Select Small Caps Buck the Downward Trend
Stocks are trading lower Tuesday afternoon following a disappointing retail sales report and anticipation of upcoming earnings reports that will help provide further insight into the economy’s health.
At 11:42 am ET, the Russell 2000 (NYSE:IWM) is down 8.41, or 1.8%, at 459.64, while the Dow is down 0.84% and the S&P 500 is down 0.88%.
This morning the Commerce Department reported that retail sales fell 1.1% in March — the biggest decline in three months and a much weaker showing than the 0.3% increase that analysts expected.
Small caps bucking the trend today include Dendreon Corporation (Nasdaq:DNDN), up a stunning 135% after its Provenge prostate cancer treatment met its key goal in prolonging survival in men with advanced prostate cancer. Also climbing higher is Phoenix Technologies Ltd. (Nasdaq:PTEC), up 35% after Roth upgraded the small-cap software company to “buy” from “hold.”
******"Given the challenging fundamental backdrop in the global economy, we continue to be cautious about the near-term outlook for our businesses …"
That’s what Goldman Sachs CFO had to say after it posted pretty good earnings numbers on Monday. Of course, no one in the banking sector in his or her right mind is going to say things are great. But numbers are one thing, actions are another.
Goldman earned $1.66 billion in the first quarter, or $3.39 a share. Analysts were expecting earnings of $1.64 a share. Goldman essentially blew the numbers out of the water, like Wells Fargo.
But here’s the sticky point: Goldman said it will repay its $10 billion in TARP money as soon as possible. What’s the holdup?
If I recall correctly, Goldman was adamant that it didn’t need the government’s loot. And judging from yesterday’s earnings, the company has written down nearly all of its “legacy leverage loans.” And don’t forget the $12 billion payout it received from AIG.
From a numbers standpoint, Goldman sounds in good shape. So why is the company selling $5 billion in stock to raise money to pay back its TARP loan?
There’s an inconsistency here, and that’s probably why the stock is down $7.50 in the early going today.
*****I’m not putting too much weight on the drop in retail sales for March. Most of that drop had to do with low gas prices, and that’s good. If consumers choose to take those savings and use them to recapitalize their own base (in other words save instead of spending on clothes and such), that’s a good thing. Consumers don’t have the option to sell stock to recapitalize themselves like Goldman does. We have to do it the old-fashioned way. And that will take time. And a better employment picture.
*****We took 20% and 14% gains on two more stocks at my small-cap advisory service SmallCapInvestor PRO yesterday. That’s in addition to the 34% and 23% we took over the last few weeks. We’re four for four on sold positions with average gains of 20%.
That’s good, but the fact that the rest of the SmallCapInvestor PRO is all showing gains as high as 30% is even better.
We’re currently overweight technology and oil stocks in the portfolio. As you know from SCI Daily, I’m particularly bullish on small oil exploration companies. The current weakness in oil prices is temporary and is providing an excellent opportunity to buy quality oil exploration stocks at low prices. For more, please click HERE.
*****Homebuilders are strong today. SCI Daily recommendation Hovnanian Enterprises (NYSE:HOV) is up 5% to $1.88 or so. I recommended the stock at $1.52, so we’ve got some decent gains. I want to see the stock break resistance at $2 a share, though. That would lead to a run at $3.
*****As always, I want to hear your questions, comments and jokes. Email me at editorial@247investor.com.
