Barchart.com's Chart of the Day - Power Solutions International (PSIX) for Nov 12, 20

[Thierry Martin]

As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we?re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It?s not conventional market analysis, to be sure. But it?s also not a conventional market anymore, friends, as we?ve stated many times.

That said, we?re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we?ll be relying to determine the market?s direction.

Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It?s also the foremost financial services juggernaut in the world. And as far as we?re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we?ve reached the crux.

Here?s Goldman?s chart ?

[Thierry Martin]

As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we?re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It?s not conventional market analysis, to be sure. But it?s also not a conventional market anymore, friends, as we?ve stated many times.

That said, we?re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we?ll be relying to determine the market?s direction.

Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It?s also the foremost financial services juggernaut in the world. And as far as we?re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we?ve reached the crux.

Here?s Goldman?s chart ?

[Thierry Martin]

Quote of the day

Josh Brown, ?If the entities in control of trillions of dollars all want asset prices to be higher at the same time, what the hell else should you be positioning for?? (The Reformed Broker also BI)

Chart of the day



Forget IPOs. Companies are issuing bonds and secondaries at a record clip. (WSJ)

Markets

Are we in a bubble? (Crossing Wall Street)

The case for muni bonds. (The Guardian)

More signs of investor enthusiasm for equities. (FT Alphaville, WSJ)

The implied volatility on gold miners is coming down. (Focus on Funds)

Apple

Japan has become a growth market for iPhones for Apple ($AAPL). (WSJ)

On the disconnect between Apple the company and its stock. (Kevin Kelleher)

[Thierry Martin]

Carl Icahn, Henry Kravitz, Sumner Redstone and a host of other financial pros make their money by using complex strategies that reduce risk while maximizing potential gains. However, there is one strategy that towers above all others when it comes to minting members of the billionaires' club.

The best part is that today, every investor can participate in this strategy -- without the need for hundreds of millions of dollars, inside information, or a seat at the corporate roundtable. This strategy, which was very popular in the 1980s, has enjoyed a dramatic resurgence during the bull market of the past several years, thanks to huge corporate cash reserves, low interest rates and volatility, and the increasing importance of cutting costs and boosting growth to keep shareholders happy.

That's the funny thing about bull markets: No matter how high the market climbs or the returns earned, it's never enough to gratify investors. That's why this strategy has become so popular that more than $650 billion of transactions have taken place this year alone, with the biggest deals creating headlines around the world.

The strategy I'm talking about is mergers and acquisitions, or M&A. You may have heard of the Warren Buffett-led $23 billion takeover of Pittsburgh-based ketchup maker Heinz and the merger of airlines U.S. Airways (NYSE: LCC) and AMR Corp. Those deals and many others have taken place this year alone. Pending deals include private equity firm Cerberus Capital Management looking to buy BlackBerry (Nasdaq: BBRY) and clothier Men's Wearhouse (NYSE: MW) being pursued by rival Jos. A. Bank (Nasdaq: JOSB).

The way through which big investors -- even those not directly involved with individual M&A deals -- make fortunes is with a strategy known as merger arbitrage. In fact, you don't even have to be a big investor to use merger arbitrage, which is simply the selling of the acquiring company's shares and the concurrent buying of the acquired company's stock. The way it works is the target company's shares often sell at a discount to the value of the company doing the acquisition due to the risk of the merger not occurring or being delayed. It is the difference in price -- which becomes profit for the investor.

[Thierry Martin]

Apocalyptic fears have gripped the minds of Americans over the past few years, and Hollywood has capitalized on them with movies, television series and reality shows. While a zombie virus may be far-fetched, fears of inflation and market volatility are better grounded in reality.

Out of Alabama comes a story that underlines what becomes important if inflation really does get out of control. A would-be car buyer whose credit was less than exemplary made an unconventional down payment -- a shotgun.

While this is certainly more of a lesson in subprime lending standards going beyond real estate, there is a small sliver of knowledge to take away here. In a highly inflationary environment, gold becomes less important than "real" hard assets -- practical items like food, water, shelter and, of course, weapons.

Before the survivalists start sending this article to everyone they know, let's step back and take a look at the gun-making industry from a pragmatic point of view. We know that fear creates opportunities for profit, and this is reflected in the number of gun sales amid the Obama administration's position on gun control.

Shares of gun makers have soared this year: Smith & Wesson (Nasdaq: SWHC) is up 34%, and Sturm, Ruger & Co. (NYSE: RGR) is up 63%. Even after Congress rejected new restrictions on gun ownership, these companies have continued to post record gains.

Smith & Wesson has been reporting impressive numbers and yet remains undervalued by Wall Street. It has a price-to-earnings growth (PEG) ratio of just 0.3, and in its most recent quarter, earnings rose 42% from the same period last year. Margins have been climbing as well, to 42% from last year's 37%. Management is optimistic and has raised its expectations for next year, to $615 million in revenue and earnings per share (EPS) in the range of $1.30 to $1.35. The company also expects annual growth of more than 30% over the next five years.

Smith & Wesson's price-to-earnings (P/E) ratio of just 8.5 compares favorably with its largest competitor, Sturm Ruger, which trades at 15.3 times earnings. Smith & Wesson looks better from a price-to-sales standpoint as well, at 1.2 versus 2.3 for Sturm Ruger. The fact that Sturm Ruger reported EPS gains of 72% but has a forward P/E of 18 is evidence that the Street views its growth as unsustainable.

Smith & Wesson is also committed to developing better products, as seen in its increase in R&D spending, up to $1.3 million from $1.1 million in the same quarter last year. The focus on superior weapon manufacturing seems to be paying off. Recently, the company signed a five-year contract with the Los Angeles Police Department, which was impressed by the quality of its trademark M&P pistol series.

Smith & Wesson is growing at more than twice the industry's expected rate of 13%, but considering that it's trading at less than 9 times earnings, SWHC would still look like a buy if it were growing at half its expected rate. SHWC currently does not pay a dividend, but management recently announced a $15 million round of share buybacks.

The average analyst target price for this stock is about $13.50, which gives Smith & Wesson 27% upside from current price levels.

[Thierry Martin]

Stuff I'm Reading this Morning...

Hedge funds cutting their bullish bets on gold. (Bloomberg)

"In short, it looks as if developed economies? central banks will unleash further monetary easing on their economies and hence the global economy." (BusinessInsider)

Jason Zweig: There are worse things on earth than carrying cash at a negative return in a bull market. (WSJ)

Look who's hiring and spending again! State and local governments become a tailwind. (CalculatedRisk)

For some reason, JPMorgan and other big banks may be rethinking having their traders in chatrooms with names like "The Cartel". (WSJ)

Howard Marks, Warren Buffett, Josh Harris and other value investors made the crisis their bitch. (NYT)

How many simple simon traders just got their heads blown off by that false inverse head-n-shoulders in the TLT? (PriceActionLab)

Oh no, they're writing articles about how Mom & Pop are buying stocks again! Probably a guaranteed top because we're all such clever contrarians, aren't we. (WSJ)

The secret to investing is that there is no secret to investing. (ValueWalk)

When Wall Street packages managed futures for their retail clients, the result is billions of fees paid and zero gains leftover for investors. And somehow you're surprised by this. Are you new here? (WaPo)

Vitaliy Katsenelson's favorite stock to play the Bakken Shale. (InstitutionalInvestor)

All those "smart beta" ETFs based on backtesting the last 30 years downplay how unique the environment has been. (FocusOnFunds)

Investors are using the GREK ETF to frontrun Greece's entry into MSCI's Emerging Markets indices. (ETFTrends)

Morgan Stanley wealth manager arrested for secretly filming multiple girls having sex with him. (DailyNews)

How badass is Amazon? They've just convinced the US Postal Service to begin making Sunday deliveries for them. (NYT)

I LOVE this photo series of once-great bank buildings repurposed for the McConomy. (BusinessInsider)

REMINDER: Backstage Wall Street is now on Kindle!

[Thierry Martin]

Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.

In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.

Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.

When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.

GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.

Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.

Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.

GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.

GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.

[Thierry Martin]

Markets were heading higher on Friday after the job market unexpectedly rose last month. The Labor Department announced that there was an addition of 204,000 new jobs in October, however the unemployment rate still crept up to 7.3% from September?s 7.2%. The new job data blew past the 125,000 job increase that economist were expecting. They also expected the unemployment rate to increase, but only by a tenth of a percentage point. The announcement this morning also showed there was an additional 60,000 jobs added in September than originally thought. The higher than expected data was further evidence that the 16-day partial government shutdown did not have a strong affect on the job market. Russell Price, a senior economist at Ameriprise Financial Services, said, ?Clearly what transpired was businesses viewed the shutdown as a temporary phenomenon and the economy was still growing and would continue to grow going forward.?

In a separate report released on Friday morning, the Commerce Department announced that U.S. consumer spending was up slightly. The also reported that household savings were on the rise. Spending was up 0.2% in September after a 0.3% climb in August. This was on point with the 0.2% increase that economists were expecting. There was a decrease of 1.3% in consumers purchasing of long-lasting manufactured goods. In the same report it showed that there was an increase of 0.5% in American?s income. This was the highest increase since February. The rise in September was partially attributed to the end of the government furloughs. Household savings were up to 4.9% of Americans after-tax income. This was up from 4.7% in August.

Shares of McDonald?s (MCD) were down slightly after the company missed sales expectations for October. The company announced that global sales at stores open at least a year were up 0.5%, however this was below the 0.6% analysts were expecting. Comparable store sales ales were up 0.2% in the U.S. This also fell short of the 0.7% analysts had expected. Sales took a 2.8% dive in their Asia Pacific, Middle East and Africa regions.

That?s all for the day. Have a great weekend, loyal readers!
All the best,
Jack Aubrey, Oakshire Financial

[Thierry Martin]

The Chart of the Day is Mastech Holdings (MHH). I found the stock by using Barchart to sort the New High List for Weighted Alpha and this stock has a WA of 265.90+. Since the Trend Spotter gave a buy signal on 9/24 the stock has gained 60.01%.

It provides Information Technology services in the disciplines which drive today's business operations. Clients turn to Mastech for comprehensive I.T. services including: I.T. Consulting; OneSource Co-Managed projects and supplemental I.T. resources. Mastech's niche focus includes Business Intelligence/Data Warehousing; Enterprise Resource Planning; Service Oriented Architecture; Web Development and I.T. Project Management. Mastech also provides Recruitment Process Outsourcing services and Brokerage Operations Staffing services through its RPOworldwide and Global Financial Services subsidiaries. Mastech is a certified minority-owned business enterprise.