A Stock You Can “Bank” On |
Written by Rob Goldman | ||||||||||||||||
Ever get the feeling that stocks have no clue which way they wish to move? That’s why we outline the top 4 things that will drive stock direction over the next 12 months in this week’s issue of The Goldman Guide. While we shoot a warning shot across the bow due to Asia growth problems brewing, the 2016 Presidential Election is sure to have a major impact. The good news is that since 1979, the performance of the S&P 500 Index during election years has been strong. (Check out the table on page 2 of The Guide.) Remember the interest rate hike last week? Well, that means it is likely the Financials sector will have a banner year in 2016. With that in mind, we have identified a stock you can “bank” on. Not only is it enjoying solid growth, but just last week it raised its quarterly dividend by 25%. Plus, if the long-awaited M&A activity occurs in this segment of the banking space, it could have a strong performance for the first half of 2016. TOP 4 THINGS THAT WILL AFFECT STOCKSBasketball is a game of streaks and when evenly matched teams play each other, whichever team tends to handle the streaks the best often come out on top. Given the volatility of late and the expectation of both headwinds and tailwinds ahead, what will be the major drivers of the markets and stocks in particular? I’m glad you asked. #1: Energy and other Commodities As we have all witnessed in recent weeks, when oil gets smacked, so do we. While we all want low prices at the pump, we’d be wise to hope for stabilization followed by higher prices. However, it may not happen until mid-year. #2: The Beast of the East Somehow we have forgotten that China’s growth is slowing and it is not likely to return to high levels for some time. It is already impacting Japan and Korea and it is just a matter of time before it reaches us. #3: Interest Rates/Dollar vs. Currencies The Fed said it will stage four more increases next year. Don’t count on it, partly due to reason #2 which will prompt a rise in the dollar anyway. Still, the back-and-forth is likely to cause periodic consternation. #4: The 2016 Election Most pundits know Clinton has had the necessary delegates for the nomination in her purse for many months so all the debates, stumps, etc. are a mere formality. The question is will Trump face her? It is looking likely and while both would probably suck something awful as leaders of this great nation the only thing I can say is that our study published in the 8/23/15 edition of The Goldman Guide indicated that since 1979, stock market performance in election years has been great and even in the year after results have been pretty solid, on average. Election Year Stock Market PerformanceAs illustrated below, since 1979, the Presidential election years have endured no down years (although recent returns have been weak) and the average annual return is substantially higher than in other years. Moreover, the returns during the first year in office for Presidents haven’t been too shabby when you eliminate the unusual circumstances in 2000 and 2008. Does this mean that either the Hillary or the Donald potentially enjoys such bliss? Check back with me in about 11 months. The Stock Market TodayNow that the first salvo in the interest rate game has resulted in a 1/4 rise in rates, it is time for the long forgotten sector to make its move. Financials would occasionally comprise more than 20% of the S&P 500 Index. Today, that figure is 16.6%, but had been lower in recent months. Look for this to rise at the expense of materials and industrials, along with energy. With attention now on the Financials sector again, we have identified a stock we believe that you can “bank” on as the rise in interest rates will facilitate top line revenue growth with the increased borrowing/lending spread that will follow. Perhaps foreshadowing these events has been Preferred Bank (NASDAQ – PFBC - $33.53), a regional bank headquartered in Los Angeles which has enjoyed a 26% price return over the past year. The first metric that struck us concerning PFBC was the operating margin of 60% versus the industry average of 35%. This efficiency will be critical in translating increased revenue to EPS performance. The growth story is also impressive with a forward P/E of 14x versus a trailing of metric of 16x with a five year PEG of 1.5x. This growth prompted a 25% increase in the quarterly dividend last week which is a nice bonus as the new annual yield on this growth-oriented bank is 1.8%. Our mid-year target is $38 and could be higher if the long-awaited M&A cycle hits the regional bank segment in 2016. Say What?Great info, insights, and hard-hitting stories make up this week’s Say What? feature...
BizJournals.com And its effect on policy and the upcoming election will be??? You be the judge. Bloomberg Asia looks like it will be enduring growth issues in 2016. The New York Times A great, feel-good story. Marketwatch That is the hope. ZeroHedge http://www.zerohedge.com/news/2015-12-19/huge-fukushima-cover-exposed-government-scientists-meltdown Conspiracy? Maybe. Worth the time to read? Definitely. Just the Stats!AAII Sentiment Survey (figures rounded)
For the first time in many weeks, both polls/surveys moved in the same direction: Bearish—with declines in both Bullish and Neutral sentiments. Due to the Christmas and New Year’s holidays, do not look for much in the way of new data, at least any that is material on this front. We maintain that the slower holiday period should prove to be fruitful for the small cap space, although commodity-related stocks may not perform too well.
1498 Reisterstown Road, Suite 286 Baltimore Maryland 21208 Phone: 410.609.7100 [email protected] www.goldmanresearch.com Launched in May 2010, The Goldman Guide is a free weekly publication of Goldman Small Cap Research and is written by Founder Rob Goldman with contributions from the GSCR contributor team. This non-sponsored investment newsletter seeks to provide investors with market, economic, political and equity-specific insights via an action-oriented, straight to the point approach. No companies mentioned in this newsletter are current sponsored research clients of the Company or its parent, unless noted, With some exceptions, all companies or investment ideas mentioned in this publication are publicly traded stocks listed either on the NYSE or the NASDAQ. Goldman Small Cap Research members and contributors’ bios, certifications, and experience can be found on our website: www.goldmanresearch.com Disclaimer 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, Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report. Goldman Small Cap Research analysts are neither long nor short stocks mentioned in this newsletter. Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored microcap 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. Goldman Small Cap Research has not been compensated for any content in this issue. 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 and information are derived from Yahoo! Finance and other websites or sources, as noted. 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. Statements herein may contain forward-looking statements and are subject to significant risks and uncertainties affecting results. Separate from the factual content of our articles about the company featured in this newsletter, we may from time to time include our own opinions about the companies profiled herein, their businesses, markets and opportunities. Any opinions we may offer about the companies are solely our own, and are made in reliance upon our rights under the First Amendment to the U.S. Constitution, and are provided solely for the general opinionated discussion of our readers. Our opinions should not be considered to be complete, precise, accurate, or current investment advice. Such information and the opinions expressed are subject to change without notice. ALL INFORMATION IN THIS REPORT 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. |