market plus couple of other names

Lot of moving parts the last couple of days. I buy into the idea that some quant funds are having troubles and unwinding their trades within smaller cap stocks. Each day for the last week or so I have had several stocks move up and down at least 3-5% often in a direction opposite of how the market was moving. There doesn't seem to be any fundamental news behind the stock price changes -- TECH had great earnings and moved up $4 one day only to lose $4 the next day. Will be interesting to see how long this lasts -- check out the article in the WSJ about Lehman's top quant who issued a letter to the "quant community" last week urging calm.

I was shocked to see the main headline of my local newspaper blaring out the news that the Fed injected liquidity into the market -- huh? They acted to keep the fed funds rate at 5.25%, which is what you would expect them to do. Isn't that what targeting a fed funds rate requires? adding or removing liquidity to maintain that rate? Why the rate was rising above the targeted rate is an interesting question -- obviously some bank that was part of the Fed system needed extra liquidity (demand) more than what was available (supply) at the 5.25% rate. The news headlines likely jumping the gun -- this action isn't news, but it has likely opened pandora's box -- a fed funds cut is probably in the cards over the next several months. That will provide nice juice to technology stocks and perhaps a few financials.

But don't get carried away on the financials -- not much the fed can do to repair the balance sheet woes of many hedge funds or other leveraged players. Just like when the fed cut in 2001, everything took off at first but then all the tech stocks kept dropping -- the business kept declining despite the fed cuts and the stocks were all overvalued too. There are financials that are overvalued relative to the future -- imagine a mortgage industry that is 40% smaller than 2006 and you can get an idea what I mean about future earnings power being under pressure.

I stopped reading about Mastercard -- I think they do a horrible job of telling their story. I just have a hard time understanding them and I don't really want to work at it to figure them out. My bet is that there is more opportunity in Net 1 (UEPS, use the search line on the left to search within the blog for comments on UEPS) then in MA.

I read something on Friday that suggested IGT -- International Game Technology. They sell slot machines and other equipment and services to casino's and other gambling establishments. Its a pretty good business with good profitability, good cash flow and what has been pretty good growth during industry up cycles. The stock has pulled back as growth is under pressure (US is replacement only and there is no reason to upgrade now. Valuation wise its ok -- not super cheap but not really expensive either. I think this could be a great stock going forward but I'm not sure its secular value investor material -- if the US is 80% of revenues and its almost all replacements how is that secular growth? its more like a cyclical story once the new server based gaming systems are available.

Another story I heard about is more speculative -- Angio-Dynamics (ANGO) which makes equipment for use in treating cancer as well as helping interventional procedures. The good news is that they get 90% of revenues from disposables -- generally higher margin products. The bad news is they are very small in size.

I plan on continuing to do some reading on these two plus -- I will let you know what I think.