Playing 'Small Ball'

I think Stephanie Link hit it on the head last night after the bell on CNBC on Wednesday when she said it feels like the market is in a trading range and dips should be incrementally bought. This matches how I am trading the market right now. I am basically adding shares in small increments to existing core positions on any dip in the market. I like to call it small ball as it just seems prudent not to make any big moves in a market that either is in a trading range or at an inflection point. It also helps to have plenty of dry powder at the moment. I admit that this is not exactly an exciting strategy, but market timing has never been my forte. Here are a couple of positions I have added to on the various dips over the last week or so. I added some long exposure to my existing stake in Bank of America (BAC) yesterday. The company just got permission to quintuple its minute quarterly dividend of $0.01 a share. This is the bank's first dividend hike since before the financial crisis. Bank of America also appears on the brink of settling with the Fed regarding toxic mortgages. The price will be steep but it will remove a huge overhang on the stock. Earnings should be slightly down this year to approximately $0.80 a share, but are projected to explode to the upside in 2015 to a consensus of $1.50 a share. This is the fastest projected earnings growth in 2015 of any of the major banks. An accelerating economy, higher interest rates and hopefully an improving housing market by the end of 2014 should also bolster the bank's prospects. Shares are cheap at 10 times next year's earnings and near book value. I also added some shares to existing small-cap Bakken exploration and production (E&P) play Emerald Oil (EOX). The stock has been caught up in the same downdraft in the market that has impacted almost every E&P concern, especially in the small-cap space. However, the company just reported very solid quarterly earnings of $0.11 a share, $0.07 above the consensus estimate. Revenues rose more than 100% year-over-year on a huge production hike. The company should have great earnings visibility going forward as it books $0.15 to $0.20 of profit in 2014 after a loss in 2013. The consensus has it earning $0.55 to $0.60 a share in 2015. Howard Weil just moved its price target from $11 a share to $13 a share on Emerald. This is more than 50% upside from its current price and I expect other analysts to make similar moves in the weeks ahead. Finally, I bought a few more shares on disk storage solution provider NetApp (NTAP). The shares of this cash rich storage play have stood up very well during the recent hiccup in the market. The company has new offerings coming for its core market. I believe it could attract the same type of activist interest that competitor EMC (EMC) recently has, given the company's $4 billion net cash hoard. Subtracting cash from the balance sheet and the shares go under nine times forward earnings and pay near a two percent dividend yield. I would rather be initiating new positions on deeply undervalued stocks, but they are few and far between at current levels. Instead, this sort of small ball investing seems the right path to take until we get a clearer picture for the direction of the market.

Playing 'Small Ball'

On any dip in the market, I am adding shares in small increments to existing core positions.

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