Author: OptimizedValue

4/26/2020 Market Commentary – The Week Ahead

This upcoming week should prove interesting for traders & investors. There is a lot of data to be announced/reported, as well as earnings reports, notably from some of the biggest names in tech (Apple, Microsoft, Google, Amazon etc…)

Factor in the recent volatility in oil, the speculations coming out of North Korea & the fact that reported numbers now both from the government & individual companies are containing time periods that were impacted from the lock-down & stocks have a lot to work with from a pricing perspective.

Reading Into Stock Earnings This Week

Some of the most prominent names in the Technology Sector will be hosting their earnings calls this week. Looking at the chart, Apple, Microsoft & Amazon appear to be better off than Alphabet. I’m going to be looking at how the impact of Pay-Per-Click revenue & sales etc.. are impacting Alphabet.

Google AdWords provides extra “digital-billboard” space to many small businesses, but with the already increasing Cost-Per-Clicks, a lot of companies are likely to be removing this from their budgeting.

Given the current state of small-business and their consumers, this should be something taken into consideration when trying to assess the strength of small-business & the economy.

I’ll also be keeping an eye on international markets, as well as the Materials, IT & Consumer Staples sectors, as outside of healthcare those had the strongest average improvements in technicals over this past week.

Economic Reports & News For The Week

There’s going to be a lot of numbers being reported this week that will also help guide us as to where we are heading next:

  • Dallas Fed Manufacturing Index
  • Goods Trade Balance
  • Durable Goods Orders ex Defense
  • Consumer Confidence
  • GDP Annualized
  • FED Rates Decision
  • Initial Jobless Claims
  • ISM Manufacturing PMI & Index and more….

I’ll be looking to see how these numbers begin to reveal more of the Corona-virus stats being reported by companies. Markets may give up some excellent deals as folks try to recalculate their positioning & re-balance their holdings according to the data being published.

This will be even more interesting, as it is likely that the more negative the headlines coming out of North Korea are, the more uncertain the market will become, adding to the existing volatility.

Volatility should kick up within the next two weeks, as unless all news & numbers we receive are good, there’s too much muck & ambiguity out there that is/has been recently impacting stock prices.

I am still in my previously mentioned short index, long volatility positions, and will continue adding to my long PSEC & ADES positions, as well as looking closer at UG as it approaches the $12-12.50 range (published in today’s notes here: https://optimizedvalue.xyz/united-guardian-inc-ug-stock-analysis/

I’m still not convinced that stocks have recovered, and I think that the factors above present a lot of opportunity to shake out the prices of over-bought stocks.

This will provide a great hunting ground for building positions in some value & growth names I’ve been looking at recently.

US Equity Futures have opened lower, let’s see how the rest of the week plays out…

United Guardian Inc. ($UG) Stock Analysis

This week I took a look at United Guardian Inc., a micro-cap stock whose ticker is $UG. UG closed for trading on 4/24/20 at $14.70/share, with a Price/Earnings (ttm) of 14.1.

United Guardian Inc. UG’s Stock Fundamentals

UG’s P/B (ttm) is 6.35, and they offer an attractive 7.48% Dividend Yield. Their Beta is low, at 0.09, which is to be expected as their Market Cap is ~$67.53M, so they most likely move on their own news, with some sector momentum included.

An interesting observation I made here is that they have little-to-no debt, and while they only have $7.92M Total Cash (mrq), their higher-than-average Dividend Payout Ratio of 106% may have more options than other companies who face similarly high Payout Ratios.

They have 26.47% Institutional Ownership, which also makes sense given their small size does not enable larger investors to make as large of a profit based on their limited lot size.

Comparing United Guardian Inc. UG’s Stock With The Consumer Staples Sector

United Guardian Inc.’s Stock Fundamentals are very attractive when compared to the Consumer Staples Sector averages.

UG’s Price/Share is 66% less than the sector average, with a 49.8% lower P/E (ttm) & 92.6% lower P/B than the average for the sector.

United Guardian Inc. UG's Stock Fundamentals Compared To The Consumer Staples Sector Averages

Their Dividend Yield is 99.5% higher than the sector average, and although their Payout Ratio is 573% above average, it’s limited debt offer more flexibility in how they can approach fixing this should the problem persist long-term.

As a very small micro-cap stock, their Estimated Market Cap is 99.6% lower than average, and their Total Cash (mrq) is 98.9% lower than the averages.

As a result, UG’s stock % Institutional Ownership is 42% lower than the Consumer Staples Sector average, and their Beta is 87.5% lower than average.

United Guardian Inc. UG’s Stock Fundamentals Compared To The Personal Products Industry

United Guardian Inc. offers many advantageous fundamentals when compared to the Personal Products Industry averages.

Their Price/Share is 15.8% lower than average, with a 20.2% lower P/E (ttm) & 59.2% P/B.

An interesting stat I came across while looking at these numbers was that UG’s EPS Growth for last quarter is +138.46% Y-o-Y, while the rest of the sector declined 26.2%.

UG’s Dividend Yield is 7.94% higher than the Industry average, with their % Institutional Ownership 24.6% lower.

Much like when compared to their sector averages, UG’s Dividend Payout Ratio is 920% higher than the Personal Products Industry average, and their Market Cap is 99% less than average, with a 98% less than average Total Cash amount.

United Guardian Inc. UG’s Technicals & Chart

UG’s stock 10-Day Moving Average is 13.99, with their 50-Day MA at 14.70 & their 200-Day MA at 17.96.

While I’m not involved in the stock, it may become interesting once it gets between $12-12.50/share.

United Guardian Inc.’s Stock Growth Story

Since they became publicly traded on 3/17/1980, UG has grown by 163.77% including dividends collected, but not including the value of their three historic stock splits.

They do not explicitly outperform the S&P 500 or NASDAQ Indexes as they are a much smaller company than most, however, they do offer positive growth & a good return for a small sized position.

United Guardian Inc. UG's Stock Performance Vs. The S&P 500, All-Time

They also continue to return value to their shareholders by paying out their dividend twice per year.

United Guardian Inc. UG's Stock Performance Vs. NASDAQ Index - All Time

Tying It All Together

UG’s stock offers a lot of interesting fundamental growth opportunities. When compared to their sector & industry they are below almost all of the averages that we examined.

Another excellent point that is becoming even more important in economic times like these is their low-level/lack of debt.

This is increasingly rare, and if they’re able to provide a 7%+ cushion via yield, they are strategically ready to weather more storms than most other companies.

As mentioned before, I am not in this name, but would consider building a position once they re-enter the $12-12.50/share range.

United Guardian Inc. Stock may be worth looking at pending additional research.

For More Notes:

UnitedGuardianIncStockNotes4.26.20-1Download

*** I Do not own any shares of UG Stock ***

4/23/2020 Market Outlook/Review

Looking at this week’s market moves so far, Energy (+7.59) & Materials (+3.66%) are the leading sectors, followed by Industrials (+1.92%) & IT (+1.65%).

Earnings results & oil price issues have caused some of this movement, but it is further reinforcing that people are looking for companies with lower debt, more cash and or better & safer dividends.

The Materials & IT Sectors offer this, as both have similar Debt/Equity Ratios, and where IT has high levels of cash, Materials are offering above average yields at safer Payout Ratios than most other sectors.

As I mentioned earlier in the week, I purchased shares of Advances Emissions Systems Inc. (ADES Ticker), a Micro-cap value play that filled on Tuesday at $6/share (+9% so far EOD).

Names like these should continue to thrive under these lockdown conditions, as folks will continue to seek stocks that are value-oriented, and that offer better interest in their yields than other assets are currently offering.

Financials (+.09%), Consumer Discretionary (+.32%) & Real Estate (+.7%) have all performed the worst so far this week. I don’t know that I’m ready to go deep diving into that end of the pool just yet, but will be certainly looking at those companies over the weekend.

Coming up on Friday, I’m not expecting much from tomorrow, unimpressive numbers across the board continue to show the fragility of the market, and today’s morning bump, afternoon pump was certainly reassuring on my short positions.

Seeing things like Tom Hanks typewriter message kids on CNBC after the market closes also doesn’t reassure me that we’re out of the woods just yet…

Expecting to see folks sell off risk into the weekend, especially given the number of companies set to report earnings tomorrow. Let’s see what happens!

*** I have a long position in $ADES, as well as Short positions against the S&P 500, NASDAQ & Russell, & also am Long Volatility, related to the above article***

Advanced Emissions Solutions Inc. $ADES Stock Analysis

This week I had a look into Advanced Emissions Solutions Stock, which trades under the ticker $ADES. ADES is a micro-cap stock that offers strong fundamentals & an excellent, safe dividend yield. I conducted my research over the weekend on 4/20/20, when the price was at $6.66, and all numbers in this article are reflective of that date.

ADES Stock Offers Strong Fundamentals

Advanced Emissions Solutions Inc. ADES Stock Fundamentals

ADES trades at a P/E (ttm) of 3.5 & a P/B of 1.13, with a Beta of 0.9. These are very attractive levels, especially when compared to the averages of their Sector, Industry & Sub-Industry (below).

Their lower than average Beta ensure less volatility, with steady growth coming mostly from company performance, given that it is a Micro-Cap with an Estimated Market Cap of $122.3M.

Given the market fallout from COVID-19, there has been a noticeable shift into stocks that have great fundamentals, good, sustainable dividends & low-levels of debt in comparisson to their cash levels.

ADES’s Total Cash (mrq) is $12.08M, with a Total Debt (mrq) of $49.56M & a Debt/Equity (ttm) of 45.76.

Despite their small size limiting the potential for larger investors, ADES still has a 68.82% Institutional Ownership.

Examining ADES’s Stock Dividend

One of their most appealing fundamentals is their generous 15.01% Dividend Yield, which is paid out quarterly. What is especially appealing about it is that their Payout Rate is 49.99%, showing that they should be able to maintain that high level of interest payments to holders of their stock. In turbulent times this is especially helpful, as it provides a performance cushion if you intend to hold it for the entire year.

How ADES Stock Compared To Other Materials Sector Stocks

Advanced Emissions Systems Inc.'s Fundamentals Compared To The Materials Sector Averages

ADES stock costs 51% less than the average Materials Sector stock, trading at an 85% lower Price-To-Earnings Ratio (ttm), and 56% less than their Price To Book Value.

Their Dividend Yield is 230%+ better than the average Materials Sector stock, with a 4.15% better Debt/Equity (ttm) Ratio & a 57% higher than average % Institutional Ownership, all very strong metrics.

Their Payout Ratio is higher than the average, but still is maintable, which shouldn’t worry investors, and as mentioned earlier, as they are a Micro-Cap stock their Market Cap is 96% less than average, as is their Total Cash.

Materials Sector Stock Average Fundamental Metrics

How Advanced Emissions Solution Stock Compares To Other Chemical Industry Stocks

Advanced Emissions Solutions Inc. ADES Stock Fundamentals Compared To The Chemical Industry Averages

When compared to the Chemical Industry average metrics, ADES has a 80% lower price/share, with an 81% lower P/E (ttm), a 48% lower P/B, and a fantastic 193% higher Dividend Yield, paying out 37% higher than average.

Their Beta is 28% less than average, partially because they are 97% smaller by Market Cap than the average Chemical Industry stock.

Despite this, as their Debt/Equity is 37% partnered with the above advantages, they have 21% more Institutional Ownership than the average Chemicals industry stock.

Chemicals Industry Average Stock Fundamental Metrics

ADES Stock Vs. Specialty Chemicals Sub-Industry Stock Fundamentals

Advanced Emissions Solution Inc. ADES Stock Fundamentals Vs. The Specialty-Chemicals Sub-Industry Average Fundamental Metrics

ADES is also a much stronger player than the average Specialty Chemicals Sub-Industry stock. Price/Share is 86% less, with an 83% less P/E(ttm) & a 59% less P/B.

Their Dividend is 362% higher than the average Specialty Chemicals stock, with 14% higher Institutional Ownership & 59% better Debt/Equity (ttm).

Their 31% lower Beta makes these numbers especially appealing in these tough times for the market.

Specialty-Chemicals Sub-Industry Average Fundamental Metrics

ADES Stock’s Historic Performance Vs. The S&P 500 & NASDAQ

Advanced Emissions Systems Inc. ADES's Stock Performance Vs. The S&P 500 Since It Began Trading

ADES Stock has grown 56.41% since it first started trading on 1/23/04, and for 3 years (12 quarterly payouts) it has yielded a dividend of ~15%, totaling 101.5% in growth.

The S&P 500 has grown 150% over that same period, however when you compare the charts and consider the fundamentals & company type, there is a lot of opportunity to outperform.

The NASDAQ has grown 307% in that time.

Advanced Emissions Systems Inc. ADES's Stock Performance Vs. The NASDAQ Since It Began Trading

Examining ADES Stock’s Technical Metrics & Chart

Advanced Emissions Systems Inc. ADES's Technicals & Stock Chart

ADES’s 10-Day Moving Average is $6.42, with its 50-day Moving Average at $8.21 & it’s 200-Day Moving Average of $11.24.

This is weaker than the average across its Sector & Industries, which is why it is a good time to begin looking at an entry-point while it establishes it’s bottom in weakness.

Overall Assessment Of ADES

I like the fundamentals of ADES, especially when compared to it’s peers. While it’s technicals aren’t looking too great, neither are the rest of the markets’, and it appears that this is an opportunity to buy a fundamentally strong company at a great discount.

After finishing my research I placed a Buy order to fill at $6/share, which filled yesterday morning around 11:30 AM.

I plan to hold onto this for a while, as it’s 15%+ dividend yield is a great safety cushion given these volatile times if I hold onto it for the year.

Plus, a micro-cap name like this just needs a couple of big headlines to takeoff running, as typically these companies are lesser known to most traders/investors, which provides extra strength once they make the news for good reason and everyone comes piling in.

*** Please note that as mentioned above I have a long position in this stock, and always conduct your own due-diligence before marking investments & trades ***

For The Complete PDF Report:

ADESStockResearch4.20.20Download

4/20/20 Stock Market & Investing Report

It’s been an interesting few weeks in the markets, and it seems that most folks agree that they don’t know exactly where to go next. Fundamentals have been skewed for years, and technicals on the charts have become a bit muddled; adding to the fog. 

We’re entering more bearish times, which will become messier by Federal Reserve intervention, energy prices (Oil going negative  today), and bond prices all re-adjusting as people begin to follow what debt the Fed will be buying. 

Add in earnings that now include COVID-19 lockdown time, and things become ever the more unclear. Here’s what we see:

Stocks To Decline Further As Investors Seek Cash & Safe Yields

We have been short Indexes as well as long Volatility for the last month or so (took a trading hiatus for 6 months for work/personal reasons), mostly utilizing inverse-leveraged ETNs & ETFs. The markets were already running on fumes & being propped up by easy-money policies & headlines more-so than any fundamental value, and the “Economy Time-Out” being imposed by most governments has caused a rush for cash, and is starting to weed out the weak from the strong.

This will make value-investments all the more important, as they focus on financial strength, blended with interest offered through Dividend Yields, and the yields’ sustainability. I’ve been analyzing 6000+ companies recently, and the trend is clear that people want safety in companies that are of high value; solid balance sheets, good debt ratings & offering a yield cushion for any future falling. Small caps may offer additional safety, as they will be less likely to move with the market, and move more based on performance. I’ll be posting notes on a new small cap value pick tomorrow.

Earnings Season Is Upon Us, What’s Next?

This earnings season will be particularly interesting, as most companies have not been posting incredible Y-o-Y improvements in their reports as it is, and now they are going to have to face the same obstacles, with a virus stay at home ruling in place. Before we go any further, remember that next earnings season will likely be even more painful…

With already limited wiggle-room, companies now have to account for additional loss of business, which will make even more issues for traders & investors.

New modeling will be forced to be done to account for so many anomalies occurring at once, and algorithms will still be running rampant, which may create additional volatility once things really kick off ($IBM is currently down 1.32% after hours as I type this)…

This may help shorts in the meantime, which are increasing again, and will create great entry points for value stocks in the near-term. The weaker companies will now start to become exposed, making money that has to earn money retreat to tried & true value picks.

How To Navigate Earnings Season For Stocks This Time Around

Numbers as we know with most companies are already manipulated a bit… now we must factor in adjustments being made for things that don’t have much previous data to model around. With such limited sampling, things will become much shakier than usual, again influencing investors into higher value names.

We recommend using your existing stock measurements for the last 1-3 years, and comparing them to the earnings moves of this quarter for themselves, their sector, industry & sub-industry to see if you can potentially draw up any trends. It’s not a perfect system by any means, but this is a time where the basic principles of KISS become even more important (Keep It Simple, Stupid…)

Remember, the trailing proven numbers are much easier to adjust than forward looking estimates… use these items for baseline benchmarks as well in comparison.

Stocks & Sectors We Like

As mentioned prior, most of the current holdings are in securities such as TVIX, SQQQ, SPXS, & RWM for the volatility and shorts portfolio. This also contains a position in Prospect Capital Corp (PSEC), as well as a order for Advanced Emissions Solutions Group (ADES) that has yet to be filled based on a sub-$6 price target (post to be published tomorrow).

The thought behind this is that the high, yet (relatively, due to PSEC’s payout ratio, ADES looks highly sustainable) sustainable yields can provide more cash to take advantage of the continuing downtrends, as well as to set up long-term value positions with leveraged long-ETF positions as well for the rebound.

As far as a sector that we think shows promise as a whole, Materials & Financials seem to have some opportunity for current growth, as well as long-term facing growth. Both are reading in at the lower end of better-valued sectors, with the exception of energy which is still a bit of a gamble. They offer safe yields, solid cash & lower debt, while being some of the underlying bigger players in the near-mid term future as the economy has to kick-start, no matter how it is done.

Tickers Mentioned: TVIX, SQQQ, SPXS, RWM, PSEC, ADES