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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