Shopping for the Satellite?

Written by GSCR Staff   
Friday, 13 March 2015 06:38

You have a big job interview, sales meeting, reunion, etc. You need some impressive clothes.

Do you buy the Armani or a few nice suits? (For the women out there substitute a top line brand of your choosing for Armani.)

 

Earlier this week in the Goldman Guide we presented the case for three small cap sectors we thought still had some room to run which are biotech, alternative energy, and consumer apparel stocks. Our tagline and opening paragraph are poor metaphors to try and tie in the consumer apparel theme with core-satellite investing.

 

We have mentioned core-satellite investing before, but it may be time to revisit this strategy again. Here is the link from Investopedia that offers a rough explanation. (http://www.investopedia.com/articles/financial-theory/08/core-satellite-investing.asp) As strange as it may seem, volatility can be a great thing for the satellite portion of your portfolio. This is the environment we seem to be entering.

 

In getting back to the point, we are looking to add small cap consumer apparel and related retail stocks to the satellite portfolio. The chart below is an illustration of some stocks we have featured in some capacity in the 30-30, Market Monitor, or Goldman Guide over the last year.

 

1-Year Chart –PERY, CHKE, DLIAQ vs. Russell 2000(RUT)

(Source: Google Finance)

 

MM.03.13.15.retailconsumer

 

For stocks we used Perry Ellis International Inc. (NASDAQ - PERY), Cherokee Inc. (NASDAQ -CHKE), and dELiA*s, Inc. (OTCBB - DLIAQ), all consumer apparel small cap plays we have profiled in the past.PERY is up over 54% over the last year, CHKE is up 26% since last March and DLIAQ down almost 100% since last year.The point with all these figures is that small cap stock picking is a risky business. As the saying goes, “No risk, No reward”, and the point is made a 50% or even 26% return respectively for PERY and CHKE may be worth the risk of picking a stock over an ETF or mutual fund for the satellite portion of your portfolio. The downside is picking something like DLIAQ.

 

We won’t end the week without at least mentioning a stock that could be in play in this arena, probably more in line with shorter term trade. The regional consumer apparel retail chain Stein Mart, Inc. (NASDAQ – SMRT - $12.37)got clobbered more than 25%at the start of last week on what was just a general sell off in the market and particularly, retail. We think this stock could be a nice short term trade in the space.

 

First, the Company announced that it planned to open 11 new stores this year a few weeks back. The stock meets most or our quick glance metrics like revenue growth projected at 5% annually over this year and next versus 2014. A low forward P/E of 15 relative to the trailing P/E of P/E of 25 with a 5-year PEG under 1 are more reasons to believe that money will come back into the stock. The technical analysis for EMA also indicates a very bullish signal. Finally, zero debt as of February 1 this year is a great indicator of solid cash flow management and provides opportunities for capital injection.

 

SMRT looks like a solid trade opportunity in the short term and could pop 10-15%.

 

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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