Blog > Featuring... > David vs. Goliath: Size matters
Share this article:
  • Print
  • Digg
  • del.icio.us
  • Facebook
  • Google Bookmarks
  • NewsVine
  • StumbleUpon
  • Twitter

David vs. Goliath: Size matters

Today's Financial News - Posted October 28, 2009

SlingshotThe correction has begun. But the news is not all bad. Savvy growth investors have strong profits ahead of them. The gains out of Peet’s Coffee and Tea (NASDAQ:PEET) prove it.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): We are going to see a lot of this over the coming weeks. Big-name companies plummeting while no-namers soar into the headwinds.

Today’s perfect example comes from Garmin (NASDAQ:GRMN) and Peet’s Coffee and Tea (NASDAQ:PEET).

Shares of the GPS maker are way down thanks to word that tech-behemoth Google (NASDAQ:GOOG) is moving into the navigation world with a new application available on its Android platform… for free.

Until today, Garmin’s share price followed the herd, rising and rising on hopes of a quick economic recovery. Unfortunately, hope has never made anybody rich (except Team Obama).

When the grip of a nasty recession was strongest and capital structure and preservation meant more than product development or strategic planning, many once-great companies lost their competitive stance.

Like Republicans

Meanwhile, recession-resistant players like Google continued charging ahead, taking market share wherever and whenever it could. Unfortunately, the markets are just now waking up to the idea.

Investors are finally realizing the market looks dramatically different than it did 12 or 18 months ago and they are paying for it.

The companies that were trading for a price they did not deserve are quickly losing the premium.

For investors looking to jump in on the action and take advantage of recently depressed prices, here are a few tips.

First, make sure revenue forecasts are not based on “hopes” of recovery. Find companies that have products that are actually in demand and will stay that way for a long time. Google and Apple (NASDAQ:AAPL) are perfect examples.

Next, avoid companies with small competitive moats. When times are tough and revenues are lean, their castles will be the first to be overcome.

Garmin and TomTom are more good examples. As inexpensive replacements become widely available, their product lineup will lose its demand.

Garmin has plenty of hope with its growing product portfolio. But TomTom, well, it’s been a laggard all its life.

Size matters

Finally, think small. While the markets are excited about taking the big boys to new heights (just look how the Dow has dramatically outperformed the Nasdaq over the past week), there is incredible potential in the small-cap market.

I love the action I am seeing out of Peet’s Coffee today.

Shares of the company surged after the company announced better-than-expected profits and a strong outlook for 2010. The surge (shares ran up 15%) illustrates the potential gains savvy growth investors can expect over the next view months.

After the equities markets climbed and climbed with no real fundamental proof of sustainability, value investors are flat out of luck. By almost every historical ratio, the markets are overbought.

That’s what makes the small-cap market so interesting. The little guys did not go along for the ride. All they need is a catalyst and their shares are surging.

Find the catalyst and you found a winner.


Next Article: Snowmobiles and makeup: Consumers are buying again

Related Articles

Posted by Andrew Snyder · Filed Under Featuring..., US Stocks and Markets 

Share this article:
  • Print
  • Digg
  • del.icio.us
  • Facebook
  • Google Bookmarks
  • NewsVine
  • StumbleUpon
  • Twitter

 Add to Technorati Favorites | Follow Us on Twitter!

Be the first to leave a reply.

Your comments are welcome