Barrett Business Services (BBSI) came in with better than expected numbers, prompting its stock to surge 39%. The stock was down 40% for the year when I purchased it at the beginning of the month. At the time of purchase, BBSI was in the top 25 stocks with a minimum market cap of 50 million for quite a while. Not much analysis was done, but BBSI did have $5 in cash at the time of purchase.
BBSI has appeared on the magic formula screen for some time. Unfortunately, for many magic formula investors they bought the stock at a time when major macro headwinds were brewing. First, BBSI gets most of its business from California, which is one of the states that has been hit by the burst of the real estate bubble. In tough times, temporary employees are the first to get the boot and thus impacted BBSI’s numbers. I would have never invested in BBSI if I did not take a quick look at the balance sheet and realize there was $5 in cash to protect me. Another thing going for BBSI is its CEO. Fed up with analysts who continue to downgrade and short the stock, BBSI’s CEO was quoted saying in a recent conference call:
“If you guys want to sell [the company] down to five times earnings, maybe I will just buy the whole [expletive] thing.”
It feels good to finally see a nice pop in one of my portfolio holdings. After my disaterous May/June , I was trailing the S&P benchmark about 5%. Since switching to an almost 100% magic formula portfolio, I have been chipping away at that deficit. With today’s pop, I am up about 4% on the S&P. Its tempting to sell BBSI with the big pop, but its best days will come as the economy gains traction and firms start hiring again.
Disclaimer: Im long BBSI
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