Flip-Flops For Everyone |
| Written by Rob Goldman | ||||||||||||||||
|
Politicians and market strategists are flip-flopping on everything these days. Despite the cray talk, we identify what’s really going on, the sectors primed to thrive and what sector to avoid because of the recent bad weather. FLIP-FLOPS FOR EVERYONE
Whether you are watching the stock market or listening/watching/reading the rhetoric from the leading Presidential candidates, one thing is certain. They can give you a headache. One minute the economy is great, stocks are great. The next minute, the economy and earnings suck, the party is over, etc. Or, whatever position he/she has taken policy-wise in the past, it is now time to change with the season, winds or site. The issues seem to be whether and weather. First, whether or not you are going to flip-flop with everyone else or stand pat. Second, maybe the brutal change in weather has gotten everyone’s knickers in a knot… Regardless of what, when, why, or how, “there’s some bullshit here.” Either everyone knows Q1 sucks or they think it will suck worse or perhaps not suck so bad. Can we make up our minds, please? And, are we going to have yet another bad start to a quarter for apparel companies because of wacky weather, leading to revised lower forecasts in a few weeks/months? Let’s see, there was 1Q16, 4Q15, 1Q14, and others of late. Outside of Under Armour (NYSE: UA), which struck gold with Jordan Spieth, Steph Curry, and Bryce Harper, I’d stay away from apparel companies for the foreseeable future. The Stock Market Today
We usually refer to the Russell 2000 Index as the bellwether for small caps. However, today we have some interesting insights regarding the S&P 600, the S&P’s version of a small cap index. On a YTD basis, the S&P 600 is basically flat. Interestingly, there is some real performance divergence among sectors between the S&P 600 and the 500. For example, the consumer discretionary sector is up 2.2% for small caps but down 0.5% for big caps. Health care stocks are down across the board but down twice as much for small caps than their large cap brethren, and the exact opposite is the case for financials. Not as surprisingly, small cap technology stocks are kicking the butt of the large caps. These figures reinforce our thesis that small cap financials, tech, and health care are the place to be given valuation/performance. According to Ed Yardeni Research, led by the famed economist, the current Bull/Bear ratio is 1.63. (That means 1.63 bulls to bears and compares with the 1.45 for the AAII Survey.) That may seem high but it is pretty average. The lower the ratio, the better the outlook for stocks, or so the thinking goes. For perspective, in 2013 and 2014 the ratio routinely hit at or near the 4.0 mark. Our take? With 27% of forecasters suggesting a correction (according to Yardeni), a not overly bullish environment, and other external (non-earnings reporting) bullish factors, we remain positive for the near term. Last week’s slide? Bound to happen. Upward, ho! Say What?
Bloomberg http://www.bloomberg.com/graphics/2016-global-obesity/ An interesting reality check. I always thought the main problem was here. The New York Post http://nypost.com/2016/04/09/team-obama-is-setting-us-up-for-another-housing-market-collapse/ Not this again... The Daily Mail The future of real fast food? Marketwatch http://www.marketwatch.com/story/these-4-charts-say-its-time-to-sell-the-rally-2016-04-08 A bit premature, if you ask me. Plus, the sentiment numbers are way off. ZeroHedge http://www.zerohedge.com/news/2016-04-08/regime-uncertainty-kills-us-growth A short missive penned by one of the smartest economists you never heard of before. Notable Numbers AAII Sentiment Survey (figures rounded)
As you may have seen in the Say What? section, one of BofA Merrill Lynch’s theses that the market is due for a sell-off is that investors are too bullish. Those guys must perform their own weird poll/survey. After all, the Bullish category in the AAII poll is below the long term average while the Ticker Sense Bullish percentage is under 42%—a bit high perhaps but not materially so. You certainly would not say mutual fund holders are bullish. According to the ICI, for the week ended 3/30/16, the net outflows of domestic funds totaled $3.7 billion, nearly twice that of the two previous weeks combined. Even the latest Lipper fund flows data, released in the middle of last week, showed further outflows of $328 million in non-ETF domestic equity funds, so the sales continue to persist. It is very interesting to look at the valuations of some of the sub-segments of the key sectors that comprise the S&P 500 Index. For example, while the Consumer Discretionary sector may seem a fairly valued since it trades with a 12-month forward P/E of 18.1x, the homebuilding sector, which seems to be enjoying a bit of a resurgence in 2016, trades at a paltry 11.9x. After its Q1 beating, the biotechnology segment of the health care sector looks downright cheap. It trades at a 12x 12-month forward multiple versus the 14.9x figure assigned to the entire sector which is much lower than its historical average, thus making it appear to be very attractive at current levels. Latching onto lower valuation groups that historically traded at a premium to the current valuation, inside sectors with a higher valuation can be a successful investing tactic. You may find some buys early next week as performance and direction should be dominated by economic reports released Wed-Fri. Thumbs Up/Thumbs DownChanneling our Siskel & Ebert...
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 Disclaimer 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. |
Download in PDF
Great info, insights, and hard-hitting stories make up this week’s Say What? feature...
We have been preaching that the health care space was oversold for the past few weeks, especially after it was the worst performing segment of 1Q16. As if on cue, health care stocks dominated in a down market, rising 1.5% while the rest of the market tumbled.
We’re reaching a point where some consumer discretionary stocks are primed to disappoint with pre-announcements, actual results, and forecasts, fueling the low GDP growth story further. While some big brands like Gap (NYSE: GPS) and Ruby Tuesday (NYSE: RT) are getting smacked, under the radar and up-and-coming brand names are great bets at this stage.