Two Old Picks Make A Strong Comeback

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March 27, 2007 | SIN Picks | | Author Asif

Every once in a while you make the mistake of selling a stock a little earlier than you should have. As you can see from the historical trades page, I am guilty of committing this mistake with two old SINLetter picks, RCM Technologies (RCMT) and CMGI (CMGI). I sold CMGI for a loss of 16.67% in the SINLetter model portfolio and just three months later, I sold the consulting company RCM Technologies for a loss of 21.76% because of concerns about a weakening economy and because I needed the capital to invest in new stocks. While selling CMGI in July 2006 I mentioned,

“The results from the last quarter were disappointing as most of the $21.7 million profit was driven by liquidity events from the sale of WebCT and Realm Business Solutions. If I did not require the capital to finance this month’s featured stocks, I could have given CMGI some more quarters to see if the bread and butter supply chain management business could achieve profitability or not.”

My personal portfolios are to quite an extent aligned with the SINLetter model portfolio. Nineteen out of the 22 stocks I own are either currently in the model portfolio or were featured in past editions of SINLetter. Since it is highly tax inefficient and expensive to trade stocks often in a non-retirement account, I sometimes do not sell SINLetter picks from my personal portfolios even when I sell them from the SINLetter model portfolio.

I decided to take my own advice about CMGI and held on to CMGI and RCM Technologies in my personal portfolios and that decision proved to be very profitable. RCM Technologies is up 38.04% over the last six months thanks to outstanding third quarter results and equally impressive fourth quarter results. For the full year 2006, net income increased 79.75% to $6.36 million and revenue increased a more modest 11.79% to $201.92 million.

CMGI has fared even better after receiving an analyst upgrade and suddenly becoming a media darling with multiple mentions in Barron’s, Forbes and This new found attention has pushed the stock up more than 85% since the start of this year. This compares with a gain of less than 2% for the Nasdaq.

With this rapid rise, the stock has almost reached the $2.50 price target set by the W.R. Hambrecht analysts. While the improvement in margins at CMGI should be applauded, a gross margin target of 12 to 14% can hardly explain this move in the stock.  I believe that the stock is close to fully valued at these levels and decided to take some profits off the table by selling roughly 2/3 of my position yesterday and may sell the rest in the near future.

I wanted to post some updates on the blog over the last two weeks including highlights from the Medifast (MED) conference call but did not get a chance to do so because a new IT project I started two weeks ago has kept me very busy. I will hopefully get a chance to post these updates in the April 2007 newsletter instead.

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