|Dow||+92.02 to 17,068.26|
|S&P 500||+10.82 to 1,985.44|
|Nasdaq||+28.191 to 4,485.925|
|10-YR Yield||+0.012 to 2.639|
|Gold||-10.00 to 1,320.90|
|Crude Oil||-0.51 to 103.97|
Mike Larson, Money and Markets columnist and editor of the Safe Money Report, is out today. Mark Najarian, the managing editor of Money and Markets, is filling in …
We survived the first half! And without much of the doom and gloom that many throughout the world had predicted. In fact, the Dow has broken 17,000, and today’s surprisingly solid jobs numbers (details below) have excited nearly everyone and indicate a recovering employment picture.
Now, as we start to open the books for the second half of the year, it’s a perfect time to take stock (literally) of the successes and failures so far and exchange ideas on where stock market gains could be made in the second half.
One segment that has caught the eye of the Money and Markets research team is that of stocks priced under $10. With values and listed prices of some favorite stocks so high at this time, for many investors, buying substantial multiples of shares in any one company, such as Amazon.com ($335), or Google Inc. ($581) or Apple, even after its 7-for-1 split bringing the price down below $100, can be difficult.
But that problem can be overcome through lower-priced shares. After all, it’s easier to buy a thousand shares of a $6 stock than of a $60 stock. Many shares are priced low for a reason — because they’re just not that good. But many are there solely because of a larger number of outstanding shares, or because they’ve been unfairly beaten up after some one-time event or rumor. So we decided to talk to the Top Stocks Under $10 portfolio team for potential hotspots in the segment.
They point to the Russell 2000 small-cap index as one indication of the sector. Although not all low-priced stocks are necessarily small-cap names, the index pitted against the S&P 500 does show that it has lagged the overall rally in the first half.
But don’t forget — 2013 started the same way for small caps, and it wasn’t until the second half that jittery investors went all in, allowing the segment to outperform the S&P 500, which was picking up steam itself and ended with an exceptional year as well.
There’s no assurance that we’ll see the big gains we saw last year in the second half, but barring exogenous events like war or other uncertainties, there’s no reason that markets can’t continue the rally on the back of better employment, confidence and PMI numbers.
And a lot of money is still sitting on the sidelines, and there’s a lot earning low yields in fixed-income markets — money that’s ripe to be poured into equities.
Sorting that all out is the trick, and the Top Stocks Under $10 portfolio team closely tracks these and has shown that strong gains were possible in the first half.
|“There’s a lot of money on the sidelines and a lot earning low yields in fixed-income markets — money that’s ripe to be poured into equities.”|
In fact, many of the names in its portfolio are no longer actually under $10, having risen above that barrier since acquisition. One recent addition to the portfolio has rallied over 12 percent since the team bought it six trading days ago. Two airlines, a bank and an industrial company also have risen out of the sub-$10 universe since being added to the portfolio.
The team said it took large profits on some of its airline holdings on geopolitical risk in Iraq but sees more low-priced portfolio stocks going above $10 based on industry-specific and macroeconomic drivers.
What’s the strategy?
The team looks at a company’s business model and management, as well as any upcoming company or industry catalysts and valuation. In addition, the team often seeks out companies that are on the verge of innovation — like Peregrine Pharmaceuticals (PPHM), which has a drug in Phase 3 trials for the cure of non-small cell lung cancer. They took profits on this play since and continue to look for stocks that are making new roads. Or like Female Health Co. (FHCO),which has an innovative, unique product that’s protected by patents across the world and is the only family planning and disease prevention product that’s approved by both the FDA and the World Health Organization.
The team also utilizes the Weiss Ratings model to help determine the financial health of any particular stock.
With economic data looking better and global growth back in the picture — China’s ‘recent PMI print was comfortably above 50 — sub-$10 and small cap stocks may lead in the second half of 2014 as they did last year.
The sectors the team especially likes are energy, technology and financials, and said it will be seeking out companies in them to add to the portfolio as the second half progresses.
What is your experience with low-priced stocks? Have you made big profits? Some low-priced stocks can continue to fall and become real busts. Have you been hit by one of these? We’d love hear your comments — click here to add in your views.
|OTHER DEVELOPMENTS OF THE DAY|
Happy Third of July! Economists and Wall Street are focused this week on employment. And today’s numbers were surprisingly solid, showing that total nonfarm employment increased to 288,000 in June and that the unemployment rate declined to 6.1 percent from 6.3 percent.
A Bloomberg poll of economists had forecast a June rise of 215,000, just below the 217,000 figure in May. The unemployment rate was expected to remain unchanged at 6.3%.
The Bureau of Labor Statistics said today that “job gains were widespread, led by employment growth in professional and business services, retail trade, food services and drinking places, and health care.”
Today’s report comes a day after the ADP Employer Services data showed the economy created 281,000 jobs last month. That blew away the average economist forecast of 205,000. It blew away the 179,000 increase in May. And it was the strongest number seen in any month since November 2012.
“After Wednesday’s solid ADP number, we were quietly optimistic that today might be the big one. It was,” said Marcus Bullus, trading director of MB Capital. “The markets will go into the long weekend on a buzz, while strong upward revisions in April and May will add to the feel-good factor.”
Added Bill Kemp, head of dealing at the forex specialists FEXCO: “Not since the start of 2000 has the US enjoyed such a run of job creation — and the miserable GDP performance of the start of the year is fast becoming a distant memory.”
Looking overseas: As expected, the European Central Bank held steady on interest rates today, a month after it went to the unprecedented step of initiating a negative 0.1 percent interest rate on deposits that banks park at the central bank.
Holiday pain at the pump: The Automobile Association of America reports that gas prices are at a six-year-high for the Fourth of July holiday, with the national average price for regular unleaded gasoline at $3.67 a gallon Thursday. That was down a penny from a week ago but 19 cents more than a year ago. Fourth of July gas prices have not been this high since surpassing $4 a gallon in 2008, the AAA notes.
Don’t forget, you can let us know what you think by putting your comments here.
Best wishes for a safe, relaxing and fun Fourth of July,
P.S. Want to learn more about the Top Stocks Under $10 portfolio? Click here.
Mike Larson’s afternoon Money and Markets commentary will resume on Monday. To learn more about Mike’s services, click here.