January 2014

"I used to play sports. Then i realized that you could
buy trophies. Now I'm good at everything."

- Demetri Martin

Peter RicchiutiThe S&P 500 produced a total return of more than 200% since the stock market bottomed in 2009. But, the greatest stock market run since World War II has remained a rather “stealth rally.” Economic news reports are overwhelmingly negative, viewership for CNBC is at 20 year lows, and when I attend a backyard BBQ or a crawfish boil I’m rarely asked for stock ideas.

Pearson, a division of The Financial Times, has recently published Stocks Under Rocks; How to Uncover Overlooked, Profitable Market Opportunities. The book chronicles the Burkenroad Reports program and is filled with entertaining stories and important bits of investment wisdom we have learned over the past two decades. Writing the book was a fun project and allowed me to reminisce about tire-­‐kicking, channel checking and number crunching with 4000 students while traveling through the deep-­‐south in search of under-­‐appreciated public companies.

Our students at BURKENROAD REPORTS meet top management, visit company sites, and publish investment research reports on 40 stocks in Louisiana, Texas, Mississippi, Alabama, Georgia, and Florida. Since the inception of this academic program, hundreds of students have moved on to positions in investment related fields. These in-­‐depth research reports, video presentations, and conference registration information are available at www.burkenroad.org .


Please join us for our 18th Annual BURKENROAD REPORTS
Investment Conference on Friday, April 25, 2014,

This popular event will be held at the Hyatt Regency in New Orleans. It's free and open to the public and provides individual and institutional investors an opportunity to meet management and to learn more about some of the region's top public companies. Please check our website for registration and additional details.
Click here to register.


Public companies continue to be gobbled up. This past spring Stewart Enterprises, one of the first companies we ever covered, was bought out by fellow death-­‐care provider Service Corporation International (SCI). Stewart Enterprises has presented at each of our seventeen Annual Burkenroad Reports Investment Conferences.

As I write this, Teche Holdings (TSH) has just received a buyout offer from IBERIABANK (IBKC). The offer comes at a price of about double what Teche stock traded at just six months ago. How big has the buyout binge been? We’ve had 26 of our Burkenroad companies taken off the table since we started in 1993 and there are now about 45% fewer public companies traded on the Wilshire 5000 than there were in 2000.

Winners and Losers

Even in a white-­‐hot market some stocks fared better than others.

+157% CONN’S APPLIANCES (CONN) is cooking with gas. The company continues to open new stores, has expanded into mattresses and furniture and operates in the strongest economic region in the nation (Texas, Oklahoma and Louisiana.)

+110% CONRAD INDUSTRIES (CNRD) may trade on the pink-­‐sheets but they’re solidly in the black. The uber-­‐efficient marine contractor builds and repairs a variety of vessels including barges, ferries and offshore supply boats.

+109% STONE ENERGY (SGY) has bucked the trend. While the shares of many E&P companies have lagged the overall market, Stone’s exploration success both onshore and offshore has attracted investors.

While the oil patch produced many of the big winners, it also supplied two of this year’s largest decliners. The shares of ION GEOPHYSICAL (IO) sank 49% while PETROQUEST (PQ) shed 13% of its value in 2013.

The culprit for this under-­‐performance is low domestic natural gas prices. But, as they say “one man’s ceiling is another man’s floor.” This fuel is a key industrial feedstock and these same low prices are a boon to the competitive position for U.S. industry. U.S. natural gas trades at a fraction of prices in Europe and Asia and many are predicting a manufacturing renaissance in this country.

Here's The Thing

Investors might still feel the sting of the 2008-­‐2009 financial meltdown but the economic landscape has healed nicely (if unevenly) since then. Record highs in the stock market are being driven and justified by the following data:

-We’re adding about 200,000 new jobs each month
-Corporate earnings are at record levels & rising

-Corporate coffers now hold a record $7 trillion
-Consumer confidence is at a five year high

This might sound odd but, personally my biggest concern is that the economy begins growing “too-­‐ strong, too-­‐fast”.

At this point the market needs to see a slow, predictable tapering by the Fed. A faster than expected economic recovery would raise “the fear” of inflation and might force the Fed into a quicker and more spasmodic pace in its efforts end to its very accommodative monetary policy. This would seriously spook investors.

At about 16 times projected earnings the overall market seems pretty fully valued and I admit that we’re finding it increasingly difficult to uncover attractively priced stocks. 2014 is likely to be a bumpy ride for investors but, in the long-­‐run I’m optimistic about small-­‐cap equities. I believe we’re fishing in the right pond.

The Burkenroad Mutual Fund:

The Hancock Horizon Small Cap Burkenroad Fund had a very strong year with a total return of 39.40%. Since its inception on December 31, 2001, the fund (ticker symbols HYBUX and HHBUX) has outperformed 99% of the nation’s mutual funds. The fund has produced a total return of 336%, which is almost twice as high as the Russell 2000 Index (Small Cap Stocks) and more than three times the total return of the S&P 500 Index (Large Cap Stocks.)

The fund is managed by Hancock Bank and now has more than $650 million in assets. Hancock’s managers utilize our student-­‐produced research reports (as well as other sources) in the management of the Burkenroad Fund.

Peter Ricchiuti

In August, we lost the program's best friend and benefactor, Aaron Selber was a family man, investor, business man, civic leader and philanthropist. When Aaron first came to us in 1995, we were a small non-­‐credit course with a handful of students producing research on just the public companies we could reach on the St. Charles Avenue streetcar. Aaron's generosity allowed us to become what we are.

He was always a supporter of our efforts and provided me with insightful, valuable advice on matters both professional and personal. I miss Aaron each day.


I hope to see you at this year's investment conference.


 peter ricchiuti

Peter Ricchiuti
Founder & Director of Research

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