 |
Bulls
Vs. Bears - Here Are Their Cases |
|
Would
you believe the market finally had a decent week? Long overdue, the
S&P managed to end the week up by 4.6%...the first respectable gain
since early August, and the only the gain of any size since mid-September.
Here's the big
question though - is more of the same on the way now that the bulls
have been nudged? That's what we're going to look at today.
The big gain
last week is the best argument the bulls have right now. The weekly
gain was actually the biggest in years, and nothing speaks more loudly
about future results than current results.
 On
a similar note, it's interesting how the bears had a big opportunity to
drive the market even lower following Monday's huge gain. They did
for a couple of days, but the market caught itself before its prior lows
were retested. Either the bears can't or won't start another
round of torture.
Also, the
credit freeze? It's beginning to thaw out. The often-discussed
TED spread (essentially the difference between what it costs banks to
borrow and what it pays them to lend) is starting to close to more
healthy levels. Just to be clear, it's still wildly high. But, if
it at least looks like it's shrinking, that could be enough to inspire
investors back into the market.
And finally
- and this isn't a joke - there may not be many shares left to
sell. Volume, breadth, and depth have all hinted of selling exhaustion,
and cash positions are almost as high as they were in late 2002. Sure,
it's a case of "bullish by virtue of not being able to be bearish",
but it worked in early 2003. (Check the blog in the coming week as we detail
some of these details.)
It doesn't hurt
that Warren Buffett gave his endorsement of U.S. stocks on Friday ...though
it didn't seem to help a great deal either.
If you drop
anything from high enough, it'll bounce. Let's not forget that two weeks
ago the S&P 500 fell 15%...the biggest weekly loss ever. So,
to see the bulls push back this much isn't entirely unexpected.
As with the bulls, the bears are watching the coming week intently -
their party may not be over yet.
 If
for some reason the recent lows of 840 don't hold up as support, it may
well trigger the next wave of selling.
We're also about
to head into the heart of earnings season. Needless to say, profits
may be a little thin this time around. We believe most of any earnings
problems are already priced into stocks, but that doesn't mean an earnings
miss won't shake out some of the few lingering owners of any particular
holding. The average investor still seems to see the glass as half empty.
And lastly,
the bears can make the argument that over the last few weeks, any progress
made in the latter part of any week is largely wiped away on Monday of
the next week. Last Monday's 11% rally was an exception; the prior
three Mondays were all disasters. Maybe last week broke the streak - we'll
see. If last week was indeed an exception to the trend, plan on seeing
a lot of red early next week.
At the risk
of sounding flippant, since when did fundamentals matter?
 OK,
the rhetorical question was mostly for effect, but you get the point
- this mess isn't really about fundamentals. If it were, the market would
have recovered two weeks ago when the S&P 500's forward-looking price/earnings
multiple was around 10.0. That's cheap by long-term standards, yet we saw
those same stocks get even cheaper.
No, this
mess is about our old friends fear and greed. As inexpensive
as stocks were at the very beginning of October (forward-looking or
current), investors still had serious doubts about companies being
able to even meet their lowered expectations. And for good reason - the
credit market really had seized up. As a result, the market continued
to sell off until that average projected P/E sank to about 9.0, where things
seem to have stabilized.
So to answer
our own question 'what about fundamentals?', the values are great
right now, even if corporate performance is merely mediocre over the next
six to twelve months. Values, however, don't always translate into rising
stocks.
And that's the
key to it all - when will stocks rise because they're undervalued?
Until they do, the expected P/E of 9.0 and the trailing P/E of 18.6 (which
is also under the five year average) are irrelevant.
Our point is,
this past week may have been the beginning of such a move - we're certainly
ripe for it. But, only next week will let us know if things will actually
be the way they 'should' be. Ideally, we'd see a move above this past
week's high of 1044 for the S&P 500 to say the rebound is materializing.
We can't count on it happening though....not yet.
Stay tuned -
we'll be watching it closely, and will send you an update you next week. |
 |
China
Energy Recovery (CGYV) Unfazed By Recession, Still Growing Revenues |
|
|
| Recession?
What recession? Bulletin board company China
Energy Recovery (CGYV) has done everything they said they would do
since we picked the stock about a month ago. Though the market hasn't cooperated
yet in terms of the stock's price, the company has certainly done their
part.
In
the middle of September, China Energy Recovery (CER) publicly said they
were on pace to do $16 more million in business by the end of calendar
2008. That would mean total sales of $26 million for the fiscal year....and
a 119% improvement on 2007's total.
Since
September, they've done nothing but validate their claim. We covered the
news of their $3.2 million installation for Two Lions Fine Chemical Co.
a couple of weeks ago. More recently, they collected $735K for a system
installed at a Chinese paper mill.
What
was interesting about the paper mill installation, however, was that it
not only improved the energy efficiency of the plant, but also prevented
a great deal pollution. The system is capable of re-collecting up to 160
tons of the toxic by-product created when making paper. Some of it can
be re-used, and the rest of it can be disposed of appropriately. Neither
was being done very well before China Energy solved the problem.
The
bigger observation is simply that CER is able to adapt their technology
to meet a variety of needs. Though our focus (and theirs) has been energy
efficiency through waste-heat recovery, there's no less opportunity in
pollution control. Perhaps we'll be seeing more projects like this in the
future, in addition to their heat recovery boiler systems. |
|
|
|
Micro
Cap Company Spicy Pickle (SPKL) Adds Another Profit Center |
|
|
| You
don't have to actually go to Vancouver, Canada any longer if you were dead-set
on trying the company's newly acquired Bread Garden. Come 2009, you'll
be able to experience the restaurant if you have a layover or a plane change
at Vancouver's airport. The great part for the company is that you'll be
joining the 18 million other people who pass through Vancouver airport
every year. That's a lot of foot traffic.
There
aren't a lot of details yet, other than the square footage, location, and
the estimated open date of what will be the twelfth Bread Garden. However,
airport restaurants tend to do quite well. A unique concept like a Bread
Garden Urban Cafe stands to do even better than average.
In
the bigger picture, we find it more than a little interesting that this
micro cap company has once again found a way to grow by expanding somewhere
there's not a painful recession. On the contrary - Vancouver is thriving.
Presumably anybody traveling to, from, or through Vancouver is also doing
reasonably well in terms of consumerism.
A game
changer? We won't go that far. There were already 11 Bread Gardens, and
there were a total 53 restaurants in the Spicy
Pickle (SPKL) family not counting the new one underway at the Vancouver
airport. However, every company-owned unit can have a solid impact on the
top and bottom line when it comes to a micro cap company like Spicy Pickle.
More
specifically, every company-owned unit means much better (relative) cash
flow, as there are less than 20 company-owned stores. The rest are franchises.
And, owning a unit rather than franchising it gives the corporation a chance
at stronger bottom-line earnings than a franchise might produce.
The
stock itself remains a frustration, though we attribute the majority of
its weakness to the bear market - not the company's performance. |
|
|
|
Updated: 9:18 am PST (17:18 GMT), January 5, 2009
