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3 Recent IPOs Poised for Next Market Uptrend
08/01/2011 8:00 am EST
Mike Cintolo of Cabot Market Letter in Salem, Massachusetts, says investors should keep their eye on growth names and be patient through the market correction. He tells MoneyShow.com about three newly public companies worth a look.
Kate Stalter: Today the advisor we’re speaking with is Mike Cintolo. He’s the editor of the Cabot Market Letter in Salem, Massachusetts. Thanks very much, Mike, for joining us today.
Mike Cintolo: It’s great to be here, Kate. Thanks for having me.
Kate Stalter: Give us your view on the current market conditions and what you believe is important that an individual investor be aware of.
Mike Cintolo: We’re trend followers at heart, and right now, we just think we’re in a big five-and-a-half month trading range. In the more recent past, obviously we have all the debt ceiling shenanigans and the European debt worries with all the ups and downs, so it’s very news-driven and choppy.
Our outlook is really leaning bullish. We’re holding some strong stocks and leaders. We’re trying to do a little bit of new buying here and there. We’re also keeping some cash on the sideline and cooling it and just kind of waiting for the market to show its hand. If it’s going to break out or break down, it’s going to show some clues.
Then it should have a sustainable run after this five- or six-month basing period, so to speak. We’re optimistic, but still somewhat cautious at this point.
In terms of the individual investor, the one thing that we’re keeping in mind now is trouble usually comes from where you least expect it. There’s always a chance that the market can just go over the falls because of an obvious news event. Usually it’s the unknown―it’s the Japanese tsunami. It’s something like that that can cause headaches for investors, as opposed to something that everybody is focused on, or at times is focused on. So that’s one thing we’re keeping in mind, but we’ll let the market tell us what to do.
Kate Stalter: What are some the sectors or regions or industries that you believe are in favor right now?
Mike Cintolo: We’re more bottoms-up stock pickers, so we think in terms of that. We do think in terms of some themes as well. One theme that is working is the shale-drilling boom. We really are growth stock people at heart, so we’re not big on commodities, but there’s a lot of great growth stories in the shale plays, whether the Eagle Ford Shale, the Bacchus Shale, and/or the Marcellus Shale, with the companies pulling it out of the ground, and obviously the ones providing the equipment and the services to help them do that.
So we’re seeing a lot of activity there, with companies growing production. Not even because of higher oil prices, that part of it, but just production - 30%, 40%, 50% a year. They have ten times as many wells that are undrilled as there are drilled, so it’s a huge runway of growth for a lot of these companies. So we’re seeing some opportunities there.
Another one is–I don’t want to call it Internet 3.0, but some of the recent IPOs or social networking sites. LinkedIn (LNKD), even Google Plus (GOOG), that’s got a new link on life and some the companies that provide the equipment, the storage like Fusion-io (FIO). Some of these recent IPOs, the Internet 3.0, they’re holding up very well during the last one, two, three months. They’re building bases–launching pads–and they have growth. Triple digit revenue growth is one of our top stock picking criteria. A lot of these companies have it. So we’re optimistic some of these can be leaders going forward. I wouldn’t say they’re really ripping ahead quite yet, but we’re definitely watching them and think they could get some things going from there.|pagebreak|
Kate Stalter: Great. Anything then, on the opposite end of the spectrum? Industries or global regions that you believe investors should stay away from?
Mike Cintolo: Well right now there’s no question that what we call it is the guts of technology–chips, routers, networking–they’re just not the place to be. Whether that changes or not, again we let the market sort of guide us.
If you just take a look at the earnings estimates for a lot of these companies going out into 2012, which is what a lot of institutions are starting to focus on at this point, they’re soft. They might be a little bit low anyway and get raised, but you’re talking about no growth for a lot of these companies next year.
So, the cycle for a lot of these guys may have peaked, at least temporarily, and the stocks just haven’t been reacting well there anyway. So, we’re trying to stay away from anything that’s sort of, cyclical tech, if you want to think of it that way, but just routers, net working and that sort of thing.
Kate Stalter: What are some of the investment vehicles that you’re using then, to meet client needs?
Mike Cintolo: We just do what we do. We’ve been around for more than 40 years, and we’re really in the growth-stock picking and growth-stock markets timing. From that end, we just stick to our system.
We try not to get outside of it and turn into short-term traders or dive into ETFs or jump into options or that sort of thing, because we know in the long run it’s going to point us in the right direction.
Growth stocks with great stories, great numbers, and great charts–that’s where you’re going to make your big money in the long run. We just try to be patient. When it’s times like this, you always want to react to the headlines of the day, but we’re just telling people to really be patient, hold onto your strong stocks. It’s not a time to be in the storm cellar, but we also don’t think its time to put the accelerator to the ground either. We will just be patient, let the market set up and hopefully whether it’s in a week or two weeks or a month or whatever, there will be a pretty great buying opportunity, and some of these stocks and sectors that we talked about can really deliver some big gains.
Kate Stalter: Any stocks that investors might take a look at right now that are showing some strength, that might be a worth a little bit of research?
Mike Cintolo: Yeah, sure, one that we’ve followed for a while and is still very strong is Green Mountain Coffee Roasters (GMCR). It’s the Keurig single-cup brewing system. Classic razor-blade story. We’ve been on it for a while luckily, but the numbers what’s happening at this point is: The installed base is big enough that the recurring revenue from the K-cups is really just boosting margins and the numbers just keep going up and up. The institutions, just as importantly, are really piling in.
A year ago or two years ago, it was a great growth company and the stock did well, but was very choppy. Now, some big people like Wellington and Fidelity have taken huge stakes and you can just see how the stock is acting a lot better.
On the smaller side, an interesting sort of a follow-on opportunity to Green Mountain possibly is Sodastream (SODA) which we’ve recently recommended. It’s in-home soda makers, which is a little bit different. They’ve been around in Europe for a long time. They’ve had great success and the big new thing here is really pushing it in the US; Kohls (KSS), Bed Bath and Beyond (BBBY), and what not.
Each soda maker delivers about $50 in recurring income per year on average, and that’s in Europe, where soda drinking rates are much lower than the US. Business is really booming, accelerating sales growth and the stock is very strong so we like that. As I mentioned before, with Internet 3.0 and LinkedIn, we’re students of the market and we know that often the best growth stocks seem too expensive, they’re often hated for some reason or another, and the shorts pile in.
We think LinkedIn could be something special. Obviously the stock has shown some good strength and tightened up. It has no desire to go down even during all this choppy action. Fundamentally you’ve got triple-digit revenue growth and it really could be the next wave of hiring solutions. Originally, you had the classifieds in the paper and then it sort of advanced to online and Monster.com (MWW) and now you’re seeing it kind of go towards LinkedIn, which is a whole different way of doing things.
So, we think some of these recent IPOs like LinkedIn could do very well when the market turns.
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