Market Condition: Uptrend Continues ↑
This Issue looks at: Recent IPOs INVN, KORS
General Market Outlook: The market is in a continued uptrend. Institutional money is finding its way into the market as evidenced by the number of accumulation days this year. Last week the Nasdaq rose 2.8%, the S&P 500 rose 2.0 %, and the Dow rose 2.4%. Earnings season in underway and the market is rewarding and punishing companies based on their own merits. The “macro risk-off” trade appears to have abated, quality stocks are being rewarded.
The technical view: Two to three weeks ago we were looking for the Nasdaq and the S&P 500 to overcome potential resistance areas. Thus far the Nasdaq composite has been able to overcome its 200 day moving average to the upside, also the Nasdaq has been able to decisively take out the October high of 2753 and continue to move higher along its ten day moving average for the last 4 weeks, the next zone of resistance for the Nasdaq will be the 2800 to 2890 level. If it can take out the 2887 level and move higher we may be truly in another bull run (please see chart below) . The S&P 500 has also taken out is October high of 1292 and is climbing along its 10 day moving average. The S&P 500 is in its zone of resistance to where it spent the last year bounding around from 1300-1370 area, thus we are watching to see if the S&P 500 can get above the upper range of this level at 1370 (chart not shown).
The Fundamental view: The Federal Reserve remains easy, corporate profits are still at record highs, earnings are still robust but have slowed down a bit. Economic numbers keep supporting a positive environment for stocks. Recent economic numbers such as the ISM manufacturing and non manufacturing have show expansion. Housing starts are at their highest levels since 2008. Unemployment keeps dropping, private payrolls keep increasing and overall retail sales are up as are auto sales.
Stocks are still cheap below is a table form www.decisionpoint.com showing the various valuations based on PE for the S&P500.
It is also worth nothing that a few quality IPO’s keep moving higher, this is what is needed for supporting a new bull trend. Recent IPOs such a KORS, INVN, and RNF, continue to move higher.
Last week we changed our signal to a continued uptrend, and the same signal persists, new highs are being made nad breakouts of leading stocks are holding, at this point we are willing to commit more money to certain stocks. In this Issue we give a brief picture of INVN and KORS. At the time of this writing I do hold INVN and KORS, however this may change at anytime based on market conditions. Although we are willing to commit more money to stocks, we will continue to monitor for any evidence of increased institutional selling and adjust accordingly.
Earnings season continues this week, so we will watch how the market reacts to the numbers. Please contact us at 1-866-903-1822 for help or if you have any questions on anything we put in the letter.
(INVN) Invensense Inc. Manufactures motion processing ICS and related software for consumer electronics devices for the video gaming industry.
The Story: Invensense is the pioneer and a global market leader in intelligent motion processing solutions that enable a motion based user interface for consumer electronics. Chips are designed for use in smartphones, tablets, gaming (Wii and Nintendo) , smart TVs and image stabilization for cameras. Goldman Sachs believes sales are expected to grow at 35% compounded annual growth rate.
Recent News:
1/9/2012: InvenSense, Inc. (NYSE: INVN), the leading provider of MotionTracking™ devices for consumer electronics, today announced the availability of the MPU-9150, the world’s first fully integrated 9-axis MotionTracking device for mobile devices, which will be showcased January 10-13 at the 2012 Consumer Electronics Show
1/5/2012: InvenSense, Inc. (NYSE: INVN), the leading provider of MotionTracking™ devices for consumer electronics, today announced availability of the MPU-6150, the world first and only single chip 6-axis MotionTracking device designed for the low power, low cost, and high performance requirements of smart-TV, set top box, and gaming console remote control applications.
Fundamentals
Last 3 quarters earnings have been triple digit +160%, +999%, +275%
Last 3 quarters of sales have been +78%, +62%, +83%
After Tax margins have increased from 18.7 to 26.6
ROE of 20%
Fund sponsorship just starting to come in.
Forward estimates for 2012 and 2013 of + 275%, +29%
Technicals: The stock is extended now from two pivot points; one that formed at 10.25, and 11.95 a standard pivot point from a short IPO consolidation. Volume has been coming into the stock on the buy side. The stock is too extended to buy now, however this should be observed for another low risk entry in the future.
(KORS) Michael Kors Hldgs Ltd. Markets Luxury apparel, accessories and footwear under the Michael Kors name.
The Story: Michael Kors first launched in 1981 has grown and now sell in 74 countries. The company started out as a luxury sportswear brand, then later branched out into shoes and accessories. In the last five years the company has branched out from selling wholesale to department stores to opening 184 stores in North America and 34 in Europe and Japan. The company is looking to a potential market of 400 locations in North America and 100 in Europe and Japan. One cautious and important note is that all the money from the IPO went to selling shareholders and will not go to the company’s expansion.
The Fundamentals:
Last 2 quarters have seen triple digit growth at +183%, +113%
Last 3 quarters of sales have been strong at +50%, +81%, +45%
After Tax margins have increased from 9.9 to 11.8
ROE of 83%
Fund sponsorship no data yet available
Forward estimates for 2012 and 2013 of unclear at this time.
Recent IPO carries a good deal of risk, especially since all proceeds from the IPO went to selling shareholders.
Technicals: The stock traded very well since its initial IPO, The stock then formed a short consolidation formed a short 2 1/2 weeks base then broke out past the 27.58 pivot on volume and has continue to do well. It is too extended from its buy point, but should be monitored for another low risk entry.
