large-cap stocks
Small-Caps Sizzling, but the Rapid Advance Won’t Hold
By George Leong for Investment Contrarians | Feb 20, 2013
At the beginning of January, I said “small-cap stocks will be a key driver of the broader market should the U.S. and global economy continue to improve” in 2013.
Small-cap stocks have been impressive early on in 2013, as the Russell 2000 is up 8.7% this year, increasing 2.3% in February alone, with the index trading at record highs above the 900 level. Small-cap stocks are easily outperforming the broader market in 2013.
In my view, continued economic renewal will drive small-cap stocks higher, as these companies tend to be able to react quicker to a changing economy.
The strong start to 2013 is also a bullish sign, as was the case in 2012, when stocks flew out of the gate. We are seeing a similar situation this year, so expect some gains.
But what I’m concerned about is the rate of the advance; in my view, unless you believe the Russell 2000 will gain 65% this year based on an annualized rate, the index’s rate of advance is clearly not sustainable. And you know this is highly unlikely, so you should expect to see ebbs and flows going forward. The last big year for the Russell 2000 was a 25.3% gain in 2010.
The chart of the Russell 2000 below shows the break at the horizontal resistance line that had been in place since 2011. While the relative strength and moving average convergence/divergence (MACD) indicators are both flashing “buy” signals, the angle of the recent breakout, marked by the blue oval, clearly indicates an unsustainable advance, so be careful.
Chart courtesy of www.StockCharts.com
I favor small-cap stocks for long-term … Read More
Why You Should Have Money in Aerospace
By George Leong for Investment Contrarians | Feb 4, 2013
The “Boeing 787 Dreamliner” may be grounded for the time being, but the aerospace sector as a whole is delivering some excellent results.
We all know how significant the Chinese aerospace market is, given the superlative rise in air travel and tourism in and out of the country. I expect this to increase going forward.
The Boeing Company (NYSE/BA) estimates that China will require 5,000 aircrafts, valued at approximately $600 billion, over the next 20 years. The estimate may be conservative, especially if China can grow its income levels at a much higher pace. Boeing is looking at its new 787 Dreamliner as its big play on wide-body jet travel in spite of current issues.
Chief rival Embraer S.A. (NYSE/ERJ) estimates that the global demand will be around 28,000 new planes over the next two decades. According to Embraer, there will be over 32,550 planes in the sky by 2031, up from the current 15,500; the company also estimates that the Asia-Pacific region will account for 35% of all plane purchases. According to Embraer, the major airlines will operate in the U.S., China, intra-Western Europe, and India; and China will be the world’s largest domestic plane market in 20 years.
The findings by Embraer are not a surprise, as they will be driven by higher average disposable incomes in the emerging global markets and by the more popular desire for travel. My feeling is that strong wealth generation in the world’s largest emerging markets, including China and India, will help to drive the demand for commercial and defense planes along with stocks in the equities market.
Air traffic in China … Read More
Why You Need Small-Cap Stocks to Boost Your Profits
By George Leong for Investment Contrarians | Jan 4, 2013
Small-cap stocks will be a key driver of the broader market should the U.S. and global economies continue to improve. In 2012, small-cap stocks trailed only the technology sector as far as performance. The Russell 2000 has been advancing since the end of the first quarter, with its greatest advancement in December. If 2013 is a strong year for the economy, small-cap stocks will deliver.
My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
I favor small-cap stocks for long-term growth, as the valuations are more attractive and may be worth a look for aggressive long-term investors.
And while I view the holding of large-cap stocks as an integral part of a portfolio, for added overall portfolio returns, I like small-cap stocks. These stocks add to the risk component of your portfolio, but you are compensated by a higher overall expected return from your investments. You can increase the expected return of a portfolio by simply adding more risk. This is the advantage of adding small-cap stocks.
A standard and simple measure of stock risk versus the market is called beta—a quantitative measure of systematic or market risk that cannot be diversified away and is generally in relation to the S&P 500 or another market/benchmark stock.
A beta less than one implies that a stock … Read More
How Dividend Paying Companies Are Helping Ahead of the Fiscal Cliff
By George Leong for Investment Contrarians | Dec 4, 2012
The fiscal cliff is currently dictating the trading action in the equities market as we near December and the year-end. With 28 days left until the Bush-era tax cuts are allowed to dissipate, there is widespread fear and concern of a significant jump in taxes, including those on dividends, especially for those who invest heavily in dividend paying stocks.
The prevailing dividends tax of 15% is extremely accommodative to income-seekers, but under the fiscal cliff, we could see the tax on dividends surge to 39.6% for earners in the highest tax bracket. For dividend investors, this means a massive jump in taxes in 2013.
With the uncertainty of whether the fiscal cliff will be resolved prior to January 1, we are seeing numerous U.S. companies paying out special dividend payments to their shareholders now to avoid a potential massive tax hit for investors in the future years under the fiscal cliff.
These companies, whether or not they have historically been big dividend payers, are doing what they can to help shareholders by paying big dividend payments now under the lower taxes.
Just take a look at the numbers. In the period from the end of September to mid-November, Bloomberg says that 59 companies belonging to the Russell 3000 index announced special cash dividend payments, versus 15 companies in the same timeframe in 2011. (Source: “Special Dividends Surge Fourfold as U.S. Tax Increase Looms,” Bloomberg Businessweek, November 19, 2012.) The move to initiate special dividend payments is not a surprise, and I expect the dividend payments to continue over the next few weeks, unless a deal is struck.
Assuming the fiscal … Read More
Why You Need to Have Money in Small-cap Stocks
By George Leong for Investment Contrarians | Oct 29, 2012
Technology and small-cap stocks
have the best potential but are also more vulnerable when the overall market moves lower. The tech-laden NASDAQ is tops with a 14.8% advance this year, but it is now leading the losers, with declines of four percent in October and 3.3% since the end of the first quarter. The small-cap Russell 2000 is down 2.5% in October and 1.7% since the end of the first quarter.
In 2011, small-caps underperformed. You would have done better investing in a Treasury Bill versus small-cap stocks, which were negative in 2011 after advancing 25.3% in 2010. Yet the encouraging signs of the economy’s recovery from the 2008 Great Recession in manufacturing, the housing market, and the jobs market are helping to attract buying to small-cap stocks, which generally perform better as the economy recovers from a recession.
I continue to favor small-cap stocks, as the valuations are more attractive and may be worth a look for aggressive long-term investors.
And while I view the holding of large-cap stocks as an integral part of your portfolio, for added overall portfolio returns, I like small-cap stocks. These stocks add to the risk component of your portfolio, but you are compensated by a higher overall expected return from your investments. You can increase the expected return of a portfolio by simply adding more risk. This is the advantage of adding small-cap stocks.
A standard and simple measure of stock risk versus the market is a beta—a quantitative measure of systematic or market risk that cannot be diversified away and generally moves in relation to the S&P 500 or another market/benchmark.
A … Read More
Go Cheap or Spend Lavishly?
By George Leong for Investment Contrarians | Sep 10, 2012
The retail sector is showing some strong results as pent-up consumer spending is showing some encouraging signs of release. Yet, as a retail sector investor, do you stick with the discount and big-box stores, or should you invest your capital in high-end retailers?
The key is to buy the retail stocks that show growth along with the economic recovery, whether they are big-box stores, discounters, or luxury retailers. Investors want growth.
On the cheap end, I favor the leading discount bellwether retail stocks, as I feel consumers will continue to look for bargains regardless of the improving market conditions.
This includes large-cap stocks Wal-Mart Stores, Inc. (NYSE/WMT), Target Corporation (NYSE/TGT), and Costco Wholesale Corporation (NASDAQ/COST).
For added growth, you should look at the smaller discount companies in the retail sector.
With superior growth to Costco, small-cap PriceSmart, Inc. (NASDAQ/PSMT) operates 29 warehouse clubs in 12 countries in Central America and the Caribbean.
A big winner last week was large-cap Dollar General Corporation (NYSE/DG), an operator of over 10,000 stores across 40 states. Dollar General beat on earnings for the fifth straight quarter. The stock has reasonable valuation and above-average, long-term price appreciation potential, a positive for investors looking at the retail sector. Currently, Dollar General is up nearly 50% from its 52-week low.
In the low-end area, I like Dollar Tree, Inc. (NASDDAQ/DLTR) and Family Dollar Stores, Inc. (NYSE/FDO).
And with the housing market ramping up, I expect spending in the retail sector to continue to increase, especially on non-essential goods and services reflected by durable goods. My favorites in the retail sector remain the discounters and big-box stores. The … Read More
High Oil Prices Can’t Touch These Aerospace Players
By George Leong for Investment Contrarians | Aug 1, 2012
Oil is trading at just below $90.00 a barrel, and we continue to see a build-up in capacity in the aviation sector. It was the same even when oil prices were over $100.00 a barrel. Air travel prices continue to edge higher as airlines cut capacity and some routes.
And better yet, strong wealth generation in the world’s largest emerging markets, including China and India, will help to drive the demand for commercial planes and defense. For investors, I view aerospace as a buying opportunity in the equities market.
The Boeing Company (NYSE/BA) estimates China will require 5,000 aircrafts valued at around $600 billion over the next 20 years. The company is looking at the new “787 Dreamliner,” as its big play on wide-body jet travel despite development issues.
Air traffic in China is growing at approximately three times the rate in North America, so the Chinese aviation market is significant. China recognizes this and is developing its own commercial aviation program that will see the manufacturing of airplanes with capacity of over 150 passengers. There are no concerns at this time, as this is still decades away.
The global aerospace market is estimated to surpass $500 billion by 2012, according to Global Industry Analysts, Inc. in its report, “Aerospace and Defense Industry: A Global Strategic Business Report.” I see buying opportunities in the equities market.
Boeing is a major player in the global aerospace sector and excellent aerospace play in the equities market. The other major play in the equities market is Embraer S.A. (NYSE/ERJ), the European builder of the Airbus. The two companies are in a battle for … Read More
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