There's more life in small caps, emerging markets, and Japan for careful investors, says Kevin Kennedy of the Coolcat Report.
Nancy Zambell: My guest today is Kevin Kennedy, the editor of several newsletters: The Coolcat Report, an ETF Report, and Small-Cap Growth and Technology Report. Kevin what do you think of this market? We’re zeroing in on 15,000 here.
Kevin Kennedy: I’m a person who focuses a little more on the technical than the fundamental. But certainly you’ve got to respect the new highs that all the major indexes are putting in. There’s just a lot of strength out there.
But you’ve got to get a little cautious this time of the year, since the summer’s coming up, and typically it has a little swoon. But again, you’ve got to respect the strength that the market’s been showing.
Nancy Zambell: I know you’re not really a fundamental guy, but earnings have certainly been doing much better, and as fundamental analysts—like myself, say—it’s the earnings that really drives everything.
I was talking to someone recently who said, that based on the earnings perspective, this market could go to over 16,000. Do your technical indicators show you anything like that?
Kevin Kennedy: Fundamentals—like you say—do eventually drive the stocks. There may be a lot of stocks that get a little puffed up because they’re a little more promotional.
And typically in the smaller companies, you don’t have as established an earnings record. They’ve got new products; there’s news; you know earnings are improving. So that drives interest in those companies.
Nancy Zambell: Sector-wise, you had told me earlier that you thought some of the smaller technology companies were doing really well. Are there any particular subsectors within technology that you see creating new value for some of these stocks?
Kevin Kennedy: I think it’s just overall. There’s a lot of developments in software. You see movement in the smartphone industry. And while that may be driven by the big players like Apple (AAPL) and Google (GOOG), it certainly filters down to some of the smaller companies because they’re providing services to these big boys.
There’s a lot of Israeli tech companies or even smaller tech companies here in the States that are picking up a piece of those pies. So it’s kind of interesting to ferret them out and throw some coins at them.
Nancy Zambell: Are there any tech companies you’d like to share with us that are your favorites right now?
Kevin Kennedy: 8x8 (EGHT) is one stock that has done really well for us.
We’re looking for companies that are doing better. A lot of those may have fallen off, or dropped for a couple years. And then all of a sudden, they find a level of buying interest. Maybe things weren’t quite as bad as everybody thought about that company, and they start to show some volume and begin making new highs.
Typically what we do is, try to find them as they’re breaking into to new high territory and then pull back a little bit. It’s kind of the first time that they’re getting their feet back wet, and they’re not really extended, but they are showing some strength.
There’s a bunch of little companies like that that aren’t household names, and it’s not just in tech. We’ve got an oil company in one of our portfolios—Synergy Resources (SYRG). It’s a smaller company, but is making finds in some oil shale areas. We like companies that are providing basic services, strong in their regional markets, and have some kind of edge.
On a fundamental basis, they’re really value plays. They have some sales; maybe the earnings are not quite as strong; but they’re compelling because they may have $800 million in sales and their market cap is half of that, or less.
Nancy Zambell: Right; those are the kind of companies I love to buy. I see that you’ve also been dabbling a little bit into emerging markets. Are there any particular ETFs there that you like?
Kevin Kennedy: We just added the Market Vectors Vietnam (VNM), which has had some strength and has pulled back a little bit here.
It’s not exactly in emerging markets, but I think what’s kind of interesting is this move in Japan.
Nancy Zambell: Exactly; after so long.
Kevin Kennedy: Yes. After a quarter-century on the sidelines, they’re trying some different things. They’re kind of bubbling up their economy a little, adding some liquidity and trying to go away from the austerity movement that obviously hasn’t really helped their economy.
And there’s several ETFs that track that. WisdomTree Japan Hedged Equity (DXJ), also a bet on the currency. Their basic ETF is iShares MSCI Japan Index (EWJ) that tracks the larger companies.
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