Market cap shift favors PWAV...
I would like to analyze the late Friday selloff that occurred between LLTC, who is leaving the S&P400 midcap index, and PWAV, who is entering the S&P400 midcap index. This is my opinion and does have holes, but FYI...
LLTC has 311.1 million shares outstanding according to Yahoo finance website. From 3:00 p.m. to the close on Friday, LLTC dropped from about $60 to about $52, a 13% drop. That's a market cap loss of about $2.5 billion in one hour.
PWAV has 20.4 million shares outstanding according to Yahoo finance website. From 3:00 p.m. to the close on Friday, PWAV dropped from about $146 to about $118(as incredible as that is), a 22% drop. That's a market cap loss of about $650 million.
Obviously there was much more money flowing out of LLTC than PWAV overall even though PWAV fell much further on a percent basis. This I think is due to a much less balanced investment in small cap stocks and a more balanced investment in midcaps. The point I would like to make is as follows:
The money flowing out of LLTC in the last hour on Friday that caused a $2.5 billion selloff can be assumed to be mostly money from S&P400 midcap index funds forced to sell for obvious reasons by the close. I say mostly since I am sure stop losses were triggered and I am sure others sold in fear. The same can be said for PWAV, who lost about $650 million at the close on Friday. However, there is a great disparity here. The money that flowed out of LLTC due to the fact that LLTC was leaving the S&P400 midcap index and entering the S&P 500 is now available. AND the stock replacing LLTC in the S&P400 midcap index is PWAV. In theory, the $2.5 billion that left LLTC in the last hour of trading Friday "should" be invested in PWAV. Now, theory is just that, so I would guess that the amount is less, but consider this. The amount available now would easily be greater than the $650 million lost by PWAV. Even considering just 40% of the $2.5 billion, which by the way $2.5 billion is about equal to the market cap of PWAV altogether as of the close Friday, is equal to about $1 billion.
Now, I do not know when the S&P400 midcap index funds "have" to buy PWAV, but you can be sure of some truths. First, it WILL happen and that puts pressure to the buy side. Second, PWAV is already off 40% from all-time highs, so this is as good a price as the new index funds will see, IMHO. Third, PWAV is THE industry leader in the base station amplifier market for wirelss communications. Last, expectations for growth in this sector is considered to be as good or better than any other sector on wallstreet, including the fiberoptic stocks which are nearly all richly valued.
In summary, the $$$ that flowed out of LLTC is now available for investment into the only stock coming into the S&P 400 midcap index, replacing LLTC, and that is...PWAV.
IMHO,
Mr. Miller |
