50	$54.53	5.2%
4/2/13	ChipMOS	IMOS	Buy	$12.90	$20.48	59.8%
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	$54.16	12.0%
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$23.73	31.1%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$15.66	18.2%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$21.25	10.0%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$14.14	12.2%
12/3/12	Telular*	WRLS	Buy	$10.06	$12.74	28.6%
10/3/12	Seagate Technology	STX	Buy	$30.00	$49.04	68.5%
9/4/12	Arcos Dorados**	ARCO	Buy	$13.25	$11.92	-7.8%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$20.48	80.5%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$42.71	25.4%
6/6/12	Mako Surgical*	MAKO	Buy	$23.25	$29.53	27.0%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$14.14	54.5%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$85.17	69.5%
3/6/12	du Pont	DD	Buy	$50.50	$61.38	25.9%
2/9/12	Credicorp	BAP	Buy	$119.00	$128.50	12.1%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$51.88	95.5%
12/2/11	Telular*	WRLS	Buy	$6.96	$12.74	91.2%
11/6/11	Carters**	CRI	Buy	$36.00	$71.56	99.7%
11/6/11	Family Dollar**	FDO	Buy	$58.00	$69.28	22.1%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$54.53	115.0%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$14.14	87.8%
10/3/11	Apple	AAPL	Buy	$350.00	$556.07	63.8%
10/3/11	Family Dollar**	FDO	Buy	$50.86	$69.28	39.2%
8/6/11	Carters**	CRI	Buy	$29.99	$71.56	139.7%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$14.14	50.7%
7/2/11	Telular*	WRLS	Buy	$6.06	$12.74	123.1%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$42.71	40.8%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$14.14	26.4%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. * Company acquired, position closed. ** Position closed at manager's discretion

Recommended Stocks: Sealed Air ("SEE") and MakeMyTrip ("MMYT")

Sealed Air is both a cyclical company and a restructuring story as a new CEO rebrands and redirects the company, which means there is more than one way to win. In a recent presentation the CEO stated "we're going extremely fast" with regards to the "left brain" changes to the company. What is abundantly clear so far is that SEE is generating increasing amount of free cash, which is usually a very good indicator of the direction things are going.

As part of the "new" SEE, the company is transforming form a "product" company to a "market" company, and has adapted a different and more holistic approach to their customers. SEE no longer competes on price, but rather views their customers as partners, and is focussed on earning a sufficient return on capital. In other words, SEE is raising prices to offset increased costs, in some cases 4%-9% as of November. When asked how that was being received, the answer was "we're doing a little better in pricing than you can see right now."

In the third quarter earnings report, SEE raised 2013 Adjusted EBITDA, Free Cash Flow and Adjusted EPS estimates to $1.25-$1.30, although they did not offer 2014 guidance. On a price/earnings basis the shares look expensive, however, with cyclical companies that is typical. SEE has a number of levers to pull still and I recommend buying shares up to $31.50.

MakeMyTrip ("MMYT")

MakeMyTrip is an Indian online travel agency which came public in 2010 at $25, quickly peaked near $40, and subsequently dropped to ~$13. At the current $17 price, it has a market cap of $650mm, and is valued at ~2x sales and 6x price/book. There are no earnings yet.

Some of the reasons the shares have performed poorly have to do with the Indian political climate and currency issues. However in its recent earnings call, the Founder, Deep Kalra, highlighted the new Governor of the Indian Reserve Bank, and the progress in India's civil aviation industry. So my expectation is that those issues are being addressed, and will continue to stabilize. In addition, the Civil Aviation Ministry estimates that the domestic airline fleet will grow to 1,000 aircraft by 2020, from today's 400.

At the same time, internet penetration is growing, travel is becoming increasingly desirable and affordable, and the addressable market is large and growing. MMYT is emphasizing hotel bookings over air travel, which carry bigger margins.

MMYT shares are not for everybody, but I think the risk reward is reasonable at today's price. I am adding small positions to growth portfolios and recommend doing so up to $17.65.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

November 5, 2013

Range of Returns	October	YTD

All PCM Accounts	1.2% - 3.5%	21.7% - 26.4%
S&P 500	4.5%	23.1%

Performance review: October was a solid month; not as spectacular as September

I've said to clients and prospects many times not to expect a straight line with regards to equity investing, so after September's outstanding returns it's no surprise that October wasn't as strong. The prospects for many Peattie Capital positions remain excellent, but guidance from a couple companies that reported in October was mildly disappointing, and shares declined. Carters ("CRI"), for example, has been a big winner the past two years, but the shares dropped 10% after the company's earnings report last week. KVH Industries ("KVHI"), one of my favorite companies, is well positioned for growth, but parts of the business are lumpy, and the company didn't offer guidance for 2014.

My repeated advice to stay invested has helped many client portfolios generate returns above 23% this year, which is particularly gratifying as, generally speaking, most clients are more concerned with protecting their wealth in a downturn than beating the index in a rising market. In the past, I have underperformed (relatively) in sharply rising markets, as I tend to keep a cash position, which is a drag on performance. This year I have kept pace in the strongest market in my 14 years as a portfolio manager.

In a recent conversation I was asked why, and here are two possible reasons: First, I spent nearly 10 years as a fixed income trader (at Credit Suisse, in the 1980s) which drove my belief that rates would stay lower for longer than many expected, and second, many stock selections have outperformed the market (see table below).

Overall, I still think the conditions are good for U.S. equities and I reiterate that rather than awaiting a 10-20% correction before buying shares, potential investors may consider starting with a smaller amount instead of sitting out entirely.

US economy continues to improve, slowly but surely

At the risk of cherry picking, the ISM manufacturing index for October came in at 56.4, up sequentially from from 56.2. This compares favorably to the 12-month average of 52.7 and the YTD average of 53.3. The Chicago Purchasing Manager's Index just came in at 65.9, it's highest level since April, 2011. Q3 retail sales grew 4.1% (annualized), the best quarterly performance of the year, which shows that, at least prior to the Government shutdown, people were confident and spending. Oil prices continue to drop, with the average price hitting $3.28 a few days ago, the lowest level of the year.

No doubt there are counter examples, such as slightly weaker (but still positive) jobs growth, and a slowdown in home sales, possibly attributable to the rise in rates, which has subsequently reversed.

As I said last month, my belief is that the macro data continue to improve, however investors are still obsessed with when the Fed will begin tapering.

Global improvements too

Here's how Bob Doll summarized leading global economies in a recent Barrons.com article ("Bob Doll Says to Overweight Risk" October 22, 2013)

Europe- "The European economy has shown signs of a broad-based bottom....and will likely return to positive growth early in 2014."

Japan-"Abenomics is clearly having a positive impact....growth is showing fresh signs of revival. The Tankan survey of Japanese companies shows strength, business and consumer confidence are surging, and capital investment is making a turn for the better."

China- "The Chinese government has quietly been easing monetary conditions, while continuing to pursue various supply side reforms. The economy has subsequently stabilized. Leading indicators have turned up. Capital spending and consumer demand also continue to expand at a very healthy pace."

The environment is still good for equities

Despite these signs of improvement, the Fed continues to buy $85bn of bonds monthly, as there is little inflation and according to James Bullard, head of the St. Louis Fed (and a voting FOMC member this year) the Fed believes it has more room to expand its balance sheet. Meanwhile earnings are growing 4.9% (Source: John Authers, "This is no time to get off the equity train" FT October 26, 2013) if you exclude JP Morgan which had exceptionally large litigation charges.

In a recent article ("Don't put faith in the biased data of Cape crusaders" FT August 20, 2013) Jeremy Siegel states that "since 1954, whenever long term interest rates have been below 8%, the p/e ratio of the S&P 500 has averaged 19...even if inflation runs somewhat above the Fed's 2% target, nominal rates on Treasury bonds will rise to at most 5%, below the zone where p/e rates contract." While I would like to see a little more fear, and arguably the market is somewhat overbought after broad inflows into equity funds, I am comfortable adding to my highest conviction ideas selectively. In addition to strong retail flows, underperforming hedge funds will likely buy any dips, in an effort to improve returns.

Stock picking continues to shine

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from October 31.

This chart shows all PCM's recommendations for the past 28 months showing an average return of +43.8% .
The total return on the S&P 500 from July 2, 2011 through October 31, 2013 was approximately +36.0%.
Additional recommendations are available on request. .

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
10/2/13	JP Morgan	JPM	Buy	$52.00	$51.54	-.1%
9/6/13	Owens-Illinois	OI	Buy	$29.25	$31.79	8.7%
8/3/13	Cedar Fair, L.P.	FUN	Buy	$43.50	$45.85	6.8%
6/5/13	Macquarie Infra.	MIC	Buy	$53.50	$54.91	4.3%
4/2/13	ChipMOS	IMOS	Buy	$12.90	$15.97	23.8%
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	$52.97	7.9%
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$21.95	21.3%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$16.44	24.1%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$23.09	19.2%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.74	9.0%
12/3/12	Telular*	WRLS	Buy	$10.06	$12.74	28.6%
10/3/12	Seagate Technology	STX	Buy	$30.00	$48.69	65.9%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$12.04	-6.9%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$15.97	41.3%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$46.62	35.9%
6/6/12	Mako Surgical*	MAKO	Buy	$23.25	$29.53	27.0%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.74	50.2%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$87.39	73.9%
3/6/12	du Pont	DD	Buy	$50.50	$61.20	25.5%
2/9/12	Credicorp	BAP	Buy	$119.00	$136.60	18.9%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$50.96	90.4%
12/2/11	Telular*	WRLS	Buy	$6.96	$12.74	91.2%
11/6/11	Carters	CRI	Buy	$36.00	$69.15	93.0%
11/6/11	Family Dollar*	FDO	Buy	$58.00	$69.28	22.1%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$54.91	113.2%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.74	82.5%
10/3/11	Apple	AAPL	Buy	$350.00	$522.70	53.4%
10/3/11	Family Dollar*	FDO	Buy	$50.86	$69.28	39.2%
8/6/11	Carters	CRI	Buy	$29.99	$69.15	131.6%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.74	46.5%
7/2/11	Telular*	WRLS	Buy	$6.06	$12.74	123.1%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$46.62	51.8%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.74	22.8%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. * Position closed.

Recommended Stock: Royal Caribbean Cruises ("RCL")

Ten reasons I'm recommending RCL:

RCL and competitor Carnival ("CCL") have nearly 80% market share between them. From an investment perspective, I like oligopolies.
The industry was already somewhat out of favor in February, 2012 when CCL's Costa Concordia capsized, driving it even more off of investor's screens.
Overall industry penetration rates are quite low; barely 3% of U.S. adults take a cruise annually, less than that in Europe and Asia, and virtually none in China.
Demand for cruises is growing more quickly than supply of ships, which will support pricing.
Earlier this year a power outage on a CCL ship caused more headaches and further damaged the industry's reputation. RCL has back-up generators on all its ships.
In it's recent earnings call, RCL's management endorsed 2014 street estimates of $3.06 (up from $2.30-$2.35 in 2013), so RCL trades at 13.7x forward estimates, well below the S&P's 15.8x. RCL trades at 1.1x book value per share compared to a historical range of 1.5x-2x book value.
RCL's CHB and CEO Richard Fain purchased 26,800 shares in the open market in late July (avg price: $36.82), adding to his existing $40mm position.
RCL just doubled it's dividend to $1 annually, a yield of 2.3% at today's $42.75 stock price.
Using 2007-2008's pricing levels, and assuming occupancy rates stay consistent, RCL earnings could approach $4 in 2015. A market multiple of say, 15x generates a share price of $60.
A director at CCL, Randy Weisenburger, bought 40,000 shares of both CCL and CUK in May, paying $32.95 for each for a total of over $2.6mm.

Conclusion: I think the industry is out of favor due to two "black swan" events and insiders are buying. I recommend buying shares of RCL up to $42.75

Bonus comment: This is not a formal recommendation, but I think CCL is an interesting opportunity at these levels too, as it is unlikely to experience a third consecutive black swan event at the height of the sales season. At the October Grant's conference, an investor suggested that CCL could earn $4.50-$5 in the next couple years, if a couple events play out...making today's roughly $35 price very attractive.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

October 2, 2013

Range of Returns	September	YTD

All PCM Accounts	2.6% - 7.9%	17.9% - 24.2%
S&P 500	3.0%	17.9%

Performance review: September: a spectacular month for Peattie Capital portfolios

Peattie Capital portfolios soared in September, on the strength of terrific news at several core positions. Peattie Capital believes in a concentrated approach, with most portfolios having only about 25 positions. As I've said, I believe good stock picking is the best way to approach the market.

Here are a few examples, each of which is a recently recommended stock. Returns are unaudited and include dividends.

	Mako Surgical +98%	KVH Industries +8.1%
	Tronox +15.7%	KKR +7.7%
	Seagate +14.2%	SBA Communications +7.3%
	ChipMOS +9.6%	Cedar Fair +5.8%

Mako Surgical ("MAKO") is the third position to be acquired this year; the others were Telular ("WRLS") and Heinz ("HNZ"). While the windfall is wonderful, I believe these names would've delivered even better returns over the long term.

Throughout the year I have maintained that US equities would be a good place to be, and PCM's recommended stocks have handily beaten the market (see table below for details). Needless to say it's been a very good year, and I am pleased that even my weakest account has matched the S&P 500.

Steady economic improvement everywhere....but you wouldn't know it

My reading of a variety of recent economic releases is that macro data continue to improve, although you wouldn't know it as the Government shutdown is drowning out everything else. In California, for example, the Purchasing Manager's Index reached 64.4 in Q3, its highest level since q4 2005 (source Gluskin Sheff research, 10/1/2013). In addition, employment in California has improved to 58.6, a three-year high (source: IBID). On a national level, the September ISM manufacturing index came in at 56.2 against a 12-month average of 52.4.

On the international front it's the same story: Japan's Tankan Survey (a measure of business sentiment) tripled to +12 in September, and is now at its highest level in six years. The Australian PMI came in at 51.7 in September, an improvement of 5.3 points, and its first expansionary number in over two years. German unemployment fell 25k last month, and the eurozone's jobless rate dropped to 12% in July, down from 12.1%.

I'm reminded of the Warren Buffett quote "If you wait for the robbins, spring will be over." No doubt global equity markets are aware of these improvements, as they returned over 8% in Q3 (Source: IBID).

The environment is still very good for equities

Given the strong performance of the equity markets, it's becoming increasingly difficult to find stocks that will double (or more) over the next couple years, like several of Peattie Capital's recommendations have. However I think there will be plenty of opportunities for good stock pickers.

My belief is that the combination of extraordinary liquidity, lack of investment choices, reasonable valuations, omnipresent fear, and underperformance by many professionals will provide support for the markets. According to a 10/1 Financial Times article, "Hedge fund stockpickers enjoy bull run returns" the average equity hedge fund is up 7% for 2013, and other hedge fund strategies are up just 4.5% this year. As a result of this dramatic underperformance, I would expect hedge funds to own more equities, especially as we exit October, the end of the traditionally weakest six-months of the year.

I also like that oil production and inventories are rising, with the result that the average price at the pump has dropped to $3.385 today from $3.594 a month ago (-5.8%) and $3.78 a year ago (-10.4%), according to AAA's Daily Fuel Gauge Report. This is especially meaningful as I would've expected oil prices to rise as the economy improved. I expect lower gasoline prices to give the economy a meaningful boost, as consumers tend to spend the extra income, and I would be very careful about stocks that are correlated to higher oil prices.

As for Washington, according to a recent Bloomberg report, since 1976 there have been 12 Government shutdowns and the S&P 500 rose an average of 11% in the ensuing twelve months. It's unfortunate that we are going through yet another shutdown, however I am staying focused on good companies trading at attractive levels and my bias at this point is to to add new positions or increase holdings in existing ones if the right price presents itself.

Stock picking continues to shine

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from September 30.

This chart shows all PCM's recommendations for the past 27 months showing an average return of +44.5% .
The total return on the S&P 500 from July 2, 2011 through September 30, 2013 was approximately +30.5%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
9/6/13	Owens-Illinois	OI	Buy	$29.25	$30.02	2.6%
8/3/13	Cedar Fair, L.P.	FUN	Buy	$43.50	$43.60	1.7%
6/5/13	Macquarie Infra.	MIC	Buy	$53.50	$53.54	1.7%
4/2/13	ChipMOS	IMOS	Buy	$12.90	$17.98	39.4%
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	$52.07	6.1%
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$20.58	13.7%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$15.33	15.7%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$24.47	26.1%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.80	9.5%
12/3/12	Telular*	WRLS	Buy	$10.06	$12.74	28.6%
10/3/12	Seagate Technology	STX	Buy	$30.00	$43.76	49.5%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$11.85	-8.8%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$17.98	57.6%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$45.08	31.8%
6/6/12	Mako Surgical*	MAKO	Buy	$23.25	$29.53	27.0%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.80	50.8%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$80.46	60.1%
3/6/12	du Pont	DD	Buy	$50.50	$58.56	20.3%
2/9/12	Credicorp	BAP	Buy	$119.00	$128.46	12.1%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$50.07	87.3%
12/2/11	Telular*	WRLS	Buy	$6.96	$12.74	91.2%
11/6/11	Carters	CRI	Buy	$36.00	$75.89	111.7%
11/6/11	Family Dollar*	FDO	Buy	$58.00	$69.28	22.1%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$53.54	108.2%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.80	83.3%
10/3/11	Apple	AAPL	Buy	$350.00	$476.75	40.2%
10/3/11	Family Dollar*	FDO	Buy	$50.86	$69.28	39.2%
8/6/11	Carters	CRI	Buy	$29.99	$75.89	154.1%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.80	47.1%
7/2/11	Telular*	WRLS	Buy	$6.06	$12.74	123.1%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$45.08	47.5%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.80	23.3%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. * Position closed.

Recommended Stock: JP Morgan ("JPM")

JP Morgan ("JPM") has consistently been in the headlines the past few years, and if there's one thing I believe about stockpicking, it's don't trade on the headlines. Shares of JPM have corrected from roughly $57 to roughly $51, as the uncertainty about the "London Whale" crisis and additional charges have put the company and Jamie Dimon in the media crosshairs.

Broadly speaking I think financial companies will benefit from a normalization of interest rates, which will, by definition, incease their net interest margins. The time frame for this is unknowable, but I have said several times that eventually I expect interest rates to rise. In addition to basic lending, JPM has a strong presence in credit cards, private banking, and asset management, among other lines of business. As a general rule, financial companies are attractive buys when they are trading near tangible book value, and tend to be fully valued at about twice book value.

Despite JPM's 27% gain over the past 12 months, it has dramatically underperformed peers Goldman, Sachs (+38%), Citigroup (+48%) and Bank of America (+55%). Furthermore it trades below them on a price/earnings basis and also price/book.

Going forward, I expect JPM to settle with the government on the current charges, possibly paying as much as $11 billion in fines. While this is a significant amount for a $200 billion (market cap) company, putting this chapter behind them will be a big plus, and likely lead to a valuation more in line with its peers, possibly even higher as management is very highly regarded.

I tend to stay away from big, "black box" kinds of companies, but in this case I think the risk/reward is in the investor's favor, and I recommend buying shares of JPM up to $52.00.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

September 6, 2013

Range of Returns	August	YTD

All PCM Accounts	(4.2%) - (1.2%)	9.8% - 17.5%
S&P 500	(3.1%)	14.5%

Performance review: Peattie Capital portfolios outperform in August

Most Peattie Capital portfolios outperformed the S&P 500 in August, although they dropped in value. Carters ("CRI") announced an accelerated share repurchase program and the shares beat the market by nearly 4% for the month. CRI shares have returned 146% and 105% since I recommended them at $29.99 and $36 in the August, 2011 and November, 2011 newsletters respectively.

Several core positions were much weaker than the overall market. For example, KVH Industries ("KVHI") dropped 9% to $12.76, and Macquarie Infrastructure ("MIC") dropped 8% to $53.74 despite increasing its annual payout to $3.50 (6.5% yield). Both these names are significant holdings, and I think they represent terrific value at these prices. Depending on the client, I have been adding to my positions in them.

The account that is only +9.8% for the year is the IRA for a sizeable client with two accounts whose aggregate return through August is nearly 17% (gross of fees). There are a couple speculative positions in it which I hold there so as to not pay taxes on the potential gains. Because of their speculative nature and disproportionate weighting, they can create exceptional volatility.

One of Peattie Capital's primary goals is to participate in up markets while simultaneously protecting client's capital in down markets, and I believe in concentrated portfolios rarely having more than 25 positions. This concentration can also increase volatility, but if my analysis is correct, (see table below for a summary of how my recommended stocks have performed), a year (or so) from now the question will be "why didn't you buy more at those prices?" After all, it's not whether you're right or wrong that matters, but rather how much money you make when you're right compared to how much you lose if you're wrong that will drive overall returns.

Seven trillion reasons why I still like equities

I continue to believe that US (and select other) equities are a very good place to invest today, particularly for anyone with a little patience. The S&P 500 has corrected roughly 4.5% from its recent high (1709 to 1633), and no doubt there could be more downside to the index. Each of the past few summers has seen mid-to-high single digit corrections (at least), so there is precedent for this year's summer swoon to be a normal (and healthy) correction in an ongoing bull market.

Regularly, I have discussed the combination of acceptable valuations (14x 2014 estimates source: Barron's "Fall Forecast: Sunny" Sept. 2, 2013), slow but steady GDP growth, improving employment, lack of investing alternatives, and gargantuan piles of cash on both corporate and personal balance sheets. According to Don Hays ("Still Resting" August 26, 2013) savings deposits have increased to a record $7.0 trillion, and he concludes "Instead of a Great Rotation out of bonds and into stocks, it's been more of a Great Liquidation out of bonds and into cash." I couldn't agree more, and am wondering what will happen to equity prices as the economy continues its steady progress and investors regain confidence.

On balance, I would prefer to see tapering begin in September, because it has become such a lightning rod for the media and investors. Remember, tapering doesn't mean tightening; it means less easing, or to use one of Bernanke's metaphors, less pressure on the accelerator. By definition there will be less liquidity in the markets, but with a targeted Fed Funds rate remaining near 0% and a steepening yield curve, the monetary/liquidity conditions will remain excellent. Based on what I know today, I anticipate adding to my highest conviction ideas should they weaken under that scenario.

What's the bear case?

Granted, the US faces a litany of issues in both the near and long term. For example, Congress will be discussing the budget again soon, no one knows what will happen in Syria, and there are tremendous liablities on the US's balance sheet (and off it too). In addition, there is overwhelming evidence that interest rates will continue to rise, and the impact that might have on housing and other industries remains to be seen. Stocks have risen a long way from their March 2009 lows, when the S&P 500 bottomed near 670, so you could argue that the rally is overextended.

However, my opinion is that the markets were pricing in the potential end of the financial system as we know it, and clearly that didn't happen. Subsequently we've had fears ranging from a "hard landing in China" to a breakup of the Eurozone, to a drop in S&P earnings to the $80 range. Today the comment I hear most frequently is "there is no growth." My point is, there have always been, there are today, and there always will be in the future, reasons to wait for "things to get better." As far as I'm concerned this fear is a bullish factor. When would you rather buy stocks, in 1999 when everything seemed great, or 2013, after the market has gone virtually nowhere for more than a decade and people are paralyzed with fear ($7 trillion in savings accounts is real fear!)?

Signs of improving economies globally

These tidbits seem to be telling a good story. Source: David Rosenberg, "Breakfast with Dave" Sept. 3, 2013:

China: "We just got a 51 reading on China's ISM for August."

Brazil: "...real GDP growth, despite all the hurdles, accelerated to 3.3% from 1.5% in Q1."

Japan: "Japan has moved out of deflation and into inflation with the CPI rate at 0.7% in July, very nearly a five-year high... the unemployment rate there has also dipped to 3.8% from 3.9%."

Germany: "The lfo hit a 16-month high."

Eurozone: "The number of joblessness across the eurozone fell 15k and has posted successive declines now for the first time since April 2011."

UK: "The UK purchasing manager's index jumped to 57.2 in August from 54.8 in July-the highest it has been in a good 2 1/2 years... the eurozone comparable edged up to 51.4 from the initial estimate of 51.3 and the actual 50.3 reading in July."

Stock picking continues to shine

Regardless, I believe that paying the right prices to own the right stocks is a good approach to the market. For some clients, depending on their specific characteristics, I might also overlay a tactical hedging program to protect against material downdrafts which might consist of boxing existing long postions, shorting, or raising cash or speculate in higher risk/higher return potential securities. Portfolios are always built and managed in accordance with specifc client goals and restraints.

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from August 30.

This chart shows all PCM's recommendations for the past 26 months showing an average return of +38.1% .
The total return on the S&P 500 from July 2, 2011 through August 30, 2013 was approximately +26.0%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
8/5/13	Cedar Fair, L.P.	FUN	Buy	$43.50	$41.82	-3.9%
6/5/13	Macquarie Infra.	MIC	Buy	$53.50	$53.75	2.1%
4/2/13	ChipMos	IMOS	Buy	$12.90	$16.41	27.2%
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	$51.27	4.5%
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$19.11	5.6%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$14.90	12.5%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$21.36	9.3%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$12.76	1.3%
12/3/12	Telular*	WRLS	Buy	$10.06	$12.74	28.6%
10/3/12	Seagate Technology	STX	Buy	$30.00	$38.32	31.3%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$10.70	-17.4%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$16.41	43.9%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$46.22	32.4%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$14.95	-35.7%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$12.76	39.5%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$75.00	49.3%
3/6/12	du Pont	DD	Buy	$50.50	$56.62	15.6%
2/9/12	Credicorp	BAP	Buy	$119.00	$121.12	5.9%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$48.74	82.6%
12/2/11	Telular*	WRLS	Buy	$6.96	$12.74	91.2%
11/6/11	Carters	CRI	Buy	$36.00	$73.64	105.0%
11/6/11	Family Dollar*	FDO	Buy	$58.00	$69.28	22.1%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$53.75	109.0%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$12.76	69.5%
10/3/11	Apple	AAPL	Buy	$350.00	$487.22	43.2%
10/3/11	Family Dollar*	FDO	Buy	$50.86	$69.28	39.2%
8/6/11	Carters	CRI	Buy	$29.99	$73.64	146.1%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$12.76	36.0%
7/2/11	Telular*	WRLS	Buy	$6.06	$12.74	123.1%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$46.22	48.1%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$12.76	14.0%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. * Position closed.

Recommended Stock: Owens-Illinois, Inc ("OI")

I don't usually recommend stocks that are already up 40%, but Owens-Illinois ("OI") is still attractively priced at less than 10x 2014 estimates and has some nice tailwinds behind it.

With 79 plants and roughly 25% market share, Toledo, Ohio, based OI is the largest glass container manufacturer in the world. In many regional markets they enjoy a monopoly or duopoly position. OI has a long history with a number of the world's biggest brewers and consumer products companies, which also contributes to the moat around their business. The cost of a new a bottling facility might run to $150mm, and there aren't many competitors who can build them in so many areas of the world.

The company has responded to shareholder suggestions to streamline operations and focus on a few key regions. Recently the company outlined its three-year plan to maximize earnings, which could rise to $3.50-$4 in the next two to three years, up from 2013's guidance of $2.65-$2.85. In addition, the company expects to generate over $300mm in free cash this year, and they have been actively buying back shares and debt. With a multiple range from high single digits to mid teens, it's not hard to envision a $40+ stock price somewhere down the road.

OI has also made several management changes, with a new CFO and several new regional presidents. I like the industry dynamics too, as there are now just a few key participants.

OI doesn't pay a dividend and is a highly cyclical company, but it is just the kind of company that I think will benefit from a slow but steady global economic expansion. I think the company will continue to execute its cost reduction and asset optimization programs and with a little bump on the demand side there could be even better earnings and/or a mid teens multiple. I recommend buying shares of OI up to $29.25

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

August 3, 2013

Range of Returns	July	YTD

All PCM Accounts	2.2% - 4.2%	11.3% - 20.6%
S&P 500	4.9%	18.2%

Performance review: A good month for Peattie Capital portfolios in July

Peattie Capital portfolios performed well in July, although not as well as the market. Macquarie Infrastructure Trust ("MIC"), a recommended stock and core holding in most portfolios, gained ~8% and duPont ("DD") gained nearly 10%.

However, several core holdings gave back some of their recent gains. ChipMos ("IMOS") and Carters ("CRI"), the top performers in both May and June, were weak. In addition, recommended stocks Seagate ("STX") and Genesis Energy ("GEL") were also laggards. Each of these names has had a strong year, and I am re-evaluating them in light of their most recent earnings. There are a number of names on my watch list that may offer better opportunities going forward.

Positive factors still in place

With his July 30 comments, Federal Reserve Chairman Bernanke again soothed the market. The perception had been that tapering would start soon, probably September, and be completed in 2014. Now, it appears that it will begin late this year or next year. In other words, it is still a very comfortable and accomodating environment for equities as far as the monetary situation goes. I anticipate a steepening yield curve, which is healthy for markets and particularly good for banks. Bernanke hasn't budged from his stated target of 6.5% unemployment, still a long way from Friday's reported 7.4% rate.

In addition, there are pockets of real strength, such as autos, for example. In a way, we've got the best of all worlds as the economy has exited the "fragile" stage and entered a "slow but steady recovery" stage, still accompanied by a very friendly Federal Reserve. At roughly 15x forward estimates, overall valuation, generally speaking, is acceptable.

I also like the technicals as both the Dow and the Transports recently set new highs, which is bullish. Another near term indicator is the September options cycle, in which the 760,000 deep in-the-money calls far outweigh the 65,000 deep-in-the-money puts, suggesting that the big money is positioned for further gains in equities through the September cycle (source: Jerry Hegarty, morning newsletter August 2, 2013). So, while the market may be mildly overbought, for the time being I believe any selloff will be met with buying.

The notion that "the market has to pull back at some point," which several potential Peattie Capital investors have recently told me, is also a bullish indicator, as far as I'm concerned. The old saying "bull markets never let you in and bear markets never let you out" comes to mind here.

My guess is that after the September options cycle the election in Germany and the budget battle in the US will be the next pieces in the "wall of worry."

What should I do if I have been sitting on the sidelines??

The answer to this question depends on a variety of personal issues, but my belief is that equities will do better than cash or bonds for now. I think anyone who has missed out on this rally should consider getting involved, especially if you've got a reasonable time horizon, say two to three years or longer. Picking a bottom is just too difficult, and a better approach at this point is to be dribbling funds into the market incrementally.

"You can fool some of the people all of the time..."

I have stated several times that most hedge funds are followers, that is, leveraged momentum chasers whose idea of success is to get as big as possible as fast as possible. In contrast, Peattie Capital's primary goal is to do as well as possible for my existing clients, by participating in up markets and limiting any material losses in down markets. Generally speaking, hedge fund performance has been atrocious, although there are exceptions. According to an August 2 FT article ("Most funds can only dream of SAC-style returns"), "since 2010, the average equity hedge fund has returned 14% on its investors' capital compared with a return of 55%, with dividends reinvested, on the S&P 500."

On the radio yesterday, I heard someone defending hedge funds, essentially saying that "performance is fine." I am surprised by that attitude, and repeat what I have said to every client and prospect of Peattie Capital: "If my performance is bad then you should fire me."

It's one thing to underperform a bit in a rising market if you are adding protection and will preserve capital in a down market, and maybe some hedge funds will do that come the next downturn. However, it's indefensible to underperform the S&P 500 by 40% over a two-year period. Claiming that "performance is fine" in such circumstances compounds the issue by bringing further into question the industry's credibility, in addition to the very real and serious performance issue as far as I'm concerned.

Stock picking continues to shine

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from July 31.

This chart shows all PCM's recommendations for the past 25 months showing an average return of +40.6% .
The total return on the S&P 500 from July 2, 2011 through July 31, 2013 was approximately +29.9%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
6/5/13	Macquarie Infra.	MIC	Buy	$53.50	$58.41	9.2%
4/2/13	ChipMos	IMOS	Buy	$12.90	$15.03	16.5%
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	$52.06	4.3%
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$20.45	13.0%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$13.96	5.4%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$21.74	11.2%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.99	11.0%
12/3/12	Telular*	WRLS	Buy	$10.06	$12.74	28.6%
10/3/12	Seagate Technology	STX	Buy	$30.00	$40.91	38.7%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$12.05	-7.2%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$15.03	31.9%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$42.67	22.9%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$14.04	-39.6%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.99	52.9%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$74.09	47.4%
3/6/12	du Pont	DD	Buy	$50.50	$57.69	17.7%
2/9/12	Credicorp	BAP	Buy	$119.00	$118.28	3.5%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$49.84	84.7%
12/2/11	Telular*	WRLS	Buy	$6.96	$12.74	91.2%
11/6/11	Carters	CRI	Buy	$36.00	$71.32	98.6%
11/6/11	Family Dollar*	FDO	Buy	$58.00	$69.28	22.1%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$58.41	122.7%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.99	85.8%
10/3/11	Apple	AAPL	Buy	$350.00	$452.53	32.4%
10/3/11	Family Dollar*	FDO	Buy	$50.86	$69.28	39.2%
8/6/11	Carters	CRI	Buy	$29.99	$71.32	138.3%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.99	49.1%
7/2/11	Telular*	WRLS	Buy	$6.06	$12.74	123.1%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$42.67	38.2%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.99	25.0%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. * Position closed.

Recommended Stock: Cedar Fair ("FUN")

There is plenty to like about the amusement park industry. For example, there are only a few competitors, there are significant barriers to entry, the business models tend to be easy to understand and they tend to be recession resistant.

Cedar Fair ("FUN") has delivered slow and steady top line growth over the years and has the best EBITDA margins (36.6% in 2012) of its closest competitors (source: Company documents). Through June 23 of this year, revenues had increased 5% on a 4% increase in guest spending and a 1% increase in attendance. Each of these is on pace with company guidance for the year.

In addition, over the past few years FUN's leverage ratio has dropped from nearly 5x in 2009 to 3.9x in 2012. Simultaneously its net cash position has gone from -$80mm to +$80mm, and the company has consistently raised its payout, targeting $2.50 per unit in 2013 which is a yield of 5.9% on Friday's closing price of $43.27 per unit.

Going forward, there will likely be more room for payout increases, as the de-leveraging project winds down, and free cash continues to accumulate. FUN trades well below peer Six Flags ("SIX") on an EBITDA basis, and the yield compares favorably to SIX's 4.8%.

I like the steadiness of this business and believe the risk/reward ratio is decidedly in the investor's favor. If the company achieves its goal of at least $450mm EBITDA in 2016 ($391mm in 2012), I think there is a good chance it will get closer to SIX's 12x EBITDA multiple, generating a unit price in the $70-$80 range. I recommend buying FUN up to $43.50.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

July 3, 2013

Range of Returns	June	YTD

All PCM Accounts	-2.1% - 0.2%	6.8% - 18.0%
S&P 500	-1.5%	12.6%

Performance review: Good stock picking helps mitigate volatility in June

Despite the market's volatility, most Peattie capital portfolios performed admirably in June. I attribute the relative outperformance to good stock picking as once again several Peattie Capital recommended stocks delivered positive returns. In a repeat of May's performance, ChipMos ("IMOS") and Carters ("CRI") were strong, gaining 6.1% and 2.8% respectively.

Yesterday Zack's raised IMOS to a Rank #1, Strong Buy, up two notches from a Rank #3, Hold. IMOS has gained 80% since I recommended it in August, 2012, and 60% since I recommended it again in April, 2013 (using July 1 close).

Meanwhile CRI announced a share buyback program and initiated a dividend, driving its shares to another new high. CRI has returned 149% since I recommended it in August, 2011 and 108% since I recommended it again in November, 2011. Based on what I know today, I have no intention of selling any IMOS or CRI shares.

The account that was down 2.1% in June is still +14.0% for the year.

An overreaction to Bernanke?

Generally speaking, I believe the market has been looking for a reason to correct and have stated repeatedly that I'd like to see more fear in the market. As far as I'm concerned, the recent correction is a good thing. While I have no idea if this correction will be the final "bump" I would guess that it will not be.

In both equity and bond markets, investors moved to cash, as bond and stock fund outflows totalled $19.96 billion in the week ended June 26, "the biggest outflow since August, 2011" (source: "Uneasy Investors Turning to Cash" WSJ July 1, 2013). According to research firm Lipper, investors pulled $23.7bn from US bond funds in the most recent four weeks, representing the largest such outflows since October, 2008 (source: FT July 3, 2013 "Pimco suffers record outflows in latest sign of nerves over bonds"). The same article states that the Barclays US Agggregate Bond Index, the benchmark for fixed income managers, has dropped 2.4% this year.

Somewhat overlooked in the FOMC minutes which triggered the selloff is the notion that the economy really is getting better, as the Fed raised its economic outlook for the next couple years (not that the Fed's predictions can always be taken at face value). The market may believe that too, as defensive stocks such as utilities and consumer staples have been underperforming while cyclical names (semiconductors e.g.) have been relatively stronger.

The bottom line for me is that this is not a 2008 "rolling off a cliff" kind of moment. So far, it is a healthy and welcome pause, and I believe that US equities still represent a very good opportunity for investors, particularly those with a longer time frame. Earnings season is about to begin, and, as always, I will be focusing closely on earnings and whatever comments managements make about their company and industry.

To be sure, congressional follies, a seemingly overwhelming debt burden, a slowdown in China and crises throughout Europe and the Middle East provide fodder for the headlines, which can be scary. Still, the very low absolute level of rates, microscopic inflation, the earnings power at many companies, ongoing recoveries in the housing and auto sectors, slow but steady improvements in employment, and a lack of investing alternatives provide very strong underpinnings for this market. Valuations are good, not great, and I'd still like to see more fear, which will come if we test the June lows. In addition, eventually, all those funds that have been pulled out of bonds will be redeployed, as will cash on corporate balance sheets.

History might not repeat, but it does rhyme sometimes

One other thought: rates began rising dramatically in early 1994, and the S&P 500 dropped from 481 at the end of January to 444 at the end of June, it's lowest monthly close of the year. Then in 1995-1997, the S&P returned 34%, 20% and 31% respectively (Source: Stock Trader's Almanac). I don't mean to oversimplify; my point is that markets can go up in a rising rate environment.

Stock picking continues to shine

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from July 1.

This chart shows all PCM's recommendations for the past 24 months showing an average return of +41.3% .
The total return on the S&P 500 from July 2, 2011 through July 1, 2013 was approximately +25.1%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
6/5/13	Macquarie Infra.	MIC	Buy	$53.50	$54.12	1.2%
4/2/13	ChipMos	IMOS	Buy	$12.90	$20.60	59.7%
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	$50.99	2.2%
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$19.76	9.2%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$13.84	4.5%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$20.37	4.4%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.54	7.5%
12/3/12	Telular*	WRLS	Buy	$10.06	$12.74	28.6%
10/3/12	Seagate Technology	STX	Buy	$30.00	$45.47	53.9%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$11.83	-9.4%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$20.60	80.3%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$40.64	17.5%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$12.43	-46.5%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.54	48.0%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$74.16	47.6%
3/6/12	du Pont	DD	Buy	$50.50	$52.72	7.8%
2/9/12	Credicorp	BAP	Buy	$119.00	$128.49	12.1%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$52.92	95.5%
12/2/11	Telular*	WRLS	Buy	$6.96	$12.74	91.2%
11/6/11	Carters	CRI	Buy	$36.00	$74.58	107.6%
11/6/11	Family Dollar	FDO	Buy	$58.00	$63.34	11.4%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$54.12	107.2%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.54	79.8%
10/3/11	Apple	AAPL	Buy	$350.00	$409.22	20.1%
10/3/11	Family Dollar	FDO	Buy	$50.86	$63.34	27.1%
8/6/11	Carters	CRI	Buy	$29.99	$74.58	149.2%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.54	44.3%
7/2/11	Telular*	WRLS	Buy	$6.06	$12.74	123.1%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$40.64	32.5%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.54	21.0%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. * Position closed.

Recommended Stock:

There is no recommended stock for this newsletter.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

June 5, 2013

Range of Returns	June	YTD

All PCM Accounts	-2.1% - 0.2%	6.8% - 18.0%
S&P 500	-1.5%	12.6%

Performance review: Good stock picking helps mitigate volatility in June

The account that was down 2.1% in June is still +14.0% for the year.

An overreaction to Bernanke?

History might not repeat, but it does rhyme sometimes

Stock picking continues to shine

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from July 1.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
6/5/13	Macquarie Infra.	MIC	Buy	$53.50	$54.12	1.2%
4/2/13	ChipMos	IMOS	Buy	$12.90	$20.60	59.7%
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	$50.99	2.2%
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$19.76	9.2%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$13.84	4.5%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$20.37	4.4%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.54	7.5%
12/3/12	Telular*	WRLS	Buy	$10.06	$12.74	28.6%
10/3/12	Seagate Technology	STX	Buy	$30.00	$45.47	53.9%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$11.83	-9.4%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$20.60	80.3%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$40.64	17.5%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$12.43	-46.5%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.54	48.0%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$74.16	47.6%
3/6/12	du Pont	DD	Buy	$50.50	$52.72	7.8%
2/9/12	Credicorp	BAP	Buy	$119.00	$128.49	12.1%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$52.92	95.5%
12/2/11	Telular*	WRLS	Buy	$6.96	$12.74	91.2%
11/6/11	Carters	CRI	Buy	$36.00	$74.58	107.6%
11/6/11	Family Dollar	FDO	Buy	$58.00	$63.34	11.4%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$54.12	107.2%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.54	79.8%
10/3/11	Apple	AAPL	Buy	$350.00	$409.22	20.1%
10/3/11	Family Dollar	FDO	Buy	$50.86	$63.34	27.1%
8/6/11	Carters	CRI	Buy	$29.99	$74.58	149.2%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.54	44.3%
7/2/11	Telular*	WRLS	Buy	$6.06	$12.74	123.1%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$40.64	32.5%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.54	21.0%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. * Position closed.

Recommended Stock:

There is no recommended stock for this newsletter.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

May 8, 2013

Range of Returns	April	YTD

All PCM Accounts	0.3% - 5.6%	4.4% - 17.3%
S&P 500	1.8%	12.0%

Performance review: A spectacular month for Peattie Capital

April was yet another wonderful month for most Peattie Capital portfolios, driven by strong performance from Peattie Capital's two biggest positions and several other recommended stocks. The largest position, Macquarie Infrastructure ("MIC"), increased its dividend $0.75 to $3.50 annually, slightly more than what I predicted last month. Shares gained 8% in April and have returned 121% since I recommended them in November, 2011.

Our second largest position, Telular ("WRLS"), surged 27% after announcing that it would be bought by a private equity firm. While I'm delighted at the news, I am also disapppointed, as WRLS's prospects are still outstanding. I have recommended WRLS three times over the past 22 months, most recently at $10 in December, 2012, and WRLS shares have returned 123% since I first recommended them in July, 2011.

WRLS and MIC are good examples of Peattie Capital's goal of finding good opportunities, learning as much about them as I can, and then paying the right price if I choose to own them. WRLS is also a good example of what David Swenson meant when he listed patience as a necessary ingredient to outperforming (see April's newsletter) as it has had several 25% corrections during it's run from $1 to the proposed takeout price of $12.61. Shares are trading slightly above that level, suggesting a fairer offer to shareholders might be forthcoming.

Other big performers include ChipMOS, ("IMOS") which jumped to $14.73 after announcing that it would be traded on the Taiwan Exchange. IMOS has returned 12% since I recommended it in April and 29% since I recommended it last August. Other notable winners, each of which has been recommended within the past 13 months, were SBC Communications ("SBAC") which gained nearly 10% after a strong earnings report, (+57% since I recommended it in April, 2012), and KKR ("KKR") which gained 9% in April (+16% since I recommended it two months ago).

My only comments about the weakest performing portfolio, up only 4.4% this year, are 1) it is the IRA of a client who has another, much larger account, and 2) that it has a disproportionate exposure to more speculative names. The total performance for this client, combining the two accounts, is +14% for the year.

"Tips from Wall Street hedge fund gurus fail to reward the faithful"

This headline appears on the front page of today's Financial Times, and it refers to the Ira Sohn Investment Conference held annually at Lincoln Center in New York. The conference features stock tips from a dozen of the most well known hedge fund managers, the "leading lights of the hedge fund community."

The article states "a Financial Times analysis of last year's tips shows mixed results. An investor who followed every top idea from the 12 speakers last year would've made 19%, less than the 22% gain available from a passive index fund tracking the US stock market."

As far as I'm concerned, yes, there are a number of outstanding hedge fund managers who deliver exceptional performance year in and year out, and if you are fortunate enough to find one, I suggest you hand them all your investable funds. In general though, Gertrude Stein may as well have been speaking about hedge funds when she said "There is no there there."

By way of reference, Peattie Capital's recommended stock last May was KVH Industries, ("KVHI") which has subsequently gained 49%.

At these levels, are stocks still a good idea?

The bears are out in full force, with the "Sell in May and go away" refrain. As I've said, there is evidence to support this notion, and I am only slowly edging into new positions. However, there are many reasons to be excited about the market's prospects: The Milennial Generation, born between 1982-1998 and a bigger Generation than the Baby Boomers, are just now approaching their prime spending ages (35-55). The US is on a road towards energy independence. There is little inflation, and the Rule of 20 (the market is fairly valued when its multiple is the difference between 20 and inflation) suggests that the multiple can expand from 14x currently to 18x. The Fed is still actively pursuing quantitative easing. The price of gold is dropping. Housing is doing well. Yields on fixed income investments are miniscule. Many people, at least the ones I speak with, remain shaken by the volatility of the past 13 years, and are not interested in equities.

I guess what I am saying is that I still believe that the combination of liquidity, reasonable valuations, and lack of investment alternatives are all favorable elements and that the continued skepticism of much of the investing public (as seen by the still tepid inflows into equity mutual funds), is helpful. So broadly speaking, I am still positive on the markets, but even more excited about specific names in Peattie Capital portfolios.

On balance, I would like to see a bit more fear, as sentiment indicators such as investor polls have fluctuated near excessive optimism, and a correction of 5%-10% would be healthy, based on what I believe today.

"I'd like my funds to be at a large institution, Bill"

This is a paraphrased version of what prospects have occasionally said to me. So, I'll take this opportunity to remind everyone that Peattie Capital client portfolios are held at Schwab Institutional, a division of Charles Schwab & Co., which reported $1.95 trillion in Assets Under Management earlier this year. That is up 38% since 2009, far better than the (more or less) flat/slightly down AUM reported by Morgan Stanley and BofA/Merrill in the same period. Alternatively, clients can set up a new account at their existing firm, funded with an agreed amount, and give Peattie Capital discretionary authority over it.

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from May 3.

This chart shows all PCM's recommendations for the past 22 months showing an average return of +37.8% .
The total return on the S&P 500 from July 2, 2011 through May 3, 2013 was approximately +22.1%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	$47.82	-6.1%
4/2/13	ChipMOS	IMOS	Buy	$12.90	$14.76	12.6%
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$20.76	16.2%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$13.61	2.7%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$21.07	6.6%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.67	8.5%
12/3/12	Telular	WRLS	Buy	$10.06	$12.71	28.3%
10/3/12	Seagate Technolgy	STX	Buy	$30.00	$41.21	39.7%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$14.16	8.2%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$14.76	29.6%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$38.81	10.3%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$10.62	-54.3%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.67	49.4%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$79.25	57.7%
3/6/12	du Pont	DD	Buy	$50.50	$53.95	9.4%
2/9/12	Credicorp	BAP	Buy	$119.00	$147.70	47.1%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$47.95	76.3%
12/2/11	Telular	WRLS	Buy	$6.96	$12.71	90.8%
11/6/11	Carters	CRI	Buy	$36.00	$65.54	82.1%
11/6/11	Family Dollar	FDO	Buy	$58.00	$62.36	9.7%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$58.72	121.3%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.67	81.5%
10/3/11	Apple	AAPL	Buy	$350.00	$449.96	30.8%
10/3/11	Family Dollar	FDO	Buy	$50.86	$62.36	25.1%
8/6/11	Carters	CRI	Buy	$29.99	$65.54	118.5%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.67	45.7%
7/2/11	Telular	WRLS	Buy	$6.06	$12.71	122.6%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$38.81	24.9%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.67	22.2%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

April 2, 2013

Range of Returns	March	YTD

All PCM Accounts	2.6% - 4.8%	3.4% - 13.0%
S&P 500	3.6%	10.0%

Performance review: Another good month for Peattie Capital

March was a very good month for most Peattie Capital portfolios, as the last earnings reports came in and shares responded favorably. For example, PCM recommended stock ChipMOS ("IMOS") announced another buyback program on their March 18 earnings call, and that they expected to be listed on the Taiwan Exchange in the second quarter. Despite the company's subsequent 30% bounce, I reiterate my buy recomendation, up to $12.90.

Among the worst performing portfolios for the year is my personal IRA, which has only nine positions, several of which are still stuck in neutral. Telular, for example, ("WRLS") is barely positive this year, and KVH Industries ("KVHI") has dropped ~3%. These are sound investments, and I remain optimistic about them.

The best performers are the most conservative ones, filled with very large, recognizable names. These names are perceived to be safer, providing a measure of comfort to investors as they tiptoe back into riskier assets.

On the plus side, PCM recommendation Macquarie Infrastructure Trust ("MIC") continues to post strong results, and disclosed in their conference call that they would be in a position to raise the dividend again after completing a refinancing at their Atlantic Aviation subsidiary (expected by the end of June). MIC has already raised the payout from $0.80 annually a year ago to $2.75 currently, and my calculation is that the increase could be as much as $0.60-$0.70 per unit. The market's anticipation of this increase is probably what is driving the units to new highs, and MIC has returned 104% since I recommended it in November, 2011.

The pros and cons of the current environment

I have stated repeatedly that I believe in a "market of stocks" rather than a "stock market" (or words to that effect). In other words, reading headlines, interpreting them, and then buying or selling stocks based on them (or the intrerpretation) is a very difficult way to grow a portfolio over time. Who thought six months ago, for example, that stocks would be setting record highs before the end of the first quarter of 2013?

That said, I also believe in being aware of the environment. To my way of thinking, the combination of liquidity, reasonable valuations, and lack of investment alternatives are all favorable "big picture" elements. In addition, I think the extraordinary amount of cash on corporate balance sheets and the reduced number of shares available to trade on the exchanges (as a result of mergers and relatively few IPOs) are helpful. Finally, I like the continued skepticism of much of the investing public (as seen by the still tepid inflows into equity mutual funds), and from a technical perspective, I like the behavior of the transports, which continue to perform very well.

How can active management outperform?

Slightly off topic, I know, but this question comes up frequently, so I herewith address it. The best answer I've seen is from David Swensen, CIO of Yale's Endowment, considered to be one of the best managers of this era. According to him, managers need to know the overall environment, to run concentrated portfolios, to do extensive research on investments so as to know when a selloff is a buying opportunity, to have patience, and to be willing to deviate from an index.

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from March 28.

This chart shows all PCM's recommendations for the past 21 months showing an average return of +26.5% .
The total return on the S&P 500 from July 2, 2011 through March 28, 2013 was approximately +20.2%.
Additional recommendations are available on request.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
4/2/13	Energy Transfer Partners	ETP	Buy	$50.75	n/a	n/a
4/2/13	ChipMOS	IMOS	Buy	$12.90	n/a	n/a
3/4/13	Kohlberg, Kravis, Roberts	KKR	Buy	$18.10	$19.32	6.7%
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$12.14	-8.4%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$19.81	0.3%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.57	7.7%
12/3/12	Telular	WRLS	Buy	$10.06	$10.00	1.8%
10/3/12	Seagate Technolgy	STX	Buy	$30.00	$36.56	24.2%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$13.20	0.5%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$13.32	17.0%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$37.21	6.0%
7/3/12	Gulf Keystone*	GUKYF	Hold	$3.35	$2.70	-19.4%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$11.15	-52.0%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.57	48.3%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$72.00	43.3%
3/6/12	du Pont	DD	Buy	$50.50	$49.16	0.8%
2/9/12	Credicorp	BAP	Buy	$119.00	$166.05	41.5%
1/12/12	Gulf Keystone*	GUKYF	Buy	$4.00	$2.70	-32.5%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$48.22	77.3%
12/2/11	Telular	WRLS	Buy	$6.96	$10.06	52.7%
11/6/11	Carters	CRI	Buy	$36.00	$57.27	59.1%
11/6/11	Family Dollar	FDO	Buy	$58.00	$59.05	3.6%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$54.04	104.4%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.57	80.3%
10/3/11	Apple	AAPL	Buy	$350.00	$442.66	28.7%
10/3/11	Family Dollar	FDO	Buy	$50.86	$59.05	18.1%
8/6/11	Carters	CRI	Buy	$29.99	$57.27	91.0%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.57	44.7%
7/2/11	Telular	WRLS	Buy	$6.06	$10.06	78.9%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$37.21	20.4%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.57	21.3%

NOTES: *Speculative. Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results.

Recommended Stock: Energy Transfer Partners ("ETP")

Master Limited Partnerships (MLPs) have been one of my favorite investments the past few years because they offer large and growing distributions and also have significant opportunities in the ongoing proliferation of onshore gas and liquids production. In addition, MLPs are financing growth with historically low-cost funding, and there appears to be more runway as the US Dept. of Energy recently stated that the US will overtake Saudi Arabia as the world's largest oil producer by 2020.

Since its inception in 1995, Energy Transfer Partners ("ETP") has operated primarily in the south, but over the past couple years has been aggressively expanding into new shale formations, partnering with a variety of operators, and buying (and selling) strategic assets. All this activity has left ETP with an exceptionally complicated ownership structure. Furthermore, the company hasn't raised its payout since 2008, so there are reasons why the units have underperformed many peers. PCM recommended stock Genesis Energy ("GEL"), for example, has returned over 80% since February, 2011, while ETP's total return is barely positive over the same period.

However, ETP is now committed to simplifying its structure and has begun doing so, which may be why the units have gained 16% year to date. Meanwhile, the company pays $3.58 in annual distributions (7% yield), and analysts believe that may rise this year. In 2012, revenues grew to $15.7 billion and distributable cash flow grew to nearly $1.5 billion. (Year over year comparisons are less meaningful due to the company's merger activity)

I particularly like ETP in this environment, as more institutional investors are interested in MLPs and a 7% payout works well for my income-oriented accounts. Usually I don't like "chasing momentum", but it looks to me like the market expects ETP to successfully simplify its structure and with the potential for a resumption of dividend hikes on the horizon my feeling is that the shares will be well supported. I recommend buying ETP up to $50.75.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

March 4, 2013

Range of Returns	February	YTD

All PCM Accounts	-6.1% - 2.0%	0.1% - 8.4%
S&P 500	1.1%	6.1%

Performance Review: Month of digesting gains for Peattie Capital

January was one of my best months ever, and February was a month of digesting those gains for many Peattie Capital portfolios. The worst performer was my personal IRA, which only has seven positions, several of which were among the poor performers in February.

Despite being in the middle of the strong six-month cycle, February is historically the second weakest month of the year (Source: Stock Traders Almanac), possibly because the market is absorbing gains from November through January. Among the laggards were some of my biggest positions, such as Telular ("WRLS") which dropped 10.2%, KVH Industries ("KVHI") which dropped 8.5%, and Seadrill ("SDRL") which was down 7.6%. Carters ("CRI"), not as widely owned, was also down 10% in February, and Gulf Keystone (pink sheets: "GUKYF"), despite being only 1-2% of most portfolios, also contributed to the poor performance by dropping 16.7%. I am considering adding to several of these positions, as their investment thesis is still sound and their prices much more attractive.

It's worth mentioning that several of these names have been very volatile in the past, particularly the smaller names. WRLS, for example, has had both a 40% and a 30% correction during it's move from $1 to $10 over the past four years. WRLS is expected to grow EBITDA 30%-40% this year (Source: company projections) and, at it's current $10 price, trades below 7x the mid-point of the guidance. WRLS also pays a $0.48 annual dividend, up 9% over last year, and yields 4.8%. Despite it's volatility, I think WRLS is a terrific investment, and I expect to own it for the forseeable future.

On the plus side, Peattie Capital recommended stocks Genesis Energy ("GEL") and Macquarie Infrastructure ("MIC") continued their powerful moves. GEL gained 13.2% in February and has returned 70% since I recommended it 13 months ago. MIC gained 10.4% in February and has returned 97% since I recommended it in November, 2011. I continue to like these names but would prefer to add to them on a pullback, which hasn't happened yet.

Slow economic recovery continues

For many months my comment about the economy is that is has been improving slowly, and that is my comment again now. GDP for the final quarter of 2012 was raised a tad to +0.1%, but the question in front of the markets is what the effects of sequestration and the next government deadline will have on GDP going forward. Housing data continue to be good, and many housing-related stocks are showing great strength, which suggests to me the market believes this housing rebound is real and will continue.

Strong seasonal patterns

Did you know that every time since World War II that both January and February are up months (26 times) the S&P 500 has delivered a positive year? That the average return in those 26 years is 24%? That only twice in those years has the return been below 10%? Well, I didn't either, until I heard Sam Stovall say it this week. Stovall is head of S&P research and is one of my favorite strategists, which is not to say that I endorse or agree with everything I hear him say. However I do pay attention when I hear/see his name. Last year he said in July that the bottom was in, and that the market would peak in the fourth quarter, both of which turned out to be correct.

More importantly, the overwhelmingly positive sentiment which I mentioned last month has disappeared after two brief corrections in February. And, Bernanke's comments again calmed the markets after he indicated that he has no plans to reduce or stop the Fed's bond-buying program. Someday the bears will be right about that call, and who knows how the markets will respond. But for now the monetary spigots are wide open and will remain so for the forseeable future. Does anyone in their right mind really believe that Bernanke is going to discontinue QE in the face of mandatory spending cuts to an economy that is barely delivering positive growth?

Regardless, I repeat what I have said several times: I am much more interested in finding the right stocks and paying the right prices to own them; investing (or trading) based on headlines doesn't work for me. That said, I find it helpful to have a view of the overall environment. Overall I am still optimistic about the markets generally speaking. More importantly, I am very excited about a number of Peattie Capital names.

Here is my most recent recommended stocks table:

Recommended Stocks — Closing Price: March 1, 2013

This chart shows all PCM's recommendations for the past 20 months showing an average return of +25.4% .
The total return on the S&P 500 from July 2, 2011 through March 1, 2013 was approximately +16.5%.
Additional recommendations are available on request.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
2/3/13	Weatherford Int.	WFT	Buy	$13.25	$11.47	-13.4%
1/6/13	Tronox Limited	TROX	Buy	$20.00	$20.62	3.1%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.34	5.9%
12/3/12	Telular	WRLS	Buy	$10.00	$10.00	1.2%
10/3/12	Seagate Technolgy	STX	Buy	$30.00	$32.32	10.1%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$12.72	-3.1%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$10.73	-5.5%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$37.00	5.4%
7/3/12	Gulf Keystone*	GUKYF	Hold	$3.35	$2.84	-15.2%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$12.75	-45.2%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.34	45.8%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$71.63	42.5%
3/6/12	du Pont	DD	Buy	$50.50	$48.09	-2.2%
2/9/12	Credicorp	BAP	Buy	$119.00	$151.82	29.5%%
1/12/12	Gulf Keystone*	GUKYF	Buy	$4.00	$2.84	-29.0%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$46.15	70.0%
12/2/11	Telular	WRLS	Buy	$6.96	$10.00	51.9%
11/6/11	Carters	CRI	Buy	$36.00	$55.73	54.8%
11/6/11	Family Dollar	FDO	Buy	$58.00	$58.69	2.9%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$52.00	97.0%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.34	77.2%
10/3/11	Apple	AAPL	Buy	$350.00	$430.47	25.3%
10/3/11	Family Dollar	FDO	Buy	$50.86	$58.69	17.4%
8/6/11	Carters	CRI	Buy	$29.99	$55.73	85.8%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.34	42.2%
7/2/11	Telular	WRLS	Buy	$6.06	$10.00	77.9%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$37.00	19.8%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.34	19.2%

NOTES: *Speculative. Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results.

Recommended Stock: Kohlberg, Kravis, Roberts & Co ("KKR")

KKR came public in 2010, and after rallying to a high of $18 in early 2011 subsequently dropped to $10.50. Since then the shares have been working their way back, and recently traded at $18.25. What first attracted me to KKR was the valuation, which is 3.7x trailing net income according to a recent Grant's Interest Rate Observer article ("For the unrepressed" Feb. 22, 2013). Note that this calculation backs out cash and "investments in company managed funds" which total nearly $10 per share. For this, investors get a 6.8% yield and a balance sheet that grew 24% in 2012. KKR was established in 1976, has $75 billion in assets under management (mostly in private equity), and has returned 26% annually since inception (not that I expect that to continue).

What's got me interested in KKR now is the opportunity to get an expanding multiple along with accelerated earnings growth. KKR expects to distribute shares of HCA (one of its portfolio companies) in a secondary offering shortly, and it looks to me like the markets will accomodate further distributions as well. Financial activity is heating up, exemplified by Warren Buffett's recent acquisition of Heinz, and a busy merger calendar as well. This strikes me as the kind of environment which will be receptive to more distributions. Markets have been strong, and there is still a lot of cash generating very little return. 1.85% on a US Treasury 10-year note might feel good today, but eventually that kind of return will not suffice.

In its two and a half years as a public company, KKR has not yet had a friendly environment to ply their trade. Between the debt ceiling negotiations, elections, tax overhaul, and regulatory review of the financial industry, enough headwinds have existed to keep many investors away from private equity companies with no track record as a public company. KKR will benefit as some of these clouds disappear, and more investors grow comfortable with the business model and operations. One of KKR's biggest competitors, Blackstone ("BX") has also rallied about 65% off its lows, and that kind of performance usually generates more interest from investors.

In 2012, KKR returned "more cash to our LPs than we have in our 36-year history" (Source: ibid), which makes for a receptive audience when raising new funds. Furthermore, it will shortly begin harvesting incentive fees from its 2006 fund, which houses a major write off in Texas Utilities. However, after the HCA offering, the 2006 fund investors will have regained the write off, and investment fees on that fund will begin.

KKR is not without risks, and as a partnership, it issues K-1s to its unitholders, which only matters at tax time. However, at less than four times trailing net income and nearly a 7% yield I think those risks are worth taking and I recommend buying KKR up to $18.10

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

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February 3, 2013

Range of Returns	January	YTD

All PCM Accounts	4.5% - 8.6%	4.5% - 8.6%
S&P 500	5.0%	5.0%

Performance Review: Strong start for Peattie Capital portfolios

January was one of my best months ever, with every portfolio up solidly, most well ahead of the S&P 500.

2013 has started right where 2012 ended for Peattie Capital, with broad-based strong performance from numerous recommended stocks as well as many other names in client portfolios. Telular, ("WRLS"), recommended in November, gained 17% in January and then reported terrific results on January 31st, fuelling another 2% gain on Feb. 1. WRLS continues to be one of my favorite names, although the CEO announced his retirement in the earnings release, and I will be following the transition to a new CEO closely.

Carters ("CRI") gained 8% in January, and has now gained 102% since I recommended it in August, 2011. Genesis Energy ("GEL") gained 12% in January and has now returned 50% since I recommended it in the January 2012 newsletter, and Arcos Dorados ("ARCO"), recommended in September, gained over 19% in January. I am optimistic that 2013 will be a good year for stock picking and I see an abundance of attractive opportunities for now.

Disappointing GDP but improving employment

I've said regularly that investing based on the economic headlines is not for me. However, having been a fixed income trader for eight years (at Credit Suisse in the 1980s) I am predisposed to follow economic data, and my overall take is that the economy here continues to improve slowly. GDP growth was negative in the fourth quarter, but averages out to roughly 1.5% annually. I particularly liked that corporate spending on software and equipment gained 12.4% annually in the fourth quarter.

A bearish interpretation of the report would conclude that defense and other sequestration cuts will be serious headwinds to growth, but (coincidentally) FOMC minutes also came out and disclosed that the Fed intended to maintain their massive bond buying program, providing oceans of liquidity to the financial system. Where and when that process ends is anyone's guess, but Bernanake's term has another year to go and the current speculation for his successor is Janet Yellen, who is also dovish with regards to monetary policy. In the meantime, employment seems to be improving as revisions to fourth quarter reports showed gains averaged 200,000 monthly, which is important because it is considered to be the level that will bring down the jobless rate, which is now one of the Fed's criteria for removing their support.

Money coming back to equities?

January is a difficult month, I think, despite being historically a good month for equities. Re-allocating and rebalancing programs can skew prices, and so I am not reading too much into January's performance. One factor that I suspect did contribute to the market's strength is a return of hedge funds to US equity markets. After notably underperforming in both 2011 and 2012, I would guess that most hedge funds are fearful of missing another strong market, a mistake that might cost them their jobs. After all, how long can you persuade someone to pay exorbitant fees, commit to lockups, and then underperform the S&P 500 by 10%?

In addition, equity mutual funds are beginning to see inflows and if large institutions, such as the bigger college endowments, choose to allocate more funds to equities that would provide a tailwind as well. Coupons on most treasury instruments are miniscule, and if rates back up the commensurate drop in bond prices will compel investors to think carefully about their bond holdings. I think people have been scared away from equities by the events of the past 12 years, and no doubt there are large, structural issues to address. However, in addition to the ultra friendly Fed, valuations are, generally speaking, reasonable, and earnings are expected to grow this year between 3% and 9%, depending whose numbers you use.

A couple clouds on the horizon?

Some of the indicators I follow have begun flashing yellow, particularly the AAII survey, in which 54.3% of investors describe themselves as bullish, and only 22.3% describe themselves as bearish. The resulting 32 point spread is noteworthy, as spreads over 30 have coincided with market corrections in the past. This is not to change my overall constructive view, and nearly every portfolio is fully invested, with only a smattering of cash as a result of trimming some winners. But for those clients who are highly sensitive to monthly changes, I may begin putting on hedges, or adding some cash. Regardless, picking the right stocks and paying the right price will continue to generate good returns, and that is where I will focus my attention.

Here is my most recent recommended stocks table:

Recommended Stocks — Closing Price: February 1, 2013

This chart shows all PCM's recommendations for the past 19 months showing an average return of +31.2% .
The total return on the S&P 500 from July 2, 2011 through February 1, 2013 was approximately 15.5%.
Additional recommendations are available on request.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
1/6/13	Tronox Limited	TROX	Buy	$20.00	$19.28	-3.6%
12/3/12	KVH Industries	KVHI	Buy	$12.60	$14.66	16.3%
12/3/12	Telular	WRLS	Buy	$10.00	$11.34	13.4%
10/3/12	Seagate Technolgy	STX	Buy	$30.00	$33.67	14.6%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$14.25	8.5%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$10.88	-4.2%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$39.60	12.4%
7/3/12	Gulf Keystone*	GUKYF	Hold	$3.35	$3.41	1.8%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$11.24	-51.7%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$14.66	60.2%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$70.36	40.0%
3/6/12	du Pont	DD	Buy	$50.50	$47.98	-2.4%
2/9/12	Credicorp	BAP	Buy	$119.00	$158.80	35.4%
1/12/12	Gulf Keystone*	GUKYF	Buy	$4.00	$3.41	-14.8%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$40.77	49.4%
12/2/11	Telular	WRLS	Buy	$6.96	$11.34	69.4%
11/6/11	Carters	CRI	Buy	$36.00	$60.54	68.2%
11/6/11	Family Dollar	FDO	Buy	$58.00	$56.10	-1.5%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$47.10	79.4%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$14.66	94.7%
10/3/11	Apple	AAPL	Buy	$350.00	$453.62	31.1%
10/3/11	Family Dollar	FDO	Buy	$50.86	$56.10	12.3%
8/6/11	Carters	CRI	Buy	$29.99	$60.54	101.9%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$14.66	56.3%
7/2/11	Telular	WRLS	Buy	$6.06	$11.34	98.0%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$39.60	27.1%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$14.66	31.0%

NOTES: *Speculative. Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results.

Recommended Stock: Weatherford International ("WFT")

WFT shares have dropped from $45 a few years ago to $26 in early 2011 and then touched $9 in December, after the company had to restate earnings as a result of tax-related inaccuracies in a number of countries where they operate, and also from a variety of governmental probes. WFT has been on my radar for a while, as I like the energy industry broadly speaking and I like turnaround stories too.

What really got me interested was studying the list of insiders who have recently purchased shares, which includes the Chief Financial Officer, the General Council, the SVP for compliance (who bought 95,000 shares in three separate transactions), the VP for taxes (50,000 shares in two transactions) and several Directors too. These are all outright purchases which took place between November 15, 2012 and January 17, 2013 at prices mostly in the $9 - $11 range (source: company filings). Other insiders exercised options, and while there's no telling for sure why they did, one possible explanation is that they want to start the clock ticking for the one-year holding period for tax purposes.

WFT operates in over 100 countries, providing a variety of products that are used in (mostly) land-based drilling. It carries more debt than I would like to see, which, along with the company specific issues, likely explains why it trades below peers on a few metrics: 1.0x price/sales ratio (1.6x average for the others) and 1.1x price/book ratio (2.1x for the others - source: The Motley Fool "This Top 10 Stock Will Benefit From the Energy Boom" Feb. 1, 2013). However, if the company has succeeded in addressing these issues, the valuation gap will shrink, if not disappear. And, if energy companies rebound after their poor showing in 2012, the whole complex could get re-rated higher in which case WFT gets an additional bump.

There is the risk that falling oil prices would drag down names in the industry, however that is a hedgeable risk. Given all the negative news around the company,the committments by insiders, and the company's guidance to generating free cash flow in 2013 (in a December presentation), I think shares of WFT offer a compelling risk/reward here and I recommend buying them up to $13.25.

Correction: In last month's newsletter I stated incorrectly that Tronox's Chairman had bought shares at $25, when in fact it was the company that bought shares at an average of approximately $25 in its buyback program. The Chairman did get shares, as part of his compensation.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

January 6, 2013

Range of Returns	December	YTD

All PCM Accounts	(0.6%) - 4.4%	(0.3%) - 20.3%
S&P 500	0.7%	13.4%

Performance Review: Strong finish to 2012 for Peattie Capital Management

December was another solid month for Peattie Capital portfolios, capping off an excellent year in which most portfolios returned well into the double digits. The only non profitable account dropped in value by $820, a pittance against the nearly $2mm PCM manages for this client.

Two clients have a stated goal of beating the total return of the S&P 500, and both succeeded in doing so. In addition, PCM's sole "income" account returned 13% compared to 2% for the Alerian MLP index ("AMLP"), and "split" accounts, which combine income with other client objectives, gained 12%-14%. I hereby grade myself "A+" in achieving client goals this year.

In particular, I am pleased that results were achieved through broad-based strong performance by many positions, rather than by one name having an outsized effect on performance. For example, Macquarie Infrastructure Trust ("MIC") and KVH Industries ("KVHI") both returned 70%. Carters ("CRI"), Telular ("WRLS") and Genesis Energy ("GEL") returned 35%-40%. All of these stocks have been a recommended stock at least once in the past year or so. I continue to believe there are an abundance of good investment opportunities right now, and I am optimistic for 2013. That said, a few of these names are very small and have been much more volatile than the S&P 500 index, and I expect that to continue. In the end, fundamentals and earnings will prevail, and that is where I will focus.

Headline risk will continue

While the last-second agreement by Congress succeeded in preventing the "fiscal cliff", it remains to be seen what will happen in the upcoming debt-ceiling debate and numerous other headline-generating events. Active trading based on those headlines is a difficult strategy for making money as far as I'm concerned, and probably has contributed to the extraordinarily poor performance by most hedge funds. According to a Jan. 2 Financial Times article ("Hedge funds endure another bad year") "the average hedge fund manager made slightly over 5% for the year...after disappointing returns in 2011 when the average hedge fund lost 5%."

I have stated regularly my belief that "if it's obvious, it's obviously wrong." Or, as Ken Fisher said in a recent Forbes article "If it's widely known, it's either wrong or will have little impact on stocks." I couldn't agree more.

Reasons to like equities

More importantly, equities remain, generally speaking, reasonably priced, with estimates for 9.8% earnings growth and nearly 4% revenue growth in 2013, according to FactSet Research (FT 12/21/12), and according to Don Hays ("Relax and Enjoy It" 1/2/12) currently trade at less than 13x forward twelve month estimates. Interest rates have begun backing up, and when investors realize that their allegedly "safe" investments can lose value, there could be an exodus away from bonds and into equities. There is no way of knowing when, how far, how fast, or even if they will continue backing up near term, but after a 29-year bond rally, in which the yield on the long bond dropped from roughly 14% in November, 1983 to 2.7% in November, 2012, my belief is that the bond run is at or near its end.

In addition, Federal Reserve policy remains ultra-loose, although the Fed recently tied interest-rate policy to economic conditions (unemployment and inflation) rather than a specific date ("mid 2015" in their September statement). China appears to have managed a "soft landing" and Japan's new Prime Minister is viewed as "market friendly." Domestically there is a budding resurgence in the housing market, and car sales have been strong too. Not as easy to quantify, and admittedly highly unscientific, is my own experience in talking with clients, colleagues and friends, who consistently say that "things are getting better."

Furthermore, corporate balance sheets are in very good shape, and companies who have delayed spending and expansion plans may be more inclined to move forward now that some progress has been made in Washington. From a larger and very long-term perspective, it's worthwhile noting that 47.6% of the U.S. population is 35 or younger (Source: Don Hays, ibid) and that global population is estimated to grow 25% from 2010-2040 (Source Weatherford International, Investor Presentation 12/3/12).

By definition, I don't know what surprises are in store for 2013, nor how the markets will respond to them. I expect to maintain my strategy of paying the right price to own the right names, based on as comprehensive research as I can manage. I am wary of bonds, and based on what I know today, expect to add to my highest conviction names if given the chance to do so.

Here is my most recent recommended stocks table:

Recommended Stocks — Closing Price: December 31, 2012

This chart shows all PCM's recommendations for the past 18 months showing an average return of +25.4% .
The total return on the S&P 500 from July 2, 2011 through December 31, 2012 was approximately 9.5%.
Additional recommendations are available on request.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
12/3/12	KVH Industries	KVHI	Buy	$12.60	$13.98	11.0%
12/3/12	Telular	WRLS	Buy	$10.00	$9.47	-5.3%
10/3/12	Seagate Technolgy	STX	Buy	$30.00	$30.42	3.7%
9/4/12	Arcos Dorados	ARCO	Buy	$13.25	$11.96	-8.8%
8/4/12	ChipMOS	IMOS	Buy	$11.50	$11.60	2.1%
7/3/12	SeaDrill	SDRL	Buy	$37.50	$36.80	4.9%
7/3/12	Gulf Keystone*	GUKYF	Hold	$3.35	$2.97	-11.3%
6/6/12	Mako Surgical	MAKO	Buy	$23.25	$12.85	-44.7%
5/4/12	KVH Ind.	KVHI	Buy	$9.15	$13.98	52.8%
4/6/12	SBA Com.	SBAC	Buy	$50.25	$70.98	41.3%
3/6/12	du Pont	DD	Buy	$50.50	$44.98	-8.4%
2/9/12	Credicorp	BAP	Buy	$119.00	$146.56	25.1%
1/12/12	Gulf Keystone*	GUKYF	Buy	$4.00	$2.97	-25.8%
1/12/12	Genesis Energy	GEL	Buy	$28.50	$35.72	31.7%
12/2/11	Telular	WRLS	Buy	$6.96	$9.47	42.5%
11/6/11	Carters	CRI	Buy	$36.00	$55.65	54.6%
11/6/11	Family Dollar	FDO	Buy	$58.00	$63.41	10.7%
11/6/11	Macquarie Infra.	MIC	Buy	$27.71	$45.56	73.8%
10/3/11	KVH Ind.	KVHI	Hold	$7.53	$13.98	85.7%
10/3/11	Apple	AAPL	Buy	$350.00	$532.18	53.6%
10/3/11	Family Dollar	FDO	Buy	$50.86	$63.41	26.3%
8/6/11	Carters	CRI	Buy	$29.99	$55.65	85.6%
8/6/11	KVH Ind.	KVHI	Hold	$9.38	$13.98	49.0%
7/2/11	Telular	WRLS	Buy	$6.06	$9.47	67.2%
7/2/11	SeaDrill	SDRL	Buy	$35.73	$36.80	19.3%
7/2/11	KVH Ind.	KVHI	Hold	$11.19	$13.98	24.9%

NOTES: *Speculative. Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results.

Recommended Stocks: Tronox ("TROX")

When Tronox was spun out of Kerr-McGee in 2005, it was saddled with a variety of liabilities, which helped drive it into bankruptcy a few years later. Subsequently It re-emerged as a publicly traded company in 2011. There is an ongoing lawsuit which has helped drive the share price down to a recent low of about $15.

TROX is a cyclical company that makes products used in paints, coatings and various other items. As a result of a recent acquisition, it is now vertically integrated, which will help margin expansion. TROX has a stated book value of $25, and the CHB bought shares at that level a couple months ago. It is a shareholder friendly company, having split it's stock 5-1, and declared a $1 (post split) dividend, which yields 5% at Friday's close of $19.97.

Even after the recent bounce, the shares still look cheap to me, possibly very cheap if the housing recovery continues and the economy improves. TROX is expected to earn over $3 this year, and is cash flow positive. I recommend buying TROX shares up to $20.

Please don't hesitate to contact me with questions or comments and please let me know if you'd like to be removed from distribution.

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