TRUST RUMOURS

ADS

I am adding some ADS this morning (@41.83). While the overall market is not very good and I am still a bit concerned about the looming September, I am buying rumors of pending trust of Air Miles, which could add $10-$15 market value to ADS. I understand that there are a lot of pitches going on and ADS management is considering, and a trust IPO could materialize in next couple of months. In any event, the company is in pretty good shape on its own, and I do not mind holding it.

TAKE-OUT

PKZ

Sold my position of PZK this morning at $65.4. What a rid! Bought at $50, partially stopped out and went down all the way to less than $30, and all the way back to $65. In the end, it netted me a 30% gain for a few months pain and suffering (and some thrill to be fair). I guess it worth it. It would eventually work out when you purchase under-valued properties. With the removal of PKZ, my energy holdings are underweight. I am looking at a few junior names to add, in front of the winter drilling season. I would like to take them when the market corrects a bit more, which is, IMHO, highly likely at this point.

NTSC appears more troubling than I thought. It is very cheap, but no catalyst.

MORE TRIMING

CPTV

I let my entire position of CPTV go ($20.31) this morning. I still like this stock but, man this thing is volatile. I am bit concerned with the condition of the market and it has a good run since it announced its quarter results. It is traded at 20X of its E06, a fairly reasonable valuation. I am taking profit and lock in some gain.

PD

I also dumped PD this morning. The trust process is moving way too slow, and the service sector appears to be vulnerable here. It also tied down too much of my capital, not to mention my exposure in the sector is rather big (KEGS, TDG, ISC). Although I did not make much money here, nor did I lose any. I am happy in cash for now. Oil is coming down pretty hard and fast here. Is it a correction or is it a trend? I smell opportunity to load up some juniors before the winter drilling season starts. But I would like to have this PKZ resolved before putting more exposure in the sector.

FORCE TO TRIM

XMC.TO

I force myself to sell some XMC this morning at $7.25, and I still have a fair position (5.1%). While I am still very positive, it has gone up by more than 35% since I picked it up in the mid of June and more 6.1% of my portfolio. It is not too far away from my ultimate target of $7.5. I believe it will have a strong quarter coming up and momentum is pretty strong. To replace, I picked some TIL.UN AT 13.. This one disappointed this quarter and normally I would not have bought. But this one has a yield of more than 11% here and I believe the distribution is secured. I will be happy with the 11% yield. Anything else would be gravy.

WHEN IN PAIN, TAKE SOME "BUY"

CPTV

I add some CPTV to test my thesis that “when you feel the pain intolerable, it’s time to buy�. I certainly felt the paid today as the selling accelerating. CPTV has shown extreme volatility, down almost 10% here with the market. Let’s see if it can regain the 10% lost today.

AGAINST MY WILL

NSTC

I did something I normally do not like to do. I averaged down NSTC at 8.50 this morning. There are some risks here, mostly relating to the market. It appears to me that the market, particularly tech, does not want to go up. On the other hand, NSTC had a decent quarter, although outlook for 05 is lowered, thus the disappointment. At this level, the valuation is simply compelling. It is traded at 13X of lowered 05EPS, assuming 06E remains the same, 9X of 06EPS, while growing at more than 20% a clip. Balance sheet is clean with cash balance of $3.0 per share. The market is essentially believing that NSTC would fail to grow, and it would continue to lower outlook in the next couple of quarters, which is hard to believe. This company still growth 28% of its top line and its backlog remains very healthy. If it simply delivers its Q3 guidance, the share should move up. The risk/reward is compelling here.

NE(MI)SSED GUIDANCE

NSTC

NSTC reported a mix results. Revenues good (28%), net income good, earnings flat (more shares, option expenses), backlog good, balance sheet good, Q3/05 outlook lowered by a penny; and 2005 revenue outlook raised but EPS outlook lowered by a nickel due to unexpected financial expenses and ramp up of contracts. Valuation remains reasonable. I incline to hold it at this point, instead of panic, but it would be pleasant today.

TOO MANY, TOO SMALL

FUN

CRY announced it might lose one of its customers, and got killed by 24%. Others were down by about 10% in sympathy. I thought the market over-reacted for a piece of company-specific news. Therefore, I nibbled a bit of FUN ($5.45) for an-over-reacting trade. I believe this is a $7.5 stock if it could maintain the growth in the next few quarters, but I will be happen if it achieves $6.5 in the next 12 moths.

This appears happening to me rather frequently, where the number of my positions appear to be far too many, and I have added some rather small, somewhat speculative positions (FUN, SXC, ISC, MTK), positions which are not solid performers, either. I don’t think I have done so consciously, nonetheless, I would like to trim them a bit.

THIRD TIME IS THE CHARM

SXC.TO

I nibbled some SXC this morning @2.05, probably paying too much (as usual). I was rather impressed with its last quarter results, and opportunities ahead. I had own this for a number of times and never made any money. It appears to have a rather decent business model, but results were highly inconsistent in the past. It seems to have everything together in the last few quarters. Revenues and earnings growth is well over 20%. Guidance is decent as well. Balance sheet is clean with still some cash for potential acquisitions. There appear to have a lot of business opportunities ahead and it is only matter of execution. It is traded at about 20X of its 05 EPS with a PEG just under 1.0 times. I expect it will earn 0.15 for 2006, which could result in a $3.0 price in a year time. What this company needs is consistent delivery. Next few quarters will be crucial.

CAPTURED

CPTV / SLF

I sold my position on SLF this afternoon on this ramp up ($45.50), as it met my initial target. I also picked up some CPTV. The company had a great quarter, raised guidance for the whole year. On the call, the management sounds confident. It is rather reasonably valued based even on E05 of 0.85. Clean balance sheet, no debt. Very little coverage, just the way I like it. My initial one year target is $20.

THREE MUSKETEERS

MSFT / PJC / IRC

I finally give up and bought IRC at market ($2.5). This is a service stock that has not discovered by any analysts. Last quarter it started to become profitable and I believe it could make 0.15 this year and 0.30 next year. I also sold PSI and essentially switched into IRC. I still love PSI, but I already have 80% return on this stock. I believe IRC has a much better chance to go 20% than PSI. This coming quarter would be rather important. I estimate it should earn 0.03-0.05 this quarter.

MSFT is running up fast, and I picked a bit here. There is not much to say about MistSofty. This is 2007 story though, I hope I would not run out of patience.

I also nibbled some of PJC on this quarter results. The results met expectation, but analysts seemed not impressed. I listened management on the conference call, and it seemed to me there is so much potential for cost reduction (headcount, close headquarter, system consolidation, procurement, closing stores, shrinkage, realignment of products) in the next few quarters, that earnings and cash flow got to improve. We have not counted for any growth at all. It seems to me that consensus is conservative and it does not give much credit to the management. Even with the consensus, it is much cheaper than SC. I have always loved SC but thought it is too expensive. PJC seems to be a good entry here. Again, this is very much a 2006-2007 story.