Posts Tagged ‘micro-cap stocks’
A lot of smaller companies and micro-cap stocks are now reporting their quarterly earnings, and a lot of the numbers are pretty good. I’ve noticed particular financial strength in a number of micro-cap technology companies, along with good trading action among biotech companies.
There’s no real trend among micro-cap stocks, aside from the Russell 2000 Index, which is about five percent below its recent high set in March of this year. The broader stock market has held up well over the last several quarters, and the Russell has pretty much mimicked the S&P 500.
The best action for stock market investors, as far as I’m concerned, has been in large-cap, dividend paying companies. Micro-cap stocks, like biotech companies, don’t particularly trade as a group; their action is event-driven. Investment risk in the stock market today is very high, and institutional investors have been reticent to invest in micro-cap stocks. The security of dividend income is the reason why so many large-cap companies are trading right at their highs.
The price momentum in this kind of stock market is with large-caps, and it’s going to stay this way going into 2013. There are very few micro-cap stocks in this market that are providing consistent returns; off the bat; I can’t name any. Among micro-cap stocks, industry groups that stand out as the most attractive for risk-capital investors are technology, biotechnology, and mining. All of these subsectors, however, are being met with little investor participation among individuals. Trading action in today’s stock market is only about institutions, and that’s why any micro-cap stocks being considered need to have what institutions are looking … Read More
It continues to be uncertain times for the stock market. You get good news, the stock market goes down; you get bad news, the stock market goes up. With no definable trend, you could say we’re in a market where anything could happen. This is why investment risk is so high.
I’m hopeful about this upcoming earnings season and it’s exactly what the stock market needs—to see some results from corporations themselves. The lull between earnings season can always produce some stock market volatility because investors trade emotionally, based on news from policy makers and government statistics. The only rationality comes from corporations whose numbers are audited and whose estimates for the future are generally quite accurate. Earnings season can’t come soon enough. At the very least we’ll get some definable trend in the earnings reports off of which to trade.
Expectations for this earnings season and the rest of the year have come down quite a bit, which is why we’ll see some solid outperformance and the likelihood of an upward bounce in the stock market. There have only been a handful of earnings warnings from big, brand-name companies, but this is a good sign. There’s also a reasonable stock market valuation and a marketplace that wants to be buyers. I fully expect that dividend paying blue chip companies will continue to provide stock market leadership in the current environment. Ever since the stock market low set in March 2009, big-cap companies have been the place to be. Many have provided the kind of capital appreciation you’d expect from faster-growing micro-cap stocks.
I admit, however, that it is … Read More
I think investors really want to be buyers of stock at this time, but there isn’t much of a catalyst to do so. Institutional investors are buying, but they’re also playing on the market’s volatility, accentuating the results. Reality is beginning to set in now and there’s a realization that corporate earnings are actually going to be strong in the bottom half of the year. The employment situation isn’t great and neither is the real estate market, but the corporate economy is well-positioned to deliver solid earnings growth and this makes the current stock market look very reasonably priced.
In a much-anticipated initial public offering (IPO), Dunkin’ Brands (NYSE/DNKN) was set to debut on the New York Stock Exchange yesterday. The company owns two big-name franchises — Dunkin’ Donuts and Baskin Robbins — and could be much sought after.
The stock market is facing some strong headwinds over the short term and all the wrangling is a real shame considering that we’re still getting great earnings results from large-caps. It’s no wonder the spot price of gold keeps ticking higher; there’s nothing else for investors to rally around.
The second-quarter earnings season has started strong. As of July 20, 88 of the S&P 500 companies have reported, with 78% beating estimates and 10% falling short, according to Thomson Reuters.Strong earnings from technology have provided the catalyst for the buying, helping to offset the significant debt issues in Europe and the U.S.
During the technology euphoria in late 1999 and early 2000, I recall that a friend of mine had taken out a massive loan against the value of his home and bet on several high-risk micro-cap stocks. I remember his position surging from $100,000 to nearly two million dollars in less than two months. He asked me my investment advice on what to do. I said take profits. He did not listen and sat on the two stocks all the way back to well below his initial investment!
One of the things happening in this market is that trading action is occurring as a slow deterioration, rather than an outright correction. You can see this in the technology sector in particular. This kind of market is really hard on sentiment, because investors can’t see an endgame. In a bull market, investors can quite easily get their head around a major correction in share prices, and even expect it as part of the long-term trend. In a bear market, however, there is no defined outlook—only uncertainty about where things are headed.
Despite the consolidation in the broader market, there have been some tremendous stock-market performances recently, and the standouts have been large-caps.
Take Kraft Foods Inc. (NYSE/KFT), for example. This stock traded between $30.00 and $32.00 per share from last September to this April, and the stock has finally broken out of that trading range. It recently hit a new 52-week high of $35.10 per share, and that’s knowing that raw-material costs are going up.
Also doing well in this market is Automatic Data Processing, Inc. (NYSE/ADP), which is benefitting from the improvement in private-sector employment. This stock has been going up steadily since last summer—almost in a straight line. It was an obvious trade. As the economy slowly gets better, so does employment, and so does the need for payroll services.
Without a catalyst for investors to be big buyers of equities, the marketplace is left to trade on prevailing economic data or specific corporate events. That’s the thing with equities: you can’t make the returns happen; you can only roll with what the marketplace is offering at any given time.
Stocks are facing some upside resistance at this juncture. Blue-chip companies continue to lead the way this year, with small-cap and technology companies trailing.
My best stock market advice to you is to make sure you are diversified. You need to add small-cap stocks in an effort to increase the expected return of your portfolio.
I would like to discuss the concept of asset allocation as a critical part of any prudent portfolio management strategy.
Asset allocation refers to the asset mix of your portfolio, which is divided into the three major asset classes: cash; fixed income; and equities (stocks).
As the macro and micro factors change, as well as your investment objectives, you should rebalance your asset mix accordingly to the new conditions.
In general, without getting too theoretical, the risk and expected return of an investment rises as you move along from cash to fixed income to equities. The higher the risk assumed, the higher the expected rate of return, albeit this is not always the case in reality. For instance, adding penny stocks and micro-cap stocks could add to your total return.
The relationship between risk and return should be used as a guideline.
The proportion of each asset class within your portfolio is dependent on your individual risk profile. For instance, the more risk-adverse investors and people who are close to retirement may want a higher mix of fixed income/cash and to steer clear of too much equity. On the other hand, risk-tolerant investors and those investors who are young may want to take a more aggressive approach and maintain a higher mix of equities in … Read More
The key first-quarter earnings are coming to an end, and it has proved to be a decent quarter. With 445 S&P 500 companies having already reported as of May 9, 69% have exceeded expectations, while 20% of the companies were on the short side. The blended growth rate for the first quarter has been impressive at 18.5%, up from 12.2% on January 3, 2010. Again, these are decent results; but, keep in mind that 31% of the companies failed.
And whether it is penny stocks, micro-cap stocks, or S&P 500 companies, you have to be impressed by the sustainability of the positive sentiment. The real test now comes as stocks edge higher. We need to see a strong break higher or risk a relapse.
Did you also realize that the best part of the year for making money is over? The period from November to April is historically the best six months of the year for stocks, according to The Stock Trader’s Almanac. This period has come to an end. May started with three down days. In addition, the six months from May to October have been the subpar versus the November-April period. This is a generalization, so good stock picking will succeed.
A red flag remains, as the associated trading volume continues to be light on up days, which fails to help confirm a strong buy signal. Unless we see increased volume on the up days, I question the lack of mass market participation in the current rally.
The near-term signals have a positive bias, but watch the neutral Relative Strength and overbought condition.
The sentiment in the … Read More
Chinese stocks are again the focus of increased attention and speculative trading. In China, the benchmark Shanghai Composite Index (SCI) had been rallying. It’s up over nine percent this year, which is encouraging given that the index lost 14.31% in 2010.
An area that we continue to see some action is in Chinese initial public offerings (IPOs), but to a lesser degree due to the negative publicity of Chinese reverse mergers.
There are so many Chinese penny stocks and micro-cap stocks waiting to cross the ocean in search of U.S. dollars and exposure. The key to successful stock picking in this area is research.
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