Yesterday was a flat market day with the DJIA and the S&P off a small amount while NASDAQ gained a few points. But it was better than last week when all style/caps ended the week in the red. Large-cap value was down the least, at -0.8%, while small-cap value was down the most, at -1.11%.
Not much different from a sector viewpoint last week, except Basic Materials gained nearly 4%,chiefly due to a fall in the dollar versus other major currencies (approximately 2%). The remaining sectors fell from a little less than -0.3% for Consumer Non-Cyclicals to nearly a full percent for Consumer Cyclicals. Not much of a spread there.
As for economic releases last week, there was a fairly even split between small positive surprises and small negative surprises. This week will be busier on the economic front with fairly important announcements on today (retail sales), Thursday (industrial production among a whole slew of other reports), and Friday (housing starts and permits).
All in all, it was a lackluster week with the loss primarily due to the U.S. dollar's fall against the yen and continued statements by Fed members that reductions in QE3 may start in September.
Look, the QE3 reduction is going to happen, if not in September then perhaps later in 2013 or early 2014. But it will happen. So let's just assume it will happen and not worry about when.
What should we do under these market conditions?
As most of our readers know, Sabrient builds model portfolios for ETFs, UITs, and other institutional investors. We have finished our fourth UIT portfolio of the year, and I wondered what we might have missed. You see, these large portfolios rarely accept stocks with capitalizations much below $500M. The dividend-based models rarely accept constituents with less than a 2% yield, and we generally do not include companies with fewer than three analysts following the company, as reported by a service called IBES.
So I thought, Why not search for companies that barely missed one or more of these requirements?
4 Stocks this Market Should Favor
Four such stocks piqued my interest: SanDisk (SNDK), Lithia Motors (NYSE:LAD), Econ Wire (NASDAQ:WIRE), and Trinity Industries (NYSE:TRN). One had only two analysts reporting estimates through IBES. All had dividends, but none were as high as 2%. For these reasons, they were eliminated from consideration for our institutional portfolios. Yet, all are interesting growth companies, reasonably priced, and in multiple sectors.
SNDK was expected by many analysts to fall short of expectations in Q2 due to the competitive landscape in flash memory, but SNDK beat earnings by more than 30%! After a two-day rally of only 6%, the stock has fallen nearly 10% to well below its pre-announcement price, which makes for a good entry point. Over the past 30 days nearly all of the 30+ analysts who follow the company have the raised their estimates for 2013 and 2014. No one has lowered estimates. The stock has been a growth machine over the past 15 months, but it is currently selling barely over 10x next year's earnings. True, there are competitive issues that need to be thought through carefully, but I put this one out there for your analysis.
Maybe you would rather own your own car dealership? Well, you can for about $2 billion, the current market cap of LAD. That's a little much for most of us, but surely we can afford 68 bucks for a single share. Then we will own (a piece of) a car and truck dealership, just like those sports team owners that used their profits from car dealerships to buy a major league sports team! Check out the stats on this company. The story of Lithia Motors is worth reading just to learn about the 27 models of cars and trucks, including Tesla (NASDAQ:TSLA), that they sell all over the West and Midwest. Lithia is growing like wildfire. Make sure you check out the cash flow and debt, but it is worth a look.
Then there is WIRE, the small-cap company covered by just two analysts. The company wires homes and offices and who know what else. It is a copper play with little or no risk that copper prices will rise or fall. Look at the growth over past couple of years and the projected growth over the next few, even if those projections were made by just two analysts.
Finally, there is TRN. Trinity moves just about every kind of energy commodity except electricity itself with its rail cars, tugboats, road building, etc. Again, look at the recent and projected growth that you can buy for 8.8x forward earnings. You can be an energy baron on the cheap and maybe make yourself a buck or too.
Incidentally, none of these companies are newbies. They were founded in 1933 (TRN), 1946 (LAD), 1988 (SNDK) and 1989 (WIRE). Two are headquartered in Texas, one in Oregon, and the other in California; and together they employ more than 25,000 people.
Have fun kicking the tires.
More Details on Those 4 Stocks
SanDisk Corporation -- Technology Sector, Large-cap
SanDisk Corporation designs, develops, manufactures, and markets flash storage card products that are used in various consumer electronics products. SNDK has a huge number of upward revisions of analysts' estimates over past 30 days, and it beat last quarter's estimate by 30%. It scores well in our system, is rated a Strong Buy, and has a dividend yield of 1.5%. Website: www.sandisk.com Price when selected (8-12-13): $57.18
Lithia Motors, Inc. -- Consumer Cyclicals Sector - Mid-cap
Lithia Motors is basically a new and used car and truck dealer, operating automotive franchises and retail dealerships of new and used vehicles and services. The company has beaten estimates four of the last four quarter by 12% to 18%, and all 10 analysts have raised estimates for 2013 and 2014. A 21% earnings growth rate is expected for Q3 and Q4, with 31.40% for 2013. The company also pays a small dividend (0.8%). Website: www.lithia.com Price when selected (8-12-13): $68.58
Encore Wire Corporation -- Industrials Sector -- Small-cap
The company manufactures and supplies electrical building wires and cables for use in interior electrical wiring applications in commercial and industrial buildings, homes, apartments, and manufactured housings. It beat Q2 estimates by 150%! Large increases are expected for Q3 (66%), Q4 (56%), year 2013 (108%), and year 2014 (38%). All for a forward P/E of only 15.7. It also pays a small dividend (0.2%). Website: www.encorewire.com Price when selected (8-12-13): $40.93
Trinity Industries, Inc. -- Industrials Sector - Mid-cap
Trinity is in the Industrials Sector, but it provides products and services to energy companies and other industries. TRN beat last quarter's estimates by 11.50%, and is expected to beat Q3 by over 40% and Q4 by more than 20%. Expected earnings growth for 2013 is 33%. And, the forward P/E is only 8.8 and it has a dividend yield of 1.3%. Website: www.trin.net Price when selected (8-12-13): $40.98
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.