Stock Updates: Small-Caps Silently Outperform
By: Christopher Mistal
March 17, 2015
Tomorrow we may know a little more about the future course of interest rates when the Fed concludes its two-day meeting. They may choose to remain “patient” for additional data or they may be comfortable with what they already have and choose that nearly seven years of zero was enough and the time has come. Ultimately, for the stock market there are just three possible outcomes at the end of trading tomorrow. The market can be higher, lower or unchanged. Since the S&P 500 has only closed unchanged 367 times in the 22,399 trading days in our database going back to 1930 this scenario is rather unlikely.

[S&P 500 Performance Before & After FOMC Meeting Statement since 2008]

In the above chart, the 30 trading days before and the 60 trading days following the release of a scheduled FOMC statement have been plotted. All told there have been 57 such meetings since January 1, 2008. Of these 57, the S&P 500 responded with a gain on the day 34 times and declined 23 times. The three lines plotted represent the average percent change of the S&P 500 following all 57 meetings, all positive S&P 500 responses and all negative S&P 500 responses. Note that after 60 trading days (approximately 3 months), that three lines converge right around 3.0% which suggests that the market, on average, has enjoyed the largest gains following a “disappointing” Fed day.

Stock Portfolio Updates 

Over the past four weeks since last update, through the market’s close on March 16, S&P 500 slipped 0.8%. However, Russell 2000 climbed 1.4% over the same time period while collectively the three Almanac Investor Stock Portfolios climbed 0.8%. Our portfolio’s gain was held in check by a still substantial cash position. Unlike last month, the Small-and Mid-cap portfolios performed best, each advancing 1.1%. The Large-cap portfolio declined 1.2%. Only United Continental Holdings (UAL) and UnitedHealth Group (UNH) gained ground in the Large-cap portfolio over the past four weeks.

Compared to recent portfolio updates, the past four weeks were rather quiet. No positions were stopped out, sold or doubled. There were several positions that did make solid moves higher though. Newtek Bus Services (NEWT), one of the three oldest holdings, jumped from $15.13 to $18.53 (+22.5%). NEWT did gain some additional exposure when a new analyst initiated coverage in the second half of February. Frankly, it was long overdue after all the company has a 64% EPS growth rate, has announced that it will likely pay dividends valued at $1.80 in 2015 and even after its latest move, still trades with a P/E of 16.

Repligen (RGEN) also had a sizable move, from $24.77 last month to $30.81 (+24.3%) yesterday. Most of this move occurred last Friday when RGEN reported earnings and issued guidance. Actual earnings were lacking, but 2014 revenue growth and guided 2015 numbers were more than enough to inspire traders and investors. In 2014 sales increased 27% while management sees 19-24% growth in 2015 even after accounting for negative currency impacts. Present day valuations are stretched, but their sales growth suggests they could easily outgrow it.

Excluding Group 1 Automotive (GPI), down 5.4% since last update, all other Mid-cap portfolio positions had a respectable month. Falling oil prices boosted Jetblue Airways (JBLU) 11.1%, Lithia Motors (LAD) added 5.5% on an earnings beat and Amerco Inc (UHAL) quietly crept 1.5% higher.

With major indices struggling during the usually bullish first half of March and the often treacherous end-of-March rapidly approaching, all positions in the Stock Portfolio are on Hold.

See table below for updated Stop Losses.  

[Almanac Investor Stock Portfolios – March 16, 2015 Closes]

Disclosure Note: At press time, officers of the Hirsch Organization, or the accounts they control, held a position in UNH.