1984, the Market, and Political Radar
|Written by GSCR Staff|
|Friday, 06 December 2013 07:27|
In yesterday’s Market Monitor we used the tagline “Don’t Believe the Economic Hype” citing several instances of contradictory data which refute the supposed economic recovery touted by the U.S. Federal Reserve. Cleary, policy makers seem out of touch with Main Street, the people they claim to be helping, and spinning reality in a sort of Orwellian Ministry of Truth propaganda machine. What is clear is that the current $85 billion FOMC program is a big reason for the near 5-year bull run on Wall Street, which, coupled with high corporate profits, leads to positive quarterly financial results, something traders and investors love. And our argument is that the so-called taper is not going to occur anytime soon.
Corporate profits and income disparity seem to be the topic of the week for the White House in an effort to divert attention to the disaster that is Obamacare. Yesterday, a MarketWatch article illustrated record high corporate profits as a percentage of GDP at their highest levels since 1Q12.
Some sidebar comments make me believe the author does not see the other side of the coin or is drinking the Kool-Aid like some of the policy makers. Economic growth measured by GDP growth has been anemic for nearly 5 years. The article cites 3.6% GDP growth for 3Q13 as if this was a hyper-growth astronomical number. (The numbers are actually much worse as you will see in this weekend’s The Goldman Guide.).
The President made a rally to his base with a speech about income inequality Wednesday calling it “the defining challenge of our time”. Clearly the President understands that anti-growth policies contribute to a surplus of labor and stagnant wages, and are the real sources of economic equality, not some esoteric platitude like corporate greed. This is Economics 101. But something needs to be on the political radar to deflect attention away from Obamacare.
In keeping with the political radar theme, the 1-year anniversary of the horrible tragedy of the Sandy Hook shooting is coming up. While there may be some jabs as the day gets closer, we doubt that even the most ardent gun control politicians take another crack at legislation or further regulation. We highlighted Smith & Wesson Holding Company (NASDAQ – SWHC - $11.98) about a year ago and again in April. The stock is up over 35% YTD and looks fairly valued based on a quick review of our 3-tiered system for the current market. There has been a modest accumulation over the last three months with some choppy days here and there as SWHC is up 4% with an average of 1.7 million shares traded per day. The technical analysis is very bullish related to DMA and put-call ratio. Finally, the simple valuation is also positive with a forward 12-month P/E of 8 versus the trailing 12-month P/E of 9 based on modest 3% growth forecast in 2014.
We still like the stock in the long run but would not chase it at current levels. However, if fundamentals remain the same and the stock trades closer to $10, we would be all over it.
Have a great weekend!
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.
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
Leave your comments