MicroCap Market Report: It was another fine week to be long U.S. equities, particularly on Friday when a batch of decent economic data points sent the market. The end result of Friday’s ebullience was all 10 industry groups tracked within the S&P 500 closing higher and the Dow Jones Industrial Average surging above 14,000 for the first time in five years.
Alone, Friday was a spectacular day that saw all three of the major U.S. indexes advance more than 1%. Importantly, volume was robust as about 6.9 billion shares traded hands on U.S. exchanges today, or 11% above the three-month average, according to Bloomberg. With January in the books, the S&P 500 posted a 5.2% gain in the first month of the year, its best January performance since 1997.
Micro caps looking good
Not surprisingly, this was very good news for micro-caps, broadly speaking. The iShares Russell Microcap Index Fund (NYSE: IWC) jumped 2% on the week while the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) surged 2.5% to a new 52-week high.
|The Markets @ 2/1/2013|
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It was an across the board move for the markets last week!
The 114 point gain for the week moved the DJIA up 0.82%…closing at 14,009.79, the Dow as we noted above is at a five year high. The NASDAQ made a nice move as well…up 0.93% and already up 5.29% YTD. The S&P 500 and NYSE Composite both increased 0.68%.
Micro Caps lead the way again…the Russell Micro Cap Index gained 2.04% last week and is up 7.09% YTD; it’s now the leader in the club house.
China put the brakes on its slide…the NASDAQ Golden Dragon China Index gained 0.34%, and is just under 4.00% gains YTD.
The Internationals and Emerging Markets Indices both turned in solid performances…up 0.73% and 0.67% respectively.
The Dollar continues to slide
The US Dollar lost $0.0096 for the week, to close at 0.7332 Euros; bonds continued to lose ground too…the 10-year bond dropped $0.61 to close at $96.53 and the 30-year bond lost $1.56 to close at $91.08. “US policy makers are attempting to deal with record amount of debt and deficits by shifting the printing presses into overdrive. As long as the dollar retains its status as the global reserve currency, we will be able to pay off our debts using this newly printed currency.
“But as we have discussed in the past, the laws of supply and demand will drive the value of the US$ lower as more and more dollars are printed and placed into circulation.” Chris Gaffney, SVP & Director of Sales, EverBank World Markets
Oil keeps inching its way to $100 a barrel…WTI Crude Oil closed at $97.77, up $1.89 for the week.
Gold might be doing that sea saw thing again
This past week the yellow stuff moved back in the other direction and gained $13.00 to close at $1,669.40. As I mentioned last week, I follow Chuck Butler’s “Daily Pfennig” letter and in a mid-week post by Chris Gaffney, CFA and Vice President of EverBank World Markets, who was filling in for Chuck as he headed to the Money Show, I found some comments that are pertinent to this conversation:
Both Gold and Silver moved higher overnight as investors predict the FOMC will continue their QE3 bond buying. The purchases by the Fed pump billions per month into the markets which helps boost the equity markets but also increases the risks of long term inflation. The precious metals are moving higher as investors purchase gold and silver as a way to hedge against this risk of inflation.
I read a report this morning released by the US Mint which stated they had sold a record amount of American Silver coins so far this month, and this after sales were suspended for a week because of a lack of inventory! It certainly seems investors are looking at physical metals as a good hedge against both inflation and the uncertainty which faces all of us in 2013.
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In economic news, the Commerce Department reported that durable goods orders jumped 4.6% last month. Core durable goods orders increased 0.2%. The National Association of Realtors said its index for pending home sales fell 4.3% in December from November to 101.7. That is still almost 7% higher than the December 2011 reading.
U.S. consumer spending rose 0.2% in December following a 0.4% increase in November according to the Commerce Department. Consumer spending accounts for about 70% of U.S. GDP. The ISM-Chicago manufacturing survey for January jumped to 55.6 from 50 in December. Economists expected a reading of 50.5. Readings above 50 indicate expansion.
Income rising…The Commerce Department said personal incomes increased 2.6% in December, the largest increase in eight years. Wages and salaries increased 0.6% in December following a 0.9% increase in November.
Jobs growing…On Friday, the Labor Department reported that U.S. employers added 157,000 new jobs in January and that the unemployment rate remained at 7.9%. The December number was revised higher to 196,000 new jobs.
The University of Michigan-Thomson Reuters consumer sentiment survey rose to a January reading of 73.8, up from 72.9 in December. Economists expected a January reading of 71.5. The Institute for Supply Management said its manufacturing index for January climbed to 53.1% from 50.2% in December. Economists expected a January reading of 51%. Readings above 50% indicate expansion.
Some negative news to temper the enthusiasm…The Conference Board said its January consumer confidence index plunged to 58.6 from 66.7 in December. The January reading is the lowest since November 2011. The S&P/Case-Shiller 20-city home price index fell 0.1% in November following a 0.2% drop in October. Ten of 20 cities saw lower prices in November.
Obviously, the marquee report in a week heavy on economic data was Friday’s jobs number for January. It was decent though not spectacular, indicating the real reason behind that day’s rally was the significant upward revisions to the November and December jobs reports. Overall, the week’s data points were solid and indicate the bulls have plenty of ammunition with which to move this market higher.
The Bottom Line for Stocks
Earnings season is starting to come to a close, though there are a few big names left to report. The debt ceiling issue has been put off for another few months, so absent global headline risk, this should continue to be a good time to be long equities.
As for micro-caps, our call on the energy sector, which is well over a month old, has proven to be profitable. We would stick with that sector along with micro-cap financials. Select health care names look appealing as well and we could be nearing a point where it is finally time to take a nibble at precious metals miners.
Oil & Gas recco gains 63.3%
In particular, our call on Black Ridge Oil and Gas, Inc. (ANFC)…in our January 7th issue is looking pretty good. ANFC closed at $0.49 on Friday, 1/4/2013…on Friday, 2/1/2013 ANFC closed at $0.80…that’s a 63.3% gain in less than 30 days.
WSR Equity Research, a well respected small cap research firm, in a recent report noted the following “Investment Highlights” for ANFC
• Black Ridge Oil and Gas is an Exploration and Production (E&P) company focused on the acquisition, exploration, development and production of crude oil and natural gas properties, primarily in the Bakken and Three Forks trends in North Dakota and Montana, one of the most exciting and productive oil and gas plays in the U.S.
• The Company is following a non-operator business model whereby it seeks working interests in oil and natural gas wells and participates on a pro-rata (heads-up) basis with operators in wells drilled and completed in spacing units that include its acreage.
• On April 9, 2012, Black Ridge closed on a new $10 million credit facility with Dougherty Funding.
• In summary, Black Ridge Oil and Gas is a lean oil and gas play, with a very low cash burn-rate, based in one of the most prolific oil and gas basins in the country and run by a motivated management team with a strong track record of building businesses.
Paul Silver, analyst said that he was reiterating their Buy rating of ANFC and projecting revenue of $6.9 million, $14.6 million, and $20.6 million for fiscal year 2012, 2013 and 2014 respectively which equates to a weighted average 12-month target value of $1.04 per share.
Looks like ANFC still has more upside…and if it slips back some following this quick run up…use that as an entry point or a chance to add to your position.
Research and Editorial Staff
Mike Casson, Executive Editor