Crabtree Commentary

February 25, 2013

Today we completed our quarterly re-balancing of the Crabtree Fund.

Sold out of the fund were Broadridge Financial, Bio-Reference Labs, CONMED, Spansion, CoStar Group, Computer Task Group, Liquidity Services, OSI Systems and Teleflex.

Added to the fund were Hexcel, Cabot Microelectronics, Portugal Telecom, Aeroflex, Silicon Graphics, Aviat Networks, Jiayuan.com, Telenav, Ambarella and Mine Safety Appliances.

Additionally, we trimmed three positions that had growth substantially, making them once again roughly 2% of the portfolio: Audience, EnerNOC and Shutterfly. And we added more to names in which we are confident, but whose performance had recently dropped them below 2%: Demand Media, eHealth and LSI.

As usual, we don't anticipate making any further changes until our next re-balancing in May.

December 19, 2012

Today we sold our position in TNS Inc., which on December 11 accepted on offer to be bought by Siris Capital Group for $21/share in cash. Because Crabtree Asset Management is not a risk arbitrage firm, we have elected to take $21.80/share, forgo the $0.20/share arbitrage return and absorb the transaction cost of the sale.

In the past, we have sometimes chosen to hold an acquired Crabtree position until the transaction closing date, but only in instances where the M&A history of the acquiror (e.g. SAP, IBM, Thoma Bravo) was of sufficient quality to virutally guarantee deal closure. Siris Capital may be well-intentioned, but it is not IBM.

We expect to re-deploy the cash raised in this transaction in another holding shortly, bringing the total number of holdings in the Crabtree Fund back to its standard 50-position limit.

December 11, 2012

Today, Crabtree holding TNS, Inc., a maker of networking products, agreed to be acquired by an investor group led by Siris Capital Group. Siris, a private-equity firm, has offered to pay $21 a share in cash for TNS. This represents a 43% premium over the closing price on December 10 and a 47 percent premium over the stock’s average price over the past month. The companies expect the deal to close in the first quarter of 2013.

This represents the twelfth time that a Crabtree Fund holding has been purchased in an M&A transaction since the Fund's inception on April 1, 2009. Most recently, Mediware Information Systems was acquired by private equity firm Thoma Bravo on November 9, 2012.

December 4, 2012

Today we completed the quarterly re-balance of the Crabtree Fund.

Sold out of the Fund were AeroVironment, Comtech Telecom, Amdocs, Entegris, Globecomm, Kongzhong, Medidata Solutions, Mentor Graphics, Pericom Semiconductor, Perfect World and RR Donnelly. Additionally, we trimmed our positions in Computer Task Group and eHealth. These positions had appreciated and we simply trimmed them back to our standard 2% position size.

New additions to the Fund included American Public Education, Asiainfo-Linkage, Audience, Broadridge Financial, Bruker Corp., Cerner, CoStar Group, Cray, Demand Media, Echostar, Spansion and Virtusa. All of these qualified for inclusion in the fund by virtue of passing our quantitative screen; none were exceptions.

October 26, 2012

We've just completed the first two weeks of Q3 earnings season, and we're generally pleased with the performance of our holdings that have reported so far. Companies reporting their September quarters have included ICU Medical, Computer Task Group, OSI Systems, Cynosure, Entegris, LSI Corp., CONMED, Teledyne Technologies, eHealth and Stamps.com.

We're especially pleased with the performance of eHealth, which we added to the Crabtree Fund just last month. The company beat expectations for Q3, offered a solid Q4 outlook and the stock rose nearly 9% the day after its earnings release.

While the economic sluggishness has slowed the order flow for many companies, including the ones mentioned, none of our reporting companies has (so far) needed to materially scale back expectations for the fourth quarter. So while it's early, and there is more research to be done, all of the aforementioned companies seem likely to survive the forthcoming mid-November re-balancing.

September 12, 2012

Crabtree Fund holding Mediware Information Systems (MEDW) announced today that it had reached a deal to be taken private by Thoma Bravo LLC for close to $195 million.

Mediware shareholders will receive $22 for each share they own, which is a 40 percent premium to the previous closing price of $15.75.

The deal was unanimously approved by Mediware's board and we expect it will be approved by shareholders of the company.

This take-out represents the 11th time a Crabtree holding has been bought since the Fund's inception on April 1, 2009. Most recently, Ariba was purchased in an all-cash transaction by German software company SAP in May of this year.

September 6, 2012

We have now completed our quarterly re-balancing, originally scheduled for mid-August. The delay was caused by some incomplete data from our traditionally reliable sources. After assembling and cleaning our raw data, we were able to assemble a model in which we had the highest confidence. The model had 77 names, from which we have chosen new positions.

In the re-balance, we sold our positions in Astronics, Ariba, British Telecom, Calix, Electronics for Imaging, GSI Group, Hickory Technology, Hexcel, Nippon Telephone, Progress Software and Red Hat.

To replace these positions, as well as the our holding in Zillow that we sold in early August, we purchased 2% positions in EnerNOC, CareFusion, eHealth, R. R. Donnelly, Bio-Reference Laboratories, Cynosure, Pericom Semiconductor, ReachLocal, MTS Systems, RigNet, Mediware Info Systems, MagnaChip Semiconductor and Shutterfly.

Additionally, we trimmed seven other holdings, including Anika Therapeutics, CalAmp, Cambrex, NIC Corp., GenCorp, Medidata Solutions and MAXIMUS. These positions had grown, but because they all still qualify for inclusion in our model, we merely trimmed them back to their original 2%-of-the-portfolio size.

September 1, 2012

The "earnings season" that began in July reached a conclusion in August. The following Crabtree Model holdings reported during the month:

TNS, Inc. (ticker: TNS); Catamaran (CTRX); Measurement Specialties (MEAS), Tetra Tech (TTEK), Cambrex (CBM), Hickory Tech (HTCO), Amdocs (DOX), Anika Therapeutics (ANIK), Accelrys (ACCL), NIC Inc. (EGOV), EPAM Systems (EPAM), Nippon Telephone (NTT), Astronics (ATRO), MAXIMUS (MMS), GSI Group (GSIG), Zillow (Z), Magic Software (MGIC), Photomedix (PHMD), XO Group (XOXO), OSI Systems (OSIS), KongZhong (KONG), Mentor Graphics (MENT), Perfect World (PWRD) and American Software (AMSWA).

As is usually the case, most earnings reports showed that the companies were doing well. Most notable were the positive reports from Cambrex, Anika Therapeutics, EPAM, MAXIMUS, Photomedix and KongZhong. However, some of our holdings under-performed, including GSI Group, Zillow and Perfect World.

Normally, we'd report how our August mid-quarter re-balance went, but because our usual process of data-cleansing took a little longer than usual, this took place in early September. So we'll have an update on that next month.

August 1, 2012

It was hot in July here in the Midwest, where a persistent drought has raised corn prices to all-time highs. It was only lukewarm, however, in the stock market, as the S&P 500 rose only 1.5% and the Nasdaq Composite was essentially flat for the month. Also lukewarm was earnings season, as companies reported their June quarters starting in mid-July. A consistent theme among companies of all kinds was the effect of a global slowdown, blamed on Europe, but felt worldwide.

As for the Crabtree model, we had plenty of action to track. The following Crabtree holdings reported June quarter performance during the month July: Calix,  ICU Medical,  IBM,  Verizon,  Entegris,  Electronics for Imaging, Hexcel,  Computer Task Group,  British Telecom,  LSI,  CONMED, Teledyne Technologies,  Liquidity Services,  Teleflex,  Medidata Solutions  and Heartland Payment Systems.

While a couple of our holdings were disappointing (I’m looking at you, Calix!), we had solid performances from most and really strong performances from IBM (beat and raise); LSI (solid beat and raise, share buyback and a huge increase in cash flow);  Teledyne Technologies (which beat by $0.07) and Liquidity Services, which beat by $0.10 and raised guidance for the full year 2012 to well above current consensus.

In particular, I’d like to highlight the performance of Stamps.com. It managed to beat June quarter consensus by $0.03 and offered full year 2012 revenue and earnings guidance that was in-line with current consensus, despite difficult comparisons against very strong revenue growth in the latter half of 2011. But beyond the headline numbers were so other solid metrics. For example, STMP’s total paid customer count rose 14% to a record high of 418,000. And paid enterprise (i.e., large businesses) revenue was up 42% year-over-year.

Now place that in the context of the U.S. Postal Service’s difficulties, and plans to reduce service and close less-trafficked post-offices. This is a multi-year secular trend that will continue to drive businesses to utilize Stamps.com’s desk-top postage services. There can almost be no doubt that 10 years from now, Americans will simply view the US Postal Service very differently than they do now. And that will likely be to Stamps.com’s benefit. And ours, as shareholders.

May 31, 2012

We're pleased to announce the completion of the GIPS Verification process for Crabtree Asset Management. GIPS ("Global Investment Performance Standards") is the industry standard for presenting the performance of a particular company, as well as for any investment strategies and vehicles (i.e., funds). In our case, the verification process was for the first three years of the Crabtree Fund's existence: April 2009 – March 2012.

We're very proud to have completed the GIPS-verification process. We hope it will serve to assure current and potential investors that the historical performance that is listed on our own web site, as well as on our Covestor model page, is an accurate representation of the real-world performance of our investment strategy. We hope to have the performance presentation document on our web site very shortly, but you can request it by e-mailing us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .