 |
Bernanke's
Outlook Illustrated, Four Micro Caps on the Move |
|
The
market has been shaken as well as stirred this week, in the shadow
of a nice two-month rally that was overdue for a challenge. Thursday's
rebound points to resiliency, despite Ben Bernanke's best efforts to freeze
the recovery attempt in the equity market. Friday's weakness suggests the
market is listening to what he says.
In that light,
we want to do for you what neither he nor anybody else has done...show
you an updated picture of the 'trend' he's talking about.
We'll follow
that with a look at four 'on the move' micro-cap stocks you may
want to keep tabs on.
We've posted
economic data charts in the Micro Cap Press newsletter before. In light
of Bernanke's 'chat' earlier this week though, now's a good time to share
the latest ones. Perhaps he's right ...perhaps things are apt to
get worse before they get better.
 On
the unemployment front, he's correct - a trend of higher unemployment
is
in place. More importantly, this has historically been a problem for stocks.
It can't rise indefinitely, but the current unemployment rate of 5.0% is
well under modern-era high levels of 6.0% to 7.0%. If it continues to creep
higher, the market's likely to be challenged.
The Fed Chairman
also said the Fed Funds rate is probably going to stay at 2.0% for
a while. That's historically low as is, and we agree that lower rates create
more issues than they solve - no point in sending them lower unless things
really start to fall apart.
Good news though...the
Fed rarely does a complete 180 degree turn on its lending rate; we should
see 2.0% for a while. And, stable interest rates (at any level)
have historically been associated with moderate and predictable market
growth.
Inflation
- though always 'too high' - is actually at the upper edge of its
recent historical range. That's not to say it can't go higher. And,
if it does, it could really be a problem. If it was meant to do so though,
a Fed Funds rate of 2.0% probably would have let inflation loose by now.
The downside
of the inflation cap around 3.9% is the reason - the consumer is finally
at the point where the pain has stifled spending....less demand.
One thing we've
added that Bernanke didn't discuss ...capacity utilization. It's
trending lower too, which like unemployment, has been a reliable barometer
for stock performance. This data can and has reversed course mid-stream
before. But, that's a rarity. We hope that happens this time around, but
the odds say it needs to fall to 70 or lower to hit bottom.
As time gives
us more data, we'll update these charts. In the middle of it all of it
there's a clue as to what's coming.
There is one
thing to keep in mind, however. This graph and its trends are not necessarily
reasons to shy away from the market. It may change the way you
invest and in what you invest, but not all stocks suffer just because
the collective market acts like they do. .
Like we just
mentioned, not all stocks move with the bigger market tide. Micro caps
are particularly unlikely to be influenced by their bigger brethren.
We found four micro cap stocks 'on the move' that seem to be plotting
their own course. You may want to take a look at them yourself.
Gold
Resource Corp. (OTCBB: GORO) - Though gold (the commodity)
has been all over the map the last few weeks, and will likely remain volatile,
this exploration company's stock has continued to make forward progress.
Why?
As cheesy as it sounds, yes, they struck gold...at their El Aguila project,
 Gulf
Resources Inc. (OTCBB: GFRE) - Sometimes, the more obscure, the
better. And, if it's obscure as well as Chinese, even better still.
Take Gulf Resources for instance. The stock has nearly doubled over the
last four weeks, but has yet to revisit January's highs.
How does a Chinese
bromide and crude salt manufacturer's (yes, you read that right - salt)
stock swing that wildly? Good question. There may not be an answer. With
a P/E of 17 and a double in last quarter's revenue though, the folks who
are buying it sure do seem to have a solid case.
GTX
Corp. (OTCBB: GTXO) - GTX manufactures global positioning systems
for cell phone platforms. The stock got our attention recently when it
ran from around $1.50 to as high as $2.71...a move that played out immediately
after it started trading on the bulletin board.
At the current
price of $2.40, the market cap is $87.6 million. That's really not a lot
considering the kind of explosion we've seen in the GPS market. But, there's
one thing missing for GTX Corp .....revenue - they have none. So,
current shareholders are essentially making a bet on consumer's acceptance
of the technology (and GTX's ability to sell it).
It's actually
not a totally unfounded risk, though we have to wonder if they can
sell enough of their wares anytime soon to justify the stock's price. On
the other hand, though the future is still cloudy for the premise, the
future for satellite-based GPS was cloudy at one time too.
It'll be curious
to see how things go once they launch a revenue-bearing product.
 Broadwind
Energy (OTCBB: BWEN) - Not all stocks 'on the move' are necessarily
moving higher. Broadwind ran from just above $10 per share in late
March to a peak of $27.85 four days ago. Then, the bottom gave way - the
stock is now in the low $22's.
How do things
turn around so quickly? Some might call it the Jim Cramer curse.
He's been talking about the company ad nauseam, so much so that
it recently became the most-searched-for stock on the Internet. Of course,
that may well be the reason for the run from $10 to $27.
The problem
with that kind of attention - and rally - is that instant fortunes
are created even if they don't quite add up. Investors had (and have) a
lot of un-pocketed reward, but the risk is still great. The market cap
of $1.8 billion absolutely dwarfs last quarter's sales of $35 million.
Yes, revenues are on the rise, but a price/sales ratio around 12.8?
Broadband is
an interesting company whose time will eventually come, but investors may
not be able to stomach the stock's price just yet. |
Updated: 3:10 pm PST (23:10 GMT), November 20, 2008
