As we look ahead into 2015, we are faced with three key headwinds: the strong US dollar, the recent collapse in oil prices, and weak global economies outside of the US. We at Singular Research believe that these headwinds will prove to be more of a hurdle for big S&P 500 issues, and actually benefit small- and microcap stocks.
Since a significant portion of the S&P 500 revenues are international, we believe the issues of a strong dollar and weakness in global economies outside of the U.S.will prove to be very onerous for much upside for the S&P 500, limiting it to a 5-10% total return this year.
Lower oil prices will actually prove to be a boon to US domestic small caps. Analysts estimate that these much lower oil prices are the equivalent of $150 billion tax cut for US consumers. When combined with a multiplier effect, this should have a positive impact on domestic consumption, which would in turn benefit small caps that have much more exposure to the domestic economy.
Also, with last year's massive outflows from small and micro-caps, and into large cap ETFs, valuations are much more reasonable for selected small and micro-cap stocks. For these reasons, we think growth, value and selectivity will be rewarded this year and stockpickers will prevail over ETF drone investing as a style.
We believe our portfolio is strongly position to benefit from these elements with a PE ratio of 15 and an expected growth rate exceeding 20% for the next 12 months.
Here are three of our top ideas :
Core Molding Technologies Inc. (CMT)
Core is a leading manufacturer of sheet molding compound used in heavy duty truck body parts. A resurgence in heavy duty truck orders to levels not seen since 2004 fuel double digit sales and earnings growth last year. Truck orders are forecast to grow another 16% in 2015 as a result of higher freight shipments tied to an improving US economy, falling fuel prices and the industries need to replace its aging fleet. Also core recently signed a multi year agreement with Volvo North America that adds another 20% in potential revenue.
We Also Like Atlas Financial Holdings, Inc. (AFH)
Atlas is a commercial insurance underwriter that focuses on niche auto fleets , very unique ones such as taxis, limos, and para transit vehicle and business autos, this is a $1.5 billion market opportunity that has been evacuated by the large carriers as being deminimus. Atlas is expanding by acquiring smaller insurance agencies that focus on the segment. We expect strong revenue growth of the next several years driven by marketshare games and premium increases.
Our Top Tech Idea is Nova Measuring Instruments Ltd. (NVMI)
Nova is a designer, developer and manufacturer of process control metrology systems used in the manufacture of integrated circuits. In order to boost the performance of semi conductors manufactures continue to shrink circuit sizes and introduce new materials and processes the decrease in size features in the increasing complexity of semi conductors drive the need for metrology systems. Optical segment in which nova participates is one of the fastest-growing. As semi conductor company's move to extremely small circuit sizes and add new features such as 3-D gates
So do your homework and buckle up. You should be well rewarded versus the drones this year.
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