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A description of the content follows : On tap for this mid-week edition of the Micro Cap Press newsletter.... Before Taking the Gridlock Plunge - Don't believe the numbers just because they're in print. Trading Ideas - Four small and micro cap ideas From the Blog - Recent highlights not featured in the newsletter Before Taking the Political...

 
 
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Tuesday, November 2, 2010 @ 8:15 pm PDT Volume IV : Issue 42
In This Edition...

On tap for this mid-week edition of the Micro Cap Press newsletter.... 

  • Before Taking the Gridlock Plunge - Don't believe the numbers just because they're in print. 
  • Trading Ideas - Four small and micro cap ideas 
  • From the Blog - Recent highlights not featured in the newsletter 
Before Taking the Political Gridlock Plunge.... 

It's common knowledge that if the country is mired in political gridlock, then stocks just do better, right? After all, with neither party really able to accomplish anything that might disrupt ongoing business, then Corporate America is essentially left alone... and allowed to continue business as usual (i.e. making lots of money). 

Conversely, if at least one government house - preferably both - are dominated by the U.S. President's party, that sweeping change/reform can really throw a wrench in businesses' practices, crimping profits as a result.

There's only one problem with the idea though..... it's just not true

The media, never letting the facts get in the way of a good story, rarely back up assumptions with research. Had the press done so, it would have found that a split house/senate tandem produces the weakest annual results for stocks, while a split President/congress tandem produces a market return that's only slightly better. 

And the most fruitful political scenario for stocks? One political party in control of both houses as well as the Presidency. 

But isn't one party better for the market than another? Again, that's a myth.... one propagated by each political party to support their own agenda. Indeed, the Democrat 'math' suggests stocks do better under Democratic regimes, while Republican 'math' seems to hint that stocks do better under Republican leadership. 

Reality: The only thing history says about the market under a certain party's leadership is that each party is able to massage and spin the numbers in an advantageous - and disingenuous - way. 

As we've said repeatedly here at the Micro Cap Press (and will continue to do so), respond to what the market IS doing, and respond to what stocks ARE worth. Most of the 'common-knowledge' theories that are expected to drive stocks higher or lower actually break down when put to the test. 

As we've also said recently, the market is fairly valued at current levels, and as earnings are improving, we anticipate tepid growth through 2011. No less, no more. That will not prevent the emotion-driven ebbs and flows however, nor would we want them to. Each ebb and flow is an entry or exit opportunity. 

It just so happens that stocks are at the top of a short-term bullish 'flow'; we're expecting a modest correction despite the nice rally on Tuesday. Don't confuse the short-term swings for long-term trends though, bullish or bearish. And don't count on Tuesday's election outcome to have any real predictive effect for the market. 
 

Trading Ideas 

Last week, the 'From the Editor' portion of the newsletter added a new name to the portfolio, but subtracted two. The addition came from a list of compelling buy candidates listed the week before

While we intend to continue to share the ongoing thoughts and management of the editor's 'sandbox portfolio', the following stocks are not being officially added to the portfolio's watchlist. They are simply small cap and micro cap ideas for you to consider, and use as you wish, if you wish. There may or may not be any follow-up on them. 

In no particular order: 

Kulicke & Soffa Indus. (KLIC): The semiconductor industry got dunked in Q2 and Q3 over worries that the economy was headed for another recession. Not only did the contraction never materialize, the semi industry never even saw a blip. If anything, tech sales actually got better. Now, many of these stocks - including Kulicke & Soffa - are parked (read 'undervalued') at low-single-digit P/E ratios. Investors aren't got to let then sit there at these low levels forever though. 

If KLIC can just climb back above the $6.40 line, that should spark the rally. 

Universal Travel Group (UTA): It's the same story as Kulicke & Soffa, but for a different reason..... worries of an economic contraction in Q2 and Q3 pulled UTA shares to multi-year lows, but the company continued to earn money all the same. Investors seem to be coming back to this one with a little more confidence though; the stock punched through a key resistance line in mid-October, and hasn't looked back since. The value was there the whole time. 

American Equity Life (AEL): Yes, it's the same American Equity Life that was purchased in the editor's sandbox portfolio last week. It's on this buy list for a different treason though. (It's not unusual for the best of the best stocks to show up as buy candidates for a variety of reasons.) 

While AEL really needs to hurdle the $11.25 mark to recognize its full potential, like UTA was, this is a stock that has the right underlying results to justify such a move eventually. 

United Online Corp. (UNTD): Like Universal Travel Group, UNTD shares have broken out of their slump and made a move above a major long-term ceiling. And since it happened last week, buyers have yet to look back. 

And why would they? There's still another 25% rally ahead before the prior highs are even retested. With a projected (2011) P/E of 6.45 though, why would they worry about looking back? United Online could actually justify a price in the $10-ish area with little effort. 

With all that being said, whether you're following the sandbox portfolio, the newsletter's trading ideas, or both, you should know you're still not getting the absolute best picks, market overview, and follow-up. If you want that, you must subscribe to the Rhino Report

Some of the Rhino Report's recent winners include a closed-out 42% win on O'Reilly Automotive (ORLY), an open-trade gain of 25% on McDonald's (MCD), and an 8.9% gain so far on Biogen Idec (BIIB) after purchasing it in mid-September [the portfolio caught last week's big jump from BIIB.] 

You can try the Rhino Report risk-free by clicking here. Empower yourself by becoming a Rhino today.
 

From the Blog 

While we try and make the newsletters as potent and meaningful as possible, there's just not enough room to get all of our commentary packed into it. Here are some of the harder-hitting blog entries from the past few days. 

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