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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