Good morning,
We want to take a moment and provide a look at recent market activity in general.
Below this general market update you will find our potential breakout stock report on (NASDAQ: ELSE). Earnings and or corporate updates could send this tiny float, profitable and under the radar NASDAQ back towards it’s 52 week highs. Potential for double or even triple digit gains from here.
Working Through Market Volatility
No doubt about it. The markets are experiencing the bear taking a bite out of the bull. October has erased much of the gains achieved in 2018. Now is a good time to look at the markets and evaluate the potential for a rebound or continuing volatility.
We like to look at the Russell 2000 as it better reflects many of the companies we alert to you. You can see in the chart below that the Russell 2K has fallen below it’s 50 DMA and its 200 DMA and the current RSI (14) is 30.57. If these data applied to a particular stock, we might advise that the shares are oversold. That’s not necessarily true when reviewing a market index or the markets overall. The Russell 2K, currently around 1500, is precisely where it was one year ago.
What drives markets? Earnings, interest rates, investor confidence, inflation and international economies and policies to name a few.
The Federal funds rate has doubled over the past two years to its current level of 2.25%. Higher interest rates generally work against the stock market but for perspective, the Fed rate during the boom economies under Reagan and Clinton was 5%.
The current inflation rate is 1.9%. If we look at inflation rates over the past 40 years we see that the current rate is relatively low.
For the most part, corporate earnings have been great. Companies like Intel and Tesla just reported record earnings for Q3. An analysis by Thompson Reuters of forward P/E ratios for the Russell 2K value index shows a ratio of 16, down from 22 a year ago. The Trump tax cuts can only improve this earnings dynamic. The new Trump tariffs may place some pressure on earnings, but mainly with large companies doing international sales and sourcing. Many small caps (like we cover) are more domestic in scope and will be less impacted by the tariffs.
We have a lot going on in America right now, including a mid-term election in a few days. Violence and socio-economic divides seem to be on the rise. The Trump administration is making bold economic moves and many investors just don’t know how those changes will affect the markets long-term.
Its important to understand the fundamentals underpinning the markets. Interest rates, earnings and inflation seem to be in a good place. Investor confidence does not. According to the American Psychiatric Association, 62% of Americans are stressed about the current political climate. Even with strong fundamentals, investor confidence can drive markets into volatility.
As Q3 earnings reports continue to come out (small caps tend to take a bit longer) and next week’s election is over, investors may develop a better grasp of the market’s future trend.
Markets rarely move in a straight line, there are usually market moves against the trend that can last a day or a week.
Remember, volatility creates opportunity for significant returns at some point. We will continue to bring you stocks we think have significant upside regardless of or due to recent volatility.
Every investor has a different set of circumstances and investment goals. Please consult with a certified financial advisor to best navigate the current market volatility.
The Traders News Group
Full report on Electro-Sensors, Inc. (NASDAQ: ELSE) below…
Welcome to all of our new members,
Small Caps in focus as markets are in reset mode. Volatility can bring opportunity!
Industry Tech Company, Broadening Product Offering into New Industrial Markets
Good day everyone,
Today we are initiating coverage on Electro-Sensors, Inc. (NASDAQ: ELSE), a provider of machine monitoring sensors and hazard monitoring systems. We believe that ELSE shares are oversold and exhibit a chart set-up that may indicate a significant bounce in the near term.
Current price $3.45
52-week range $3.42 to $5.24
Shares outstanding (est.) 3.4 million
Tiny Float (est.) 1.64 million
Book value $3.67 per share
Last reported cash on hand $8.52M
Profitable FYE 2013 through FYE 2017.
Insiders hold 51.8% of the outstanding shares
The outstanding share count has been consistent for 5 years
ELSE has zero long term debt
ELSE sells a long list (nearly 100) of monitoring devices for industry that generate performance data on machine components and production levels including their field-proven HazardPRO™ Wireless Hazard Monitoring System. ELSE products can monitor the potential failure of bearings, shafts, belts and other machine components so they can be replaced BEFORE they fail. ELSE sells their products virtually worldwide.
ELSE has maintained a gross profit margin over 54% the past four years.
In early October Electro announced the promotion of Dan Saniti to Vice President of Sales. According to David Klenk, Electro-Sensors president and CEO. “It’s very clear to me that Dan is the right choice to lead our sales group as we continue developing our existing markets while driving expansion into new industrial markets we have not previously served.” Saniti has extensive experience in the sector and has been with Electro since early 2018.
Electro stated in their most recent 10-Q (issued August 14), “Management believes that our cash on hand and any cash generated from operations will be sufficient to meet our cash requirements through at least the next 12 months.”
ELSE shares are trading below their book value.
Electro-Sensor’s facility in Minnetonka Minnesota
Electro has an aggressive trade show schedule in the near-term. Trade shows can generate new customers and shareholders alike.
Kansas Agri Business Expo November 14 – 15, 2018
2018 Country Elevator Conference & Tradeshow December 2 – 4, 2018
USA Rice Outlook Conference December 5 – 7, 2018
Feed&Grain LIVE Feed&Grain January 8 – 10, 2019
Wisconsin Agribusiness Classic January 15 – 17, 2019
North Dakota 107th Annual Convention & Industry Show January 20 – 21, 2019
IPPE 2019 IPPE Atlanta February 12 – 14, 2019
GFAI Annual Convention and Trade Show February 17 – 19, 2019
112th Annual MGFA Convention & Industry Trade Show March 4 – 6, 2019
Conclusion:
ELSE is cash flow positive for the trailing twelve months with $349K in operating cash flow and $79K in levered free cash flow.
Electro has a strong balance sheet showing $13 million in assets and only $617 thousand in liabilities (as at 6-30-18).
At $3.45, ELSE shares are trading just above their 52-week low of $3.42 and significantly below their 52-week high of $5.24. The shares are also trading below their 50 DMA and 200 DMA of $3.66 and $3.91 respectively. The current RSI (14) is 37.62. These data are generally indicative of shares that may be oversold. Note the double bottom forming for ELSE shares.
We are bullish on ELSE shares in the near-mid term.
Your profit partner,
The Traders News Group
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