In this edition of the Guide, we diagnose the small cap market and highlight 2 recent stock picks, including a new one this morning. But, more importantly, there are several firsts occurring here for Goldman Small Cap Research.

First, our new sponsored report is Prince Mexico S.A., Inc. (OTCQB – KUVE) a newly traded stock that has huge upside. What makes it unique for us is that it is the first sponsored report we have issued that is affiliated with a decades-old household name that is the number one player in its market. In this case, the popular Prince sporting goods, which owns #1 status in tennis and squash. Click the links below to read more about this exciting firm that owns exclusive rights to market Prince’s products in Latin America.

Second, as it is the start of March Madness, we are launching a contest this week that will provide the winner with a popular retailer gift card with a face value of $50. Find out how to play against yours truly and other subscribers by reading The Goldman Guide.

March 18, 2013
Volume 3, Number 37

The Goldman Guide

Get Ready For Some Bargains

Download This Report in PDF

If the stock market is going up why does it seem like I am not making any   money?

This is a popular question asked by retail investors these days.  After all, the large cap indices seem to only move in one direction: up. We already passed the double digit consecutive up days on the Dow Jones Industrial Average and are approaching another all-time high on the S&P 500 Index.  Heck, even the Russell 2000 Index has shot up like a cannon since the beginning of the year.

Still, it does not feel quite right. For those investors that feel as if they are not fully participating in the upswing, I understand their plight all too well if their portfolios are over-weighted in low-priced stocks.  While the early part of the 2013 bull market run was led by retail dollars flowing into equity funds and individual small stocks that were battered late last year, the upswing of the past 2 weeks or so has clearly been driven by institutional investors. So, all of the index funds that mirror the big indices are rocking while the lower prices stocks are left in the dust.  That plays to the Russell 200 Index’s composition as well.

What is the proof that low-priced stocks have been overlooked? Simple. Every day, I review the stocks that have achieved new highs, as I use this measure as one of many sources of blog topics here at Goldman Small Cap Research. Since the beginning of March, the number of stocks priced below $5.00 that have reached new 52-week highs has dropped dramatically while the number of stocks that carry much larger price tags now dominate this metric. 
To illustrate this phenomenon, as of midday Friday, roughly 180 stocks that trade on NASDAQ achieved new yearly highs on the day. 19 traded under $10.00, while only 6 stocks that hit new highs traded below $5.00.  This is clearly an indication that the larger stocks rule the day.  Another illustration of lower volumes in the small stock arena can be witnessed by reviewing the stocks on the OTC Bulletin Board that achieved 52-week highs as well.  Not     only has the aggregate number of companies been in decline in recent weeks, but the composition of these stocks is most telling.

As of midday Friday, 44 new securities (including warrants) have achieved new 52-week highs on this trading day.     However, of the 44, only 12 are unaffiliated with Fannie Mae or Freddie Mac securities. In other words, 32 of the 44 securities are various vehicles and classes of stock associated with either Fannie Mae or Freddie Mac.  That is ridiculous. (Of course it also indicates that perhaps the real estate and mortgage markets continue to be under solid accumulation, but that is a story for another day.)

Plus, only half of the 12 non-Fed agency related stocks trades below the $5.00 mark.     What does all of this mean?

In our view, these oddities indicate that small stocks are not under accumulation and have been widely overlooked and are thus undervalued. This is not an uncommon occurrence during secular, big cap bull markets.  What usually follows is the realization that the larger cap stocks are overvalued and overbought and a selloff ensues. As the carnage occurs, smart stock investors seek out undervalued small stocks for purchase on the cheap.

We think that time is coming soon. So for those of you concerned that your small stocks are underperforming, do not worry as your time will soon come. For those of you seeking bargains in small stocks, it may be Christmas in April.

In Case You Missed It...

It’s rare that we feel like we really need to pound the table on our sponsored research picks, but in these 2 cases, we are compelled to highlight our most recent profiles, including the one released this morning.
Last week, we initiated coverage of Scout Exploration, Inc. (OTCQB—SCXN). The Company owns the rights to what may be the most game-changing approach to containing oil spills. Ever. It can save billions and ultimately generate substantial revenue for the Company. Some of you may be spooked by the fact that the stock ran nearly 50% on the first day of coverage.  Don’t be. We think it has a lot more to go.  Plus, it will be a proxy for all oil spills. Any time there is an oil spill the stock will run big time. You need to own a piece of it to ensure you can participate in news-driven growth.
Today, we initiated coverage of Prince Mexico S.A., Inc. (OTCQB—LUVE.) LUVE owns exclusive rights to the sale of Prince sporting goods in most of Latin America, a market that has a huge appetite for tennis, squash, and other sporting goods.  The stock just started trading and provides the unique opportunity to essentially buy stock in a company that sells the #1 tennis and squash products in the world. Revenue and net income growth should be huge and the valuation is cheap. LUVE is another must own stock.
Please read all disclosures found in the individual company reports: www.goldmanresearch.com.

Goldman Small Cap Research Contest

As this week marks the beginning of March Madness, we thought it would be appropriate to make week-by-week selections. After all, all work and no play, makes investing a dull and unprofitable venture.  With that in mind, why don’t you join us in our online bracket pool? The player with the winning bracket (or player with most points according to (www.cbssports.com automatic scoring system) will receive a gift card with a face value of $50 in the mail. We will be keeping the name of the retailer a surprise until the final week.

All you have to do to enter is like us on Facebook and shoot me an email ([email protected]) by Thursday at 9AM EST to receive  instructions on how to enter your bracket in our group.    To get into the right spirit, here are my off-the-cuff Sweet Sixteen Picks. Not final, but it is pretty close.

Midwest:
(1) Louisville, but could have hands full with Col State if they advance
(12) Oregon, a couple of 12’s always seem to beat 5’s and move forward
(6) Mich State, in Auburn Hills and they are built for the tournament
(2) Duke, have tough time against Creighton and run ends here

West:
(1) Gonzaga, a legit top seed
(5) Wisc, tends to do well in tourn
(3) New Mexico, not sold on this but not believer in Arizona either
(2) Ohio State, solid team

South:
(1) Kansas, heart goes with UNC but head with Kansas due to size
(4) Michigan, VCU is trendy pick but not sold on them
(3) Florida, hate them all but go with higher seed
(2) G’town, unheralded #2 seed

East:
(1) Indiana, should win it all but probably won’t; NC State could beat them
(4) Syr, always does well in post-season
(6) Butler, not believer in other teams except Davidson
(2) Miami, FL, team is old and for real

Until next week….