Trading the stock market can be a frustrating process: Back in March and April every market pundit was jumping on CNBC, Bloomberg, Twitter, etc and screaming “BUY EVERY PULLBACK!” Two months later, these same folks are freaking out and calling for a double dip recession or worse, a global depression.
It just so happens the stock market followed the same exact playbook as it did last summer, selling off in May. This selloff was attributed due to the uncertainty with the Greek elections and a banking crisis in Spain. Less than two months later, its safe to say that for now both issues have been resolved.
However, market pundits are preaching caution even though the S&P 500 looks to be flashing a buy signal after it completed a follow through day Monday and a pause day on Tuesday. I could see the market potential moving up to the S&P 1400 area again before the wheels fall off. Todays sell off can be attributed to the Federal Reserve staying on hold yesterday. For some reason, the market was obvious pricing in QE 3. On Twitter today Goldman Sachs is getting credit for the sell off. As the investment bank is out with a note recommending short positions because of the lack of QE and the weak Philadelphia Fed number.
This smells like a shake out. Remember back in April Goldman said to buy stocks (wrong call), then just this week the bank was calling for the Federal Reserve to implement a new QE program (wrong call) and now today they are recommending clients get short the market. To these eyes, it looks like Goldman wanted to cover some shorts.
After big scary shakeouts like the one we just had and are having today, I like to focus my attention on stocks that haven’t gone down too much (or actually have gone up) and have good sales and EPS growth (+20% or more). Typically, this easy formula is a good way to spot the next bull cycles winners.
I ran a screen searching for those three traits above and below are some of the names I hand picked to buy for the next Bull Run.
3D Systems (DDD) – The maker of 3D printing, prototyping and manufacturing systems. This company is the leading public company in the fast growing innovative 3D printing industry. It is my favorite stock in the market right now and I would love to buy it under $30. Sales are growing at 63% and EPS is growing at 47%.
Tripadvisor (TRIP)- If you aren’t familiar with this company, it creates online travel related content and trip reviews. If you are going on a vacation, this site is a must read. It’s sales are growing at 32% with a 43% profit margin!
Zillow (Z)- If you are looking to purchase a house, you better be using Zillow. The company provides online real estate data, connects buyers with sellers and helps connect buyers with mortgage professionals. Currently sales are growing at 92% and EPS at 180%! This could be the next great growth stock.
Sourcefire (FIRE)- Sourcefire provides businesses with network security and hardware. Their products are said to be next generation and superior competition. The company is growing sales at 50% and EPS at 175%.
Coinstar (CSTR)- This company operates the Redbox DVD rental kiosks, coin counting machines and soon to be Starbucks vending machines. Its 3-year sales growth is 34% and 3 year EPS growth is 74%. Full Disclosure: I own shares in CSTR.
I would use this list as a guide. I always like to buy stocks low and sell high. So today’s sell off is welcome. If we get a couple of more days like today, I would consider adding small positions in one or two of these names. As always, just do your own research.
Editors Note: The Investing Oracle believes all investment picks should be tracked and we intend to do so.
Matthew Theal holds a position in CSTR.
I think the Fed’s move to extend the twist until the end of the year was probably the worst thing that could have happened for gold bulls and today’s gold price is confirming it. Even though they left in the part where “the committee is prepared to take further action as appropriate to promote a stronger economic recovery…,” I doubt the Fed will make any moves any time soon.
When Operation Twist was first announced September last year, gold crashed and for the next two quarters, gold bulls were hoping for bad jobs numbers in anticipation of QE3. But one of my smart colleagues told me, the Fed won’t do anything for a while. They have to allow monetary policy to take place. Otherwise they’d lose a lot of credibility.
It made sense but I was still skeptical at the time. Nonetheless, gold bulls would go through the two most disastrous quarters of everyone’s career (Obviously not all due to US monetary policy). In regards to QE3, I’m worried Bernanke will try to hold off as long as possible, and in doing so, all risky assets are likely to take a beating. Including gold. Including oil (which by the way is already at $80). Including stocks. I hope I’m wrong.
Word is that the Chubut province in Argentina is about to change their mining laws to allow Pan American Silver (PAAS) develop their Navidad project.
Here’s a note from BMO:
According to a number of Argentinean media reports, Martin Buzzi, the governor of the Chubut province in Argentina, presented a potential new regulatory framework for mining in Chubut. Pan American Silver has been waiting for the Chubut government to amend the current law so it could move ahead with the development of its Navidad project, which is located in Chubut.
Here are a few stats on Navidad from the 2011 Preliminary Assessment
– $759 mln Initial capex
– 17 yr Life of mine
– LOM strip ratio: 4.8 to 1
– 15 ktpd operation
– Production of 19.8 mln oz at $$6.03/oz per year
– At $35 silver, cash flow from Navidad would be ~$5/share
The truth is that even without Navidad, PAAS is a resounding “buy!” as they were going to double silver production by 2014. It’s a deeply discounted value play that should be in your portfolio if you truly call yourself a value investor.
Socgen is out with a research note this evening with trading ideas if Bernanke announces a new QE program at tomorrow’s FOMC meeting. The banks number one idea is long gold. (That also happens to be the number one macro trading idea of TheInvestingOracle site and has been since 2008).
Socgen sees Gold closing the gap with the monetary base (see chart below) increases since 2007. If that happens, it sees the price of gold at $1900/oz. Lastly, if gold catches up to the monetary base from the 1920’s we are looking at…drum roll please….. $8500/oz.
Today started the Federal Open Market Committee’s (FOMC) two day meeting on monetary policy. The meeting will conclude tomorrow afternoon with a decision on interest rates (unchanged), which will be followed by a statement of text (look for changes) and after that, the great Chairman himself, Ben Bernanke will give a press conference.
If you have followed my work from my time at Minyanville Media where I wrote the Active Investor, you know that for six months I have been predicting some sort of Quantative Easing to happen this summer.
It looks like that prediction will be correct as it seems some sort of QE will happen this summer.
Goldman Sachs believes that tomorrow the fed will announce some sort of new QE program. The investment bank, sees the possibility of the Fed buying MBS or just extended the Operation Twist.
The thesis is based on a June 6th speech on criteria needed for more QE by Vice Chairwoman Janet Yellen:
“[i]f the Committee were to judge that the recovery is unlikely to proceed at a satisfactory pace (for example, that the forecast entails little or no improvement in the labor market over the next few years), or that the downside risks to the outlook had become sufficiently great, or that inflation appeared to be in danger of declining notably below its 2 percent objective…”
It looks like all three criterions are close to being met, though not quite there yet. If Bernanke wants to stay ahead of the curve, it would make sense to announce some sort of intent to perform QE, at the next meeting (August I presume) if conditions continue to deteriorate.
If that’s the case, what will the new easing program be? .
What I think will happen is the fed may announce a perpetual easing program. By that, I mean the fed will announce it will purchase treasuries, MBS, etc. at a clip of $50 bln to $75 bln per month. This is known, as a “flow” of purchases and it will allow the fed to react flexibly to quickly changing economic events. It also does away with the idea of QE 3-4-5, etc. As Apple CEO Tim Cook said, iPad 20 doesn’t sound that great. I would almost think of QE, like the fed’s ability to move short-term interest rates, as just another tool in the box.
Trading wise, if that happens, I would buy gold and lots of it. That said, I always like to see what the stock market is doing heading into the Fed and currently it has rallied for four straight days. This tells me that Mr. Market is expecting some sort of QE announcement tomorrow.
While the stock market is saying QE, the fixed income market is pricing in a operation twist expansion/extension. If this is the Fed’s plan, I expect a large sell off in the stock market.
Good news out of Agnico Eagle Mines (AEM). Kittila in Finland is back to full capacity. It accounts for about 13% of 2012 production and was supposed to be down for 40 days as part of a scheduled maintenance plan, but AEM finished the job after only 18 days.
The total number of days down remains unchanged for the year at 44 but they’ll likely see a better than expected second quarter. And don’t forget that any bit of credibility is a good thing in this beaten up sector.
AEM’s 2012 1Q performance was the biggest sign the company had righted the ship after the company produced more gold compared to 1Q 2011 (when they had Goldex operating). All 5 mines produced record quarterly results. Things are going well for this company and you’ll see the stock break new highs and outperform its peers once more love returns to this sector.
This weekend is setting up to be pretty dramatic as the Greeks return to the polls to try and produce a government. Recall during the first week of May, the Greeks held elections that failed to produce a government and has thus lead to the latest market fears over Greece and the Eurozone as a whole.
The fine folks at UBS are out with a research note today with ten frequently asked questions about the Greek elections. Below are the questions and my answers.
1) Who’s winning?
No one. According to two different polls from the first week of June its almost dead even. New Democracy has a slight lead (26%) over Syriza (23%) and Pasok (9%) is taking up the rear. The important thing to know: 75% of Greeks want to remain on the Euro. Don’t expect a radical change in government.
2) Is the election a vote on Greece’s euro membership?
No. All three parties are saying they will not leave the euro. However, they are telling voters they plan to renegotiate the memorandum or understanding with troika.
3) Can Greece be out of the Eurozone as early as next week?
Yes, but this is a black swan event. Here’s what happens: Syriza must win the election, then its leader Mr. Tsipras must refuse to honor external debt and then it declares total default.
4) Will the election remove uncertainty about Greece?
What’s your best guess? Has anything Europe has done over the past three years “removed uncertainty?” Short-term performance aside an election won’t solve Greece’s problems.
5) What is the ideal election result-from an investment perspective?
It’s hard to say. Its possible that whatever party wins will likely try to renegotiate the MOU. This could spoke the markets into a sell off.
6) Will they [EU, ECB, IMF] pull the plug?
This is highly unlikely. If any of those organizations wanted Greece out of the euro, it would be gone by now. Stay rational.
7) Can Greece survive once its primary balance is zero?
The thought by many pundits here is that if Greece votes an anti-troika government, it will default on all debt and leave the euro. If it defaults, it will be no big deal because its government budget without interesting (aka Primary budget) will drop to zero.
8) Would Greece be better off without the euro?
Most likely yes. Economists argue that a weak currency will make Greek exports more competitive. However, the biggest drawback is Greece cost for imports on energy and food will go up.
9) What if there is another post-election deadlock?
With polls so close, this a likely scenario. According to UBS, if no government is formed by June 26th there will most likely be a national unity government that is supported by all three major parties.
10) What’s the medium-term perspective?
Greece’s euro membership will still be a speculation of uncertainty.
To conclude, Sunday’s election results and its aftermath is a toss up. Anyone claiming to have knowledge about the outcome is blowing smoke up your ass.
Ill have two predictions. The first is I think whoever is elected will try to renegotiate the MOU. Second, I think Greece will eventually exit the Eurozone. Getting the timing right will be the hard part.