Market Monitor

By Steve Hercenberg, CFA

When I initially started as a Portfolio Manager in the oldest commercial bank in Washington, DC, many years ago, we managed three kinds of assets—cash, bonds, and stocks.  The stock portion of a client’s portfolios could be equally divided among 12 to 20 companies.  Historically, equal-weighted portfolios tend to outperform market cap-weighted peers in bull markets, but underperform them during bear markets.  Similarly, more actively managed portfolios tend to realize higher returns and taxes during bull markets; but, underperform passively managed peers after taxes and expenses during low return or negative return markets. 

Major corrections, like we experienced from 2000 to 2002 and from 2007 to 2009, however, have challenged wealth managers to seek a less volatile way to realize consistent returns for their clients.  They asked themselves, “How can we realize the best of both worlds?”

One way is to build a portfolio that contains elements of both features—divided into a “Core” and “Satellite investments” as described below. 

Time to buy sin stocks! This was the theme in the Guide earlier this week and picking the right one can allow you to get some guilty pleasure in terms of profits.

If anyone watched the golf U.S. Open this past weekend you were probably as bored as we were.

Maybe it is just me but it seems that most of America has no problem deciding what to buy their mother for Mother’s Day. Father’s Day, however, is a different story altogether.  Do we get Dad a tie or a belt, or something else he really doesn’t want? 

After all of these years, I have finally figured out the best present one can give on Father’s Day: Stock.

It is not often that we feature a small cap stock because of its dividend but this situation is too good to pass up.

With very impressive profit margins, tiny financial player Manhattan Bridge Capital Inc., (NASDAQ – LOAN - $2.71) not only has a great stock symbol but appears to be a bridge to big potential returns as well.  The Company just announced it has raised its annual dividend, paid out quarterly, to $0.28 from $0.08, which represents a 10.3% annual dividend yield at current prices. The next dividend will be paid to shareholders of record as of July 10, 2014.  These moves are usually made by management teams seeking to generate interest in their stock and typically reflect favorable future prospects. 

Hopefully today’s tagline caught your attention as a contradiction when it comes to trading in today’s markets.

In case you missed it, Ann B. Davis, mostly known as ‘Alice’ in The Brady Bunch passed away over the weekend at 88.

By now most of you have heard that Apple, Inc. (NASDAQ – AAPL) is buying the hip music streaming and audio equipment company Beats Music for $3 billion in its largest acquisition ever.

In yesterday’s Goldman Guide, we outlined a system associated with the ‘Dead Cat Bounce’ and offered up a prospect which happened to rise 15% yesterday (Aeropostale – NYSE – ARO.) This strategy is extremely relevant in a sideways market especially in the summer sell-off season. The term conjures imagery from childhood cartoons with Tom Cat and Sylvester constantly scheming and constantly losing to their arch enemies Jerry Mouse and Tweety Bird. With a hopeful smile from the reference, let’s get down to business.

We featured the Taiwanese semiconductor firm Himax Technologies, Inc. (NASDAQ – HIMX - $6.62) as a 30-30 pick in early 2013. HIMX is still up over 106% since then, but has plummeted from a high of $15.65 since early March. Some close attention has been paid to the stock recently with coverage initiated by Lake Street and along with a positive mention by Rosenblatt Securities. The forward growth estimates still reflect a 12-month P/E of just 11x. Additionally, growth in the Chinese Smartphone industry is looking like it is expanding. We say the dead cat bounce for HIMX has the potential for 20% rise from current price levels.

We featured Jamba, Inc. (NASDAQ – JMBA - $10.82) in the Market Monitor in late February 2013. The stock is down over 21% in price level since then, but hit $17.43 in June 2013, which was about a 25% price increase since the initial article. Additionally, we advised to take some profits on JMBA in July 2013 at $16.22. But. enough with the history. We believe JMBA is a legitimate dead cat bounce candidate.

The short term Daily Moving Average is very bullish for starters. Also on the technical side, last week the stock hit a 52-week low. On the product side, the Company announced it planned to roll-out its new fresh-squeezed juice platform in 500 stores nationally by June 2nd instead of the end of 2014. The growth estimates still put the forward P/E at 15, versus the trailing P/E over 60. We believe a dead cat bounce to $11.50 is entirely possible over the next several weeks for JMBA, if shares become weak.

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.

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. 

Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.

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

There is no way around the fact that the small cap space has been dismal that past few months. We hold no punches, including throwing them against ourselves, and must admit our Market Monitor picks have not done well. There is one exception.

Back in late January we highlighted Libbey Inc. (NYSE – LBY - $25.88). Though the pick was not sexy, we believed it was a solid play in a slowly expanding economy. The stock suffered a slight set-back when as indicated in its Q1 financial results that were largely hampered by the harsh winter, but the stock is nearing the 25% price increase we predicted a quarter earlier. Still the stock is trading well despite the massive sell-off Tuesday. In fact, LBY finished slightly in the green.

This market is all about finding growth and share price value. Even with the rise in price level over the last 3 months, the forward P/E is still under 10 and the 5-year PEG is a low 1.1. Even though technical trade is fading in this market, it is still worth mentioning that LBY is a very strong bull in the Daily Moving Average all the way out to 50-days.

We still see LBY as a solid play with limited downside on an increase in consumer discretionary spending in 2014 and one that still could run this summer to the high $20’s. 

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.

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. 

Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.

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 CapResearch 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 TRIANGLECONSULTING 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 TRIANGLECONSULTING 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