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Why we dumped our position in Avon

By Ironwood Investment Management

The Covestor Ironwood SMID Cap Value portfolio had a good December, rising about 2%. In December, the strategy had strong gains in our financial and healthcare stocks, somewhat offset by our technology stocks.

In particular, Legg Mason (LM) and Janus (JNS) did well. Legg Mason's new CEO Joe Sullivan is implementing a plan to expand the firm's product base and improve its asset gathering capabilities, with the goal of restoring the firm to its previous status as a quality growth company.

Janus' new CEO is focusing on turning around their investment product performance and stabilizing their asset base, while continuing to build their cash balances.

The New York Times (NYT) also rose strongly in the month. The turnaround, led by new CEO Mark Thompson, is showing impressive traction, not only from the completion of their divestiture program but also their increasingly successful digital subscription business and budding reputation as an innovative content provider. We did not initiate any new positions in December,and here are some stocks we sold.

We had owned Avon Products (AVP) since our portfolio's inception. Avon had many of the traits of a promising investment: a new outside leadership team led by new CEO Sheri McCoy, plenty of opportunities to restructure and streamline operations, steady and ample cash flow, a balance sheet that could readily be improved, a regulatory overhang ready to be resolved, and a deeply-discounted share price.

Early in our holding period, the company showed impressive progress and promise in all of these areas, and the stock responded with strong gains. However, when Avon reported weak third quarter results, it became apparent that the fundamental improvements were significantly reversing.

A critical concern from our perspective was that the new management team did not seem to have control of Avon's problems after all. In light of the deteriorating fundamentals and the truncated upside potential for the stock, we sold our position.

DISCLAIMER: The investments discussed are held in client accounts as of December 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

Ironwood Investment Management

Ironwood Investment Management

Ironwood Investment Management is an employee-owned investment management firm based in Boston that formed in 1997. It invests in undervalued

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