Robert Maltbie of Millennium With Maltbie’s Minute on the Market. Robert Maltbie discusses this week’s market trend on how the Bulls take charge, with indicators turning bullish. Liquidity, earnings and technical indicators lead the way.
MARKET SENTIMENT INDICATORS: Bearish
Our Major Market Indicators fell further into bearish territory for the second week in a row at the end of January 2015. The S&P 500 fell to 1994.99, down 2.8% for the week. The Dow Jones Industrials were down 2.9% and the NASDAQ retreated 2.6%. Continue reading “Robert Maltbie’s Singular Research MMI Report Slips Further Into Bearish Territory”
Robert Maltbie, President of Singular Research, announces the release of the February Macro Market Indicators. Our Major Market Indicators fell into the bearish range to 49.00 from 57.33. The S&P 500 index gained 1.6% this past week to 2051.82, while the NASDAQ rose 2.7% to 4758.88 and the Dow Jones Industrials added 0.9% to 17672.60. The net change in score came from a decrease in the liquidity, valuation and earnings momentum indicators, offset by an increase in the technical indicators.
The MMI report provides a summation of an extremely broad data sweep of important indicators that impact such market influencing variables such as technical, sentiment, valuation, liquidity, eps momentum, and monetary policy and yield curves. “It is as broad based and scientific as any macro approach to US Markets currently available weighting data inputs for over a hundred diverse surveys to help managers navigate market risks and volatility,” said Maltbie.
The MMI helped us largely avoid the carnage of 2008 and most recently gave a bearish call Sept 22, prior to a 10% drop in our major Equity markets.
Singular’s Major Market Indicators (MMI) analysis weighs a large number of factors impacting the domestic equities market, gauging the temperature of the market. The MMI is a yardstick which measures whether we should be more bullish, or neutral, or bearish.
Rather than rely on anecdotes, or just one or two rules of thumb, we scour the investment landscape, scoring the indicators we believe are most representative of influencing the near to mid-term outcome of the market. We weigh and total our scores, producing a composite total to guide our investment posture.
The Following is an excerpt of the Sept 22 MMI report:
MMI Falls into Bearish Territory due to the Huge Alibaba IPO
“Our Major market Indicators fell in the week ended September 19th. The MMI indicators fell to 43.00 from 59.83 last week, a Bearish reading, due to the liquidity impact of Alibaba.” Technical indicators turned bearish, as the score fell for the third consecutive week.
The equal-weighted Russell 2000 ETF (EWRS) ended the week below its 200 day moving average, accounting for the change in this segment of the MMI for the week. Technical indicators scored six out of a total possible score of 15 bullish indicators, versus eight in the prior week, enough for the total category to turn bearish.
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Singular Research, based in LA and NY, is one of the most trusted providers of unbiased, performance-based research on small and micro-cap companies to fund managers. Singular provides initiation reports and quarterly updates for approximately 60 companies. In many cases, Singular’s analysts research companies that are not often covered by any other firms.
For further inquiries, send an email with your name, title, outlet and link to articles or coverage to Robert Maltbie Jr. atRobert@singularresearch.com.
Robert Maltbie, 818-222-6915
The Long: NN; 12-month target price: $37
NN manufactures precision metal bearing components, precision metal components, and industrial plastic and rubber products for a number of global markets. The company has 10 manufacturing plants in the United States, Western Europe, Eastern Europe, and China.
The recent acquisition of Autocam’s automotive division boosts revenues by almost 60% and will increase margins and growth.The transaction recently closed and will be immediately accretive to earnings and cash flow.
Autocam’s automotive segment, with projected 2014 sales of roughly $250 million, manufactures components for engines and transmissions, fuel and power steering systems, and electric motors. The acquisition contributes high-growth products – fuel injection, variable valve timing, electric power steering, and multi-speed transmissions systems – that are benefiting from worldwide market demand for fuel efficient technologies. We believe the acquisition will boost overall company margins.
Management has provided a 2015 revenue estimate of $725 million based on closure of all announced acquisitions, a continued recovery in Europe, and single-digit organic growth. Given the risks associated with the merger, higher debt levels, and increased exposure to automotive markets, I lowered my assumed P/E multiple from 20 to 15. By applying a 15 multiple to a 2015 EPS estimate of $2.50 results in a price target of $37. Risks are that many of NN’s products are sold into the highly cyclical industrial and automotive markets.
Also, a significant part of NN’s capital structure comes from debt financing that requires the company to meet certain financial and non-financial covenants.
The Short: Solar City; 12-month target price: $30
Solar City engages in the design, installation, and sale or lease of solar energy systems to residential and commercial customers, and government entities in the United States. It also provides energy efficiency products and services, including home energy evaluation, and energy efficiency upgrade products and services.
Elon Musk has assembled an impressive triumvirate with major Wall Street investment banks and government officials emboldened with the noble twin tasks of solving the counties energy and employment issues.
Growth metrics remain strong but EBITDA and operating cash flow remain negative. Although Solar City experienced a strong increase in retained value metrics, the present valuation does not appropriately discount multiple risk factors. Although Solar City continues to grow rapidly in terms of revenues, megawatts deployed and retained value, the current valuation does not look sustainable based on ongoing operating losses and low barriers to entry in this business.
The stock price also does not reflect the following risks and red flags: 1) increasing levels of debt, 2) higher levels of operating expenses to meet growth targets, 3) significant increase in share count, 4) uncertainty in Arizona regarding taxation of solar leases, 5) ongoing investigation by the U.S. government regarding Fair Market Value pricing, 6) recent M&A activity in the solar panel industry, 7) potential downward adjustment of Retained Value and 8) aslowdown in the commercial solar business.
I forecast Solar City to post a loss of more than $2 per share this year and do not forecast positive EBITDA this year or next. It will continue to rely on external or third-party financing to support its growth plans.
A lethal concoction of internet Bubble-like valuations with a high and fast- increasing debt load, in a service type business with limited barriers to enter will prove toxic at current prices for shareholders. Solar City would reach fair value after a decline to $30.
Disclosure: Maltbie is long NN, and short Solar City.
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