2 Winning Stock Investments in an Overbought Market
It's hard to make sense of this stock market but here are two small-cap names that saw some good news with promising futures ahead.
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It seems that every week the market becomes even more farcical as the major indices hit one all-time high after another. This, as economic growth has slowed dramatically from the back half of 2023, the jobs market is deteriorating, consumer sentiment has soured significantly from the same period a year ago and investors are still waiting on the first cut to the Fed funds rate.
Here are a couple of data points that point to the huge valuation disconnect and bifurcation of the market, several of them courtesy of Doug Kass’s Daily Diary: Nvidia Corporation NVDA now trades at 40 times revenues and its market cap is seven times that of Exxon Mobil XOM.
Apple AAPL added over $1 trillion to its market cap over the past three months, largely due to the company’s new focus on "AI development." However, over the past 90 days, the consensus profit estimates for both FY2024 and FY2025 have come down significantly. The tech giant from Cupertino now trades at north of nine-times revenues compared to its 10-year average of five-times sales.
Finally, the top-five largest stocks in the S&P 500 account for nearly 30% of the index’s overall market cap. That is the highest percentage in my lifetime (I am turning 58 in September) and perhaps ever. Greater by far than the bifurcation that existed at the end of the internet boom before that bout of irrationality met the rocks of reality early in 2020.
At this point, I am done trying to make sense of this and am still trying to find value in a clearly overbought market. However, trying to sound a more positive note, there was some good news around a couple of small-cap names in my portfolio on Tuesday that have appeared on these pages over the years.
Let’s talk first about Byrna Technologies BYRN. The stock of this manufacturer of non-lethal arms and munitions did not get the pop it deserved after reporting solid quarterly results on Tuesday. Its new advertising strategy is paying off, however. The company saw revenues soar by over 75% from the same period a year ago while improving margins. This helped swing the company to a quarterly profit from a loss. Bryna has increased manufacturing capacity to deal with the upswing in demand and has a clean balance sheet with no long-term debt as well. I will likely a few shares to my existing holding in BYRN this week.
I was years early on establishing a stake in Netherlands-based biotech concern uniQure N.V. QURE. However, that faith started to be rewarded yesterday as the company disclosed quite encouraging mid-stage study interim data around its investigational gene therapy for Huntington’s disease. The news sent the shares flying higher by more than 75% in trading on Tuesday as data could open the way for an accelerated approval pathway for the candidate. The company has that potential catalyst before year end 2024 after a meeting with the FDA to discuss the data at length. uniQure has a couple of key data readouts that should be out around mid-2025, several "shots on goal" within its pipeline and a hoard of cash on its balance sheet as well.
At the time of publication, Jensen was long BYRN, QURE and XOM.
