Tuesday's action was yet another reminder of the fragile nature of these markets. With the S&P 500 down 2%, yesterday was the 16th trading day in the past month that the index has finished up or down more than 1%. Seven of those days have been plus or minus at least 2%. Of course lately, we've become more accustomed to the up days then the down, and yesterday's pullback is another reminder that markets rarely head straight up, especially in an environment as unsettled as this one.
I am really not focused on the daily market gyrations as much as I'm fascinated by them. From an investment standpoint, such wild fluctuations make little sense, and they are damaging to the psyche of many investors.
Interestingly enough, though, while the volatility may seem severe in the broader markets and large-caps, it's nothing compared to what small- and micro-cap names experience. Yesterday, for instance, the Russell 2000 and Russell Microcap Index were both down about 3%. The smaller, more speculative names tend to get beat up more when there's a lot of selling, and this drubbing can create opportunities -- but it also raises questions.
For instance, is fine watch maker and former net/net Movado (MOV) really worth 6.4% less than it was on Monday? At Monday's close, the equity was valued by the markets at $406 million; by yesterday's close it was valued at $380 million. There was no news, no earnings report, just a down day in the markets, and a 6.4% haircut for Movado. Does that make sense? Maybe it does. Maybe Movado was overvalued at $16.32 a share on Monday. The point is that there are still inefficiencies in the markets, and inefficiencies create opportunities. I still happen to hold Movado, which currently trades at 1.14x net current asset value (NCAV) and had $5.18 in net cash on the books as of the latest quarter-end.
Imation (IMN) is another smaller name that got beat up pretty badly yesterday, down more than 11%. But in this case, it was a negative earnings report that did the damage. Revenue of $308.6 million came in below the consensus ($319 million), and the company's loss (of $0.18 a share ) was well below estimates (for a loss of $0.03). Imation is looking more and more like a value trap. But with $233 million or $6.06 per share in net cash, shares closed yesterday at $6.44, so the company is trading like an option. The question is whether there's any value there besides the cash. Time will tell.