Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Small Cap Stocks

While the exact definition of small-cap stocks can vary from brokerage house to brokerage house, small-cap stocks usually have stock market capitalization of less than $1.0 billion, but more than $400 million. Small-cap stocks sometimes see their stock market capitalization eventually exceed $1.0 billion, at which point they become large-cap stocks.

Small-Cap vs. Big-Cap: The Real Winners in This Market

By for Profit Confidential

Why I'm Not Giving Up on Small-Cap StocksHealthy second-quarter results from technology and banks are helping to drive buying in stocks. On Tuesday, the S&P 500 traded at an intraday record and is again looking toward 2,000, while the blue-chip DOW is edging toward another record.

While we are hearing about how the S&P 500 will break 2,000 and the DOW will reach 20,000, we are not hearing much about small-cap stocks, which have been under some pressure this year after leading the pack in 2013.

The Russell 2000 is struggling after failing to hold above 1,200 on two occasions; it’s currently down about 0.66% this year and 4.6% from its record.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

I recently read how the failure of the Russell 2000 to follow the broader stock market higher is a red flag that could warn of a pending correction in the stock market.

Now, while small-cap stocks are probably the most vulnerable to selling at this time, I don’t feel that it’s time to simply ignore this high-beta growth group and focus solely on big-cap stocks.

My thinking is that investors are simply dumping some risk from their portfolio after recording strong returns in 2013. It’s not that small-cap stocks are inferior to the S&P 500 companies. In fact, as long as the economy continues to grow, small-cap stocks will fare well.

You just need to have some patience and think longer-term, as some of these small companies will become big companies. Case in point: I highlighted touchscreen technology provider Synaptics Incorporated (NASDAQ/SYNA) in October 2013, when the stock was a small-cap at around $46.00. The stock has since nearly doubled … Read More

Biotechs, Small-Caps, and IPOs: Making Sense of This Peculiar Stock Market

By for Profit Confidential

This Year's Peculiar Market Short Exuberance RiskThe spot price of oil has been eerily steady for quite some time; this is quite unusual for the world’s most traded commodity.

It’s been a peculiar year in capital markets, and there’s definitely an uncertainty in sentiment, especially in the equity market with no real trend for investors to latch onto. It makes me think that equity investors should be proactive now and take a hard look at their portfolios for investment risk.

Speculative fervor has been reduced and while small-cap stocks, initial public offerings (IPOs), biotechnology stocks, and super-high-valued stocks have taken it on the chin, this is not unreasonable for the longer-run trend in equities.

The Dow Jones Transportation Average just hit another record-high and its long-term chart, while impressive, actually looks kind of scary. The capital gains are tremendous since the March 2009 low, which begs the question as to when it’s going to reverse.

Historically, most of the average’s declines have come in the form of short bursts of downside, peppered by several multiyear periods of non-performance.

The stock market is highly unlikely to break down without a commensurate move in transportation stocks. But there is clearly room for downside in these share prices. Delta Air Lines, Inc. (DAL) has doubled in value since just last September.

Caution. Caution. Caution. If you eliminate the bubble capital gains produced by stocks comprising the S&P 500 index during the late 1990s and their price recovery during the mid-2000s, the long-term chart still reveals an incredible performance. The crash of 1987 now looks like a blip. The 100-year chart of the S&P 500 is featured below:

S&P 500 Large Cap Index Chart

Chart Read More

How to Profit from These Vulnerable Stocks

By for Profit Confidential

Top Plays for Weak Small-Cap & Tech StocksFolks, there is a technical breakdown on the charts of the small-cap, growth, and technology groups in the stock market. I can’t say I’m surprised, given the major run-up in 2013 and the lack of any significant stock market correction.

The fact that the majority of the high-momentum technology stocks have corrected more than 20% is a red flag that there could be more breakdowns on the charts. (Read “My Simple, Safe Investment Strategy for Playing Risky Stocks.”)

While I’m not saying that a bear stock market is on the horizon, I do suggest that the stock market risk is above-average at this time, and we could see a bigger correction pending.

On May 6, there was a downside break of the Russell 2000 to below its key 200-day moving average (MA) of around 1,114. This could signal additional downside moves. As of that time, the index was down 4.78% in 2014 and 8.56% from its record high. The previous time the index corrected 10% from its high, it was subsequently met with buying support in the stock market. Note the downward-trending channel on the Russell 2000 chart below.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

With the break, you could consider adding the iShares Russell 2000 (NYSEArca/IWM) exchange-traded fund (ETF) as a play on a possible bounce in small-cap stocks, especially if the index corrects more than 10%.

Technology also continues to be fragile, with the NASDAQ south of its 50-day MA. Watch for a possible move and testing of the 200-day MA at 3,982. This index has corrected 6.67% from its recent high and looks to be setting … Read More

Five Dividend-Paying Stocks for When the Market Slides Lower

By for Profit Confidential

Five Dividend Stocks  Replace Growth Stocks Turbulent TimesThere is clearly some selling capitulation towards the technology and small-cap stocks at this time. Following the run-up in 2013, we are now seeing the selling action picking up towards the higher-beta stocks. The S&P 500 and DOW may be looking fine, but the growth-oriented NASDAQ and Russell 2000 are showing added stock market risk. (Read “NASDAQ, Russell 2000 Signaling Buying Opportunity Ahead?”)

It’s time to unload some of your riskier holdings and look at some of the dividend-paying stocks that would likely provide more of a buffer against the current negativity in growth stocks.

Below, I have listed five dividend-paying stocks that are worth a look, especially if the overall stock market slides lower.

In the investment management sector, Och-Ziff Capital Management Group LLC (NYSE/OZM) pays out an impressive dividend yield. The company runs money from pension funds and other areas. In the fourth quarter, Och-Ziff beat the Thomson Financial consensus estimate by $0.32 after reporting a dividend of $1.15 per diluted share versus the consensus $0.83 per diluted share. According to the company, its assets under management have increased to $42.7 billion as of April 1, 2014.

Also in the investment area, Fortress Investment Group LLC (NYSE/FIG) has about $61.8 billion in assets under management as of the end of December. Fortress also pays out dividends of $0.32 annually for a yield of 4.4%.

For you pet owners, you are probably familiar with PetMed Express, Inc. (NASDAQ/PETS), the largest pet pharmacy in the United States selling prescription and non-prescription pet medications along with other health products. The company pays out a quarterly dividend of $0.17 … Read More

U.S.-Listed Israeli Companies the Next Big Buying Opportunity?

By for Profit Confidential

Three U.S.-Listed Israeli Growth Stocks Worth a LookIsrael has grown to become a key producer of technology and medical devices companies outside of the United States and Canada. We are talking about a very small country of less than eight million people, but which has become known as the “Silicon Valley of the Middle East.”

In fact, after China and Canada, Israel-based companies are the third-most-listed on U.S. stock exchanges as far as international listings, and they may be offering a buying opportunity.

Contrary to companies emerging out of China, Israeli companies have, so far, been quite clean as far as reporting reliability and confidence in the financial results, something that has escaped Chinese stocks that make them untrustworthy to investors. (Read “Chinese Stocks Promise Higher Potential Gains?”)

While there are major big-cap companies out of Israel, such as biotech Teva Pharmaceutical Industries Limited (NUSE//TEVA), there is also an excellent speculative buying opportunity in some of the small-cap stocks emerging from the country.

I have listed three speculative Israeli stock plays that are worth a closer look as a buying opportunity.

In the small-cap technology space, another buying opportunity is Israel-based Magic Software Enterprises Ltd. (NASDAQ/MGIC), which has been providing information technology services for more than 30 years. The company has built ventures with key software partners, including International Business Machines Corporation (NYSE/IBM), Microsoft Corporation (NASDAQ/MSFT), and Oracle Corporation (NYSE/ORCL).

In 2013, the company was ranked 37th on the Deloitte Israel Technology Fast 50 list.

Magic Software is profitable, with higher sequential earnings in six straight years, from 2006 to 2012, prior to a small decline in 2013. The valuation is reasonable at 14.66 … Read More

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