Market Monitor

It may have been the ragin’ Cajun, James Carville, who made the line "It’s the Economy Stupid" famous (or infamous base on your politics) during the 1992 presidential debate.  Whether it was him or not, is immaterial.  The larger point is that the overall health of the US economy trumps all in national politics.

In Tuesday’s Goldman Guide we pondered the question, ‘Is the Party Over?’.  A good piece of news came out yesterday with the publishing the University of Michigan’s Consumer Confidence Index (CCI) which rose to 76.2 for May 2013, the highest level in 5 years.  While I do not think this is the end all be all of economic metrics by any stretch, especially being a graduate of The Ohio State University, this may be yet another sign of the continuation of this gradual turnaround in the US.

Investors and traders still need to be wary of the scandals in Washington, as we alluded to; voids in leadership are not good for markets.  However, this may be a time to look ‘cheap’ and go long in an industry that has been clobbered since the advent of the Great Recession: the golf industry.

For almost two decades golf was the fastest growing recreational sport in the United States.  Then, a couple of very negative events occurred in 2007-2008.  First, we had the start of the economic downturn.  Enough said.  Second, in many parts of the country, supply had been outpacing demand in the areas of golf courses primarily and golf shops secondarily for several years.  The economic slowdown magnified this phenomenon.  The slow but sure economic rebound and positive news on the CCI might indicate that consumer discretionary spending, for things like golf, might also be headed for a rebound.  Another factor for the industry rebound could be the number of baby boomers entering retirement, which runs to the level of roughly 10,000 per day.  Golf and retirement have long gone hand in hand.

With that in mind, Callaway Golf Company (NYSE- ELY- $6.80) is a stock in our small cap world with very strong brand recognition and recovering sales.  The company sells golf clubs and golf balls, and has carved out a niche as one of the industry leaders in ‘distance clubs’, i.e. drivers, fairway woods, and hybrids.  The stock has been hacked down from the $18.00 level in early 2008 to current levels today.  The company had a profitable 1Q13 beating on both revenue and EPS with estimates for break-even to flattish EPS for 2013 but then spiking up to nearly $0.20 in 2014.  Again, take these numbers with a grain of salt, as the economy definitely needs to keep improving for the turnaround in Callaway to continue.

There are some well priced options in August and November in ELY for those looking to take some income and hedge with a covered call strategy.  On the technical side the chart analysis yields a very bullish indication in the short term for both EMA and MACD, our two favorites.  A short term target of $8.00 is possible, but this one may be worth holding onto if it breaks through that number in relatively short order and more positive economic news is the trend.

Have a great day!

Aaron Schweitzer

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. 

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

In Monday’s Goldman Guide, we discussed selling into strength and knowing when to take profits.  Right on cue, the Russell 2000 was down around 2% yesterday and the advance-decline line ‘rounded out’ down after several weeks on the upward slope. 

Is it time to panic?  Not even close.  It is still a bull market even in the small cap space, but now may be time to sell some profits. Here are 3 stocks from our Market Monitor that are up by a large amount where taking some profits might be a good idea right now.

We rarely mention blue chip stocks in these pages but sometimes you gotta do what you gotta do. For those market watchers that are concerned about any modest decline in the stock market having a more pronounced effect on small cap stocks, one should consider some of the bluest of the blue chips. Below are 5 diverse stocks from the DJIA that each carry a dividend yield greater than 3% and trade below $80 per share and below the 15x P/E multiple on FY13 EPS estimates, which is considered the average forward multiple on blue chip stocks and the S&P 500 Index.

Many ETF buyers use the vehicles to invest in or leverage against specific sectors. ETFs can also represent emerging market nations, which, while carrying greater risk than U.S. equities, can also offer big rewards.  

For example, a common acronym used in a financial and geo-political aspect is BRIC.  BRIC is the acronym for Brazil, Russia, India, and China, representing some of the largest economies in the world.  While lumping all of these countries all together as one common entity is a vast overreach for simplicity, investing in ETFs that are representative of these regions can be a fruitful way of gaining broad exposure in one fell swoop.

There are a bevy of choices out there in the ETF universe.  Below are a few possibilities in emerging markets with our small cap mentality in mind, i.e. maximum current prices close to the $20 target or lower.  We note that these suggested vehicles address a longer term perspective for the most part, of at least a year, and not necessarily a trading idea for a quick profit.

Brazil (BRXX –$20.63 – EGShares Brazil Infrastructure):

This one has been downtrodden a little since the start of the year, so it may be time to buy ‘cheap’.  With two huge international events coming up, the FIFA World Cup in 2014, and 2016 Summer Olympic Games, the country is pouring money into infrastructure. 

Russia (RSXJ - $14.18 – Market Vectors Russia Small Cap):

Russia is by far the worst performing BRIC or BRIC plus one nation.  RSXJ has endured a serious sell-off recently as Russia is entering a recession coupled with inflation.  The ETF price is right, but this maybe a long shot and more of a long term play.

India (SCIN –$13.53 - EGShares India Small Cap):

This ETF looks very good from a technical perspective for short, intermediate, and long term.  India themed funds took a small hit earlier this year, but are starting to rebound.

China (VNM - $20.77 – Market Vectors Vietnam):

OK, so we cheated a little here.  Consider this a high risk, high reward ETF as the Vietnamese stock market is relatively volatile.  However, the opportunity for growth is phenomenal and the government continues to ‘imitate’ China from with its embrace of capitalism but is about 20 behind.

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. 

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

In the most recent edition of The Goldman Guide we reviewed P’s related to traits for today’s successful investor, Patience, Prudence, and Productivity.  We emphasized doing your homework as part of prudence.

Back in late January we highlighted Heckman Corporation (NYSE – HEK – $3.47) at $3.78 as sort of an ‘out of the box’ pick as more of a longer term play than our normal short term trade in mind.  We set a price target of $5.00 and the stock climbed to $4.36 on March 27^th, which would have been a 15% gain if you cashed out that day.  Since then the stock has been on the steady decline down to current levels.

Hello!  Our stock profile for today is Giant Interactive Group, Inc. (NYSE – GA- $7.92).  The growing Chinese company offers multiplayer online role playing games which includes 15 games to date.

Good Morning.  There has been an uptick in new home sales and construction in the U.S., and additionally an increase in home prices in the US.  The S&P/Case Schiller 20-city composite index rose 0.3% in February and was up 9.3% from the same period in the prior year.  This may not seem like huge growth, but it is the largest annual increase since May 2006.  If you believe that we may be in the midst of a homebuilders rebound, this stock is for you.

Good Morning.  Today’s automotive theme is part of our seasonal buying strategy from our Goldman Guide for early May in bio-tech, leisure stocks, automotive, and casual dining.  This may be particularly appropriate as there was good news related to U.S. Auto Sales last week amid a general price decrease in gas over the past month or so.  Today’s stock is an automotive supplier that is poised to see a boost in the stock due to this seasonality effect and the recent good news.