Tag - Tol

Warren Buffet has got to be one of the greatest investors of all time, and he certainly provides some great material for the media.  I included the words quoted above as an introduction to the first chapter of my book, The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks.  They provided a great lead in to a discussion of why small-cap stocks have a place in every investor's portfolio.

Last week I discussed the out-performance of small-cap stocks over the long-term.  Today we're talking about why small-cap stocks are such strong performers.  Some of this content I've included in the first chapter of my book, but I want to bring it to you here today in SmallCapInvestor Daily.   

Almost all great companies start out small.  The exceptions are those that are formed as spin-offs from large companies or joint ventures between two big, existing companies.  But even many of these start out small.  And many of the world's greatest innovations come from these small, nimble companies.  In fact, it is the little guys that have increasingly been investing in research and development in recent decades – and helping to fuel economic growth in the process. 

It is this growth that is the reason small-cap stocks shine since the greatest rate of growth is often during a company's early days.  This is when they are producing new products, launching strategic partnerships, and entering new markets – all while flying under the radar of larger competitors and Wall street analysts and investors.  But often these efforts are rewarded once enough investors realize the company's potential, and if the company continues to perform.

Stocks moved higher today after several positive reports reversed early downward trading trends. Investors initially drove down stocks on news that first time unemployment claims increased by 15,000 last week.

Gains were made in homebuilders like Lennar (NYSE:LEN), KB Homes (NYSE:KBH), and Toll Brothers (NYSE:TOL) as well as retailers like Bed Bath & Beyond (Nasdaq:BBBY), Kirkland's (Nasdaq:KIRK), and Pier One (NYSE:PIR). Both sectors have seen bankruptcies (Linens and Things, Circuit City, among others) and layoffs over the past year as the souring economy has brought housing starts to a crawl and forced consumers to pull back in discretionary spending.

The broader indexes were up today with the Dow finishing at 8,472.40, the Nasdaq showing positive gains to close up 37.2 points to close at 1,829.54, and the S&P 500 posting a 2.14% gain to close at 920.26.

Small-cap stocks in the Russell 2000 helped propel that index 2.87% to close at 509.14 today.

Leading small-cap gainer was Jazz Pharmaceuticals (Nasdaq:JAZZ) up 37% on news that the late-stage results for its fibromyalgia drug had met the company's main goal. The drug, Xyrem, is scheduled to be submitted for marketing approval. Gains in Jazz shares outpaced gains made by other, better known, pharmaceutical manufacturers including Pfizer (NYSE:PFE), Merck (NYSE:MRK), and share price losses posted by GlaxoSmithKline (NYSE:GSK).

As we've mentioned in previous updates, this follows a general trend of sector rotation as investors are looking for more defensive plays, like healthcare and pharma, over the summer.

Other small-cap gainers for today include CPI International (Nasdaq:CPII) up 32%; Tween Brands (NYSE:TWB) up 27% on news that Dress Barn (Nasdaq:DBRN) will buy it for roughly $157 million in stock; Royale Energy (Nasdaq:ROYL) up 32.5%, an energy company involved in development and exploration of natural gas and oil in California, Texas, and the Rocky Mountain region.

Small-cap decliners were lead by medical oral diagnostics maker OraSure Technologies (Nasdaq:OSUR) down 23% on news that it needs to conduct more additional clinical trials to get approval for its hepatitis C virus test. The exact timing and costs for these additional tests have not been disclosed by OraSure and investors drove down share prices based on this uncertainty.

A number full of other small-cap stocks were big decliners today including data marketing services provider Acxiom Corporation (Nasdaq:ACXM) down 22%; Capital Bank Corporation (Nasdaq:CBKN) down 20%; and Cordorus Valley Bancorp (Nasdaq:CVLY) down 19%.

The Fed has spoken. Interest rates are not going higher anytime soon. And the Fed announced no change to its $1.75 bond purchase program. Bonds sold off, suggesting that traders hoped the Fed would do more to put a floor under prices.  

The Fed made it a point to say that "…inflation will remain subdued for some time." But the Fed also hasn't made any comments about target levels of inflation, or what levels of inflation would make it uncomfortable. With the amount of money being pumped into the system, this is a concern to me. Especially with commodity prices rising and the spread between 10-year Treasuries and 10-year inflation adjusted bonds (TIPS) increasing over the last month.  

*****Nothing will kill whatever recovery the Fed and others see coming faster than higher interest rates fueled by inflation fears.  

Most signs point to an imminent economic recovery. No one thinks it will be strong. But two straight months of increase for Durable Goods orders has most convinced that recovery, and a small level of inflation, is here.  

The Fed, in the other hand, is still fighting deflation. Unemployment is still on the rise, and modest improvement in the housing market doesn't mean we're anywhere close to working off the massive inventory of unsold homes. 

Given the very low expectations for economic recovery, maybe 2% growth in 2010, how does the Fed hike interest rates and start sopping up liquidity? I believe inflation will have to become a concern before the Fed can act.  

*****In case you missed last night's special Internet Video Conference, called Inflation Busters: Discover the Stocks to Grow and Protect Your Wealth, I have a replay ready for you. You can access it HERE.   

*****Reuter's reported yesterday that Rep. Barney Frank and another Democrat wrote a letter to the CEOs of Freddie Mac and Fannie Mae asking them to relax their standards for condo loans.  

Apparently Freddie Mac and Fannie Mae recently said they wouldn't give loans to potential condo buyers if the condo development was less than 70% occupied. Makes sense, these days. But Frank and his friend are worried the tighter standards will impair the housing market and constrict future developments. 

This is appalling. The only thing we need more than more condos is more Hummers.  
If the government truly thinks we can simply reflate our way back to prosperity, they are sadly mistaken. This recession is new animal, one where both consumers and corporations took on way too much debt. That debt now sits in the form of unsold homes, many of which have been foreclosed upon. 

These homes (and condos) must get sold. But they must get sold to people with the means to pay the loans. Simply lowering lending standards doesn't do it and may well prolong the pain of this recession. Isn't the lowering of lending standards much of what got us into this mess to begin with? 

*****China's still throwing its cash around, this time offering $7.2 billion for oil exploration company Addax Petroleum (LSE:AXC.L). It would be state-run Sinopec (NYSE:SNP) actually doing the deal. But after the attempt to buy a $19 billion stake in Rio Tinto (NYSE:RTP) it should be obvious that China is intent on securing the commodities it needs. 

And in a world starved for cash, don't be surprised when China gets what it wants.  

*****Last year, travel group AAA reported that car travel over the 4th of July was down 10.5%. This year, it will fall another 1.9%.  Airline travel is expected to be up nearly 5%.  

Stocks are seesawing this afternoon about housing construction data tumbled to a record low.

At 2:57 pm ET, the Russell 2000 (NYSE:IWM) is up 0.63%, while the Dow is up 0.27% and the S&P 500 is up 0.63%.

The Commerce Department reported this morning that the construction of homes and apartments fell 12.8% last month to the lowest pace on records dating back a half-century. Analysts were expecting a rise.

Small-cap semiconductor company Kulicke and Soffa Industries Inc. (Nasdaq:KLIC) is up 28% this afternoon after it increased its revenue outlook for the third fiscal quarter. Formula Systems (Nasdaq:FORTY) has climbed 23% after reporting a rise in Q1 profit, and Lifeway Foods Inc. (Nasdaq:LWAY) is 20% after reporting record first-quarter 2009 revenues and earnings.

*****Stocks are down this morning after a “surprise” drop in new housing starts and a fall in new building permit applications. This shouldn’t really be a surprise. After all, we are in a recovering economy, and that means progress will come in fits and starts. And since housing was the underlying cause of the last run-up and a major contributor to the market slide, there should be no question that we’ll see “surprises” like this going forward.

Recall that we’ve seen some upside surprises from the housing market in recent weeks. Yesterday’s big move was attributed, in part, to an improvement in a homebuilders confidence survey. A little bad news to balance out the good should be expected.

Still, the data from April represents a new all-time low for housing starts on an annualized basis. Year over year, housing starts are down 54%, and the housing market was already headed down then.

If there is a bright side, it’s in the understanding that economic sectors, like the stock market, have to bottom out before they can improve. We could be seeing the housing market bottoming out now.

Bell-weather homebuilder Toll Brothers (NYSE:TOL) reports tomorrow. Toll Brothers is a major player in new home construction so look to them as a bellwether . . .

Small-cap stocks opened lower, pressured by concerns on the jobs front ahead of Friday’s big employment report. In addition, money flow appeared to favor “safe haven” routes like Treasury products to the detriment of equities. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was down 8.70, or 1.17%, at 733.20.

The ISM Non-Manufacturing Survey came in at 50.6, which was above the forecast of 49.5. However, the employment sub-index slipped to 45.4, compared with 47.1 last month, which offset some of the bullish implications of the headline number.

The ISM data marked the final piece of data on a very busy morning for economists. Earlier this morning, investors had to navigate through the ADP employment survey, weekly unemployment claims and the productivity report. For the record, the ADP report came in at minus 33,000, which was worse than the forecast for a dip of 20,000; the weekly unemployment claims were at 424,000, which was basically in line with the 423,000 forecast; and the productivity report came in at 4.3%, which was way ahead of the 3% projection. Who knows why productivity surged this summer (lower pay and more work by employees perhaps?), but the productivity report was basically ignored and the market remained on the defensive primarily on the ADP data.

Even though the ADP report hasn’t had a very strong correlation to the actual Labor Department report, investors are still nervous ahead of Friday’s big event. The employment report is expected to show a decline of 71,000 on non-farm payrolls, with the unemployment rate at 5.8%.

It is worth noting that interest rates continue to push lower. Rates work inversely to credit instruments, which means that demand for bonds and notes is strong. The rate on the benchmark 10-year note tumbled to the lowest point this morning . . .

Small-cap stocks are expected to open lower, pulled down by employment jitters stirred by a private jobs survey ahead of Friday’s big report, and by losses on equity markets around the world overnight. The Russell 2000 (NYSE:IWM) was off about 0.4% in after-hours trading, which would suggest an open near 739.

The weekly unemployment claims report came in at 424,000, which was in line with the forecast of 423,000. Also, the productivity release was at 4.3%, well ahead of the 3% projection.

Also, ahead of the open, the ADP National Employment Report came in at minus 33,000, which was worse than the consensus forecast for a dip of 20,000. This could raise the caution flag ahead of Friday’s big monthly employment release, and indeed, stock index futures extended declines after the report came out. However, it should be noted that the ADP report has not been tracking well with the employment survey for quite some time.

Crude oil prices were up about $0.70 a barrel toward the $110 level as refineries in the Gulf of Mexico were still shuttered from the storms, even though Gustav did not wreak significant damage to the facilities. The market will get weekly inventory later this morning at 10:35 a.m. ET, which could stir some volatility in the commodity mix. The U.S. dollar was hovering near steady levels, despite being buffeted from all sides by reams of economic data in the U.S. and a host of central bank meetings in Europe.

Stocks on the move overnight include Navistar International Corp. (NYSE:NAV), which rallied more than 10% after posting strong earnings. In addition, Wal-Mart Stores Inc. (NYSE:WMT) was up about 0.7% on impressive August . . .

Small-cap stocks are expected to open lower, pressured by inflation jitters stirred by import price data and by ongoing concerns in the financial arena. It’s worth noting that stocks were already in the negative column overnight before this morning’s retail sales and import price reports were released, and they remained in the red when the data failed to generate any kind of upside surprises. The Russell 2000 (NYSE:IWM) was expected to open about 0.5% lower, which would suggest an open near 740.30.

The retail sales report headline figure came in at minus 0.1%, which was in line with the market consensus. The sales figure excluding autos was at plus 0.4%, which was slightly below the forecast for a rise of 0.5%. However, last month’s figure was revised upward to plus 0.3%, after being reported at plus 0.1%. The immediate response in stock market futures was muted, while the dollar was basically flat versus the euro and remained lower against the yen.

The retail sales report was released in tandem with the import price data, which was very strong, and which sparked a slide in Treasury futures. July import prices was up 1.7%, compared with the forecast for a rise of 1.0%, June prices were revised upward and the year-over-year rise in import prices was up a stunning 21.6% to the highest level in 26 years, fueled by soaring petroleum prices. Treasury prices typically recoil from a rise on inflation, which devalues fixed income investments.

Outside of the data, traders are expected to keep a close watch on the financial arena, as worries about debt write-downs took a toll on bank stocks Tuesday. Also, farm machinery maker Deere & Co. (NYSE:DE) reported soft sales and . . .

Small-cap stocks are expected to open moderately higher Tuesday, lifted by a dip in crude oil prices overnight, and by ideas that Monday’s declines were overdone. The Russell 2000 (NYSE:IWM) was up 0.3% in after-hours trading, which would translate to a cash opening near 743.25.

Gains should be curbed by losses in overseas stock markets, and by lingering concerns about financial shares following renewed credit crunch issues Monday and talk of large players raising capital again this morning.

Global equity markets were lower overnight, catching up with the big decline in U.S. prices on Monday. Japan was off 1.6%, Hong Kong down 1.8%, Singapore lost 1%, South Korea shed 1.5%, Taiwan lost 1.6%, Australia was down 1.5% and Bombay was off 0.6%. European shares also were slightly lower ahead of the U.S. opening, but got a mild boost from an upward revision in first-quarter GDP.

The market now awaits comments from Federal Reserve Chairman Ben Bernanke. He is slated to talk about the economy and field audience questions as he gives a speech via satellite to the Central Bankers’ Panel at an IMF conference in Barcelona. Bernanke is expected to deliver the speech around 9:00 a.m. ET.

Following the Bernanke speech, the market also faces factory orders data at 10:00 a.m. ET, and vehicle sales numbers throughout the day. General Motors Corp. (NYSE:GM) announced plans to close four truck plants and shift production away . . .

The Russell 2000 futures are up this morning, signifying the small-cap index will open in positive territory helped by news of an increase in mortgage applications.

The Mortgage Bankers Association's index, which gauges the volume of applications for mortgages to purchase new homes, rose 8.1% to 656.5 from a level of 607.1 last week. The group’s refinance index, a measure of the amount of loans refinanced, also increased 9.1% to 1881.1 from 1724.1 the previous week.

Shares of Cisco Systems Inc. (Nasdaq: CSCO) are trading higher ahead of the bell and lifting sentiment after the world's largest maker of computer-networking equipment reported it is raising its sales forecast on demand for high-speed Internet gear and Web-based phone systems.

In contrast, Sprint Nextel Corp. (NYSE: S) reported that quarterly earnings tumbled 95% on account of higher expenditures and lower mobile profits. The wireline communications juggernaut recorded earnings of $0.01 per share. However, excluding items and amortization, earnings were $0.25 per share, while analysts on average were expecting $0.22 per share. The current quarter earnings compare with earnings of $0.10 per share for the second quarter of 2006.