|Written by Rob Goldman|
Here is the Real Test
The market is rockin’. People are feeling a little better. Of course, after a 10.4% NASDAQ gain in 2 weeks we should feel better. But, now comes the real test. The first real barometer to tell us where we are headed. This test is the true beginning of earnings season. The results, guidance and comments will help shape the market’s direction and sentiment for the balance of the year. Let’s look at the key players:
Citigroup and Wells Fargo, two of the largest banks in the U.S. An early measure for the financials space.
IBM, major technology and multinational barometer.
Apple and Yahoo!, two companies that have lost their figureheads. Headed in opposite directions?
Coca-Cola, Goldman Sachs, and J&J, two major multinationals and leaders in their spaces and an industry bellwether/target of derision.
An interesting mix. Leaders in finance, natural resources, health care, consumer discretionary, technology, etc. Given the large number of major entities reporting, it really is “hump day.”
A ton of mid-tier firms, along with biggies AT&T, Microsoft, and Nokia.
GE on Friday. You get the idea.
We maintain that we will have a year-end rally. We do not have a crystal ball (though we have been trying to buy one on eBay) so we can’t say how sustained this rally will become. Nonetheless, optimism is building. One thing that can kill it is politics, as in the super committee or some other knuckleheads.
Speaking of knuckleheads, an award should be set aside for a Congressman from the State of Illinois, Rep. Jesse Jackson, Jr. Yes, the son of that Jesse Jackson. Some might consider noted politicians California governor Jerry Brown and Rep. Dennis Kucinich as eccentric, but Rep. Jackson proffered a solution to our jobs and economic woes that is downright ludicrous. So much so, that after appearing on the “front burner” of the Web early on, it is on the “back burner”, as you have to dig to find it now.
Congressman Jackson has proposed that the U.S. government “hire” the 15 million unemployed by spending nearly $600 billion and provide each of them with a $40,000 salary. By the way, he stated that Obama should bypass Congress altogether and unilaterally engage in this maneuver.
Where to begin. Let’s just say it is a bad idea whose only guaranteed result is the buying of 15 million votes for $40,000 apiece in the upcoming Presidential election. And for a Congressman to suggest bypassing Congress, well, I just hope he keeps on talking. I could use the amusement.
M&A: Act III
I noted last week that in the latest issue of Forbes and a recent Forbes blog, 3 of the four companies we cited as possible buyout targets in Q4 were highlighted. Well, since that time, 3 of the four have been in the news, and will also report results this week.
AOL’s CEO actively lobbied for Yahoo! to acquire it. RIMM imploded, with major service outages across the globe for days, which will assuredly have a deleterious effect on the Company’s prospects. I suspect that Blackberry users, already utilizing an out-of-fashion operating system and form factor, will leave in the coming months. This subscriber churn will hurt the stock price and a potential sale price, if in fact a sale is still in the cards. I am not so sure now.
Yahoo! and Nokia report this week. It will be interesting to hear/see what happens with that AOL chatter.
This Stock Should Move Higher…Twice
If you knew that there was a cheap stock that few people were aware of, and literally the next day, a small group of investors would be strongly considering or outright forced to buy some of its shares, thus moving the stock higher, wouldn’t you want to have some shares beforehand?
That time will not be tomorrow, but it is around the corner. And that stock is SunSi Energies, Inc. (OTCQB:SSIE.)
I know, I know, you have heard me talk about it before. Forget the company for a moment and let’s look at market dynamics.
The stock trades on the OTC market. As a result, many investors are unable to or unwilling to buy the stock, due to perceived risk and (in the cases of other companies), lack of transparency.
The Company has applied for listing on NASDAQ. Considering they meet all of the fundamental (numerical) qualifications, we believe that they will be approved for listing in November. We do not know a situation, any situation, where a company that met the requirements, was not granted listing approval.
What will happen to SSIE when it starts to trade on NASDAQ? It will be like reading a book by candlelight one minute and a floodlight the next. An eye-opening experience.
Stocks routinely get a meaningful and sustained rise right away, but that is usually just the first stage.
Microcap index funds, cleantech and solar indices and funds, Chinese/foreign indices and funds, basic industry funds, etc. will immediately turn their attention to SunSi.
Why is this important? The NASDAQ listing opens doors currently closed to SunSi. For example, there are several hundred million dollars invested in micro cap index funds, and many hundreds of millions in micro cap equity, cleantech, and other funds. Given its relative size and market cap, compared to many stocks already in the standard-bearer Russell Microcap Index (as an example) we believe that microcap index funds will include SunSi as part of their indices, following the NASDAQ listing.
How would inclusion affect SunSi?
We reviewed the performance of a number of stocks that announced their Russell Microcap Index inclusion in June 2011. They are all smaller than SSIE and received a bounce of 13-18% right away, and some enjoyed an even larger effect from the news over a few days.
The bottom line is that fundamentally, and from the industry positioning standpoint, SunSi is very attractive. But by buying now, investors likely have the added benefit of taking advantage of this upstream bonus.
We strongly recommend accumulating a position now, before the effect of what we are terming the “upstream two-step”, occurs. Step one is the NASDAQ listing, followed by index inclusion.
I know this is putting the cart before the horse, but one final thought to put this in perspective. Let’s say only 0.1% of the assets in the iShares Russell Microcap Index Fund was represented by SunSi. That ownership percentage would amount to more than 7 times SunSi’s average daily volume.
Get the picture?
SSIE closed at $4.00. Our near term target is $6.00.
Until next week….
Analyst: Robert Goldman
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This report or newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This report or newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission or with any state securities regulatory authority.
ALL INFORMATION IN THIS REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com.