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Valuations Not Looking Good for Small Caps

Reuters

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(Reuters) – The good news from Friday’s jobs report may already be reflected in the prices of the smallest U.S. stocks.

With nearly all of their revenue coming from the United States, the companies in the Russell 2000 .TOY should be the most obvious beneficiaries of a growing U.S. economy.

Yet fund managers and analysts warn that small-cap stocks already trade at valuations high above long-term averages, even after significantly lagging large-company shares in 2014. This could put a cap on further gains.

“Small-cap companies have something of an advantage in this economy. But investors have figured that out,” said Phil Orlando, chief equity strategist at Federated Investors in New York.

Companies in the Russell 2000 look expensive compared with their history, said Steven DeSanctis, an analyst at Bank of America Merrill Lynch (BAC.N), in a Feb. 3 note to clients.

The trailing price-to-earnings ratio of the index is at 22.7, which is 40 percent more than its long-term average of 16.2. Its price-to-sales ratio of 1.6 is nearly 67 percent higher than its long-term average.

High valuations already appear to be cutting in to returns, DeSanctis said. The Russell 2000 is up 11.9 percent over the last 12 months, compared with a 16.7 percent gain in the large-cap Standard & Poor’s 500 index .SPX over that time. Year to date, both indexes are up less than 1 percent.

Still, Steven Raineri, the lead portfolio manager of the Franklin All-Cap Value fund (FRAVX.O), increased his stake in small-company stocks by 25 percent over the last year in part because of signs of improvement in the housing market and in consumer confidence. Overall, multi-cap fund managers increased their stake in small-cap stocks 10 percent over the same time, according to Morningstar data.

“We’re happy if there’s a disconnect and we can find companies we like at prices we’re comfortable with,” Raineri said.

He has been adding to his holdings in companies such as Gibraltar Industries Inc (ROCK.O), a $500 million market-cap company that makes mailboxes and other products used in the construction of housing developments, and Griffon Corp (GFF.N), an $813 million market-cap company that manufactures garage doors and landscaping products. Both companies derive 70 percent or more of their revenue from the United States, according to Thomson Reuters.

Overall, in the last five years, 81.3 percent of revenue for Russell 2000 companies came from the United States, compared with 64.3 percent of revenue for S&P 500 companies, according to Bank of America Merrill Lynch.

Nonfarm payrolls increased 257,000 last month, the Labor Department said Friday, well above forecasts. The dollar index rose slightly more than 1 percent on the news.

Raineri said that he is more concerned about the dollar continuing to rise quickly than higher share prices for small-cap stocks. A rapid jump in the dollar could be a sign that investors are seeking safety, and could draw investors away from small-cap stocks, he said.

“If the dollar gets too strong too fast, it’s going to be taken as a sign of the global economy weakening,” he said.

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Business

TRANSCRIPT: Trump’s remarks with tech executives.

Caiden Cowger

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On Wednesday, Donald Trump and his advisers met with 13 top tech executives to discuss policy and innovation.

Tim Cook, CEO, Apple Inc.:

“Tim Cook, very good to be here. And I look very forward to talking to the president-elect about the things that we can do to help you achieve some things you want.”

Donald Trump, President-elect:

“Great, Tim.”

Safra Catz, co-CEO, Oracle Corp.

“I’m Safra Catz, I’m CEO of Oracle. I’m actually privileged and honored to even be here, and we are looking forward to helping you, and your administration.”

Donald Trump:

“Thank you. Thank you, Safra.”

Elon Musk, CEO, Tesla Motors Inc. and Space Exploration Technologies Inc.:

“Elon Musk, the CEO of SpaceX and Tesla, building rockets and cars and solar stuff in the U.S. I’m really excited about expanding our manufacturing footprint in the U.S.”

Gary Cohn:

“Gary Cohn, here as the delegate for NEC (National Economic Council), working with the president on driving his economic policy.”

Wilbur Ross, investor, appointed U.S. Commerce Secretary:

“Wilbur Ross, nominee for commerce secretary.”

Stephen Miller, appointed Senior Adviser to the President for Policy:

“Stephen Miller, senior adviser for policy, and everyone thank you for being here.”

Satya Nadella, CEO, Microsoft Corp.:

“Satya Nadella, CEO of Microsoft.”

Ginni Rometty, CEO, International Business Machines Corp.:

Ginni Rometty, the CEO of IBM, and also great to be here to work on that [inaudible] agenda.”

Chuck Robbins, CEO, Cisco Corp.:

“Chuck Robbins, CEO of Cisco. Likewise, everything has been said, we’re happy to be here and happy to help and happy to work with you.”

Jared Kushner:

“Jared Kushner.”

Reince Priebus:

“Reince Priebus.”

Steve Bannon, senior counsel and chief strategist of the President-elect:

“Steve Bannon, chief strategist and senior counselor for the President-elect.”

Eric Schmidt, executive chairman, Alphabet Inc.:

“Eric Schmidt, Alphabet/Google, and completely agree with what’s been said.”

Alex Karp, CEO, Palantir Technologies Inc.:

“Alex Karp, CEO of Palantir hoping to help bolster national security and [inaudible].”

Brian Krzanich, CEO of Intel Corp.:

“Brian Krzanich, CEO of Intel.”

Donald Trump, Jr., executive vice president, The Trump Organization:

“Donald Trump, Jr.”

Ivanka Trump, executive vice president, The Trump Organization:

“Ivanka Trump.”

Eric Trump, executive vice president, The Trump Organization:

“Eric Trump, and welcome.”

Brad Smith, president, Microsoft:

“Brad Smith, president of Microsoft, and like Satya [Nadella], please to be here.”

Jeff Bezos, CEO, Amazon.com Inc.:

“Jeff Bezos, Amazon.com. I’m super excited about the possibility that this could be the innovations administration.”

Larry Page, CEO, Alphabet:

“Larry Page, Alphabet and Google, probably the youngest company here.”

Donald Trump:

“Looks like the youngest person.” [Laughs]

Mr. Page:

“Really excited to be here.”

Sheryl Sandberg, chief operating officer, Facebook Inc.:

“Sheryl Sandberg, Facebook. Excited to talk about jobs.”

Mike Pence, Vice President-elect:

“Mike Pence, governor of Indiana for a few more days, and Vice President-elect of the United States.”

Donald Trump:

“Well I just want to thank everybody. This is a truly amazing group of people. I won’t tell you the hundreds of calls we’ve had asking to come to this meeting, and I will say, and I will say Peter was sort of saying, ’No, that company’s too small.’ And these are monster companies. But I want to thank — I want to start by thanking Peter because he saw something very early, maybe before we saw it and of course he’s known for that in a different way. But he’s been so terrific and so outstanding and he got just about the biggest applause at the Republican National Convention. He’s ahead of the curve, and I want to thank you, man, you’re a very special guy.

So I want to add that I’m here to help you folks do well. And you’re doing well right now and I’m honored by the bounce. They’re all talking about the bounce, so right now everybody in this room has to like me at least a little bit, but we’re going to try and have that bounce continue and perhaps even more importantly we want you to keep going with the incredible innovation. There’s nobody like you in the world. In the world, there’s nobody like the people in this room.

And anything we can do to help this go along, and we’re going to be there for you and you’ll call my people, you’ll call me, it doesn’t make any difference, we have no formal chain of command around here. I’m honored to have Gary, the president of Goldman Sachs, left Goldman Sachs to do this, and Wilbur, everybody knows Wilbur, they never call him Wilbur Ross on Wall Street, they just say “Oh, it’s Wilbur.” There’s nobody like him.

And we’re gonna do fair trade deals. We’re going to make it a lot easier for you to trade across borders because of a lot of restrictions, a lot of problems that I think you’ll see. And if you have any ideas on that, that would be, that would be great because there are a lot of border restrictions and a lot of border problems, you probably have less of a problem than some companies, some companies have—you have some problems.”

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Business

TRUMP MAKES DEAL: Carrier staying in the US, bringing 1k jobs to Indianapolis.

Caiden Cowger

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Just two months prior to holding office, President-Election Donald J. Trump has made a deal with Carrier, bringing 1,000 jobs back to Indianapolis.

“We are pleased to have reached a deal with President-elect Trump & VP-elect Pence to keep close to 1,000 jobs in Indy,” Carrier announced on their official twitter account, “More details soon.”

According to The New York Times, Trump and Vice President-elect Mike Pence, Indiana’s governor, will announce the deal at the Carrier company in Indianapolis on Thursday.

Carrier is a high-tech heating, air-conditioning & refrigeration solution company.

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Business

SCROOGLED; MAINSTREAM MEDIA ARE NOT THE ONLY ONES WHO MANIPULATE THE GENERAL PUBLIC

George Lujack

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WRITTEN BY: GEORGE LUJACK

Google has recently been exposed for actively altering search recommendations in favor of Hillary Clinton’s campaign, as their search engine directs searchers to positive stories of Clinton, when negative stories about Clinton are queried.
Big businesses, such as Google and Facebook, have joined the mainstream media in subtle and overt manipulation of the American general public to manipulate them, screw them, and steer them in favor of liberal policies and liberal politicians.

https://www.youtube.com/watch?v=PFxFRqNmXKg

 

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