Consumer Rebound? Fore!

Written by GSCR Staff   
Wednesday, 29 May 2013 08:07

In Tuesday’s Goldman Guide we pondered the question, ‘Is the Party Over?’.  A good piece of news came out yesterday with the publishing the University of Michigan’s Consumer Confidence Index (CCI) which rose to 76.2 for May 2013, the highest level in 5 years.  While I do not think this is the end all be all of economic metrics by any stretch, especially being a graduate of The Ohio State University, this may be yet another sign of the continuation of this gradual turnaround in the US.

Investors and traders still need to be wary of the scandals in Washington, as we alluded to; voids in leadership are not good for markets.  However, this may be a time to look ‘cheap’ and go long in an industry that has been clobbered since the advent of the Great Recession: the golf industry.

For almost two decades golf was the fastest growing recreational sport in the United States.  Then, a couple of very negative events occurred in 2007-2008.  First, we had the start of the economic downturn.  Enough said.  Second, in many parts of the country, supply had been outpacing demand in the areas of golf courses primarily and golf shops secondarily for several years.  The economic slowdown magnified this phenomenon.  The slow but sure economic rebound and positive news on the CCI might indicate that consumer discretionary spending, for things like golf, might also be headed for a rebound.  Another factor for the industry rebound could be the number of baby boomers entering retirement, which runs to the level of roughly 10,000 per day.  Golf and retirement have long gone hand in hand.

With that in mind, Callaway Golf Company (NYSE- ELY- $6.80) is a stock in our small cap world with very strong brand recognition and recovering sales.  The company sells golf clubs and golf balls, and has carved out a niche as one of the industry leaders in ‘distance clubs’, i.e. drivers, fairway woods, and hybrids.  The stock has been hacked down from the $18.00 level in early 2008 to current levels today.  The company had a profitable 1Q13 beating on both revenue and EPS with estimates for break-even to flattish EPS for 2013 but then spiking up to nearly $0.20 in 2014.  Again, take these numbers with a grain of salt, as the economy definitely needs to keep improving for the turnaround in Callaway to continue.

There are some well priced options in August and November in ELY for those looking to take some income and hedge with a covered call strategy.  On the technical side the chart analysis yields a very bullish indication in the short term for both EMA and MACD, our two favorites.  A short term target of $8.00 is possible, but this one may be worth holding onto if it breaks through that number in relatively short order and more positive economic news is the trend.

Have a great day!

Aaron Schweitzer

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

Disclaimer:

This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports. 

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 blog, 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 blog, 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 blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog 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 FINRA or with any state securities regulatory authority.

ALL INFORMATION IN THIS BLOG, 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

Add comment
  • No comments found