|Written by Rob Goldman|
Goodbye January and good riddance! Wow that was ugly. Instead of re-hashing all of the things you have heard or read, there are some major trends occurring under the radar that will require you to put certain stocks on your trading list. We have been all over the trends of late, calling them perfectly I am proud to say. For example, Plandai (OTCQB – PLPL)) might be the best performer of the year, reaching $2.99 on Friday after ending the year around $0.45 – 0.50. It has become the proxy for medical marijuana. Also, last week we recommended a play on Valentine’s Day that rose nicely (1-800-Flowers – NASDAQ - FLWS) despite the big market drops.
In addition to the continuation of the marijuana stock upward trends this week, see why these two eyeglass makers are poised to rock and why this wine stock will run dry. The trends are undeniable and the market has not yet priced them into the shares just yet, presenting a great opportunity to take advantage of investors’ falling asleep at the switch.
MOVING TWO STEPS AHEAD
Well now that January 2014 is in the books, commentaries and outlooks are all over the map. Yes, we just completed the worst January in years with the Dow Jones Industrial Average down a frightening 5.3% while the other indices also fared poorly.
Investors are spooked for a few reasons, not the least of which is the pure fact that the prevailing theory is that “so goes January so goes the market” for the balance of the year. Ugh. At least one view of The Super Bowl Indicator may give us a little comfort. In 2003, the one and only other time an expansion team won (The Tampa Bay Buccaneers), the S&P 500 declined by just under 3%. Could be worse, right?
Clearly, emerging markets issues on the economic and market fronts are the drivers of the cracks in stocks these past few weeks. After all, the economic numbers were pretty solid last week and for that matter earnings have not been bad at all. We still believe that more pain is in store but a stabilization abroad will coincide with favorable valuations here. Again, this is not the same Asian Contagion from 1997. Growth might be slowing, and foreign stock markets are reeling, but there is no broad and sustained currency panic like we had at that time. To be sure, emerging markets should still be avoided in the near term, but even in places such as China, real values will emerge.
Interestingly, there are some real secular trends that offer some interesting plays on the long and short side. On the long side, technology and medical marijuana remain the place to be, as does the eyeglasses business (see below). Interestingly, California wineries may be the best sales and shorts for a spell.
New Trends Means One Buy, One Sell
Our stock picks of late have been on fire. Despite the market drop last week, our 1-800-Flowers pick (NASDAQ—FLWS) was up last week and Plandai (OTCQB—PLPL) an Opportunity Research pick, may be the best performer of the year, hitting the $2.99 mark after ending 2013 in the $0.50 range.
Separately, a story over the weekend reported that children and their parents are flocking in droves to opticians to buy eyeglasses. Apparently, the hours of time young kids are spending in front of small electronic devices such as tablets and phones are impairing their vision. Thus, kids are being prescribed glasses at younger ages. Plus, with the aging in place trends, the older set is buying new glasses as their vision also declines.
As far as we can tell, there are two ways to play this trend. One is to buy bellwether Luxottica (NYSE—LUX—$52.57), which dominates the market with $10 billion in sales and is growing EPS at 20% annually. The Company is a leader in premium, luxury and sports eyewear with approximately 7,000 optical and sun retail stores and a strong, well-balanced brand portfolio. House brands include Ray-Ban, Oakley, Vogue Eyewear, and REVO, while licensed brands include Giorgio Armani, Bulgari, Burberry, Chanel, Coach, Dolce & Gabbana, Donna Karan, Polo Ralph Lauren, Prada, and others. In addition to a global wholesale network involving 130 different countries, the Group manages leading retail chains in major markets, including LensCrafters, Pearle Vision and ILORI, OPSM and Laubman & Pank in Asia-Pacific, , GMO in Latin America and Sunglass Hut worldwide. Perhaps a cheap way to play it is to buy LEAPs (options with a longer term horizon.)
Another way to play this vision trend is Coastal Contacts, Inc. (NASDAQ—COA—$7.51). Coastal.com is the leading manufacturer and online retailer of eyewear products offered through a family of websites, incusing 1-800-Contacts. Established in 2000, the Coastal.com family of brands offers an extensive, in stock selection of prescription eyewear, contact lenses and sunglasses. The Company just announced its fiscal 2013 financial results and the revenue growth, particularly in eyeglasses was very strong. COA is a small firm ($250M market cap) that is losing money but prospects are very bright.
Have you heard of the drought in California? It is approaching catastrophic levels and no industry there could be hurt more than the wineries. Sell or consider buying puts on Willamette Valley Vineyards (NASDAQ—WVVI—$6.18).
The Uncensored Sensibility
Everyone in America can go to bed feeling safe and secure courtesy of the Department Of Homeland Security. Those evil, threatening, counterfeit NFL jerseys have been intercepted by team DHS and 21 million dollars worth of them will never be sold to an endangered public. Who knew that part of the Department Of Homeland Security's job was to spend months investigating phony-labeled sports jerseys?
Fraudulent merchandise shipped to America undercuts our economy, there is no denying this. However, if THIS is what the Department Of Homeland Security does with its time, then team DHS needs a new head coach with better time management skills!
Everyone knows that success is dependent on the health of a good team, so to add INSULT to INJURY, here is the statement, the reason, team DHS spent so much of its resources on this endeavor: "Our agents are committed to combatting the criminal enterprises selling counterfeit products which undermine our economy, and take away jobs from Americans," so sayeth interim ICE Head Coach John Sandweg. Pardon my incredulous disbelief, but nothing takes away more jobs from American citizens than illegal immigration, not to mention its undercutting of wages, and it seems that Coach Sandweg, and his GM Jeh Johnson and Owner Barack Obama along with the other members of Team Government have absolutely no intention of protecting Americans or their jobs from the threat of illegal immigration to the job force or its more serious personal health and security risks it poses.
Have a great week!
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, daily Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report.
Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored micro cap 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.
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 is derived from Yahoo! Finance. 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.
ALL INFORMATION IN THIS 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.