IRA Investing: Building a Base

Portfolio Update

My strategy is basically unchanged in that I continue to look for interesting opportunities presented by my screening system, but I am unwilling to commit cash reserves to buy the market unless my indicators reach levels associated with major stock market bottoms. My cash position remains very high at 84%.

Last week I sold my position in West Pharmaceutical Services (WST - commentary - Cramer's Take) because the stock violated my mental stop at the 20% loss level.

Although my screening system continues to have difficulty finding potential new bull-market leaders, I did take a new position in Smithtown Bancorp (SMTB - commentary - Cramer's Take) last week. This is a Long Island, N.Y., bank holding company with an excellent record. The bank has had an average annual growth in revenue of 23.3% over the last five years, well above the regional Northeast bank average of 14.9%. Net income has grown at 12.2% compared to only 3.4% for the industry. More recently, the company enjoyed loan growth of 52% in the first nine months of this year.

With no subprime, alt-A or option ARM loans and a strong capital position, the company has a good competitive position and should be able to capitalize on opportunities presented in the future. In terms of valuation, this stock sells at about a 25% P/E discount to the median bank in the industry, 12.4 times vs. 16.4 times.

The table that follows shows all of the current holdings in my IRA as of Oct. 31, 2008.

Symbol Name Purchase Date Cost Price Gain Regular Holdings CNMD Conmed 6/25/2008 $26.87 $26.20 -2.49% LINC Lincoln Educational 9/10/2008 $15.08 $14.46 -4.11% SMCI Super Micro Computer 10/13/2008 $7.36 $6.28 -14.67% SMTB Smithtown Bancorp. 10/31/2008 $19.18 $19.67 2.55% SY Sybase 11/13/2007 $25.79 $26.63 3.26% USAK USA Truck 9/10/2008 $18.40 $14.77 -19.73% One-Month Screen No current holdings Performance results as of 10/31/2008 IRA S&P 500 Full-year 2007 33.0% 5.5% 2008 to date -14.2% -33.0%

Total Return for IRA S&P 500 does not include income for current quarter

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Lincoln Educational, Super Micro Computer, Smithtown Bancorp and USA Truck to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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At the time of publication, Moore was long Conmed, Lincoln Educational, Super Micro Computer, Smithtown Bancorp, Sybase and USA Truck, although positions may change at any time.

Richard Moore, CFA, has 40 years of experience in various facets of the investment business. He has been employed by banks, mutual funds and investment advisory organizations during his career and has also owned retail and service businesses. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Moore appreciates your feedback; click here to send him an email.