portfolio changes

I sold BSQR and RAVE this week. Concern about the overall markets, some stocks on my radar starting to look interesting, and company specific issues  combined to cause me to decide to sell.

I know I have been expressing my concern about the overall markets for awhile. However market leadership seems to have narrowed considerably of late, while various metrics such as market cap to gdp ratio and margin debt have continued further into concerning territory. At such times I like to pare back to my strongest conviction ideas and maintain a larger cash cushion. At the same time some stocks on my radar are starting to look interesting, so I wanted to have more cash ready to deploy in an instant.

I didn’t like the way BSQR was acting so I did some more research to see if I could understand the story a little better. One of the main potential catalysts I thought existed for BSQR was growth of their proprietary software sales. Proprietary software is their highest margin division by far, and last quarter saw a huge jump up in those sales. Management cautioned that proprietary software sales were lumpy and should not be extrapolated to the full year, however I thought it could still signify the beginning of an important trend. Only upon reading the 10q however did I discover that the jump in proprietary software sales was due mainly to unexpectedly large sales of legacy product in the quarter. In other words, it was not due to increased sales of their newer products, and so I felt it was way less likely to be the beginning of a sustainable trend. BSQR was already my lowest conviction idea, and since it was near my mental stop limit I decided to sell and cut my losses short on this one, at around 7%.

BSQR was my smallest position and I wanted to raise more cash so I took a harder look at RAVE. While I still think RAVE is attractive, I ultimately felt GTIM was clearly the better longer term play. RAVE’s sales per square foot on its two concepts, Pizza Inn and Pie Five are considerably less than those on GTIM’s two concepts, Good Times and Bad Daddy’s. I also felt GTIM was more attractively valued after figuring in their recent acquisition of entire ownership of Bad Daddy’s and the North Carolina locations, which will be partially reflected in GTIM’s results starting with the upcoming June quarter earnings report.  I ended up losing around 4% on RAVE.

I added a little GTIM under $8 but most of the cash I raised from the sale of BSQR and RAVE remains, so I am now at around 40% cash.