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June 23, 2010 Volume 3, Issue 61
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JEWETT-CAMERON TRADING COMPANY LTD.
(NASDAQ: JCTCF and TSX: JCT) $6.77
OUTLOOK
The Jewett-Cameron trading Company is a North Plains, Oregon based holding company, which through its subsidiaries, distributes and sells wood products and specialty metal products.
We find the Company attractive due to its strong balance sheet, its increasing operating margins, the improving diversification of the Company's total revenues between its four operating segments, its decreasing operating expenses and its attractive valuation measures compared to its industry.
Furthermore, from a technical analysis view point, we believe the stock may currently be attempting to build support just below the $6.00 area. Therefore, should we be correct in our analysis and should this possible support area continue to hold, levels near this possible support area may offer long term investors an attractive entry opportunity.
The Company’s operations fall into four separate segments based on the products offered and the markets served.
Approximately 27% of fiscal 2009 revenues came from the Company’s industrial wood products segment. This compares to 44% of revenues in 2008 and 58% of the Company's revenues in fiscal 2007. |
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In the past the majority of revenues from this segment came from treated plywood that is sold to boat manufacturers and the transportation industry.
During fiscal 2009, sales to boat manufacturers represented approximately 24% of total segment sales, down from 59% of total segment sales in 2008.
The Company’s other industrial wood products include imported plywood, furniture stock, kiln sticks, and laminated veneer lumber.
It should be noted that going forward this fiscal year, depressed conditions in the boating industry will likely continue to be a challenge for the Company's industrial wood products segment.
Also, in mid 2008, various boat manufacturing companies, including one of the Company's largest customers, started to conclude the buying they had been doing from the Company's industrial wood products segment.
However,
while profitable, those contracts resulted in very low margins. Also, a relatively large amount of inventory was required to support those customers, and the liquidation of that inventory has improved the Company's cash position and the industrial wood products segment’s return on assets.
As a result of the conclusion of buying,
the Jewett Cameron Lumber segment reported a 59% decrease in sales during fiscal 2009 compared to the same period for the previous year.
Still, the Company has begun to diversify its revenue stream from its large dependence on its industrial wood products segment.
The segment has dropped from 74% of the Company’s total revenues in 2005 down to its current level of 27% of total revenues.
We believe that this improving diversification of the Company's total revenues between its four operating segments may be beneficial to the Company and its shareholders over the longer term, allowing less sensitivity to downturns in the wood products industry as well as the U.S. economy.
Still, even with the lower dependence on the industrial wood products segment, the Company’s total revenues have been negatively impacted due to the slow down in the markets served in the recent past.
Roughly 59% for the Company’s fiscal 2009 revenues came from operations that fell under its lawn, garden, pet and other segment.
Sales from the lawn, garden, pet and other segment are derived from fencing and landscape timbers, dog kennels, a proprietary gate support system, perimeter fencing, and greenhouses.
It should be noted that the Company has had tremendous growth in this segment with sales for the segment improving from $13.328 million in 2005 to $24.759 million in fiscal 2009.
The Company also has a seed processing and sales segment and an industrial tools and clamps segment which accounted for the remaining 14% of 2009 revenues.
During the fiscal year ending August 31, 2009, the Company reported revenues of $42.130 million, a decrease of nearly 35% compared to sales of $64.321 million in 2008. Net income for fiscal 2009 was $1.582 million compared with $2.610 million in 2008.
The decrease in net income was mainly due to sales being negatively impacted by the slowdown in markets in which the industrial wood products compete.
Still, gross margin for fiscal 2009 improved to 21.1% compared to 17.7% in 2008 and 16.1% in 2007.
This improvement in gross margin was mainly due to higher sales of specialty metal products in the lawn, garden, pet and other segment which have a much higher gross margin than the other products that the Company sells.
Furthermore, it should be noted that the Company's operating expenses fell from $7.015 million in fiscal 2008 down to $6.242 million for 2009.
More recently the Company reported sales of $7.675 million for its second quarter ended February 28, 2010. This compares to sales of $9.354 million for the comparable quarter of 2009. Net income for the quarter fell to $204,472 for the three months ended February 28, 2010 from $256,114 for the comparable three months of 2009.
Again, revenues were negatively impacted by the weakness in the markets in which its products compete.
Still, it should be noted that the Company's price to earnings valuation of 12 falls well below the industry average of 24.
Likewise, the Company is currently trading at a discount to its book value of $7.90.
What's more, the Company's Board of Directors recently authorized a share repurchase plan to purchase for cancellation up to 425,000 of its common shares or 17.8% of the Company's total shares outstanding.
The price that the Company will pay for the shares outstanding will be the market price at the time of the purchase up to a maximum of $7.00 per share.
For the quarter ending February 28, 2010, the Company reported cash and equivalents of $7.693 million and working capital of $16.153 million. It should be mentioned that $3.306 million of accounts receivables and $5.381 million of inventory make up a large percent of the short term assets in this working capital equation.
Furthermore, it should be noted that the Company has an un-utilized line of credit of $5 million.
We believe the Company’s cash on hand, income from operations and borrowings under it line of credit are sufficient to cover any funding needed for operations in the foreseeable future.
Still, readers should be warned that failure by the Company to successfully obtain additional future funding if and when needed, may jeopardize its ability to continue its business and operations.
Also, readers should be cautioned of possible liquidity issues with the stock. There are 2.391 million shares outstanding and the float is approximately 1.19 million. Additionally, volume averages only approximately 1,800 shares per day. Keeping this in mind, when trading such thinly traded stocks, we strongly recommend the use of limit orders and warn readers to expect added volatility.
It should also be noted that the Company depends on revenues from a small number of large customers. The loss of business from any one of its primary customers could have a material adverse effect on the Company.
During the fiscal year ended August 31, 2009, 60% of the Company's consolidated operating revenues came from its top ten customers. Similarly, the Company's largest single customer accounted for 14% of total sales during fiscal 2009.
Furthermore, readers should be aware that the Company faces strong competition from companies with larger customer basis, greater name recognition, and significantly more financial and marketing resources.
Additionally, going forward this fiscal year, depressed conditions in the boating industry will likely continue to be a challenge for the Company's industrial wood products segment.
Also, in July 2008 various boat manufacturing companies, including one of the Company's largest customers, started to conclude the buying they had been doing from the Company's industrial wood products segment.
The loss of this group of customers will negatively impact profitability going forward.
Still, we believe the street may have already calculated this information into the price of the Company's stock.
Additionally, while profitable, those contracts resulted in very low margins. Also, a relatively large amount of inventory was required to support those customers, and the liquidation of that inventory has improved the Company's cash position and the industrial wood products segment’s return on assets.
We find the Company’s trend of improving margins and decreasing operating expenses very appealing. We believe these factors, as well as the Company's improving diversification of the its total revenues between its four operating segments should be beneficial to the Company and its shareholders over the longer term.
We believe Jewett-Cameron Trading Company Ltd. may offer high risk tolerant long term investors an attractive growth play in the micro-cap arena.
For more information on Jewett-Cameron Trading Company Ltd., please visit the Company web site at www.jewettcameron.com. Additionally, information can be obtained from the Company’s investor relations representative at (503) 647-0110.
Please see Summary Data and Income Statement below.
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| 52 wk high |
$8.30 |
|
 Chart courtesy of StockCharts.com
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| 52 wk
low |
$4.84 |
| One
year return |
38% |
| Average Daily Volume |
1,800 |
| Shares
Outstanding (mil) |
2.391 |
| Market
Capitalization ($mil) |
16.2 |
| Insider Ownership |
50.5% |
|
|
| Annual
Cash Dividend |
0.0 |
| Dividend Yield (%) |
0.0 |
|
|
| Risk
level |
High |
| Industry |
Lumber, Wood Production |
INCOME STATEMENT
(Dollars In thousands, except per share amounts)
| Full Year Ended August 31 |
2009 |
2008 |
| Revenues |
$42,130 |
$64,321 |
| Cost of Revenues |
33,228 |
52,932 |
| Gross Profit |
8,901 |
11,388 |
Total Operating Expenses |
6,242 |
7,015 |
| Income from Operations |
2,658 |
4,372 |
Total Other Income (Expense) |
(35) |
(165) |
| Net Income before Taxes |
2,623 |
4,206 |
| Income Taxes |
1,041 |
1,596 |
| Net Income |
1,582 |
2,610 |
| Basic and Diluted earnings per share |
$0.66 |
$1.09 |
| Full Year Ended August 31 |
2010 |
2011 |
| Fiscal Yr |
NA |
NA |
^Single analyst Estimate.
|
COMPANY NAME |
SYMBOL |
INDUSTRY |
DATE RECOMMENDED |
PRICE ADDED |
CURRENT PRICE
(6/22/10 Close) |
RETURN PERCENTAGE |
| Air T Inc. |
AIRT |
Air Delivery & Freight Services |
3/19/2008 |
$8.96 |
$11.088 |
23.8%* |
| Computer Task Group, Inc. |
CTGX |
Information Technology Services |
6/25/2008 |
$5.018 |
$7.39 |
47.3% |
| GSI Technology Inc. |
GSIT |
Semiconductor - Broad Line |
10/29/2008 |
$3.30 |
$6.31 |
91.2% |
| HealthStream, Inc. |
HSTM |
Internet Information Suppliers |
7/15/2009 |
$2.71 |
$4.4999 |
66.1% |
| Jewett-Cameron Trading Company Ltd. |
JCTCF |
Lumber, Wood Production |
7/23/2008 |
$6.75 |
$6.77 |
0.3% |
| NAPCO Security Technologies, Inc. |
NSSC |
Security & Protection Services |
12/3/2008 |
$1.41 |
$1.761 |
24.9% |
| Norsat International, Inc. |
NSATF |
Communications Equipment |
|
|
$0.64 |
-16.9% |
| Sapiens International Corp. N.V. |
SPNS |
Technical & System Software |
11/11/2009 |
$1.55 |
$3.00 |
93.6% |
| Servotronics, Inc. |
SVT |
Industrial Electrical Equipment |
|
|
$9.1501 |
3#6699#669-2.8% |
*Excludes dividends.
**Split adjusted price.
To see some of MicroCap Gems' past and present winners please click here.
The Holding Period Return for the MicroCap Gems portfolio year to date
(12/31/2009 - 6/15/2010) is 23.07%.***
The Holding Period Return for the MicroCap Gems portfolio since inception (5/5/2005 - 6/15/2010) is 14.31%.***
The Russell Microcap™ Growth Index year to date return (12/31/2009 - 6/15/2010) is 9.05%.
The Russell Microcap™ Growth Index cumulative return for the period 5/5/2005 - 6/15/2010 is 3.14%.
***The portfolio is assumed to be equal weighted and is re-balanced every time there is an addition or deletion. Any dividends paid are incorporated into the holding period return. Data presented reflects past performance, which is no guarantee of future results. Due to market volatility, current performance may be higher or lower than the performance shown. Investors may incur a loss despite previous gains. Results will vary with economic and market conditions.
Additions/Deletions
There are no additions or deletions to the MicroCap Gems portfolio.
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Computer Task Group, Inc.
(NASDAQ: CTGX ) $7.39
The information and technology (IT) staffing and solutions Company reported that it was named to Healthcare Informatics annual ranking of the largest 100 healthcare IT providers.
Computer Task Group ranked 69th on the list overall and ranked 7th of the companies generating 100% of their 2009 healthcare provider revenue from consulting services.
Currently, from a technical analysis view point, we believe the stock may see some resistance around the $9.50 area. Still, a close above the $9.50 area on strong volume should be considered bullish.
Additionally, it appears as if the stock may be attempting to build support just below the $7.00 area. Therefore, should we be correct in our analysis and should this possible support area continue to hold, levels near this possible support area may offer long term investors an attractive entry opportunity.
We continue to find the Company attractive due to its income and revenue growth, its ability to consistently decrease selling, general and administrative expenses as a percent of revenues, its strong balance sheet and backlog.
Still, readers should be cautioned of possible liquidity issues with the stock. There are 18.131 million shares outstanding and the float is approximately 11.24 million. Additionally, volume averages only approximately 38,800 shares per day. Keeping this in mind, when trading such thinly traded stocks, we strongly recommend the use of limit orders and warn readers to expect added volatility.
For corporate information on Computer Task Group Inc., please visit the Company web site at www.ctg.com. In addition, information can be obtained from the Company at www.ctg.com/contactus.htm or at (716) 882-8000.
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On Friday, June 18, 2010, the Russell Microcap® Index closed at 976.58. The index ended the week with the best performance of the four indexes for its year to date period. However, the index also ended the week with the worst performance of the four indexes for its trailing 30 day period. The Russell Microcap Index was down 3.95% over the trailing 30 day period and up 8.95% year to date. The index was up 31.42% during the trailing twelve month period.
The Russell Midcap® Index ended the week with the best performance of the four indexes for its trailing 30 day and trailing 12 month periods. The index was up 0.87% over the trailing 30 day period and up 7.13% year to date. The Russell Midcap was up 38.16% during the trailing twelve month period.
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The S&P 500 ended the week with the worst performance of the four indexes for its year to date and trailing twelve month periods. The Index was down 0.29% over the trailing 30 day period and up 0.22% year to date. The Index was up 21.68% during the trailing twelve month period.
The Dow Jones was down 0.57% over the trailing 30 day period and up 0.22% year to date. The Index was up 22.15% during the trailing twelve month period.
From a technical analysis point of view of the two major indexes, the S&P 500 may see some support just below the 1,050 area and some resistance just above the 1,200 area. The Dow may see support coming in just below the 9,000 level while resistance may be expected just above the 11,000 area.
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| In the
Micro Class Notes section we share investing insight and
strategies to keep you ahead of the market. Also in this
section, we will alert you to scams and pump & dump
operations, which will help you avoid land mines in the
micro-cap world. |
Scam Watch
"Green Energy Investment Scams" |
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The Financial Industry Regulatory Authority (FINRA) is warning
investors to be on the lookout for green energy investment scams.
With all the negative news regarding the Gulf oil spill, a number of schemes have been popping up that promise unusually high returns through investments in green energy.
In these scams the fraudster attempts to create unwarranted demand for shares of a small, thinly traded company. The scammer then sells off their own shares, leaving investors with a worthless stock.
The con artists are using faxes, emails, text messages and even webinars and infomercials to lure unsuspecting investors into these pump and dump schemes.
Still, there are a number of measures investors can take to help protect themselves from these and other types of scams.
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It isn't necessary to be rich and famous to be happy. It's only necessary to be rich.
-Alan Alda
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First of all, beware of any high-pressure sales tactics that include pushing you to act immediately or guaranteeing unusually high returns in comparison to other similar investment options. These ‘too good to be true’ opportunities may be warning signals.
Similarly, use caution if a solicitation claims that the investment is an exclusive opportunity available to only a handful of customers or normally reserved only for the wealthy.
Also, refuse any unsolicited contact from anyone seeking personal financial information or money.
Additionally, investors should use caution if the promoter claims the offered financial instrument is issued, traded, guaranteed, or endorsed by top banks.
Finally, make sure to do your homework. Carefully read any written material provided and check with your state securities regulator to establish if the investment is properly licensed and registered in your state.
Similarly, investors should ask the promoter if they or their firm is registered with FINRA (The Financial Industry Regulatory Authority), The SEC (U.S. Securities and Exchange Commission), or a state securities regulator, and if so, which one(s).
Investors should then take the time to verify the answers before investing any money. To check the background of an investment professional, investors can call FINRA broker check toll-free at (800) 289-9999.
Additionally, investors can check with their state securities regulator by visiting the NASAA (North American Securities Administrators Association) web site or by calling (202) 737-0900.
Investors can also better protect themselves by seeking a professional, third-party opinion such as a financial advisor or broker. These individuals should be able to help you with understanding different investment instruments and the risks involved. |
Mission
We know that micro-cap stocks can be risky but we believe
that large profit potential exists in some of those same micro-cap companies.
The MicroCap Gems Newsletter attempts to find tremendous growth opportunities in the micro-cap market. We look for companies showing unusual promise and what we perceive as a favorable risk to reward ratio by using meticulous analysis of the company and its competitors. We do this by reading and evaluating all of the research reports written about micro-cap stocks, contacting the companies, customers and competitors.
Most of the research written about micro-cap stocks is termed “issuer paid research” since the companies themselves pay the research firm to have the report written.
MicroCap Gems is not an issuer paid research provider and to preserve our objective evaluations MicroCap Gems and its employees do not accept money, stock, services, or in-kind advertising in exchange for coverage of particular companies, securities or markets nor do any MicroCap Gem employees trade in any of the companies covered.
We believe that issuer paid research holds much value as long as you can filter out those reports making noise from the companies with true promise.
When we find a real ‘gem’ that merits your consideration we will profile the company in the MicroCap Gems newsletter. As many of these Gems are long-term investments, once we profile a company we will keep you abreast of on going developments as its investment story unfolds. As we do our due diligence we will also uncover and alert you to scams and pump/dump operations, which will help you avoid the land mines in the micro-cap world.
Editor Bio
The editor, Steven J. Anderson, has over 16 years experience in the investment
and trading arena. He graduated from West Virginia University in 1992 with a
BSBA in Finance/Investments and Securities. While in college, his stock market
passion had him actively analyzing and speculating in small and micro-cap stocks
by the time he started his junior year.
After college, Steve began trading commodity options and Dow futures as a member of the Chicago Board of Trade. However, his infatuation with smaller stocks soon had him starting up his own small cap investment newsletter. In 1996 he began writing the Anderson Small Cap Report that was an equities newsletter to investors focusing on small and micro capitalized stocks. Commentary from that newsletter was featured on many web sites and investment publications.
In 2004 Steve gave up trading to take a job as an Equity Analyst and ended the Anderson Small Cap Report.
Once again he found himself longing for the opportunity and excitement only found in the micro-cap stock arena. So in 2005 the MicroCap Gems newsletter was born.
Steve still believes that one of the most enjoyable aspects of writing his newsletter is his being permitted to help others benefit through his knowledge and experience. His infatuation with the markets and his desire to help others learn drives him to speak annually at the West Virginia University MBA Executive Speaker Series. At these seminars Steve speaks to students and industry professionals about his insight and involvement within the intriguing world of trading and investing.
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| The MicroCap Gems
recommended stock portfolio is found in the "Gem Portfolio"
section above the Updated Gems" section and below the "This
Weeks Gem" section. Do not interpret any stock listed within
this issuer paid research table as a recommendation by
MicroCap Gems as no stock listed in this directory is to be
construed as a recommendation by MicroCap Gems. The following
directory is a compilation of companies with research reports
or research updates provided within the past 12 months by the
firm listed . MicroCap Gems does not endorse any views,
opinions or recommendations contained in these reports or
those of their editors, nor does MicroCap Gems guarantee the
accuracy of the information within this directory. The table
is for informational purposes only. Companies listed may or
may not have paid for the research to be provided by the firm
listed. MicroCap Gems in no way endorses the accuracy,
completeness, reliability or timeliness of any information
provided within these reports nor to the accuracy,
completeness, reliability or timeliness of the table itself. The information contained in this directory is subject to
change without notice. The table is solely for information
purposes only and should not be construed as an offer or
solicitation to purchase or sell any security listed. Past
returns are no guarantee of future
performance. |
PLEASE CLICK HERE FOR TABLE
Issuerpaidtable
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Disclaimer
The MicroCap Gems newsletter is solely for information purposes only and the statements and opinions in this report should not be construed as an offer or solicitation to purchase or sell any security. The information is created without regard to any investor's individual needs. If the reader should purchase or sell any security they do so at their own risk. MicroCap Gems LLC and its employees accept no liability for any losses or for consequential or incidental damages arising from any investor's reliance on or use of this report, even if the information is untimely, incomplete or incorrect. The reader should be aware the information provided by the editor may not be accurate, timely or complete. The information expressed in this letter is based upon the interpretation of available data, which the editor considers reliable, but the editor does not represent that the data is accurate or complete. The majority of statements and expressions are the sole opinions of the editor and are subject to change without notice. The data and information presented is provided for informational purposes only, and is not offered as a basis for investing in securities. Users of this letter should conduct their own independent investigation before making any investment or business decisions with respect to securities covered by the editor. MicroCap Gems LLC and its employees do not accept money, stock, services, or in-kind advertising in exchange for coverage of particular companies, securities or markets nor do any MicroCap Gems LLC employees trade in any of the companies covered. Past performance is no guarantee of future results. Investors may incur a loss despite a past history of gains. Any companies mentioned in this report may, or may not, be experiencing liquidity issues and may require additional capital to continue operations.
MicroCap Gems, LLC.
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Ave.
Suite 7 Number 125
Chicago, IL 60647
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