It hasn’t been a great few weeks for the market, but our portfolio has held up.
Only Polaris (NYSE: PII) is down a notable amount – about 8% – but it’s a new pick and we’ll give it time to come back.
Meanwhile, GeoEye, Inc. (Nasdaq: GEOY) jumped 23% in a single day, putting our shares up 27%. The company closed the deal on the $3.8 billion contract with the National Geospatial-Intelligence Agency that I mentioned in my recommendation.
Let’s move our stop up to $34.50 to lock in profits.
Earnings season is “officially” over now that Wal-Mart has reported. We’ll still be able to find plenty of picks, though. In fact, I have some numbers that suggest that “off-season” reports drift more than others.
To sum up earnings season, you probably can’t beat the simple headline from Bespoke Investment Group: “From Good to Mediocre.”
Earnings started off with an extremely high rate of beating estimates and tapered off from there. Bespoke quotes an earnings beat rate of 66% among the stocks they follow.
However, if you look at the companies in the S&P 500 – as we often do for simplicity’s sake – you’ll see a different picture emerge. Seventy-five percent of companies beat EPS estimates and earnings are up 48.85%.
It’s indicative of a business environment that may be less-friendly to small-cap stocks.
Yes. Small caps traditionally outperform large caps coming out of a recession. But this has more to do with the business environment rather than the market environment.
Though in recovery, the economy isn’t perfect. Small companies are struggling to raise capital and take advantage of international markets. Those advantages are letting larger companies thrive. Don’t forget, too, the uncertainty that’s delaying new hires has a bigger effect on small companies than large.
As such, I’m going to alter my formulas to include some bigger stocks that we previously ignored.
I’ve combed through a lot of earnings reports but haven’t found anything that really looks great. The closest contender is a company called Magellan Midstream Partners (NYSE: MMP). It’s a pipeline partnership that pays back 63% of its earnings as dividends. They just bought up the crown jewel of BP’s North American assets – a 7.8 billion barrel storage facility and pipelines in Oklahoma – and bought it at a bargain price.
On the downside, its dividend yield (now around 6.3%) is at a three-year low. That would put too much resistance on a short-term price surge.
Even though it won’t make a good short-term FastCap trade, it’s such a compelling long-term investment that I felt I should put it on your radar.
Ahead of the tape,
Matthew Weinschenk