|Written by Rob Goldman|
Judging by a series of comments and surveys, the argument could be made that there are more investors sitting on the fence (Neutral) than those who identify as bullish or bearish. This is dangerous and means volatility and muted returns are ahead for the interim. That is one of the reasons why some retail investors are actively seeking the “stock of the day”, in the hopes of striking gold with another Voltari situation, which was a huge hit for us, by the way. Therefore, it is no surprise that last week two biotechs were up 100% in one day last week, including a stock that now has George Soros as an investor.
With that in mind, we answer the following questions in this week’s issue of The Goldman Guide:
THE SMART MONEY PLAYS
Good morning! Some investors may be feeling pretty good about prospects for stocks following the strong jobs report on Friday, but these bulls are in the minority. Interestingly, there are usually two schools of thought regarding stocks: bullish and bearish. Judging by ill-timed comments by Fed Chair Yellen and market strategists, along with interesting stats, investors may actually be more neutral than anything else, which means we could be in for a rough ride for a while. This is heightened by the end of Q1 earnings season, which is also receiving mixed grades since Q2 EPS forecasts are dropping like flies.
Our take? Do not fret over valuations and “toppy” markets. Historical valuations, when compared with today, are not apples to apples and must be taken in context. In years past, with higher dividend payouts, higher interest rates, etc., multiples were lower. The current trend (past 15 years) of stock buybacks and low interest rates mean volatility with low growth and higher valuations are ahead.
So what do you do? Some investors have decided to chase the latest “stock of the day.” After the big run in Voltari (NASDAQ—VLTC—$9.55—NR) following the Carl Icahn stake, some investors think that PlasmaTech BioPharma (NASDAQ—PTBI) could be next, now that George Soros has taken a stake. The smart $ says don’t chase it. His track record at this level is not the greatest. Currency calls? Fabulous. Small stocks, not so much. Instead, take advantage of volatility buy researching and trading leveraged ETFs.
Learn more here:
Each week we identify 4-5 must-read stories, including some great ones which may fall a bit under the radar.
Wall Street Journal
Volatility is back and here to stay.
Wall Street Sector Selector Blog
A good synopsis on the “bear case” but while cautious, we are not in the doom and gloom corner. Valuations must be taken in context.
Ed Yardeni’s Blog
More ammo for the naysayers.
The Washington Post
Although it is rare that this leading newspaper has a must-read article on the business side, this gem is worth the read.
Just the Stats!
This section is dedicated exclusively to data, either generated and credited by other organizations or by Goldman Small Cap Research that we deem useful for the purposes of economic, market, sector, or individual stock direction and trends.
By the Numbers
Stocks were saved last week by the big Friday performance parked by a strong jobs report. Otherwise, from week-to-week, there was little variance. Will it continue? Wednesdays retail sales numbers due out at 8:30 AM EST may tell the story. The market is expecting 0.2% growth for April. A weak April will probably give bears another reason to sell stocks.
AAII Sentiment Survey (courtesy of AAII.com)
There was little change in these figures despite the wild volatility experienced last week.
It should be noted that this survey was taken before the huge market moves on Friday and may have reflected Fed Chair Yellen’s comments. I suspect that with a combined 73% either Neutral or Bearish that we may be approaching a low point here. Last week, the combined figure was 69% and the Bullish percentage dropped from 31% to 27%. Interesting that the bullish and bearish categories are tied, huh?
Lipper Fund Flows Survey (courtesy of Lipper.com)
(as of 5/6/15)
For the month of April, total domestic equity outflows were $21 billion, according to ICI. The selling accelerated as the month wore on. In fact, the week of 4/29/15 accounted for one-third of the outflows for the month. Combined with the Lipper data for the first week of May and we now have had 5 straight weeks of outflows.
Interestingly, non-domestic equity fund inflows were $18.6, indicating that as dollars retreat from U.S. domestic equities, they are, for the most part, going to equities abroad.
Want more proof? Everyone knows that ETFs (and index funds) are attracting a ton of money. However, what many investors have not realized is what has been a hidden driver of the transition from domestic to foreign investment. From March 2014 – March 2015, the number of domestic equity ETFs grew very modestly, from 616 to 633. In contrast, the number of global/international ETFs had a huge increase, as 68 new ETFs were introduced during this period, taking the total from 445 to 513. I would not be surprised if a meaningful amount of the dollars migrated to these non-domestic ETFs just because a bunch of new ones were launched.
Granted, it is a lagging indicator, but a quick review of April ETF numbers is telling. According to ETF.com, there were $15.8B in U.S. ETF outflows but $25.3B in international ETF inflows, with nearly one-fourth driven to just one ETF. We learn from this data that the ICI data is spot on, thus explaining the April volatility and drop here, and the gains abroad.
By the way, the big international ETF gainer was the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSE—DBEF), which is used as a currency hedge when investing in large cap foreign (mainly European) stocks.
With the early money already invested abroad I expect somewhat muted returns in non-domestic ETFs, just as in the U.S. The key is to find ways to take advantage of volatility until we have greater GDP and earnings growth clarity in 2H15.
GSCR Select Research: The Goldman Guide
As you may have noticed, the only “pan” we have this year is Martha Stewart Living Omnimedia (NASDAQ—MSO—$5.40—NR) and had been a pretty bad call on our part. Nonetheless, we may end up being right after all. Last week, MSO released 1Q15 results and they were below expectations, sparking a selloff in the stock.
SkullCandy (NASDAQ—SKUL—$8.27—NR) also reported 1Q15 results below expectations last week. It is now down nearly 20% from our profile in late March. We currently have it under review.
Skechers (NYSE –SKX—$99.29—NR) Who would have guessed this 48% gainer is our 2nd best performer year-to-date? It hit a new high of $100+ on big volume Friday. We see a maximum 10-15% near-to-intermediate return at current levels.
GSCR Select Research: The 30-30 Report
Not all earnings reports were poor. In fact, one of the 3 stocks profiled just a couple of weeks ago bear Street forecasts last week and its stock is up 19%—and we think it can go much higher considering its great value. Want to find out more? Subscribe here:
Stocks Featured in the Guide
1498 Reisterstown Road, Suite 286 Baltimore Maryland 21208 Phone: 410.609.7100
[email protected] www.goldmanresearch.com
Launched in May 2010, The Goldman Guide is a free weekly publication of Goldman Small Cap Research and is written by Founder Rob Goldman with contributions from the GSCR contributor team. This non-sponsored investment newsletter seeks to provide investors with market, economic, political and equity-specific insights via an action-oriented, straight to the point approach. No companies mentioned in this newsletter are current sponsored research clients of the Company or its parent, unless noted, With some exceptions, all companies or investment ideas mentioned in this publication are publicly traded stocks listed either on the NYSE or the NASDAQ. Goldman Small Cap Research members and contributors’ bios, certifications, and experience can be found on our website: www.goldmanresearch.com
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, Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report. Goldman Small Cap Research analysts are neither long nor short stocks mentioned in this newsletter.
Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored microcap 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.
Goldman Small Cap Research has not been compensated for any content in this issue.
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 and information are derived from Yahoo! Finance and other websites or sources, as noted. 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. Statements herein may contain forward-looking statements and are subject to significant risks and uncertainties affecting results.
Separate from the factual content of our articles about the company featured in this newsletter, we may from time to time include our own opinions about the companies profiled herein, their businesses, markets and opportunities. Any opinions we may offer about the companies are solely our own, and are made in reliance upon our rights under the First Amendment to the U.S. Constitution, and are provided solely for the general opinionated discussion of our readers. Our opinions should not be considered to be complete, precise, accurate, or current investment advice. Such information and the opinions expressed are subject to change without notice.
ALL INFORMATION IN THIS REPORT 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.