Armageddon Is (Still) A Bad Bet

A story on the front of the New York Times Business Day section Sept. 14 made us think of Otis Bradley, Managing Director of Research and Chief Market Strategist at NY-based ICM Capital Markets. We published a Q&A interview of Otis on June 2 titled “Armageddon Is a Bad Bet,” which is a motto of his. Otis is a relentless optimist and a steadfast believer in a coming bull market (more on that later).

The Times story (http://www.nytimes.com/2010/09/14/business/global/14bulls.html?_r=1&ref=business) ran under the headline “For the Bad News Bulls, Adversity is Opportunity” and featured “a small band of investors and economists” who believe (like Otis) that the media’s constant hammering about grim job numbers and the weak economy has overshadowed a fact that should be apparent to clear minded market watchers: “the recovery is at hand.” It quoted hedge fund executive John A. Paulson who noted that corporate earnings have exceeded analyst expectations and the S&P 500 “now trades at only 13.8 times 2010 estimates, well below the 30-year average of 19.5”

These believers suggest that, yes, housing and job numbers are bad, but companies like Glaxo, Apple and BMW, to name just a few, are not directly tied to housing numbers. And that many global companies with worldwide brands are well positioned “to drive a longer, more sustained stock market boom.”

The keys to success now, according to the bulls, includes technology, very low lending rates and sales in booming markets in places like India, China and Brazil. Any company with these things working for them could be poised for substantial growth.

The Times story is focused on large caps, but Otis is a very keen and aggressive small cap investor. Otis selected three small cap growth stocks, two of which hit their 52-week highs this week. His market strategy coming out of a correction, as he believes we are now, is to “follow strength” and  that stocks currently hitting their 52-week high will be the leaders as the market moves higher.

His smallcap picks included:

  • Ft. Lauderdale, FL-based MAKO Surgical (Nasdaq: MAKO, http://www.makosurgical.com), a maker of advanced robotic orthopedic devices. MAKO, with a market cap of $377 million, closed at $11.15 on Sept. 14, midway in its 52-week range of $14.90–$7.50.
  • Greenwood Village, CO-based Molycorp Inc. (NYSE: MCP, http://www.molycorp.com), a development stage mining focused on the production of rare earth oxides from the Western hemisphere and operates the Mountain Pass mine in California’s Mojave Desert. It’s more midcap than smallcap ($1.9 billion) market capitalization and one of the two recommended stocks that this week hit its 52-week high of $24.07 before it dropped back to close at $22.95 on Sept. 14.
  • The other recommended stock that hit a 52-week high this week is Scotts Valley, CA-based VirnetX Holding Corp. (Amex: VHC, http://www.virnetx.com), a developer of software and technology for securing real time security solutions over the Internet. VHC has been on a tear lately and hit $11.16 this week. It traded as low as $1.95 last November.
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