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Why 2014 may be a replay of 2004

By Bill Peattie

The two largest positions in the Peattie Capital’s Reasonable Price portfolio both made major strategic announcements in early July, positioning themselves for further growth in my opinion.

Macquarie Infrastructure Trust (MIC) bought the 50% of its International-Matex Tank Terminal subsidiary it didn’t already own and also announced its intention to raise the dividend again, this time to $0.95 per quarter.

MIC may still have room to grow in my opinion, and the company plans to payout of 80%-85% of proportionate free cash flow, which is expected to be $4.55 in 2014 and more than $5 in 2015.

KVH Industries (KVHI) announced it was buying Videotel, “a producer of high-quality training films and e-learning services for the commercial maritime industry.”

Videotel already services 11,000 vessels and is expected to create meaningful cross-selling opportunities for KVHI. In addition, 93% of Videotel’s revenue is subscription-based, and gross margins are more than 73%. Marine satellite-based communications is an evolving industry and I am very excited about KVHI’s position in it.

Small caps are down across the board through July, with small cap growth the poorest performing equity asset class at -4.6%.

I attribute this to the tapering of the Fed’s quantitative easing (QE) program, as smaller names tend to perform best when liquidity is most plentiful.

For quite a while the markets have responded favorably to all economic news. However, we may be entering, a new phase, wherein good news is bad news, as it may bring forth an earlier than expected end to QE.

My own guess is that Federal Reserve Chairwoman Janet Yellen will stay on her stated course, as changing it would lead to more confusion and possibly damage her credibility.

To be sure, there are myriad issues cited for the market’s recent performance. Among them: the upcoming change in monetary policy and Yellen’s highlighting a couple specific sectors, military activity in the Middle East and Ukraine, and election-year politics heating up in the U.S, along with a variety of domestic issues.

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