As we were scouring the market for low-risk ‘green’ stocks to suggest in Saturday’s newsletter “Green Investing for Non-Speculators“ we came across several stocks that looked compelling, but didn’t quite fit our low-risk criteria.

Since some of them will still be of interest to many of you though, we’re going to highlight the best of those best anyway knowing they’re a little speculative. One of the best of that bunch comes from the biofuel world.

One of biofuels’ best-kept secrets is Syntroleum Corporation (SYNM). It shouldn’t be a secret though - the company is not only profitable (sort of), but owns key patents on the process used to convert coal and biomass to an energy-yielding gas as well is to liquid fuel, in addition to the patent on the process to convert animal fat to diesel and jet fuel.

Moreover, the technology works.

Yes, Syntroleum is also profitable when looking back, though we would caution you against reading too much into those numbers now. The bulk of those revenues came from technology licensing sales, engineering services, and reimbursement of development expenses. Those revenue sources won’t persist forever, but….

…. the plant that will be able to commercialize the production of Syntroleum’s biofuels is expected to be up and running by the middle of 2010. Between now and then, the revenue and income numbers may not reflect anything meaningful at all.

We say it’s the market’s best-kept secret for a handful of reasons, the biggest of which is a lack of analytical coverage… not that we blame the analysts. It’s difficult - if not impossible - to make any kind of forecast when the revenue-bearing operation isn’t up and running yet. With the first plant about 3/4 of the way done though, analysts should have a clear idea of what it will mean pretty soon; EPS estimates should follow. Investors, on the other hand, may not want to wait that long.

Is this a technology/marketability bet? Yes, though the technology is proven, and the company’s projected revenue based on 5000 barrels of synthetic fuel per day (with oil priced around $80/barrel) are plausible.

However, based on the partners Syntroleum has found, the term ‘bet’ may conjure up the wrong idea.

Were it just another fly-by-night biofuel concept dreamed up by a couple of guys in their garage, sure, SYNM may be a mere bet. Tyson Foods (TSN), however, is a 50/50 partner in the biofuel venture. Iit’s hard to imagine a company like Tyson getting involved in something like biofuels without knowing it was going to go somewhere profitable.

Chinese energy company Sinopec (SHI) also thinks highly of Syntroleum’s patented technology…. so much so, that they bought the rights to the technology for use in China. This sale of the technology to other energy companies not only points the way to other potential revenue sources (either licensing or outright sales), it also points to the power of the patented technology itself.

Bottom line? Though the line between ’speculation’ and ‘calculated risk’ can get blurry at times, SYNM actually falls pretty far on the ‘calculated risk’ side of the spectrum despite the fact that we’ll not see operational revenue until late in Q2 at the earliest. The company website offers a robust investor overview for those interested in doing a little more due diligence. In the case of Syntroleum Corporation, it’s a story worth that trouble.

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It’s been a while since we last looked at how the different market caps (micro through large) and styles (value and growth) have performed. Since there’s so much valuable data in knowing which arena is leading or lagging though [indeed, the cap, style, and sector is suggested to be worth 50% of a stock’s movement], we do want to take some time and recap those results today.

First though, let’s go back to the beginning…. back to what we can now safely say was the bear-market bottom and the beginning of the recovery.

The chart immediately below scores how each market cap and style index has performed since March 6th of last year. The winner? Micro caps, with a 95% gain. That, by the way, is the reason we remain focused on the group - these tiny companies are also the biggest opportunities when things are going even just moderately well. Take a look.

The loser has been large cap growth, with large cap value not too far ahead. Value, in general, has been stronger than growth.

That said, are any new trends emerging on the cap/style front? An updated version of the same chart will tell us. So, the next chart shows the same indices, but with the clock starting in November….. long enough to spot new trends, but not so long that we’ve missed the bulk of any new ones.

In a nutshell, no, things are still pretty much proceeding as they have been. Value is still outperforming growth, large caps are still lagging, and smaller companies are still in the lead. The only major switch between then and now isn’t even all that major…. micro caps have cooled off a bit since then. On the other hand, they deserved a break, and they’re still doing well.

As before, we’ll update these charts when merited.

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There’s not one thing wrong with owning an ‘obvious’ stock….. like an Apple (AAPL) or a Procter & Gamble (PG). Those companies sell a wanted/needed product or service, and can bear fruit for investors.

At the same time though, the more obvious a stock is, the greater the odds are that there’s no distinct opportunity with it - too many eyes are already following it to let you be the only to figure out it’s an undiscovered gem. In fact, that’s the old ‘efficient market’ argument….  the notion that you can’t know something about a company that isn’t already known by someone else.

We see both sides of the argument, and we’ll add another one - the more known the company is (and the more often it’s discussed), the more efficient the market is with spreading that information. Off-the-radar equities, being what they are, tend to operate in a much less efficient market, and therefore offer real opportunities to investors doing the work to find them.

That’s one of the reasons why the small and micro cap markets are so appealing…. very few others are competing for these stocks.

Though it helps, a stock doesn’t necessarily have to be small to be off the radar. It just has to be uninteresting, or obscure for the market to be inefficient enough to allow true-value seekers to tap opportunities.

With that as a backdrop, we’ve identified a group that practically nobody deliberately seeks out, but a group that is always needed. Better still, a continued economic recovery may boost revenue for this industry far more than it could for sexier arenas like computer hardware or capital markets.

That group? Commercial printing.

Think about it. It’s still everywhere….. mail, in-store-displays, grocery bags, label, boxes, documents, and more. Though the need for all these things tapered off with the recession, the need is growing again as the economy expands.

The thing is, nobody’s really looking at these stocks. They should be though, and will be if they keep turning in results like they did last quarter.

Bowne & Co, Inc. (BNE), for instance, increased quarterly revenue by 8%, and raised gross profits by 36% improvement in gross profit. The per-share loss was whittled down to $0.05 from $0.39. Innerworkings (INWK) raised its Q4 revenue by 17%, and boosted earnings per share to $0.05, well above the $0.01 per share for the same quarter a year ago. Multi-Color Corp. (LABL) improved per-share operating earnings from 14 cents to 26 cents on what were essentially flat sales.

Though there were certainly some printers that continued to lose ground, the three above weren’t and aren’t outright exceptions. Businesses are starting to spend again, and the oddball service providers like this - for stuff that’s easier to outsource than take care of in-house - are the immediate beneficiaries.

As we’ve been doing quite a bit of lately, here’s a fundamental snapshot of all the commercial printing companies. For a more detailed view, click here.

Just FYI, the P/E ratios are positive in some cases despite a net per-share loss, as the P/Es are calculated on an operating earnings basis. One-time charges pulled some of these companies into the red over the last twelve months, though one-time charges generally don’t affect a P/E measure…. just the bottom line.

Either way, the forward-looking P/E ratios should be your focus. While some are aggressive to the point of feeling implausible, others can justify their lofty expectations. Schawk Inc. (SGK), as an example, is not only profitable again, but more than doubled EPS estimates for its last two quarters. Could analysts still be underestimating the company? Maybe.

While a little more due diligence is merited on your end before taking the plunge on any of these stocks, the bigger trend among commercial printers is becoming clear. And by the way…. if you think the smaller names look more attractive than the bigger ones, you’re not wrong.

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Having allowed enough time for the dust to settle after Tuesday’s stunning announcement that consumer confidence had plunged, we can now step up to the podium and offer a little, less-hysterical perspective…. something the media failed to do.

Yes, the Conference Board’s key measure of consumer confidence fell from January’s score of 56.5 to 46.0 this month. Not good. On the other hand, it’s not the killer the media is making it out to be.

Remember, though it’s supposed to indicate presumptions about the future, in reality, it measures feeling about the current - and recent past - situation. The market has tanked since January, and jobs haven’t really become more abundant. Of course consumers are going to move their confidence scores a little further down the scale. One month, however, does not make a trend.

On the other hand, all trends start with the first move.

The reality is, we can’t yet worry about this blip…. mainly because we’ve seen them before, many of which didn’t disrupt a bigger trend. A couple of those instances are market with red arrows on the chart below.

As we’ve stated numerous times before, this data is meaningless month-to-month, as it’s too erratic. The only data we can use - and the only data anybody should - is the moving average line (red) of the consumer confidence figure. This is the line that shows the true trend, and the only one that has a strong correlation with market performance.

Yes, we’re cautious of the decline, but for the same reason we didn’t get giddy when it surged last March, we’re not going to despair now. We’ll make a note of it, and move on to other things. A month from now, we’ll update the chart and make another educated decision.

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Looking for a few penny stocks to tap into? There are several out there worth considering, but a small handful rose to the top of the list of potential ideas. They are Northwest Biotherapeutics, Inc (OTC:NWBO), NewCardio, Inc. (OTC:NWCI), and Iconic Brands, Inc. (OTC:ICNB). Here’s a closer look at each.

Iconic Brands, Inc.

We’ve seen plenty of up and down from Iconic Brands, Inc. (OTC:ICNB) over the last several months. Since November though, we’ve seen more up than down. In fact, ICNB crossed above its 100 day moving averages line (gray) two weeks ago, and after falling back a bit shortly afterwards, is on the rise again.

The real prompt here is the way he 20 day line stepped in as support last week, and pushed ICNB back up…. with some decent volume to boot. This is all a solid sign that a base is setting up here, fueling the next move higher.

NewCardio, Inc.

NewCardio, Inc. (OTC:NWCI) is actually a bearish possibility, for those of you who can short penny stocks.

The line in the sand is $1.31, where NWCI found a low on Friday as well as in late January. Volume hasn’t been excessively bearish yet, though Friday’s slight increase in volume on a day the stock was falling - particularly when the rest of the market was rallying - certainly doesn’t make a bullish case for NewCardio, Inc.

The final straw may have already been laid… the cross under the 20 day moving average line two weeks ago. It had been a support line for NWCI until then.

Northwest Biotherapeutics, Inc.

Northwest Biotherapeutics, Inc. (OTC:NWBO) is being squeezed between a rock and a hard place, but at least it’s a bullish slant. With horizontal resistance at $0.95 and rising support just below the current price of $0.94, something’s got to give soon for NWBO. The volume and bigger trend suggest the bulls are having their way with this penny stock, particularly now that the 20 and 50 day moving averages are acting as support.

Target-wise, you’d be crazy to not use the $1.70 area as an objective for Northwest Biotherapeutics. That’s been the top-out level twice since March of last year.

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When we dissected the defense industry last week (Big Military Budget Means Big Boon for Small Defense Contractors), we alluded to a problem that made it difficult to specifically take advantage of swelling military budgets. In a nutshell, while there are dozens of military contractors out there, for most, military contracting is a minority of their business. Honeywell (HON), for instance, is the biggest company that provides hardware for the military, but the bulk of its revenue is driven from non-military industrial technology sales.

In an effort to be as specifics as possible - which is the difference between being a good and great investor - we’re introducing a new index today…. the MicroCapPress.com Small/Micro Cap Defense Index. The constituents are small and micro caps names with the majority of their business focused on military contracts.

Yes, it’s tightly focused, and no, there aren’t that many stocks in it. That’s precisely the point though.

While the index should be volatile given its nature, it should also be critically important to traders seeking to capitalize on an ever-increasing military budget. We expect that volatility to work to our advantage in spotting points in time when these stocks are making major turns - like now.

The MicroCapPress.com Small/Micro Cap Defense Index just pushed off a couple of important support lines…. one rising, and one horizontal. Though last week’s buying volume wasn’t as strong as the prior week’s selling volume, that spike from two weeks ago may also be signaling a pivot point. Take a look, but keep reading.

One of the advantages of maintaining indices with only a few stocks in it is that you can also keep tabs on the underlying fundamentals.… something most major industry and sector indices can’t do. With that said, here’s the current fundamental snapshot and list of stocks that make up this new index.

Note that Global Defense Technology (GTEC) will eventually be added to the index; more trading history is needed in order to seamlessly integrate it into the index calculations.

In any case, we see a reasonably valued group, with an even more compelling outlook. Though a P/E above 20 and an average margin of around 8% don’t seem all that healthy, that’s actually not too far off the norms (and better than many other industries). There’s no outright ‘deal breaker’ in terms of fundamental data, anyway.

No matter what, this should be an interesting index to follow over time.

By the way, don’t forget we introduced the Small/Micro Cap Video Gaming Software Index earlier in February. These two are just a couple of the many we plan on rolling out in 2010 as we strive to help fine-tune your navigation of the small and micro cap market. Stay tuned for more micro cap index rollouts as merited.

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If you’re currently invested in the defense industry, then you probably already know the last week and a half has been much kinder to your stocks than the last month and a half. And for good reason. It was only a few days ago the market was notified of Barack Obama’s requested military budget for 2011. Despite a whole array of other things on the country’s economic plate, as it stands now, 2011’s defense budget will likely be bigger  than 2010’s; President Obama is going to ask Congress for $708 billion in 2011 to spend on the military.

That figure is surprisingly larger than the $680 million budget for 2010. Even more surprising…. it’s much greater than the $651 billion George W. Bush spent on the military in 2008.

With that as a backdrop, the 7% decline and the 2% bullish reversal we’ve seen from the Dow Jones Defense/Aerospace Index since late January all makes perfect sense. Investors assumed the Democrat President was going to reel in defense spending and use that funding elsewhere. Now it looks like he’s not.

Not that the industry is ever really in jeopardy (drastic cuts in military spending are virtually impossible), but the optimism regarding these stocks is plenty justified now…. and at least for the next couple of years. Factor in the fact that stock prices in relation to earnings - and we mean real earnings - are at levels that would make other industries salivate, and some defense exposure is a no-brainer.

The obvious choices are names like Lockheed-Martin (LMT), Northrop Grumman (NOC), General Dynamics (GD), and Honeywell (HON). Though each of those large companies are respectable in their own right, they really aren’t the strongest opportunities in the sector. The better overall possibilities come from (you guessed it) the small and micro cap names in the group.

Though we don’t want to over-generalize, the only really strong aspects the large cap equities in the defense sector offer are low P/Es, and decent dividends. Those are important, but in comparison to the growth and strong margins many of the smaller names in the sector have been generating, the Lockheed-Martin’s and the Northrop Grumman’s don’t pack any where near as much punch as, say an Alliant Techsystems (ATK) or CPI Aerostructures (CVU). Alliant Tech Systems is the U.S. military’s biggest supplier of ammunition, which may as well be food when you’re fighting a war. CPI Aerostructures builds aircraft parts, and largely serves as a subcontractor to bigger contractors.

With that in mind, we’ve got a thorough comparison of the fundamental results of the large caps in the aerospace/defense industry (which are the names you’ve heard of) versus the small caps in the industry (which are largely names you’ve not heard of). Though the smaller you get, the more hit and miss things are, the ones that are ‘hits’ are really, really big hits.

The grid below shows the highlights of those numbers, starting with the biggest names in the group, and working its way down to the smallest. For more fundamental details, click here to find our expanded defense stock matrix.

The stocks highlighted in green are our picks of the litter, so to speak. Those seven names not only stand above their peers of all sizes in terms of current and future results, but they also stand to benefit the most from yet-another big military budget for next year.

We’ll follow up on this big trend, and suggest specific trades, when merited.

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There’s no such thing as a sure thing, but there are such things as ‘high odds’ or ’strong clues’. After Biomoda, Inc. (OTC:BMOD) made a solid 15% move higher on Wednesday, it became one of this high-odds, strong-clue stocks. From here, BMOD may at least make for a good trade, and perhaps even turn into a profitable long-term investment.

Wednesday’s move itself isn’t a huge deal. It helps, but it’s not the end-all, be-all.  When combined with the action from three weeks ago though, then Biomoda, Inc. becomes much more compelling.

The basic idea here is simple - the move from $0.18 to $0.32 at the end of January was impressive, but also a risky bet…. all too often, those patterns never materialize as actual breakout efforts. And sure enough, BMOD fell all the way back $0.20 a week and a half later. In most cases, the story would end there. To see Biomoda, Inc. revived though - particularly on a bearish day for the broad market - strongly suggests the buyers want to be more persistent than the sellers.

In the bigger picture, this shallow V-shaped reversal with a pivot from early December is  firming up; the strong push on Wednesday just verifies it.

Bottom line? BMOD is a decent buy here, at least for traders not looking to get married to a penny stock. On the other hand, Biomoda, Inc. is also a viable long-term equity, boasting a P/E of 26.4 (or 90.0, depending on the source). An investor could do a lot worse either way, though true investors will want to weigh the opportunity behind its cancer screening technology.

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Want to know the biggest small cap stock turnaround story of the last six months? Auto parts and homebuilding are good guesses, but the honor actually goes to…. home entertainment software. The S&P Small Cap Home Entertainment Index is one of the biggest losers over the last six months, but also happens to be one of the biggest winners over the last two weeks (and boasts the biggest positive difference between the two timeframes among all small cap groups).

And here’s the more amazing part - much of that turnaround was logged on Tuesday in the shadow of a massive selloff from Electronic Arts Inc. (ERTS) (-9.0%) and ancillary selling from Konami Corp. (KNM) and Activision Blizzard, Inc. (ATVI). In comparison, the Small Cap Gaming Index rallied 1.85%.

In short, the worry that hammered the big guys in the group clearly didn’t reach the little guys. As such, those smaller names may well be unsung opportunities. Let’s take a look.

A Fundamental View

It comes as no surprise (or it shouldn’t anyway) that the nature of these smaller game-makers means earnings will be hit and miss, and some of them will look ugly at first glance - they’re small, and some are new/upstarts. We only say that so you’re not alarmed by the red flags on the valuation grid below.

While the group as a whole has some chinks in the armor, we’re not required to buy the whole group - we just wanted to determine what it was about some of these stocks that made the group able to do something Electronic Arts Inc., Konami Corp., and Activision Blizzard couldn’t do….  which is to not fall.

Now that we’ve got the matrix in front of us it’s pretty clear where the values are.

Changyou.com Ltd. (CYOU) is knocking it out of the park. This Chinese gaming company may well be underestimated in terms of a forward-looking EPS. The company earned more (operating) per share over the last twelve months than it’s expected to this year or next…. which seems a tad odd. Perhaps the updated estimates are just delayed. Either way, you should know Changyou.com Ltd. has met or beat estimates in its past for quarters.

The other stock of interest is Majesco Entertainment Co. (COOL)... a player that has broken into the gaming biz not by writing console or desktop game software, but by creating games for mobile devices.

If this year’s and next year’s EPS targets are met, then yes, COOL is a bargain. You should know, however, that Majesco has fallen well short of estimates - and into the red - in its last two quarters. Still, it’s worth watching.

Take-Two Interactive Software Inc. (TTWO) and THQ Inc. (THQI) both appear to have compelling futures, and may well earn an ‘investment caliber’ rating from us in the future. Earnings have been a little bit erratic though, and have been over and under analysts’ guesses. Before jumping in, we’d like to see a little more certainty or consistency.

Of the two though, THQ Inc. (THQI) is apt to stabilize first.

A Technical View

For what it’s worth, we found this trend/disparity on Tuesday because of the strength of the S&P Small Cap Home Entertainment Index versus the weakness of the large cap version of the same. That’s not necessarily the best index to use though, as it contains a lot of non-gaming companies.

We’ve shown that chart below all the same, but to better monitor the actual small cap gaming stocks as a group, we’re initiating the MicroCapPress Small/Micro Cap Gaming Software Index. The index will include equal weights of all the stocks above, with the exception of pink sheet equity Convera Corporation (CNVR.PK). We’ll update the index constantly, and let you know of key changes when merited.

For today, we’ll simply point out that the MicroCapPress Small/Micro Cap Gaming Software Index is on the verge of breaking above a key resistance line (though the S&P index is as well). The missing ingredient so far is volume, but a few more days of surprising strength from these smaller gaming names will draw out the buyers.

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Since we opened this can of worms earlier in the week when we posted “Ford Plays the Hero, Toyota Plays the Goat“, we at least owe you some follow-up now that most of the other North American auto manufacturers have chimed in with their January year-over-year sales results. Bear in mind these only consider North American sales, and are only a comparison to last January (of 2009)…. when car sales were at a 26 year low. [That’s our indirect way of saying these results are better, but still unimpressive overall… the numbers are still well shy of 2006 and 2007 levels.]

Anyway, here’s how the majors did in North America in January:

• Ford (F), up 24%
• General Motors (now MTLQQ), up 14.0%
• Fiat (FIATY)-owned Chrysler, lower by 8.0%
• Kia Motors reported flat sales
• Toyota ™, lower by 16.0%
• Honda (HMC), up 3.0%
• BMW, up 8.0%
• Porsche, up 8.0%
• Volkswagen, up 41.4%
• Mazda, up 2.0%
• Hyundai, up 24.0%
• Subaru, up 28.0%
• Nissan, up 16.0%

Good news, right? Maybe. Like we said above, the January ‘09 comparison couldn’t set the bar much lower. And, prior to this January, year-over-year comps for 2009 were actually running lower than 2008’s despite the fact that the economy and the market were both on firmer footing in 2009 than they were in 2008. Had it not been for the “cash for clunkers” program, 2009 would have been a stunning disaster for automakers in terms of units sold.

On the flipside, even tepid profits from Honda and Ford (and a few others) is an encouraging sign of viability… a sign that was in question for most - and still is for many - manufacturers.

With all that being said, there is one detail that needs to be added to the whole analysis - for Ford, GM, and Chrysler in particular. Though January’s total numbers were better, the bulk of the improvement if not the entire improvement was due to fleet sales - NOT sales to individual consumers.

As it turns  out, fleet sales accounted for about 30% of Ford’s and GM’s January numbers (which more than doubled Ford’s proportion of sales to fleets in January). Chrysler’s January fleet sales approached 40% of its total. Moreover, had it not been for lower-margin fleet sales, Ford’s sales would have actually fallen 5.0% last month. GM’s fared slightly better; its non-fleet sales increase was  3.0%.

The problem is, fleet sales don’t stay that strong forever. Rental car companies and large fleet comanies may have been taking advantage of the calendar more than feeling good abot digging into the company’s coffers. As the more detailed look showed, the individual consumer isn’t really buying cars at a much stronger pace that he/sh was last year…. when sales were pitiful.

It just forces an investor to wonder if the automakers are overestimated now that the buzz about a return to profitability is in the air.

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As we’ve said before, we welcome any and all feedback regarding our commentary- good, bad, in agreement, in disagreement, or whatever. We only ask that you keep the discussion civil, and with a purpose of growing everyone’s understanding. We got one such piece of feedback earlier today in response to Monday’s newsletter ‘Apple’s iPad Realilty Check‘. We’ll just post the note in its entirety, and the respond to a couple of items. (The bolded letters are actually quotes of ours that the respondent is inserting into his own note back to us.)

MCP: “If users aren’t willing to pay for news on a home computer or via an iPhone, why would they do so with the iPad”

The answer might be that it is a totally different user experience. For example, the way the NY Times is presented on iPad is different from the way it is on iPhone or the computer via the internet. SI also looked different from the on-line version. That might be the reason. Subscribers to the print version may give it up for the iPad version. We are going into territory that we have not seen before.

[as an] E-reader

There are many of us who use WiFi for connectivity whether it is at home, or in public space, or in schools or in cafes. For those of us who do that, the price difference is a lot less (not $130 + monthly fees) and the iPad does so much more. The big question is whether the difference between the reading experiences of these machines will make a difference. According to those who have used both, it appears that the iPad will be easier to read on the couch, while the Kindle is easier on the park bench.

MCP: “A game-changer though? The numbers and the current data say don’t hold your breath”

I am glad you used the word “current.” The reality is that in 60 days Apple will release to the public the iPad and in the next 60 days, Apple will release more information on it (e.g., if you buy Pages app, will it be able to print through WiFi), a possible 4.0 OS and, who knows, Amazon may announce the next gen of Kindle. It might be a whole another category of appliances–it looks like unchartered waters. We shall see what happens.

By the way: When did Apple put out iTv? I have heard of Apple TV, but ITV is across the pond.

MCP response: Thanks for the note, and the added perspective. Actually, it was pretty well said as is, and the ideas are valid. We don’t really have anything to clarify, except the AppleTV versus the iTV. Though the service is officially billed as ‘AppleTV’ as of 2007, the company itself has sometimes referred to it as iTV (officially and unofficially, particularly in its early days). You can use them interchangeably in the U.S. with no real confusion, but if you’re overseas, just be sure to keep in mind that ‘ITV’ is a different service altogether. Our use of ‘iTV’ just reflects stubbornness.

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Did the Toyota Motor Corp. ™ actually transfer market share over to is competitors, or was the hype of the current recall and Toyota’s damaged reputations just that - hype, with no real bite? As it turns out, the expected 11.9% drop in January’s year-over-year sales for Toyota wasn’t aggressive enough… sales were down 15.8% on a year-over-year basis.

Ford Motor Co. (F), on the other hand, saw a nice 25% increase in total January sales on a year-over-year basis. Korean carmaker Subaru saw a 28% increase in January sales. General Motors reported an increase of 22% in January sales.

Don’t get too impressed just yet though. KIA said its January sales were flat relative to last year’s, indicating that a rising tide of car buyers isn’t lifting all boats.

As for January’s market share (the litmus test), Ford says it improved its share from 14% last January to 16% this January. Toyota’s market share was expected to drop to 14.7% in January in the shadow of the recall - the lowest since March of 2006. In light of the bigger-than-expected dip in January’s results though, the market share may be even slightly less than anticipated.

Strong sales of mid-sized and fuel-efficient cars was the biggest reason for most of the year-over-year improvements for any carmakers who had them.

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Despite a terrible week last week, several companies are proceeding with plans for new and supplemental public offerings (all are new in the U.S.), confident the needed funds will be there when they sell shares. Here’s a lineup of what’s in this week’s pipeline. As usual, some are compelling, and some are scary.
China Electric Motor (NASDAQ:CELM) is slated to launch a U.S.-based IPO this week, offering 4.3 million shares somewhere between $6 and $7 each. The manufacturer of micro-motor products for household appliances, vehicles and other consumer devices will raise a total of about $25 million to add to the current $111 market cap. China Electric Motor earned $9 million on $69 million in revenue last year.

After a failure to launch as originally expected last week, Andatee China Marine Fuel (NASDAQ:AMCF) will raise approximately $17.5 million by issuing 2.5 million shares somewhere between $6 and $8 each. Andatee China Marine Fuel produces and sells blended marine fuel oil for cargo and fishing vessels in China. The company did $87 million in revenue last year, netting $3 million. The current market cap is about $59 million.

The original size of last week’s Terreno Realty Corp. (NASDAQ:TRNO) IPO has been scaled back from 15 million shares to 10 million shares; the price is currently form at $20 each, translating into a net funding of $200 million. Though delayed last week, the Terreno Realty Corp. is anticipated to actually go public this week. It’s a new REIT, and has no operating history.

Chinese real estate sales and brokerage firm (IFM) Century 21 China (NYSE:CTC) is scheduled to raise $162 million this week by issuing 16.7 million shares at a price of $9 to $11 each. The funding will bump the (IFM) Century 21 China market cap up quite a bit from its already-hefty $446 million. The company generated $74 million in revenue last year, clearing a net income of $8 million.

Online dating website operator FriendFinder Networks (NYSE:FFN) will offer an initial public offering this week, raising $220 million by issuing 20 million shares at a price between $10 and $12 each. The current market cap is $466 million. FriendFinder Networks generated $331 million in revenue last year, but lost $46 million.

Chinese-based manufacturer of polysilicon materials used in solar power equipment Daqo New Energy (NYSE:DQ) will raise $88 million this week via its IPO. The company will issue 6.5 million shares at a price of $13 to $15 each. Daqo New Energy currently boasts a market cap of $384 million. The company generated $116 million in sales last year, clearing a hefty $40 million in profit.

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As promised in last week’s newsletter “Bullish on Regional Banking (and not just for near-term reasons)“, this week we’re going to name names…. point ingout a few of the group’s best stocks that you may want to actually add to your portfolio.

The selection criteria was pretty rigorous. In essence though, we wanted to see positive earnings now, reasonable assurance that earnings would increase in the future, the stock’s currently undervalued relative to its peers, and the chat has more technical potential in front of it than behind it. Here’s the cream of the crop that rose to the top.

BB&T Corp. (BBT): At a P/E of 19.8 (past and projected) BB&T isn’t the cheapest bank in the world. It’s solid though, with surprising double-digit margins. Potential buyers caught a break on Friday with the stock pulled back from a resistance level at $29.80. Anything above $30.00 is a breakout worth buying, though BBT is worth an entry at any point now that the overall trend has turned bullish.

State Street Corp. (STT): Another stock that took a hit on Friday may represent an opportunity to take advantage of someone else’s fear…. that, and the fact that the undeserved sharp pullback from October has still not been undone. The forward-looking P/E of 9.01 is plausible. Margins here are ridiculously large as well.

CVB Financial Corp. (CVBF): Moderation is the name of the game here - a decent valuation, a decent margin, a pretty good dividend, and a stock that’s been choppy, but not really all that volatile.

F.N.B. Corporation (FNB): There’s a little bit of a reward here for those who’ve done a little homework (or who are reading this)… the stock ’sorts and scans’ available all over the web are likely to be missing the boat on this one. The past and present valuation looks ugly, with a current P/E of 81.8. The future looking P/E of 13.4 is a bargain though…. and plausible. A major non-recurring charge that hit the company in the fourth quarter of 2008 will ‘expire’ when the next quarterly results are posted, and the valuation will look much better than. 2010’s EPS will be about 50% better than 2009’s.

The chart also looks like a great rebound play. FNB got beaten to a pulp, but the recent perk-up suggests investors are starting to figure out the score here. So, there’s a ton of technical upside here as well.

So, there you are…. four picks of the litter from the regional banking group. They aren’t necessarily the only stocks in the group worth owning, and we like the group as a whole as much as we like these four stocks. The tickers are still a great place to start - or perhaps finish - your search though.

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How’s the market really doing? Despite what so many pessimist want to believe (and despite last week), earnings really are falling back into line. We know it’s tough to accept that, particularly when the media seems hell-bent on convincing you that stocks will never be able to rise out of the ashes. Companies are making money again though…. seriously.

Rather than simply tell you, we can show you - visually (perhaps that will make a more convincing argument). And, just for the sake of thoroughness, we can break it down by market cap.

Let’s just start with the large caps… the stocks in the S&P 500 Index. After dipping into the red in the last quarter of 2008, the S&P 500 (if it were a stock and not an index) earned - on an operating basis - a total of $16.76 per share. That’s back up to earnings levels we saw in late 2007, when they were on the way down. This time though, they’re on the way up. That’s not an opinion either… that’s a fact. The data we’re using came from Standard & Poor’s, and is about as reliable and unbiased as data can be.

The chart below tells the tale. Take special note of the projected EPS for the S&P 500 though. Not that S&P can’t be wrong, but they’re usually on target at this close of a range. In short, companies will be repeating 2005’s profit levels as 2010 proceeds. They’ve already returned to profitability, so stocks have at least some value.

One caveat with the earnings picture above …. it’s based on operating earnings, which as we all know too well by now isn’t a perfect picture of reported/GAAP results.

Over the last year and a half, and as is projected through 2010 and 2011, GAAP earnings [not shown] should roll in at about 1/4 to 1/3 less than operating earnings. That’s a much-bigger-than-average disparity, and actually means we’re going to be ‘earning’ at about 2003-2004 levels over the next two years when it comes to real bottom line dollars.

Even then, earnings are positive again…. real earnings. It ain’t great, but it’s something.

As for small caps, we don’t have the reported/GAAP data to look at. We do have the operating earnings data to look at though… at least since early 2007. As of last quarter, the small cap names are back up to late 2007’s profit levels, though they were on the way down at that time. Assuming the same operating/reported EPS disparity exists here, the small caps are actually not going to revisit 2007/2008 actual profit levels as projected this year. Still, the trend is positive.

Notice that the EPS forecast for the first part of 2010 is actually less than the real profits achieved at the end of 2009. Perhaps there are some upside surprises waiting in store with this group? It may stem from a lack of analyst coverage, or lagging analytical coverage. Still, it’s a ’surprise’ opportunity.

The mid caps paint the same story. So, we’ll show you the chart without repeating the highlights and lowlights.

There are two points to make here, or perhaps to reiterate….

1. Earnings are getting better. Even if the GAAP results are well under operating results, companies are turning profits again. It would be ridiculous to overlook (or miss out on) that fact. On the flipside, it would be ridiculous to look for 2007 type of results - we were thrown back to the early 2000’s on a reported/GAAP basis.
2. The small and mid caps are expected to recover earnings faster than the large caps. While Standard & Poor’s is probably too aggressive on all three fronts (small, mid, and large), the aggressiveness of the forecasts are equal and proportional, meaning the small and mid caps will indeed see a faster profit recovery than the large caps… it will just take more than that two years to achieve it.

As the data becomes more relevant, and as it changes, we’ll post updates here.Do you want to turn this data and insight into real, actionable investment ideas? Sign up for the free newsletter today.

Andatee China Marine Fuel (NASDAQ:AMCF) will be raising approximately $17 million in the coming week via an initial public offering of 2.5 million shares. The anticipated price range is $6 to $8.The current pre-IPO market cap is approximately $59.5 million. The company did $87 million in sales its last fiscal year, earning a net income of $3 million.

Andatee China Marine Fuel refines and markets blended marine fuel oil for cargo and fishing vessels in China. Read the entire prospectus here.

China Hydroelectric (NYSE:CHC) is another Chinese company slated for a a U.S.offering in the coming week. The price range is expected to be in the $15 to $17 range. With about 3.1 million shares being put on the table, the company will raise about $50 million. After the offering, the company’s market cap should be roughly $721 million.

The company builds and operates hydropower plants. It currently owns eleven, partially owns another, and will continue to acquire smaller plants using the proceeds form the offering.

China Hydroelectric is one of four China-based companies with IPOs in the foreseeable future.

Cellu Tissue Holdings (NYSE:CLU) is scheduled to raise a relatively large sum of money in the upcoming week’s IPO. The manufacturer of private label tissue products - with a current market cap of $306 million - will raise another $125 million via the sale of 7.8 million shares prices somewhere between $15 and $17 each.

From a P/S perspective, Cellu Tissue Holdings looks like a bargain before or after the IPO; last year’s sales totaled $528.

From an earnings perspective though, last year’s net profits of $11 million point to dangerously low margins. Perhaps the cash infusion will be the catalyst for greater efficiency.

Review the entire prospectus here.

Look for real estate trust Terreno Realty Corp. (NYSE:TRNO) to being trading on the NYSE sometime in the coming week as well. Though the four-character ticker would be an unusual allowance from the exchange’s overseers, as it stands right now, that indeed will be the ticker barring any changes within the next few days.

Terreno Realty Corp. is a new REIT. The stated focus is industrial real estate markets in six specific coastal U.S. markets. Potential owners should bear in mind, however, that the company acknowledged in a recent regulatory filing that it “has no operating history and has not yet identified any acquisitions, or committed any portion of the proceeds to such acquisitions.” Moreover, it also said it “may change its business, investment, leverage and strategies without stockholder approval.”

On the flipside, most of that is common boilerplate language found on most IPO filings for new REITs. So, it’s no particular cause for alarm. Investors should simply understand the nature of the business - and pitfalls - before diving in. An established REIT would clearly offer more certainty, but perhaps less opportunity.

Terreno plans on raising $300 million by selling 15 million shares at $20 each.

Symetra Financial Corporation (NYSE:SYA) is slated for its IPO and move to the NYSE in the coming week as well. The company - which is already the size of a small cap with a market capitalization of $1.45 billion - will tack on another $351 million by selling 27 million shares in the $12 to $14 range.

Like so many other recent initial public offerings, Symetra Financial Corporation shares are reasonable valued in relation to revenues; last year’s top line was $1.5 billion. The mental roadblock may be earnings - the company only netted $42 million.

On the other hand, it was one of the least profitable periods in recent history for financial stocks. So, some forgiveness may be merited for this group health, retirement plan, life, insurance and employee benefits provider…. there was nowhere for it to hide.

The entire Symetra Financial Corporation prospectus is available here.

Though the 2009 results aren’t fully in yet, three of the four quarters are in…. which is enough to start assessing last year, and comparing it to what the so-called experts expect to see for the current year.

To that end, let’s take a look at earnings levels for each of the major market caps…. where they were, how bad they got, how much they’ve recovered so far, and what 2010 holds in store.

As you can see, earnings-wise, the S&P 500 large cap index only did a little better in 2009 than it did in 2008 on an operating basis (2008 actually served up net losses on a GAAP basis). But, earnings are expected to ramp up by 34% this year. That’s still shy of 2007’s profit levels, but respectable. More importantly, it’s a believable target.

Earnings for the S&P 400 mid cap index are pretty well aligned with their large cap brothers. Next year should be better, by about 51%. That will also leave these stocks just shy of 2007’s operating earnings mark. On this front, the numbers start to feel a little more aggressive, though not out of reach.

The S&P 600 small cap index may be the most troubling of the three. Standard & Poor’s is looking for earnings to double in 2010, falling just a little short of 2007’s levels. Granted, small cap earnings fell the most in 20087, and could arguably stand to gain the most back in a recovery. This is not 2007 though… and not the same environment. With the bar set so high, the small caps could be poised to disappoint as a group.

Be that as it may, earnings trends and earnings improvements are only half the story. If profits are only up 25% compared to yesteryear, but stock prices are down 50% for the time frame, then - like it or not - those stocks are still a bargain. And that’s where this analysis takes a bit of a turn.

Take a look at the nearby P/E table. It includes past, present, and future (projected) price/earnings multiples. All seem palatable at first glance, but the numbers raise the question…. just how much ‘P’ are investors willing to pay when the ‘E’ finally stabilizes? It’s easy to tolerate a lofty P/E ratio when the market and earnings are falling - that’s just life. Now that we’re finding solid ground though, is there any real room for price appreciation?

Take small caps for instance. Even if earnings do double, will those stocks move higher from current prices? Some would say that the expected P/E of 19.10 - which is based on the current value of the index - is reasonable right where it is. Thus, there’s no growth opportunity. Perhaps the market will tolerate a P/E of 30 (though it’s a stretch), which would justify a 50% increase in current prices. That’s the rub here - what will investors deem acceptable valuations?

We’ll just say the forecasts and projections for the S&P 600 and small caps in general leave little room for error…. at best.

That pitfall isn’t quite as pressing with the mid caps and large caps, though it’s still a factor to contend with. If the large cap ‘rule of thumb’ P/E is only 17.0 for the next couple of years, for instance, then the S&P 500 may have a tough time climbing more than 14% in 2010.

It’s just something to think about. Most pundits are hysterically bearish or disturbingly bullish. Tepidness is something that hasn’t really been planned for.

Either way, they’re only projections for now, and the underlying numbers will certainly change as time moves on. We’ll let you know when they do.

In the meantime, plant these forecasts in the back of your head; save them for the point in time when you need a reality check on your euphoria.

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Before coming to any conclusions after today’s demise (like whether you should buy in or bail out), a zoomed-out chart of the S&P 500 - or any index for that matter - could offer up some perspective.

Readers who’ve been following our commentary for a while will know our strategy is longer-term in nature, but that we also seek the market’s peaks valleys to use as as trade entry and exit points. It’s nickels and dimes on the surface, but enough of those nickels and dimes can add up over time. Said another way, if you win enough small battles, you’ll eventually win the war.

We bring the analogies up today to reiterate that one simple idea - that one bad day for stocks is just a battle, and not a war. For that matter, one day isn’t even a complete battle.

The chart of the S&P 500 below traces some pretty clear and reliable (so far) trend lines. As you’ll also find, the the index was pressing its luck with to begin with over the last several days. Obviously that luck ran out today, though it was inevitable.

From here, the S&P 500 could fall back to 1090, where the lower edge of the zone - or support line - is resting. Maybe it will fall right under it. Maybe it will bounce off of it. Or, maybe it won’t touch it at all. Based on the chart’s history and sheer odds though, we have to be realistic about our expectations and call it like we see it…. this is the likely beginning of a bigger dip. Bull trends have survived worse though, and not even that long ago.

So, don’t sweat it. At least not yet. Today is just the first day of a battle that’s favoring the bears. The bears could win a few more days, and it still wouldn’t break the bigger-picture uptrend, which is the war we’re more interested in. In fact, losing this battle could be a good thing, giving investors a chance to pick up some stocks at better prices.

And if the market cracks its floor and goes into meltdown mode? Let’s burn that bridge when we get to it. All we see right now is the beginning of a return to prior support lines. Respect that, but don’t make it more than it is yet.Do you want to get all the commentary, market guidance, and trading ideas we offer? Then sign up for the free Micro Cap Press newsletter today.

As expected, Wednesday’s look at historical relationship between employment trends and past recessions was something of a hot button, fostering some great debate. We’ll post the ‘best of’ those notes and counter-points here in the blog, beginning with the first two we received this morning. [We removed the names and any details that might hint at each person’s identity, to protect their anonymity.]

Our first e-mail came from a small business owner’s perspective…

Hi, I appreciate your argument that jobs return coincidental with the ending recession; What did not address in claims assumption is that the stagnation of unemployment is impacted primarily by confidence issues, much as the stock market is. Confidence has more than simply elements and most are dependent on the risk takers in small businesses. Larger companies have trimmed their work force to get there bottom-line stable. Small businesses trimmed employees to stay afloat.

I own [a few] businesses all in the [few million] range. I add employees when we have new business. I do not add employees because I am seeing the unemployment rate go down. If the people I sell to are hesitant to buy or are stretching out the decision to buy, I know it is not the time to hire.

Secondly, if I see potential of new taxes or burdens that I cannot control hit the scene, I am even more reluctant to hire. My take home is what is left after I pay everyone else. If I sell of a business and have a healthy capital gain, that is reasonably taxed, I invest in my other businesses or invest in the market for the future. If I see some potential (and I do) that new taxes will be added, or pressure to provide new benefits or the potential for an increased cap gains, you can bet I will not move to hire. If I personally believe that inflation is a great potential, lowering my buying power, I am not going to hire or I will certainly hirer fewer folks.

When I see the enormous potential of taxes just on the debt we are building, I also put the brakes on.

This is what I see on the horizon. As a result, I do not see an optimistic short or medium term. I believe that many of my fellow small business owners have a similar view. As such, I see a much longer stagnation of unemployment, e.g., no near term change in the numbers that you so nicely presented.

I am an optimist at heart, so it is very difficult to take the negative view, but until our government puts on the breaks, I see a very slow recovery to the 5-6% unemployment.

Editor’s response: Thanks for your thoughts - they mean quite a bit coming from someone in the segment that actually employs the bulk of the workers here in America (small business owners).

Here’s another e-mail….

Wow! That was a most lucid discussion of the relationship between recession and unemployment data–thank you. I would add that the NBER usually misses the recession’s start also. But it’s a slippery concept, recession. If your definition is based on the “health of the economy”, you have to define the criteria for that. If you base it on certain economic indicators (leading), the recession will start and end sooner. If you base it on other indicators like employment (lagging), the recession range moves downstream. Employment data may be what you are more concerned about if you going thru your own private hell (as many of us are) due to personal economic hardship, the result of “recessionary” forces mostly beyond one’s control. If on the contrary you are concerned about when to buy stocks, you probably don’t care when the recession started or when it will officially end, i.e. the recession’s specific timetable doesn’t matter. What should be important is knowing that a recession is underway, that it’s following a fairly predicable path, and that there will be a reasonable limit to its extent. Then you step away and start focusing on other indicators to tell tell you when and where to invest. These are things like the market trend and semiconductor book-to-bill ratio (which flipped several months ago), and of course these are leading indicators.

I’m going to go out on a limb and suggest that for nearly all of your readers, especially after reading Wednesday’s article, the “Great Recession” by now is a foregone conclusion, and what they really want to know is where they should invest their resources to take advantage of a rising stock market. A good question might be: which market sectors have risen the sharpest coming out of past recessions (”leading” sectors)? You wouldn’t want to go too far back for the answer to this, as it would exclude technology, etc., and include sectors that have faded from prominence after decades of change.

MicroCapPress is generally a cut above every free newsletter that I know of–keep on researching and writing.

Editor’s response: Thanks for the kind words; we’ll try and keep doing the research nobody else is willing to. We’ve also got a few new stock picks in the works as well (finally), and will get them to you as soon as we think the time is right.

As for the second note, we’ve actually looked at the post-recession winners before… or tried to anyway. What we found was that there was no consistency in those results. Sometimes the obvious industries did well, and sometimes they didn’t. So much for the business cycle theory (that suggests certain sectors lead certain phases of the cycle); it’s helpful, but not etched in stone. We may take another stab at it in the future, but frankly, it seems like we’re better served by spotting industry trends in the manner we did back on October 5th.

Thanks again for the comments, and keep ‘em coming.

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Think the market is overbought and ripe for a pullback? You’re right. The problem is, it may not matter yet. Though the rally ’should be’ running on borrowed time, the failure to actually move lower over the last six weeks has given the market ample time to re-establish the underpinnings of the prior uptrend.

And what are those underpinnings exactly? Breadth and depth (or the advancers versus decliners, and bullish versus bearish volume). Here’s a closer look at why stocks may end up continuing to rally in the foreseeable future…. for all the right reasons.

We’ve looked at breadth and depth before, with a detailed ‘how to’ being published on September 11th. If you’re brand new to the analysis, we suggest you revisit that newsletter edition.

As for where things are now, the chart tells the story quite well. Though the recent rally has been said to be ‘flimsy’ and ‘without legs’, the truth is, this rally has been as robust and solid as any other. That’s largely why it won’t die.

Take a look at the ‘breadth’ portion of the chart. This indicates the trend of advancing stocks versus the trend of declining stocks for the NYSE (sorry, the trend length settings are proprietary). The bullish breadth trend line (blue, thin) overtook the bearish breadth trend line (red, thick) in late November after falling under it briefly in early November. Both were outstanding buy/sell signals at their respective times, as they usually are. In fact, a couple of other buy and sell signals are marked on the chart - in yellow - as examples, both of which were also accurate indications.

The depth portion of the chart somewhat mirrors the breadth portion. Since total volume can vary though, while total (combined ) advancers plus decliners can’t, the depth trend analysis is a little more volatile. Still, we can see the bullish depth trend (blue, thin) topped the bearish depth trend (red, thick) in late November, and hasn’t yielded since. A couple of other buys and sells based on depth trend shifts have been marked on the chart as well - both successful, as most are.

More importantly, looking at today’s snapshot tells us that those bullish trends are still intact. That’s why the overall market’s trend has remained bullish at a point in time when it seemed like it couldn’t be. Take a look, but keep reading.

Things can and do change, and these trends will snap eventually. For now, however, it would be wrong to interpret something in such a way that is deliberately contradictory to what the data and its history are saying.

We’ll keep a close eye on the chart and let you know when it starts to change dramatically. Stay tuned.

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