Russell 2000 Breaks Above 700
I’ve been pounding the table on the attractiveness of small cap stocks for so long now you probably think I’m a perma-bull. But when you believe small-caps are heading higher, like I have, a consistent message is the only way to go. Even if it means you’re sometimes wrong in the short-term.
Yesterday the Russell 2000 small-cap index broke through the psychologically important 700 level for the first time since it kissed 700 good-by back on September 26, 2008. That was the date it began its 51% plunge to a low of 343, which it reached on March 9, 2009. Well, it’s back baby. And the 104% rise took only slightly longer than one year, a tremendous rally that is sure to go into the history books.
The question investors are obviously asking right now is: can it go higher? My unequivocal answer is a resounding ‘yes’. I believe the Russell 2000 will reach 740 this summer, a level that I’ve mentioned here in Small Cap Investor Daily over and over this winter and spring.
As economic data improves, and consumer sentiment rises, stocks will head higher. Yes we need to be careful, and yes many stocks are overvalued at current levels. But there are still numerous profit opportunities out there.
***Two profit opportunities I see right now are companies with exposure to natural gas and commercial real estate. In fact, yesterday I was just talking with Resource Prospector editor Kevin McElroy about the opportunity in natural gas.
We were discussing the pending Energy Information Administration’s (EIA) new method for calculating estimated natural gas supplies.
On Monday, the Wall Street Journal reported that the Energy Department will make sweeping changes to how it reports natural gas production in the United States. The bottom line is that the EIA, which gathers data for the Energy Department, believes that it might be over-reporting production of natural gas. In fact, independent analyst Ben Dell with global wealth management firm Sanford C. Bernstein says the EIA might over-report by as much as 12%.
That’s a big margin of error. If Mr. Dell is right, stated natural gas supplies could be drastically reduced at the end of April. This would be extremely good news for shareholders of natural gas companies, since the price of natural gas would likely rise.
The Wall Street Journal stated, “On April 30, the EIA is scheduled to release its natural-gas monthly report for February. In the report, the agency will use the new methods to estimate gas supply and revise its January numbers.”
One of my favorite stocks in the natural gas arena is China Natural Gas (NASDAQ: CHNG), a stock Small Cap Investor PRO subscribers have ridden for a 58% gain so far. But I believe there are more gains to come. The stock has fallen 12.7% in 2010 as natural gas prices declined. But with the potential for natural gas prices to rise from current levels, and the company’s expansion plans which include six new fueling stations, shares are likely to head higher in coming months. You can learn more about China Natural Gas, and other stocks in the Small Cap Investor PRO portfolio, when you sign up for a risk-free trial subscription. Just click here today!
*** One other profit opportunity I currently see is in commercial real estate trusts (REITs). Yesterday many of these companies moved sharply higher. The main catalyst propelling this sector is that bankruptcy, once thought to be a sure thing for REITS with beaten down property assets, is becoming much less likely. Uncle Sam has provided financial support to many banks, which in turn are providing financial support to the REITs.
For the moment, this is a big momentum play. And it is a bit risky, especially with the recent run-up in many REIT stock values. But there is enough profit potential so that Trademaster editor Jason Cimpl and I decided to put out a special report on this sector last week. And yesterday, one of our selections, Maguire Properties (NYSE: MPG) moved 13% higher. Two of our other selections rose 6.6% and 16.8%. Those are pretty nice one day moves. If you’re interested in checking out Jason’s trading service and learning more about our four REIT selections, click here.
If you’re not quite ready to sign up for a subscription service, it’s still a good idea to follow the developing story in natural gas and REITs. As stocks head higher this summer, these two sectors should continue to represent profit opportunities for small-cap investors.
