Choose Giants Over Cowboys Stocks This Season

Even though the Dallas Cowboys defeated the New York Giants in last night’s season opener of the NFL, in today’s stock market, “giants” are the better option for investors over “cowboys”. Obviously, we’re not talking about the New York football Giants but certain kinds of stocks that are analogous to giants and cowboys.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Giants Versus Cowboys

At the end of an economic cycle, large cap stocks (or giants) outperform small cap names, and value stocks outperform growth names (or cowboys). If we can agree that the economic cycle is aging, and that our Ibbotson data resource has history correct, then we can agree on the investment style for the day. It doesn’t matter if you are from New York or Dallas, but if you are from Philadelphia or Chicago, well that’s another story. You see, that would make you an eagle or a bear, ready to rise on Fed stimulus or as a contrarian market play.

Stocks that might be giants could include names like Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG), Pfizer (NYSE: PFE), Verizon (NYSE: VZ), Coca-Cola (NYSE: KO) and Wal-Mart (NYSE: WMT). However, the trend holds for the group, better than it might for all individual ideas. Clearly, large cap cyclical stocks are not going to necessarily add value to the game plan. Therefore, we might want to keep players like Caterpillar (NYSE: CAT), Bank of America (NYSE: BAC) and Alcoa (NYSE: AA) off the roster. Also, industry specific issues might cause a bad idea to have a good day, like say Exxon Mobil (NYSE: XOM) might on an Iran scare; or a good idea to have a bad day, like Kraft Foods (NYSE: KFT) might on higher agricultural prices due to drought.

The trend might not hold on the downside for all the “cowboy” stocks either, but if we were to choose some all-star failures, we might include high-beta growth ideas trading at valuations hard to justify when growth gets reconsidered. A lot of the types of names we would put on the cowboy squad have already seen share decline, like for instance Netflix (Nasdaq: NFLX), Facebook (NYSE: FB), Chipotle Mexican Grill (NYSE: CMG), lululemon (Nasdaq: LULU) and priceline.com (Nasdaq: PCLN). The cowboys would definitely include small cap rookies, which are notorious for fumbling on rainy days, say for instance names like Vivus (Nasdaq: VVUS), First Solar (Nasdaq: FSLR) and Zynga (Nasdaq: ZNGA).

I hope you enjoyed the game, whether your team won or lost. The season is long, and will be full of trials and triumphs, but until the season changes, I think you’ll do better with the giants than the cowboys. This article was easy for me to write, being a Philadelphia Eagles fan, and having enjoyed great victories over the Giants while always loving to hate the Cowboys.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Sell High-Beta Small Cap Stocks

During my time on Wall Street, I learned all about high-beta stocks and their sensitivity to the economy and stock market. I inherited a group of them when promoted into a stock-picker’s role as an Emerging Growth Analyst in early 2000. The companies I inherited represented my predecessor’s favorite forays into every hot new technology, and I was the lucky boy stuck holding them just as the dotcom bubble was about to pop. I survived though, and realizing a complete overhaul was going to be necessary, I still managed to beat the S&P 500 that year, despite following the high risk group.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

High Beta Stocks

I see too many risks being realized in the coming months, and have determined to warn you to exit most high beta stocks before the fall, especially undercapitalized small-caps. By fall, I mean decline, not the season, though the two may be interrelated. While I present a list below, I suggest investors review their portfolios for high-beta shares, and inspect the fundamentals of each to determine whether corporate specific operating results will be strong enough to fight a tide that will come against the segment in the coming year. It’s already begun.

So I ran a screen looking for high beta-stocks of 1.5 or higher, trading at a price of $5 or more, with up to $1 billion in market cap and up to $100 million in revenue, but without earnings. Those smaller names without earnings but with high hopes tend to take the biggest hit when capital dries up. It’s because they are dependent upon it before gaining operating traction.

My screen turned up 22 stocks that are listed by beta coefficient below (highest to lowest). A couple came through with positive earnings expectations near-term, so I marked those with an asterisk. I then weeded through the stocks one-by-one to understand where greater risk might lie. For instance, companies with higher debt are at greater risk in downturn and should exaggerate decline even further. I was dissatisfied though with the number of candidates for downgrade, as too few were clear cut calls. So I expanded the hunt to include stocks trading from $4 to $5; that turned up a second table of names below. The reason too few candidates showed up in our first screen is probably because many have already been penalized as the global economy has deteriorated. The price action of these stocks precedes and exaggerates tangible economic changes.

You can see that here in the six-month chart comparing the SPDR S&P 500 (NYSE: SPY) and the Russell 1000 High Beta ETF (NYSE: HBTA). The high-beta group led the decline, exaggerated it and has not recovered with the SPY.

This trend likely submerged many of our candidates under the initial $5 per share qualifier starting in the second half of May. Here’s that first list ranked by their beta values.

Company & Ticker	Price	Beta	Debt/Equity	P/S
First Financial (Nasdaq: FFCH) *	12.49	3.2	N/A	3.3
Triangle Petroleum (Nasdaq: TPLM)	6.14	2.7	N/A	21.2
FX Energy (Nasdaq: FXEN)	7.21	2.5	62%	10.3
Blue Dolphin Energy (Nasdaq: BDCO)	6.35	2.4	51%	1.5
OncoGenex Pharma (Nasdaq: OGXI)	14.43	2.3	8%	34.1
Endeavor Int’l (NYSE: END)	8.81	2.2	446%	5.3
Sangamo BioSciences (Nasdaq: SGMO)	5.04	2.1	N/A	18.4
Affymax (Nasdaq: AFFY)	16.71	2.0	9%	6.4
JMP Group (NYSE: JMP) *	5.84	1.9	239%	1.4
Alpine Global (NYSE: AGD)	5.63	1.8	N/A	5.1
Immersion (Nasdaq: IMMR)	5.53	1.7	N/A	5.1
CUI Global (Nasdaq: CUI) *	6.90	1.7	30%	1.9
Nektar Thera… (Nasdaq: NKTR)	8.49	1.7	141%	12.5
IntriCon (Nasdaq: IIN) *	5.28	1.6	66%	0.5
Gladstone Capital (Nasdaq: GLAD)*	8.51	1.6	70%	4.5
OraSure (Nasdaq: OSUR)	10.59	1.6	7%	6.0
Scorpio Tankers (Nasdaq: STNG)	6.38	1.6	38%	2.7
Derma Sciences (Nasdaq: DSCI)	9.63	1.6	N/A	1.9
BroadVision (Nasdaq: BVSN)	8.18	1.6	N/A	2.4
Depomed (Nasdaq: DEPO)	5.10	1.5	N/A	4.8
Rentrak (Nasdaq: RENT)	19.19	1.5	1%	2.3
Alnylam Pharma (Nasdaq: ALNY)	18.44	1.5	N/A	11.6

Since the second list of stocks trading from $1 to $5 per share is too long, I only include stocks trading higher than $4 here.

Company & Ticker	Price	Beta	Debt/Equity	P/S
Agenus (Nasdaq: AGEN)	4.83	1.9	N/A (Neg.)	7.1
Halozyme (Nasdaq: HALO)	4.82	1.6	N/A	9.3
Glu Mobile (Nasdaq: GLUU)	4.71	2.1	N/A	3.9
Array BioPharma (Nasdaq: ARRY)	4.66	1.6	N/A (Neg.)	5.0
The9 Limited (Nasdaq: NCTY)	4.63	2.1	N/A	8.0
Arrowhead Research (Nasdaq: ARWR)	4.62	2.7	20%	36
Mitek Systems (Nasdaq: MITK)	4.52	2.7	N/A	10.7
MCG Capital (Nasdaq: MCGC)	4.49	1.5	87%	4.4
Targacept (Nasdaq: TRGT)	4.33	2.1	2%	1.8
Essex Rental (Nasdaq: ESSX)	4.14	1.7	284%	1.1
GenVec (Nasdaq: GNVC)	4.08	1.7	N/A	3.2
SmartHeat (Nasdaq: HEAT)	4.04	2.5	16%	0.2
Miller Energy (Nasdaq: MILL)	4.02	3.5	8%	4.8
Plures Tech (Nasdaq: MANY)	4.00	5.9	38%	2.4

In the second part of this report, we’ll offer the results of our due diligence into the company specifics of both lists of high-beta stocks. From there we will determine which stocks are the true sell candidates, giving credit to their company specifics. To be notified of the second report via email, follow my column at Seeking Alpha and at our Wall Street news blog.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Should I Buy Apple (Nasdaq: AAPL)?

If you are asking the question, "Should I buy Apple (Nasdaq: AAPL)?" - you are not alone. Valuing Apple is probably one of the nation’s favorite pastimes, save buying Apple gear and talking and reading about Apple’s next generation products and new innovations. It’s certainly an interesting time to engage in the endeavor, a day after the stock jumped $15, which for AAPL is just a 2.6% move.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Buy Apple (Nasdaq: AAPL)

The stock today, at $584 per share, is 9% short of its high for the last 52-weeks, and so may entice some investors who might be following the stock for a best entry point. That said, it’s hard to call it under-appreciated, after having gained 74% in capital appreciation from its low for the year, which was marked about a full year ago.


Chart from Yahoo Finance

With a market capitalization of $546.08 billion, Apple is the largest company in the world by market cap, followed by Exxon Mobil (NYSE: XOM) at $400.14 billion, Microsoft (Nasdaq: MSFT) at $256.98 billion and Wal-Mart (NYSE: WMT) at $235.9 billion. Thus, the most relevant question to ask about Apple is, can it continue to grow even larger. Math dictates that it gets harder to grow off larger numbers. The company’s growth prospects would also seem limited, with Apple iPhone already well penetrated into the mobile phone market, having severely disrupted competitors Research in Motion (Nasdaq: RIMM), Nokia (NYSE: NOK), Palm – owned by Hewlett-Packard (NYSE: HPQ), Motorola Mobility, owned now by Google (Nasdaq: GOOG), Samsung and others. The competition has copied Apple’s style now, with full glass facades and “app” offerings now commonplace. So, perhaps mobile market share will get harder to come by as we move forward.

Giving credit to Amazon.com (Nasdaq: AMZN) for its eReader break-through, Apple’s pioneering effort in tablet computing, with the iPad establishing an entirely new category in electronics, has drawn competition from rivals in mobile and computing, as well as from Microsoft (Nasdaq: MSFT), Google (Nasdaq: GOOG) and others. Within computers, Apple’s Mac line has had its place rivaling PCs made by Dell (Nasdaq: DELL) and others for years now. So how will Apple keep growing? Because it will have to in order to justify valuation in years to come.

I am certain that this question is the reason for Apple’s very low P/E-to-growth ratio of 0.6, which is based on its P/E ratio of 12.5X and 5-year growth forecast of 21.8X, based on Yahoo Finance data. If the market were more confident in Apple’s growth outlook, this ratio would be upward of 1.0. The P/E ratio calculated here is based on the $46.84 FY 2012 (Sept.) analysts’ consensus EPS estimate. It’s therefore even more conservative a valuation, as September is just a quarter away. If we base the PEG on the FY 13 consensus EPS estimate of $54.23, we get a value of 0.5. Thus, if you believe AAPL can actually manage 21.8% EPS growth over the next five years, as analysts seem to, then AAPL is a screaming buy.

It’s also likely that the stock’s price limits retail investor participation and holds down the valuation and market capitalization. Corporate managers like Berkshire Hathaway’s (NYSE: BRK-B) Warren Buffet believe this also manages stock volatility by keeping gamblers out and sincere equity investors in. If Apple wanted to lift its valuation and stock price it might split the shares 5-for-1 or more.

AAPL’s current P/E ratio based on its trailing twelve months EPS is 14.2X. That compares well to AAPL’s historical P/E ratio of the last five years. The average high P/E ratio of the last five years has been 26.6X, while the average low P/E ratio has been 13.6X. Based on that historical data, now would seem as good a time as any to take a position in AAPL shares. Still, I think you have to believe in its growth prospects to do so. I do, but I’ll explain why in a future article, so follow my column at the Wall Street Greek blog to keep up.

Analysts are overwhelmingly recommending AAPL shares for purchase today, but as we know, analysts often fall into a trap with popular stocks and make the safe call. However, I happen to agree with them this time, because I believe in AAPL’s growth prospects. Different data providers show slight variations in their details of the information, but there is a heavy overweighting of analysts either rating the stock buy or strong buy. As for target pricing, Yahoo Finance shows the analysts’ mean target price for AAPL at approximately $715, while MarketWatch.com has it at $743. The mean of those two resources is $729, giving AAPL upside potential of 25% over the coming year. In conclusion, and answering your question, "Should I buy Apple?" - I would buy AAPL today based on its tame valuation and my view that its growth expectations will be supported. Stay tuned, as I cover more about why I think so in my next two AAPL reports.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.