"A good plan today is better than a perfect plan tomorrow" -- Anonymous
Investors have been treated to some volatility to open 2014. After declining 5% to 6% over the first several weeks of the New Year, stocks have battled back to be near where they started the year
The trading action is understandable given the mixed economic reports the market has been receiving since the economy grew at better than 3% rate in the back half of 2013. Equities have performed quite well, given two pretty dismal jobs reports in a row as well as numerous other reports showing the housing market is slowing.
We will probably get a downward revision this week to fourth quarter GDP estimates. The market will also get readings on new home sales, monthly durable goods and consumer confidence this week. The weather is one factor which is clouding how meaningful these new economic readings will be.
A good portion of the country has endured some of the coldest weather and largest snowfall in two decades. Obviously, this impacts housing starts, retail sales, job growth and a variety of other economic activity. How much remains to be seen.
Another major unknown is how the market will react as the Federal Reserve continues to withdraw liquidity measures from the market. The reaction from emerging markets seems to have been significant but domestically it is still mostly unknown.
I think the market will continue to receive mixed messages on the economy over the near term. It is easy to see this translating into more see-saw action in equities until investors get some more clarity about the true strength of the economy. Given this, investors should have a plan to deal with more turmoil in 2014 through at least the first half of the year than was present throughout 2013.
I believe we will see several 3% to 5% dips and rips in the market over the next few months. I have several growth stocks on my 'shopping list' should we get some of the predicted dips in the market. I am tilting toward growth in my own portfolio as I deployed quite a bit of 'dry powder' into some of the high-yield sectors that significantly underperformed the market toward the end of 2013.
This has paid off well in the New Year because these sectors have risen nicely as interest rates declined so far this year. However, it also has left my portfolio overweight in the value area and underweight growth stocks. I am looking at stocks I want to pick up at slightly-lower levels that offer good growth at a reasonable valuation.
Bally Technologies (BYI) is typical of the type of growth picks I want to add to my portfolio on any decent declines in the overall market. The company is a diversified and global gaming company that designs advanced technology-based gaming devices and systems, as well as interactive and mobile solutions. It became the first gaming company listed on the NYSE back in the 70s.
Bally obtained gaming concern SHFL Entertainment this past summer. The acquisition should be significantly accretive to earnings by FY2015 and it should also provide good synergies and cost savings of around $40 million annually. It should give Bally some additional expertise in Asia where SHFL was strong.
During the last reported quarter, revenues posted approximately 20% growth year-on-year. The combined company also gets half of total sales from recurring revenue streams. Bally is well run and consistently delivers higher gross margins than its biggest competitor, International Gaming Technology (IGT).
Bally consistently beats bottom-line consensus quarterly earnings estimates and projected earnings for FY2014 have risen well recently. Bally should deliver 25% to 30% earnings growth in 2014 and the stock is going for just over 15x forward earnings. This is right in line with the overall market multiple despite the company having more robust earnings and revenue growth prospects.
I will be looking to pick up Bally and other good growth prospects on the next pullback in equities. That is my plan. What is yours?