Greek Comedy or Tragedy?

Written by GSCR Staff   
Wednesday, 18 February 2015 08:00

The drama in Europe is a main headline when it comes to global markets this week.

Will Greece de-couple from the Euro like Switzerland did? Will a debt deal be reached? How will the new left leaning Syriza regime end austerity without another huge crash? Will this unfold as a comedy or tragedy?

 

These are question to ponder and really outside of our realm to try and even answer. If we focus back in on the small cap world you may remember a ‘pan’, in the words of this week’s Guide, we made way back in late August 2013. DryShips, Inc. (NASDAQ – DRYS - $1.00) is a shipping firm specializing in dry bulk and petroleum cargo while also providing offshore drilling services. We made the call that this stock could be used as a small cap bellwether for Europe.

 

Well the bell has been tolled over the last six months as the stock has plummeted from a relative $3.36 high. Chalk it up to low oil and gas and the ‘new’ Greek crisis. We believe opportunity exists here to make money on a quick trade for a couple reasons. Inevitably, a deal will be made with the rest of the EU. Historical precedence just gives a feeling here. The stock will pop for sure on this news. Additionally, the short term technical EMA indicates a very bullish signal. We think DRYS can climb to $1.50 in the middle of 2Q15.

 

Back here in the States there was an awful tragedy with a ‘shipping’ company as a huge train derailment in West, Virginia after an explosion on car carrying oil. The CSX Corporation (NYSE – CSX - $35.85) was the railroad services party involved. Fortunately, no major injuries or deaths have been reported but this sort of incident can be a PR disaster for companies. CSX has gotten ahead of the curve be establishing a Community Outreach Center in the region to help area residents.

 

This stock skyrocketed and could almost be considered somewhat of a proxy here in the United States. CSX is up 32% over the last year and was hit less than 1% yesterday on the news. The stock is still very bullish on short, intermediate, and long term EMA. This could be one to watch for another trade. If the PR campaign goes sour and the stock loses ground in the short term, a buying opportunity may present itself over the next few days. Even in the long term, CSX appears to be a buy at a quick glance with a forward P/E of 14 and a trailing P/E of 18 and 5-year PEG of 1.6. Operating and gross margins of 29% and 38% are also well above industry averages of 11% and 30% respectively. CSX could reach $38 later on this year.

 

Have a great day!

 

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.

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