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Have you ever heard of Costar Group (CSGP)? No?
Well, you may have seen the Apartments.com commercials featuring actor Jeff Goldblum during and after this year’s Super Bowl. Or if you’re associated with the commercial real estate business in any way, you might have used the firm’s industry research or online tools to buy and sell properties.
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Mike’s Moves to Make Buy: Conservative, highly rated stocks in sectors like consumer staples and tech, as well as defense; Inverse ETFs or puts on vulnerable stocks in autos, real estate, and related sectors Sell: Real estate and auto shares, deep cyclicals, small cap ETFs and mutual funds |
Anyway, the $6 billion market cap firm reported a big jump in adjusted third-quarter earnings – to $36 million, or $1.11 per share, from $17 million, or 53 cents per share, a year ago. Revenue rose more than 12% to $213 million.
But the stock couldn’t get out of its own way. It collapsed almost $17, or 8%, a few days ago after the news was released, then fell even further to a six-month low.
Or how about Credit Acceptance Corporation (CACC)? You might not have heard of this auto lender, either, since its market capitalization is only $3.4 billion. It reported earnings on Tuesday, saying adjusted net income rose to $92.4 million, or $4.53 per share, from $78.9 million, or $3.77 per share, in the year-ago period.
But if you owned its shares, you suffered one heck of an earnings hangover on Wednesday. That’s because they plunged more than $22, or 12%, to a nearly 20-month low.
Jones Lang LaSalle (JLL), with a market cap of $4.1 billion, is another smaller stock worth mentioning. The commercial real estate brokerage, advisory, and research firm said revenue climbed to $1.71 billion from $1.5 billion in the most recent quarter.
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It called out supposedly encouraging developments in real estate leasing, facilities management, and advisory and consulting. But the stock got crushed after the report, dropping almost 7% on Wednesday to the lowest since October 2013.
Then there’s LendingTree (TREE), a $953 million market cap company that links banks offering a wide variety of loans, from mortgages to car loans, with customers seeking them online. Things didn’t work out too well for its investors after the company released third-quarter results. Its shares tanked more than 15% in a single day.
What’s the message here? Why are these developments so disturbing?
Well, mainstream media pundits spend all their time talking about the same old stocks – the big-cap names everyone knows. But I like to do a much deeper dive into the markets. That’s because I want to find less obvious profit opportunities for you, as well as steer you well away from potentially serious losses.
Right now, I’m seeing big trouble in smaller stocks, particularly those leveraged to – you guessed it! – commercial real estate and autos.
For instance, if you peer behind the curtain at JLL, you see that incentive fees dropped and EPS missed estimates. Look behind the headlines at CACC, and you see that rising auto loan delinquencies and weak recovery rates are spooking investors. As for TREE, it actually cut its full-year revenue forecast.
These kinds of news items only further confirm the thesis I shared with you several months ago: The epic easy credit cycle that prevailed from 2009-mid-2015 is turning, and in a big way. That means credit-sensitive industries and companies — as well as investors in credit-sensitive stocks — are going to get crushed!
You can see more fingerprints of this unfolding crisis in the economic data, too. The ADP Employment report on Wednesday showed the construction sector lost another 15,000 jobs in October. That continues a string of lousy jobs figures out of that sector since the spring. What’s more, we just learned that construction spending fell on a year-over-year basis in September. The last time that happened? At the tail end of the Great Recession.
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| Regarding autos, October sales reports showed declines across the board. |
When it comes to autos, October’s monthly sales reports showed declines across the board, too. Sales at General Motors (GM) were down 1.7% from a year earlier. Sales at Nissan Motors (NSANY) dropped 2.2%. Honda Motor (HMC) sales fell 4.2% … Toyota Motor (TM) sales dropped 8.7% … Fiat Chrysler Automobiles (FCAU) sales slid 10.3% … and Ford Motor (F) sales tanked 12%. But Volkswagen AG (VLKAY) really took the cake, with sales plunging 18.5%.
My ongoing advice: Avoid, sell, short, or buy put options on vulnerable companies in these sectors. That’s what I’m recommending to subscribers in my All Weather Trader service, and they’ve done very well this year following my guidance.
Also, understand that these are two of the most important sectors overall. They helped drive the U.S. economic rebound and the broader averages for the past few years. But now that they’re taking on so much water, it’s hurting the broader market.
The S&P 500 lost 1.9% in October, and has now given up every penny of gains since June. Plus, the broader Russell 2000 Index got crushed, dropping 4.8% last month. That was the worst monthly decline since January, and it pushed the index ever closer to unchanged on the year.
Bottom line: There’s a potentially disturbing message coming from the markets. Make sure you pay attention to it, and take steps to protect yourself (and profit) from its repercussions.
That’s my take anyway. What’s yours? Are the problems in smaller-cap stocks like those I mentioned, as well as the deterioration in the broader averages, major “sell” signals? If so, how low do you think stocks could go? Alternatively, are there other sectors you’re more bullish on? Let me hear about it in the comment section below.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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I believe we could trade the S & P back to the 2007 levels around 1550-1600. The things of the last 7-8 years will be unwound. Having said that I do believe I am seeing a rotation to agriculture related equities/commodities. Kind of makes sense since this area has been beaten up the last 4-5 years and products we need are being raised below the cost of production. Along with weather issues world wide seems like a place to look at. Can we say buy when something is cheap/sell when expensive??
Hi Mike
There’s a developing disconnect between large consumer groups and how they are perceived by the fed and major corporate research groups. There are many reasons, but let me give you just one example. A recent poll in a major newspaper found that eight out of ten respondents expressed ‘disgust’ over the state of our politics. If you dig down further there has been a breach of trust between some, in the major media for editorialising and offering opinions in favour of one candidate over another, rather than just reporting the facts on key issues and evaluating policies that matter. Why is this important now? Someone will win this election but at enormous cost to our country. Whether we are investors, home makers or moms and dads, many have behaved like the children we are meant to be bringing up. At various levels the election has sacrificed unity and stolen hope for change. Because the way we have been going cannot be funded with debt and promises any longer. The people know this and one way or another they will vote with their feet.
So very sad but true.
Well put! I never understood the mindset of the “long-and-wrong-crowd:” all the angst Re: making money in a “down” market. The opportunity to book fantastic, years of buy and hold profits are readily apparent for anyone with a modicum of skepticism. I only trade weekly AMZN options. If one is committed to money management when mental stops are violated with both call and put spreads, to avoid principle draw down, one can expect a nice SS check EVERY WEEK. Prudence might also dictate allocation of 10% working capital to a put ratio backspread always 2 or 3 months out (roll out as time decays).
I am quite bullish on the currency markets, at least one of the 8 major world currencies will appreciate if all of the other currencies are depreciating.Maybe this will lead to the dollarization of currencies in the western world. This could possibly lead to a dollar glut.The excess supply of dollars in the hands of foreign monetary authorities that developed during the late 1950s and early 1960s. Possibly we could see nations in the western world adopt another nations currency as its legal tender. The Dynamic Asian economies (DAEs) includes Korea, Taiwan (Chinese Taipei), Hong Kong, Singapore, Thailand, Malaysia, China is also sometimes included. The BRIC countries, Brazil, Russia, India, China are supposedly the fastest growing economies in the world. What I cant fathom is how Jeff’s articles are 50 paragraphs long? Does bad news really sell faster? Theirs a lot of interdependence between these countries, the economic relationships among nations. All countries have to have soverign debt.You couldn’t run a business and it wouldn’t be able to pay its bills if it didn’t have access to credit. Its a normal working capital flow cycle. What you don’t wanna see is a return to Mercantilism the body of writings prevailing during the seventeeth and eighteenth centuries centuries that postulated that the way for a nation to become richer was to restrict imports and stimulate exports.Thus one nation could gain at the expense of other nations. Maybe instead of a focus on Macroeconomics and what governments and businesses are doing, we should be looking at microeconomics the study of individual units, such as a particular nation and the relative price of a single commodity. Maybe the multiplier in a large closed economy like the USA, the ratio of the change in income to the change in investment in a closed economy without government where capital equals 1/MPS. Maybe what we need is international commodity agreements. Organisations of producer and consumer nations attempting to stabilize and increase the prices and earnings of the primary exports of developing nations. What we really need is a return to the gold standard . The international monetary system under which gold was the only international reserve exchange rates fluctuated only within the gold points, and balance of payments adjustment was described by the price specie flow mechanism. What we might see is another gold tranche, the 25 percent of a nations quota in the IMF that the nation was originally required to pay in gold and could then borrow from the fund automatically. The precious metals market, gold and silver is the market to get into. Think of all the jewellery that’s made from silver. Some of the most romantic scenes from a human beings life are encapsulated with silver or gold. The most important prize in world sport is made from gold. Human beings fascination with this precious metal has been in existence since the beginning of time. I am looking forward to Toni Turners market wrap later today. She always produces such excellent PowerPoint presentations.
To me the most disturbing aspect is the fact that so many large corporations have been posting sales, earnings and pretax profits that are either flat or declining. If this is all they can manage during a weak but nevertheless expansionary economic period, what can we expect when our present economic “recovery” runs out of steam.
Thanks for the update Mike. The Fed cracking the tide gates last December and again next December when it has been raining all along will not prevent the flood of economic damage that is already underway as a result of ZIRP. God save America from the politicians and beurocrats who pave the way for the greedy at the expense of the citizenry. It’s time for a change!
IWO, the largest small cap ETF….is in a definite pattern of descent and has been for a while now. The chart does not look good.
This recovery is long in the tooth. I’m long gold, silver (and those miners), and the U.S. Greenback; short Europe and Japan; and run like Hell from debt.
No I haven’t heard of costar group, American people are supposed to be the hardest working people in the world working 50-60 hours a week, I would where Toni turners weekly market wrap is. Education is supposed to be a free good that all citizens of the world have access to. Is it supposed to be a human right. For one thing its not free to get on the internet. A ten to fifteen minute presentation keeps economists informed of what’s happening in the markets especially when its so hard to get a physical copy of the financial times. This isn’t another scam by the finance industry is it. Mikes articles are excellent. I think his safe money report is very good. You need the weekly market wrap up though. I think a new president will be good for the markets. Whoever it is 8 years is enough for any one president to be in charge. Clinton has her faults, Trump has his faults, they’re only human beings at the end of the day. Its not a perfect world. God Bless Mike and Toni for their excellent articles and presentations at the end of the day. You need the weekly market wrap up though. It keeps everyone informed out what’s happening the market.
I still can’t get a answer FROM
ANYONE!! IF THE DOLLAR IS TANKING THEN WHY DO ALL THE GOLD MERCHANTS WANT MY DOLLARS FOR THEIR GOLD?
PLEASE REPLY VIA MY EMAIL MAIL. THANKS