|Written by Rob Goldman|
Good evening! We hope you are enjoying the first full day of the NFL season. We certainly are. In fact, we are so distracted that this entire issue is dedicated to the start of the NFL season. These include:
USING FOOTBALL CONCEPTS TO INVEST
If you are a football fan, then this week’s edition is tailor-made for you. Instead of our usual predictions, analysis, and pontifications, we detail the similarities between success on the gridiron and success in the stock market. As a bonus, we are highlighting two stocks that directly benefit from our this love-crazed sport and our NFL picks for this season.
It Starts in the Trenches
In the NFL, the old adage states that the team that wins the battle along the line of scrimmage tends to win the games. When investing, building a portfolio of solid, core assets via a core/satellite approach minimizes risk and ensures above-average performance.
Diversification is the Key
A team that does not mix it up on offense between passing and running the ball, along with varied formations, players and plays is doomed to failure. A portfolio that has a heavy concentration in a small number of stocks is destined to become susceptible to a similar fate.
The Right Personnel for the Right System
Drafting or signing a player that does not fit your team’s system, or bringing in a player with a questionable background may offer upside but is usually not worth the risk. Buying a stock with a checkered past or with an extreme risk profile can slash the value of one’s portfolio.
Establish a Plan, Stick with It
While the objective to win it all is obvious, sometimes it is tempting to deviate from the plan by taking shortcuts and not being patient. In the investing world, the real winners are those that realize achieving solid performance is a marathon, not a sprint and you must stay the course of your plan.
Football and Investing
Playing Strong Defense Puts You in a Position to Succeed
Without a strong defensive front or secondary, the game can easily run away from you. The same thing can occur if you do not utilize stop limits and options to limit one’s downside risk. Alternatively, using a short sale or put option strategy with respect to competing stock or industry holdings can be considered a form of defense as well.
Give Your Quarterback Weapons
If the QB does not have the personnel to succeed he puts too much pressure on himself which causes mental and physical and mental errors via errant throws, fumbles, and interceptions. If you as a GM, coach, and QB of your portfolio do not provide yourself with the proper tools to manage your game plan and investments, mistakes are inevitable.
There Are Three Segments to Win the Game
In order to win a football game, one must dominate at least two of three parts of the game: offense, defense, and special teams. Investing’s three segments include research, trading, and portfolio construction. Success in all three areas virtually guarantees big gains and pay dirt in two of three means you will win more than your lose, per trade or investment idea.
I admit that since the company is based here in Baltimore I am generally predisposed to be a big fan. Still, it is hard to argue the fact that Under Armour (NYSE—UA—$72.53) is one of the country’s most popular brands, and clearly one of the top brands in the sports and fitness world. In fact, a recent Wall Street Journal article noted that UA has now overtaken Adidas as the number two selling sportswear brand in the U.S., behind only Nike (NYSE—NKE). The stock is at an all-time highand the company is a force in football and general fitness attire while it gains big traction in basketball. The brand is in vogue and its fans are rabid for the products. I see no reason why the stock should not continue to move higher, despite the fact that it trades 60x FY15 EPS of $1.20, while growing earnings at 27% annually.
Microsoft (NASDAQ—MSFT—$45.91) took a lot of heat for the initial lackluster sales of its SurfacePro product, even after closing its exclusive deal with NFL to provide units for use on teams’ sidelines.
Microsoft's Surface is now the official tablet of the NFL, a title it bought last year in a $400M, five-year partnership with the league. Microsoft has outfitted all 32 teams with Surface tablets for sideline use in analyzing formations and plays with photos from the new Sideline Viewing System. The tablets are owned by the NFL and are provided to teams just before kickoff and removed when the game is over.
Given the huge popularity of the NFL, and the exposure of the tablet on TV this season, it is possible that MSFT gets a boost from the ubiquitous scenes of coaches and players hovering over the products on the sidelines. Couple that with a reasonable 16x its June 2015 EPS forecast of $2.72, and a 20% gain seems a certainty in the coming months.
Extra Bonus: Our NFL Playoff Picks
Division Winners AFC: Patriots, Bengals, Colts, Broncos
Wild Card AFC: Steelers, Texans
AFC Champion: Broncos
Division Winners NFC: Eagles, Bears, Saints, Seahawks
Wild Card NFC: Packers, Falcons
NFC Champion: Seahawks
Super Bowl: Seahawks over Broncos
Have a great week!
This newsletter was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces non-sponsored and sponsored (paid) investment research. Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.
The Firm’s non-sponsored research publications category, Select Research, reflects the Firm’s internally generated stock ideas, along with economic, industry and market outlooks. In virtually all cases, stocks mentioned in Select Research offerings are listed on the NYSE or the NASDAQ. Publications in this category include the weekly newsletter The Goldman Guide, daily Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report.
Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored micro cap research ideas that typically carry greater risks than those stocks covered in Select Research category. It is important to note that while we may track performance separately, we utilize many of 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 company-specific Opportunity Research reports, updates and articles.
All information contained in this newsletter and in our reports were provided by the companies mentioned via news releases, filings, and their websites or generated from our own due diligence. Economic, market data and charts are provided by a variety of sources and are cited upon publication. Stock performance data is derived from Yahoo! Finance. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence.
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, other firms, or other financial news outlets. Goldman Small Cap Research relied solely upon information provided by companies through 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, update, article, blog, 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 newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This 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 FINRA 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.