How You Can Profit From The Economic Recovery
The Dynamic Wealth Report
May 22, 2009
How You Can Profit From The Economic Recovery
For eight straight weeks, the markets moved higher. This recent
pullback is being quickly dismissed by many. I don’t know about you, but
it seems to me, investors have declared this recession over and done.
Stick a fork in it! With stocks jumping like they have, how can you not
think the same?
Is the market right?
Only time will tell. But, I will say this. Recent economic data hasn’t
been so bad. Economic news is being interpreted as very positive. Take
homebuilding for example.
The same part of the economy that got us into this mess might be helping
us get out. Just look at single family home construction. Amazingly, the
pace of new building is moving higher, up 2.8% in April.
Normally I’d shrug off this data, but March was showing a slight
increase as well. Its got to make you think… two months in a row of
increasing homebuilding activity? I can’t believe new homes are still
being built with all the foreclosures and short sales on the market. But
who am I to argue with the data?
Homebuilding isn’t the only thing.
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Consumer confidence numbers are also moving higher. Maybe it’s all those
confident consumers who are buying new homes!
Jobless numbers are still really high. However, they’re below the peak
we witnessed just a few months back. If jobless claims continue to
slide, expect consumer confidence to jump even higher.
Given the data, can you blame investors for thinking the recovery is
here?
The bigger question is how do we profit from the quickly approaching
recovery? Let me point something out. In the US, our economy is
dominated by small businesses. While big business gets all the press,
small business does all the work.
Chew on this statistic… some 45% of workers in the US are employed by
small business. But that’s not all. Almost 40 million work for companies
with fewer than 50 employees. More than 99% of the businesses in America
are small businesses.
So, what’s this have to do with picking stocks?
Let’s look at the big picture.
As the economy starts to improve, small business will be the first to
feel it. That means ramping sales and marketing, starting new projects,
spending capital, and finding new employees.
One company in particular helps small businesses.
They deliver a product every company needs. What am I talking about?
Promotional materials of course. It might be a simple business card, a
website, or even company letterhead. Maybe signs or banners. Flyers on
new products, mailing labels, brochures, the list goes on and on.
Marketing materials are vital to the small business sales process…
As business activity picks up, you’ll see marketing activities expand.
And one company is perfectly situated to profit from this trend. The
company I’m thinking of is VistaPrint (VPRT).
While VistaPrint services small companies, they’re not a small firm.
They count more than 17 million customers worldwide. They ship products
to more than 120 countries. And they have operations in the US and
Europe. A global recovery certainly won’t pass them by.
VistaPrint’s a good barometer for the small business environment. Just
last quarter they did over $127 million in sales – a huge increase of
21% over last year. Gross margins are up. So is operating income -up
44%. Net income was up 24%... I guess it was a good quarter.
But the good news doesn’t end there.
Management provided guidance through the end of their fiscal year
(ending June 2009). Let’s just say those numbers are looking good as
well. Revenue should be between $123 and $129 million, and EPS should be
between $0.24 and $0.28 per share.
Now the company has a trailing P/E of 32, but a forward P/E of just over
18x. What that means is Wall Street analysts are estimating big growth
for the company. The stock’s recently had quite a run, but if you like
this idea, don’t be afraid to buy on pullbacks. If the recovery’s really
here, this is a stock that could run for several years!
**Editors Note: We hope everyone has a fun and safe long holiday weekend. Monday is the Memorial Day holiday… the next
Dynamic Wealth Report will
be published Wednesday May 27th. If you have an opportunity, be sure to
thank members of our armed services. These brave men and women do our
country a great service each and every day.
• Archer-Daniels (ADM) was upgraded by Citigroup from
a "Sell" to a "Hold" rating. They must see something in the recent
commodities rally.
• Red Robin Gourmet (RRGB) was downgraded from an
"Overweight" to a "Neutral" rating by JP Morgan. I guess they see an end
to the recent run-up in casual dining restaurants.
• Credit Suisse recently initiated coverage on a number of banking
stocks including: Bank of Hawaii (BOH), BB&T (BBT),
Comerica (CMA), and
SunTrust Banks (STI)… among others.
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