Bottom of the Barrel: The Quarterly Portfolio Review

Every so often it's good to step back and take stock of where we've been and where we're heading. And this holiday week seems like a good time to reflect on what's gone right -- and wrong -- in the Bottom of the Barrel portfolio over the last six months, and what the next half year might hold for small-cap investors. Today, we take a look at the highlights of companies profiled in the second quarter.

The table below contains the usual performance data for each company in the Barrel. This week it also contains the estimated quarterly earnings reporting date for each company and, where available, the First Call consensus earnings estimate for the quarter. Note many of the reporting dates are approximate, either taken from analyst reports, company disclosures or historic reporting patterns.

A Roller Coaster Quarter

The second quarter presented its shares of ups and downs for the Barrel portfolio. The average second-quarter addition to the portfolio lost about 3.34% from its profile date, before dividends. While I never like a losing record, that isn't bad considering both the S&P 500 and Russell 2000 were down about 15% and the Nasdaq Composite was down nearly 25% for the quarter.

The winner among the second-quarter additions was Acadia Realty(AKR Quote), the Northeast shopping center REIT, gaining more than 13% since profiled on June 5. Add its 6.54% yield and you get a solid small-cap stock if you are playing defense. Still, for those looking for the quick profit, there is nothing wrong with realizing some of the quick gain. If we've learned anything from recent market action, it's the lesson that profits aren't profits until they are in your pocket. I still like Acadia, but I also like the profits.

Also, Roadway (ROAD Quote) announced second-quarter earnings of 30 cents per share on Tuesday, an increase of 36% compared with the same period last year and ahead of the First Call consensus of 25 cents. Moreover, I like Roadway's leverage to an economic recovery and intense focus on cost controls. Roadway CEO Michael Wickham's conservative outlook for company performance in the second half leaves plenty of room for positive surprises. Roadway is among my favorite names in the portfolio.

Arch Chemical (ARJ Quote) has also performed well recently. However, even though I like the Arch's HTH pool chemical business and the potential for growth for its semiconductor circuit-polishing business as the economy rebounds, I am concerned about the company's potential liability as a manufacturer of Chromated Copper Arsenate, or CCA, a preservative used in lumber. CCA manufacturers are becoming targets of liability suits, and Arch shares could feel the impact of the litigation or even the threat of huge judgments. Plus, the use of arsenic in pressure-treated lumber wll be banned by the Environmental Protection Agency sometime next year. With Arch facing those uncertainties, I don't expect the stock to outperform the market in the coming months.

Waiting for Results Barrel stirs as investors await earnings
Current Rating	Company/Ticker	Date of Mention	Price 1-July	Mention Price*	% Change From Mention	% Change Last Week	Earnings Information**
							Est Rept Date	Cons. Estimate
Above Average Outlook
	Roadway (ROAD:Nadsaq)	June 19, 2002	$35.70	$34.03	4.91%	-1.79%	July 2	$0.30
	Fidelity National (LION:Nasdaq)	May 8, 2002	10.00	10.58	-5.48	-2.82	July 22	0.13
	NetBank (NTBK:Nasdaq)	Feb. 6, 2002	11.23	13.45	-16.51	6.65	Aug. 5	0.12
	SurModics (SRDX:Nasdaq)	Dec. 19, 2001	24.92	34.60	-27.98	2.72	July 16	0.11
	FPIC Insurance (FPIC:Nasdaq)	Nov. 14, 2001	13.88	12.83	8.18	1.61	Aug. 9	0.29
Average Outlook
	Innotrac (INOC:Nasdaq)	June 12, 2002	$4.79	$4.79	0.00 %	-8.59 %	July 29	$0.03
	Champps Entertainment (CMPP:Nasdaq)	May 29, 2002	11.85	13.01	-8.92	3.04	Aug. 23	0.15
	Wilsons Leather (WLSN:Nasdaq)	May 22, 2002	13.50	14.96	-9.76	-1.53	Aug. 21	(1.07)
	Trico Marine (TMAR:Nasdaq)	May 1, 2002	6.80	8.25	-17.58	-0.58	July 30	(0.10)
	Arch Chemicals (ARJ:NYSE)	April 24, 2002	25.25	22.52	12.12	13.74	July 30	0.55
	Hines Horticulture (HORT:Nasdaq)	April 17, 2001	3.31	4.75	-30.32	-10.54	July 30	0.93
	UCBH Holdings (UCBH:Nasdaq)	March 27,2002	38.01	35.65	6.62	-3.16	July 12	0.46
	Cost Plus World Markets (CPWM:Nasdaq)	March 6, 2002	30.41	25.83	17.73	-3.92	Aug. 23	0.07
	Rare Hospitality Intl. (RARE:Nasdaq)	Feb 20, 2002	26.07	25.72	1.36	-4.33	July 24	0.35
	Endocare (ENDO:Nasdaq)	Jan. 23, 2002	12.14	18.21	-33.33	1.59	July 23	0.05
	Coastal Bancorp (CBSA:Nasdaq)	Dec. 12, 2001	32.01	27.84	14.98	4.81	July 15	0.56
	VitalWorks (VWKS:Nasdaq)	Nov. 21, 2001	7.50	4.30	74.42	1.49	July 23	0.07
	Coinstar (CSTR:Nasdaq)	Nov. 7, 2001	23.05	19.96	15.48	-9.89	Aug. 2	0.12
	Witness Systems (WITS:Nasdaq)	Oct. 31, 2001	6.63	8.06	-17.74	0.91	July 29	0.02
	Hibbett Sports (HIBB:Nasdaq)***	Oct. 24, 2001	24.95	20.04	24.50	-6.90	Aug. 23	0.25
	Quixote (QUIX:Nasdaq)	Oct. 3, 2001	17.59	21.44	-17.96	5.90	July 25	0.44
Below Average Outlook
	Actrade (ACRT:Nasdaq)	Jan. 30, 2002	$10.32	$20.65	-50.02 %	0.68 %	July 29	0.73
	Quanta Systems (PWR:NYSE)	Jan. 9, 2002	9.14	16.05	-43.05	-30.49	Aug. 8	0.04
	Goody's Family Clothing (GDYS:Nasdaq)	Nov. 28, 2001	10.92	4.50	142.67	3.02	Aug. 23	(0.01)
	Bridgford Foods (BRID:Nasdaq)	Oct. 10, 2001	13.20	13.18	0.15	-7.50	Sept. 14	NA
Bottom of the Barrel Income Portfolio
	UGI Corp (UGI:NYSE)	June 26, 2002	$32.88	$31.30	5.05 %	3.89 %	July 31	(0.15)
	Acadia Realty (AKR:NYSE)	June 5, 2002	7.95	7.03	13.09	7.72	July 30	NA
	Capital Automotive REIT (CARS:Nasdaq)	April 3, 2002	22.93	22.95	-0.09	-4.18	July 31	0.50
	Laclede Group (LG:NYSE)	March 20, 2002	23.25	23.64	-1.65	1.31	July 25	-
	Alexandria Real Estate (ARE:NYSE)	Feb 13, 2002	48.67	40.25	20.92	1.78	Aug. 6	0.96
	Empire District Electric (EDE:NYSE)	Jan. 16, 2002	20.15	21.23	-5.09	6.33	July 25	0.20
	Integra Bancorp (IBNK:Nasdaq)	Jan. 2, 2002	22.19	20.75	6.94	-2.20	July 16	0.35
	Met-Pro (MPR:NYSE)	Oct. 17, 2001	14.95	11.16	33.96	1.36	Aug. 23	NA
Bottom of the Barrel Special Situation Portfolio
	Luby's (LUB:NYSE)	Feb. 27, 2002	$6.30	$6.22	1.29 %	0.00	Aug. 30	0.04
*Average price on date of mention. **Estimated date from company release or historic analysis of earnings release. ***Prices adjusted for 3:2 split on Feb. 20, 2002. NA=No First Call estimates available. Source: Thomson Financial/First Call, TSC Research

On the losing side of the ledger, Hines Horticulture (HORT Quote) is the dirtiest dog. The lesson here is a good company doesn't necessarily make a good stock. Hines is one of the largest greenhouse companies in the U.S., supplying nursery plants to large retailers like Lowes (LOW Quote) and Wal-Mart (WMT Quote). And, while the second quarter is typically the company's strongest, Hines has lost since we profiled it on April 17. While the stock seems cheap, time for a rebound is waning as the company's strength is generally during the spring planting season.

Finally, Trico Marine (TMAR Quote), an energy shipping company, has lost more than 17% of its value since bring profiled May 1. I still like Trico's prospects as the economy recovers and energy demand picks up. However, the quarter just passed was soft and recovery is likely a quarter away.

Other Mentions

The best call of the quarter was my May 15 decision to suggest investors avoid Quanta Systems (PWR Quote). With the stock near $14 at the time, it was becoming clear Quanta' business prospects were eroding. At the same time, management was fighting Aquila's (ILA Quote) overtures to increase its stake in Quanta. Instead, Quanta pursued additional antitakeover provisions to thwart Aquila's interest.

So much for shareholder value: On Tuesday, Quanta said it would earn only 3 to 5 cents in the second quarter, compared with estimates of 19 cents. The company noted all of its markets were weak, and two of its largest customers declared bankruptcy and canceled all orders during the quarter. The stock lost 68% of its value on Tuesday, closing down $6.22 at $2.92. The stock is probably too cheap, but it's hard to buy such damaged goods.

Conversely, the worst call of the quarter was Endocare (ENDO Quote), the medical technology company that is focused on cryotherapy for prostate disease. The stock has lost more than 30% of its value since January on concerns over its relationship with U.S. Therapies -- Endocare's largest customer -- and confusion over treatment success rates.

Endocare's cryotherapy treatment does appear successful, with seven-year disease-free rates of more than 90% for prostate patients. While there are concerns over sexual function after treatment, there is little difference in the side effects when compared with radiation treatment.

Still, the concerns deserve mention and, in the current environment, deserve scrutiny. It is critical Endocare report a pristine quarter, with full disclosure and better discussion of relationships with key customers. If it does so, the stock should slowly trade back toward $20 per share. I expect the company to report results the third week of July.

Next week, a new member of the Barrel family, plus a closer look at the companies reporting earnings in the coming week.