The Perfect Chart: Cytori Therapeutics (CYTX)
Cytori Therapeutics, Inc. develops, manufactures, and sells medical technologies to enable the practice of regenerative medicine. The Company’s commercial activities are focused on cosmetic and reconstructive surgery in Europe and Asia-Pacific, and stem and regenerative cell banking (cell preservation) worldwide. Its product pipeline includes the development of new treatments for cardiovascular disease, spinal disc degeneration, gastrointestinal disorders, liver and renal disease and pelvic health conditions.
Cytori's initial run about a month ago coincided with a press release announcing that the company had completed its enrollment in a 70-patient, international breast cancer reconstruction study called RESTORE 2. The study is evaluating the use of cell-enriched fat grafting to restore functional and cosmetic deformities in women who have undergone partial mastectomy for early breast cancer. Interim results were scheduled to be released 12/12/09 at the San Antonio Breast Cancer Symposium. In the past month while waiting for the results, CYTX has basically doubled. See the chart below for this phenomenal run:
As one might have expected, the results of the study released this weekend were highly positive. The tests demonstrated that cell-enriched breast reconstruction achieved a high rate of patient and physician satisfaction and improvements in overall breast deformity in lumpectomy patients.
The question now is where does the stock go from here? Breast cancer and the reconstructive aspects of it has a massive worldwide market. So, one might initially think that the stock should continue to rise after such great results. However, this scenario also sets up perfectly for a classic "sell the news" outcome. If the stock continues to run Monday on high volume late into the afternoon, it could be poised for new highs. If there's a huge sell-off, consider it the "perfect short".
11-29-09 - Predictable Penny Trading Patterns Makes Advanced Medical Institute, Inc. (AVMD.OB) Perfect
Advanced Medical Institute is a service provider, which arranges for patients with sexual dysfunction and prostate problems in Australia, New Zealand and the United Kingdom to be provided with medical services, pharmaceuticals and associated clinical support services.
AVMD.OB got beaten down as did most stocks during past year and half. However, on 11-23-09, the company released their 10-Q detailing the results of their most recent quarter. See below for a few highlights (click here for the full 10-Q):
- 53.5 Mil shares outstanding
- $14.5 Mil revenues
- $0.8 Mil net income
- $0.02 EPS
- $20.1 Mil stockholder equity
- $0.38/share book value
- Company is optimistic about business and profits going forward
The market took note of how undervalued the company became and responded by appreciating the share price up to 600%.
See below for a 2 month chart of AVMD.OB:
From the chart, you can see the large spike that occurred from the release of the 10-Q. Now, an amateur would take one look at this chart and say to themselves, "Why in the world would anybody want to buy a stock that has just had a 600% percent gain particularly after the stock price has dropped the following two days?" A more experience technician would look at the same chart and believe the current setup is extremely bullish. They would see that the stock has spiked on very high volume and quickly retraced exactly 50% on relatively low volume. Also, the experienced trader would see that each of the trading days following the spike have printed higher intra-day lows. Trading in this manner signals that the selling is being exhausted and that the stock is entering into a consolidation phase. Many traders will recognize this and will begin to take positions in the stock. I don't have an accurate total for the float of AVMD.OB, but it has to be pretty thin if the share price was able to jump from $0.04/share to $0.23/share on 2.6 million shares of trading volume. Eventually, the buying pressure will become too great and share price will jump again. In stocks with tight floats the consolidation phase can be very quick.
Different Movie, Same Ending?
I've stated before that stocks often follow market psychology. As traders see success in one stock, they look for other stocks that are similar that will hopefully mirror the results. Viking Systems (VKNG.OB) is a recent market darling that moved from sub-penny to over $1.00/share in less than 3 weeks. The recipe for Viking's success:
- Significantly beaten down OTC stock
- Positive quarterly report sparked the rise
- 40-50 million shares outstanding
- Low float
- Optimistic about company's prospects going forward
Of course there are differences between AVMD.OB and VKNG.OB, but as you can see, many of the underlying themes are the same. Also, it had the same super spike to the upper 20 cent range and a 50% retrace before moving higher. InstaCare Corp (ISCR.OB) is another stock following a similar path that in my opinion is a stage ahead of AVMD.OB. Again, it has the same recipe as others. It too had the same 50% retrace, has already consolidated in the upper teens, and is in the process of breaking out to even higher levels (click here for chart of ISCR.OB). Advanced Medical Institute looks poise to do the exact same thing.
The stock market is generally unpredictable and penny stocks tend to be the most unstable variety of them all. However, certain setups can yield predictable results. In my opinion AVMD.OB has set itself up perfectly to climb higher than its current share price of $0.18 based upon some proven technical indicators. I'm not going to take a leap and say that the stock will reach the dollar level of VKNG.OB, but I think odds of the share price reaching at least $0.30 - $0.40 before Christmas are pretty favorable. Although penny stocks don't necessarily follow the general market, the annual "Santa Rally" that frequently occurs during the month of December won't hurt the company's immediate prospects either. Advanced Medical Institute (AVMD.OB) is the next perfect stock.
While my last perfect stock pick A.H. Belo (AHC) continues to do pretty well (up about 40% since I posted about 3 weeks ago), I've decided to add a new feature to the blog called "The Perfect Chart". Finding the perfect stock is an extremely difficult task, due to the strict criteria I place on my selections. So, I figured in the meantime I'd periodically spotlight a company that might not necessarily be a "perfect stock", but had a "perfect chart". A perfect chart in my opinion is one where there is visually a distinct trend upwards. I'll leave it to you and your own due diligence to determine whether or not it is still a buy, but I felt that it would be neat to point out stocks that the market has obviously fallen in love with. Also, we all know that a trend can be "your friend", so at a minimum these should be stocks that you may want to track.
The Perfect Chart: American Lithium Minerals, Inc. (AMLM.OB)
American Lithium Minerals, Inc. is a U.S. resource exploration company with specific interests in acquiring properties containing lithium. Basically, this stock is a play on the probable boom in lithium usage due to the government's push for electric cars. AMLM.OB is said to own 100% of the mineral rights to one of the largest lithium rich properties in the US.
This stock has one of the steadiest up trends I've ever seen. It is particularly impressive due to the fact that it is a penny stock that trades on the OTCBB. The sudden spike and drop that occurred about two weeks ago acted as nothing more than "noise" in what has been one of the best and most consistent stocks in the entire market the last 3 months. Will it continue?
I find a lot of these hidden gem stocks using a lot of the tools conveyed in my latest on post at my other blog http://yourtradingtips.blogspot.com . Check it out when you get a chance.
Finally, I've got a new post here at http://theperfectstock.blogspot.com. I haven't written anything in about a month because I couldn't really find a stock that I thought was better than my last pick of Rodman & Renshaw Capital Group (RODM). It has done really well and should continue to move higher because of tremendous earnings expected to be released in the next few weeks. My next selection may be the most undervalued stock in the entire market. These gems typically don't stay undervalued for long. For this choice I'll venture back to the newspaper media sector. It is a group that I have had a lot of success with in the past few months and have continued to follow closely. A.H. Belo Corporation (AHC) is the next perfect stock.
A. H. Belo Corporation owns three daily newspapers and 12 associated websites including The Dallas Morning News, The Providence Journal and The Press-Enterprise. They produce local, state, national and international news. In addition to these three daily newspapers, the company publishes various specialty publications targeting Hispanic and other niche audiences. They also own a direct mail and commercial printing business. On February 8, 2008, the Company was spun off from its parent company, Belo Corp (Belo) and became a separate public company.
After looking at a lot of stocks, I've concluded that AHC may be one of the cheapest stocks on the market. This company's balance sheet is simply phenomenal. One way to gauge if a stock is undervalued is by comparing the book value per share to the current share price. For my readers who don't have a good understanding of a company's book value, it's basically just the shareholder equity (Assets - Liabilities = Shareholder Equity). Another way to look at book value is that it represents a theoretical dollar amount that shareholders would receive if the company was sold or liquidated. AHC's shareholder equity is approximately $300 million. If you consider that AHC has just over 20 million shares outstanding fully diluted, its book value is around $15/share.
Now, let's put this book value figure into perspective. Very few stocks trade at or below book value. This valuation metric typically sets the floor for a stock price under a worse case scenario. As a matter of fact, most stocks trade at hefty multiples to their book value. AHC ended the trading session on 10/9/09 at $3.56/share. Now, compare that to a book value of $15/share. This means the stock is trading at more than 4 times less than its book value. I don't know of any other stock that carries such a valuation discrepancy. Even without great earnings, a shareholder could conservatively discount the book value by 1/3 and feel comfortable knowing that their shares should at least be worth $10/share in a buyout. That amount represents 3 times the current share price.
Also, most newspaper stocks are saddled with mounds of debt due to the economic downturn in the last year. A.H Belo Corp is the exception. They only have $3 million in debt per their last quarterly report, yet they are currently trading at a significant discount to their more notable peers such as The McClatchy Company (MNI) and Lee Enterprises (LEE). I can assure you that this oversight in valuation by the market won't go unnoticed forever.
See below for a 6-month chart of A.H. Belo Corp below:
As you can see, AHC made an monster move back in mid-July by nearly tripling off of its bottom in just 3-weeks. Due to the low share count, AHC was extremely volatile the next two months, but pretty much averaged a little over $3/share. However, notice how in the last month the trading range has tightened significantly (a more technical term would be that the "Bollinger Bands" are tightening). A textbook technical result of this form of consolidation is generally an explosive move higher. Right now, the key resistance level for AHC to break is in the $3.75 to $4.00 price range. The last two hours of the trading day on Friday 10/9/09, the stock spiked to $3.75 before selling off the last hour. I believe with another solid run, AHC will break that level of resistance and run significantly higher. The charts of MNI and LEE are similar in that they too traded in a range for about two months; however, within the last week both have broken their points of resistance and have seen new highs. See the 3-month chart of MNI below for what I feel will be a similar pattern for AHC:
Sector Momentum and News
In my post a few months ago on Lee Enterprises (LEE) . I felt I did a pretty good job of detailing why I thought the newspaper stocks would turnaround (click this link to review that post). So far, I've been fairly accurate in my assessment. To be frank, AHC does not achieve the margins of its larger brethren, but its superior balance sheet more than makes up for this shortfall. As a result, all the newspaper stocks have moved strongly off their lows. One reason the sector has moved higher in recent days is because earning reports in the sector begin next week. Clearly, investors feel confident that the reports will be positive.
A lot of that confidence stems from some news released by Gannett Co. (GCI), the bellwether of the newspaper stocks. I believe that this news marked the beginning of the next leg up in the group. A little over a week ago, GCI pre-announced stronger year-over-year expected income growth and noted significant improvements in their publishing division. It has been widely publicized that media advertising picked up significantly during the 3rd quarter and the industry as a whole has gotten leaner and meaner. Despite less sales than in years past, the newspaper stocks have and will return to profitability. AHC should be no exception.
The newspaper stocks are poise to move higher and many of the companies have already made their move. This sector is notorious for only having one or two names move big at a time. Usually, one or two stocks will move hard one day and then a week or two later, a different company would jump 40-60%. You could have made a mint day-trading MNI and LEE had you alternated moving the profits from one to the other after a big move in each had been made. AHC hasn't really moved yet, but I strongly believe it's coming soon. I can see A.H. Belo quickly moving to $5-$6. Based on what we know regarding its book value, it definitely has the potential to move much higher longer term. Severe undervaluation, technicals, and strong sector movement make A.H. Belo Corp (AHC) the next perfect stock.
Rodman & Renshaw Capital Group, Inc. (RODM) is a holding company that through its various subsidiaries is engaged in the investment banking business. RODM’s principal operating subsidiary is Rodman & Renshaw, LLC (R&R). R&R is a full service investment bank dedicated to providing investment banking services to companies that have significant capital needs, along with research and sales and trading services to investor clients that focus on such companies. Rodman is a leading investment banking firm with particular emphasis on industries with significant capital needs, including health care, energy, metals/mining as well as a leader in the PIPE (private investment in public equity) and RD (registered direct placements) transaction markets. The division that is currently making Rodman a stock market juggernaut is the one that focuses on PIPE and RD.
I've mentioned before that my other blog http://yourtradingtips.blogspot.com lists the 4 press release websites that 99% of publicly traded companies use to make official announcements. In my everyday quest for finding game changing news in companies, the headline that I have consistently seen for the past month or two pertains to companies seeking additional capital through private investment and direct placement. If you think about it, it makes a lot of sense. The economy being on the brink of a recession has forced many companies to be in need of cash infusions. Credit markets are still tight so it's tough to get money from the banks. With so many people hoarding cash and the stock market now improving, the next best option for capital is through private investment. This means of raising capital came to a standstill over the last year along with the rest of the stock market and RODM's stock price plummeted to a 52 week low of $0.14/share because of it.
However, things began to turnaround last quarter and the company posted a net income on a non-U.S. GAAP basis of $10.9 million, or $0.29 per diluted share lead predominately by their PIPE and RD transactions. Rodman was ranked the number one investment bank in PIPE transactions by volume for the second quarter and the first half of 2009. It has held this honor every year since 2005, but only until now has the distinction been so financially lucrative. This quarter RODM's PIPE deals have accelerated even more. They've basically been announcing 2 or 3 multi-million dollar deals a week. Right now, they have announced well over $300 million in deals this quarter and there's still over a month to go. They are on pace to destroy last quarter's stellar numbers. If you consider that their cut of each deal is about 6%, you can see how the cash can add up pretty quickly. The true beauty of RODM and it's business model is that we are only in the beginning phases of a resurgence in capital equity.
See the image below for a chart 6 month chart of RODM.
As you can see, this stock has been phenomenal the entire month of August and is up about 300% in that time frame. From a technical standpoint, it looks like RODM may be overbought and in sincere need of a pullback. I thought the same thing at $2.00/share a few weeks ago, yet 8-28-09, it closed at $3.54. RODM simply doesn't have many sellers right now due to the strength of the fundamentals. Consequently, I don't believe traditional technical analysis is very useful with this particular stock. I say stick with the old adage, "The trend is your friend." Generally, a stock only moves this way when it is severely undervalued, which I believe RODM still is. Maybe the most telling aspect of the chart is the portion at the bottom that details the volume. It has really picked up the last month and has been consistent. That tells you the market is really behind this stock and that the big money players are starting to take notice.
Insider and Institutional Buying
To further support the notion that big money is beginning to buy RODM, lets look at the insider and institutional buying. According to filings just during the month of August 2009 on http://www.mffais.com/rodm, an insider bought 20,000 shares on the open market and 3 institutions established new holdings of around 1.2 million shares combined. For comparison only about 20,000 shares of RODM were sold by fund managers for the month. Remember, this stock was approximately $1.00/share just over a month ago. I suspect that as the share price solidifies itself well beyond penny status that more funds will want in. With only 35 million shares outstanding and around 15 million in the float, current shareholders are certain to force future buyers to pay a premium to today's price.
It's always good to have catalysts for further price appreciation. Every year RODM puts on the Rodman & Renshaw Annual Global Investment Conference that hundreds of public companies attend. This year's conference is scheduled for September 9-11, 2009. Despite the annual conference, RODM is a fairly obscure stock to most of the investing public. The added attention of the conference has given RODM a short term boost in share price in the past. With the stock's recent success, I see no reason why this year will be any different.
Investors love transparency. It is very easy to determine whether Rodman's business is booming because every offering the company places comes with a press release. Each release has typically rewarded shareholders with a positive trading day.
Also, RODM is slowly, but surely inching to $5/share. This is really a key level, because at that price every fund manager has the green light to take a position. Some are not allowed to buy stocks below that share price. Once it hits this level, the fireworks could really begin.
The stock market is amazing in that the biggest losers one year can be the biggest winners the next. Last year, all the redemptions left most investors overweight in cash and companies cashed strapped with no equity takers. Now, with banks being held to a higher standard, those same investors are putting their cash to work buying into companies at extreme discounts. The biggest beneficiary of this pendulum shift is RODM. The stock is up almost 2500% from its 52 week low, yet strangely enough, I have yet to see a single article on Motley Fool, Seeking Alpha, Minyanville, The Street or any other notable print media individually spotlighting this turnaround story. I think that this is a strong sign that most people are still unaware of RODM and that it still has a lot of room to move up. The market is unpredictable, but I believe that there is a good chance RODM will move very close to $5.00/share by the end of its investor conference in the next two weeks. At that point the stock may finally be met with some selling, but it could be very temporary. If they keep announcing deals as most believe, double digits could be in this company's not so distant future. Rodman & Renshaw Capital Group (RODM) is the next perfect stock.
Cumulus Media Inc. (Cumulus) owns and operates FM/AM radio station clusters serving mid-sized markets in the United States. Also, through its investment in Cumulus Media Partners, LLC (CMP), the Company also operates U.S. radio station clusters serving large-sized markets. As of December 31, 2008, Cumulus owned and operated 315 radio stations in 59 mid-sized United States media markets and operated the 32 radio stations in nine markets, including San Francisco, Dallas, Houston and Atlanta that are owned by CMP.
I'm a bit of a sports junky, so I listen to a lot of sports radio on my way to and from work. As I was driving, I made a mental note to myself that there sure were a lot of auto ads during the commercial breaks. After doing a little research I realized that this revelation was a critically positive element in the near term success of radio media companies. The Auto sector is the nation's biggest advertiser, but they trimmed there first-quarter spending by 28 percent to $2.31 billion from $3.22 billion in the same period last year, according to TNS Media Intelligence.
Confirmation of my thoughts came last week in the latest quarterly report provided by the large radio conglomerate CBS Radio. They see revenue improvement in the third and fourth quarters of this year, led by a resurgence in automotive advertising. The government's cash for clunkers program has been one of the main catalysts. Often times the market will take information from the major players and apply it to the entire sector. This news has and will continue to push the radio stocks higher.
See below for a 5 year chart of CMLS
As you can see, this stock has been in free fall the last 5 years. We're talking about a 90% decline over that time frame. This chart mirrors the results of practically every publicly traded radio company. When you consider the fact that there has been no bankruptcy talk and CMLS reported an eps a week and a half ago of 35 cents, one would have to think the downside at this point is limited. However, the upside is huge.
Let's take a look at a more recent chart of CMLS. See below for its 3 month chart.
As you can see, the nice cup handle breakout has resulted in a move significantly higher the last two weeks. However, the past few days, it has given up some gains. In my opinion this is perfectly normal after such a significant run-up. I believe that this is a pullback rather than a start of a trend downward. Friday marked what very well could be the end of that pullback. The stock began the day down over 20%, but reversed intra-day and finished down less than 3% on average volume. Also, several of the other radio stocks continued to move higher. Traders will take note of this reversal and see it as bullish.
Change in Sector Sentiment
I have never known radio stocks or media stocks in general to be "stock market darlings". Typically, these feelings are left to high growth sectors like Technology and Biotechnology. However, media companies have finally made the adjustment of significantly reducing expenses to offset the fallout of a slumping economy. With revenues having already bottomed and things beginning to look positive again, their profit potential is pretty staggering. A lot of these companies are currently trading at annualized forward PE of around 1. These ratios are just too good to be passed up by value investors and far exceeds any growth story that I can think of. Also, I've noticed in several of these stocks that groups like Goldman Sachs are beginning to take positions. The sentiment is definitely changing.
I talked in great length about the significance of money rotating into new sectors on the LEE post. So, I won't elaborate further. However, it is clear to me that a similar pattern is taking place with the radio stocks. Every one of these stocks has recently seen significant gains. The newspaper stocks have been consistently moving higher for around a month now. The radio stocks only began to move two weeks ago. I'm expecting the surge to continue.
We are still seeing some investment opportunities of a lifetime in some severely beaten down sectors. The stock market is a forward think tool. Evidence of an uptick in revenue in the radio stocks is already available. The jump in auto advertisements is the most notable reason for the turnaround. If you wait to see proof in the numbers, you'll miss the significant gains sure to come in the meantime. I picked Cumulus mostly because investors/traders have already taken profits from its initial push. To me, it looks the most ready to make its next move higher. However, all the radio stocks are good. I also like ROIAK, ETM, and EMMS. CMLS currently sits at $1.36. I firmly believe $2.50 -$3.00 per share will be reached in the very near future with the potential to go much higher. Cumulus Media (CMLS) is the next perfect stock.
ECOtality, Inc. is engaged in providing electric vehicle infrastructure products and solutions that are used in on-road grid-connected vehicles, including plug-in hybrid electric vehicles (PHEV) and battery electric vehicles (BEV), material handling and airport electric ground support applications. Through its main operating subsidiary Electric Transportation Engineering Corporation (eTec), the primary product offering of the Company is the Minit-Charger line of advanced battery fast-charge systems that are designed for various motive applications.
ETLY.OB began the day at $0.12/share, but released some huge news around lunch time that almost caused the stock to triple. Now, the critics of this blog will be quick to question why I would point out a stock that has already had such a huge runup. Based on the share price alone, the naysayers would just lump this stock in with all the rest of the "penny pump and dumps". I say this stock requires a much deeper look.
Electric Transportation Engineering Corporation (eTec), a subsidiary of ECOtality, Inc. announced that it has been selected by U.S. Department of Energy for a grant of approximately $99.8 million to undertake the largest deployment of electric vehicles (EVs) and charging infrastructure in U.S. history. eTec will partner with Nissan North America to deploy EVs and the charging infrastructure to support them. ECOtality's President and CEO is quoted as saying, “ECOtality is committed to enhancing America’s energy independence, accelerating the market acceptance of electric transportation and supporting President Obama’s goals for job creation and advanced electric drive vehicle deployment.”
The basis for this post is conveyed in three key elements mentioned in snippets of the press release above:
1.) "... U.S. Department of Energy for a grant of approximately $99.8 million to undertake the largest deployment of electric vehicles (EVs) and charging infrastructure in U.S. history"
All the key elements are in bold print. When you've got the support of the government for $100 million to do something that's the largest in U.S. history, that is a game changing announcement.
2.) "eTec will partner with Nissan North America.."
ETLY.OB was able to partner with one of the leading automobile manufacturers in the world. Whatever credibility ECOtality may have lacked being a penny OTCBB stock, it was instantly upgraded with the inclusion of Nissan. This is the type of name recognition that attracts both quick flippers, long term retail holders, and institutional buyers (despite what you may have thought or read, institutions do occasionally buy stocks not on major exchanges if a stock has a powerful enough story). It's always best to have all three to maintain a share price that is quickly moving higher.
3.) "...supporting President Obama’s goals for job creation and advanced electric drive vehicle deployment"
The market is always seeking "Obama Trades" and this certainly qualifies as one. Obama has made it very clear that he wants to reduce the U.S.'s dependence on oil. Have you noticed how well a lot of the algae base bio-fuel companies have done recently. The announcement a few weeks back involving Exxon's investment in this form of bio-fuel is a classic example of an "Obama Trade". Many stocks in that arena such Biocentric Energy Holdings (BEHL.PK) have recently seen stratospheric rises in their share price. This push for the deployment of electric drive vehicles correlates conceptually with the algae bio-fuel and I'd expect the market to react in much the same way.
ETLY.OB finished today at $0.31/share on 70 times the normal trading volume. A lot of people will point to the $100 million and do market cap calculations, but I don't think that makes a lot of sense at this point. Nissan will probably get a cut of the money and keep in mind that this is a government matching program. I think what is important is the overall story. ECOtality has approximately, 160-170 million shares outstanding, but the float is about half that due to heavy insider ownership. Most of you know that I like low float stocks, but at the current share price, I think this share structure is perfect. In my opinion, ETLY.OB is poised to quickly double. The short term prospects for this stock is still solid because it ran with a mid-day press release. A lot of investors/ traders are still discovering it and they will want to buy in. Thursday, 8-6-09, I'd look to buy early and ride the momentum. Government backing, a strong partner, and Obama's blessing makes ECOtality, Inc. (ETLY.OB) the next perfect stock.
Lee Enterprises is a provider of local news, information, and advertising in primarily midsize markets with 49 newspapers and a joint interest in 5 others, growing online sites and more than 300 weekly newspapers and specialty publications in 23 states.
As stated early, newspaper stocks have been on fire. Gannett Company, one of the larger publicly traded newspaper stocks got the ball rolling last week with a surprising profit for the quarter despite significantly reduced advertising revenue. However, the most important nugget from their conference call was that they were beginning to see a turnaround from the advertising decline and that they believed the worst was over. All of the other newspaper stocks reporting earnings that have followed Gannett also exceeded expectations. As a result, all the stocks in the sector have benefited.
LEE reports earnings 6/30/09. Most of the these newspaper stocks were able to achieve profitability last quarter because of significant cost reductions. Basically, they cut a lot of "the fat". LEE has done pretty much the same thing; consequently, it's a very good chance they'll have similar results. One bit of news that came out a several weeks ago that bodes well for the company was that its board voted not to increase the share price via a reverse split. This decision implies that LEE is confident that it will be able to increase its share price on its own merit. With the NYSE threatening delistment and an earnings report right around the corner, investors/traders have to be fairly confident that the report will be pretty good with so much on the line.
See the chart below for LEE.
You can see the stock had quite a run last week on increasing volume. Notice the trend line of the chart in purple. This week's close marks the first time LEE has finished above that trend line. This is a possible sign of a reversal.
For my true technicians, the chart above shows a strong crossing of the MACD (Moving Average Convergence / Divergence) line through zero. This is a more traditional sign of a bullish reversal. Whether you're just a trend follower like me or a die hard technician, all indications are that this stock will continue to move much higher.
Short Squeeze Potential
From those charts you can see that LEE's share price doubled last week. Much of that quick movement was due to short covering. What's interesting is that LEE began last week with about 7 million shares sold short. At the end of the week there were still 5 million shares short according to www.shortsqueeze.com . Therefore, the stock doubled after only 2 million shares were covered. With just 44 million shares outstanding and the float shrinking daily, what will the share price be if the other 5 million shares are covered? I'm not going to assume a linear ratio, but you can reasonably expect a continued fast and significant increase in share price from the $1.21/share it is currently with any upward pressure.
Hedge and Mutual Fund Sector Rotation
I've recently read a bunch of articles claiming that people shouldn't get so excited about the recent earnings and movement of the newspaper stocks because ad revenues are still much lower than they use to be and cost cutting is only a temporary fix. Some have even claimed that those share prices will quickly go back to their historic lows once the euphoria dies down. It's as if every article is written by a short seller trying to protect their short position. What those pessimists failed to write was that the market cares about guidance and improvement. You cannot minimize the improvement and return to profitability of the other newspaper stocks that have reported by simply focusing on ad revenues. The fact of the matter is that all of these companies needed to get leaner and are now light years better than where they were 3 to 5 months ago. The big money guys like Hedge funds and Mutual Funds recognize this and are smart enough to realize the bottom is in and it's now time to buy. Many of these funds have mandatory diversified allocations. You can bet that much of the money that left the sector will eventually be put back in, particularly when there are technical signs of a reversal. After looking up several stocks in the sector that have already reported earnings on www.thebuylist.com , you can see that money is being slowly rotated back into this group. Again, bullish for LEE.
The morning shake and late afternoon pullback that occurred Friday was a great opportunity to start a position in LEE. The late day sell off was pretty predictable because many people wanted to lock in profits from the significant gains of the week. There's a chance Monday that LEE may get off to a sluggish start, but it should only be temporary. A. H. Belo Corp. (AHC), another publicly traded newspaper stock, reports earnings Monday morning. If they follow the same trend as the others, LEE will be off to the races again. Either way, I'm expecting a sizable runup prior to the earnings report on Thursday. If you want to be conservative, you could sell prior to the report, but you may miss out on the chance for significantly higher gains. Keep in mind that Gannett has traded higher 9 of the last 10 sessions. LEE has only done it 4 of the last 5 so don't assume it's overbought. Based on momentum, the high probability of a good earnings report, strong technicals, potential short covering and fund sector rotation, a sea of green could be in LEE's future as well as yours. Lee Enterprises, Inc. (LEE) the next perfect stock.
First of all, I cannot take all the credit for this one if it does do well. One of the readers of the blog named Aroramax, "bought" it to my attention last week. Now, I think is great time to pull the trigger.
Nuvo Research is a Canadian drug development company focused on the research and development of drug products that are delivered to and through the skin. The Company’s lead product Pennsaid, is used to treat the pain and symptoms associated with knee osteoarthritis (OA). Pennsaid has been approved for marketing and sales in the countries, including Canada, the United Kingdom, as well as certain European countries.
Currently, the Pennsaid is up before the FDA for US approval. If approved, Nuvo will receive an up-front, payment of US$10 million and is also eligible to receive a US$15 million milestone payment on Pennsaid's approval by the FDA, which will increase to US$20 million if certain labeling criteria are agreed to by the FDA. Also, the submission to the FDA was after the company had already received an "approvable letter" for Pennsaid. In other words, they were told by the FDA that if they just did a couple more things, they would get approved if they resubmitted. Consequently, NRIFF is almost assured of approval. It is scheduled to be announced on 8/5/09.
See below for the chart of NRIFF.
The stock did nothing for months, then it finally began to move beginning in May. After settling in the 30 cent area for a month and a half, this week marks the beginning of a breakout as the stock surges to new highs. Most people believe the stock briefly stalled in the low 30's due to warrant pricing. Those warrants finally expired earlier this week and seemed to correspond with the breakout. Looking at the volume chart, you can also see that the volume is beginning to pick up again as well. All signs point to a substantially higher move.
NRIFF seems to be following the same pattern as some other successful biotech stocks that were awaiting FDA approval. HEB and NEPH are just a couple of many names that more than doubled under similar circumstances. Investors/traders always keep in their memory banks what has recently worked. This should strongly work in NRIFF's favor.
Because Nuvo is a Canadian company, you can easily keep up with Canadian insider transactions at http://www.canadianinsider.com/ . No insider has sold the stock this year, but several members acquired shares through a pre-approved ownership plan at just under 11 cents a share. The fact that we are now near 40 cents and still none of them have sold, has got to be considered bullish.
Everything is pointing to NRIFF really being a big winner in the next 2 weeks. Nuvo has quite a few shares outstanding (over 300 million), but because the share price is so low and interest in the stock is beginning to mount, the float is slowly, but surely thinning. Don't be alarmed by the number of shares traded on NRIFF.PK. NRI.TO gives you a much better indication of the true volume. The price of NRIFF.PK adjusts as the value of the dollar vs the canadian dollar changes. Currently the stock sits at 38 cents. I'm expecting a steady rise until the 5th and see 60 cents as an eventual trading level. Nuvo Research Inc. (NRIFF.PK) is the next perfect stock.
Remember, these are short term holds. In most instances the gains won't hold so always take your profits when the opportunity presents itself. My next perfect stock choice is one that hit its 52 week low today, but bounced hard off of it. Several factors could propel this stock to fast gains for investors/traders in the next couple of days. CIT Group , Inc (CIT) is the next perfect stock.
CIT Group operates as the holding company for CIT bank that provides commercial financing and leasing products, and management advisory services to the small and middle market companies worldwide. Right now the company is struggling and bordering on bankruptcy. I know. You're trying to figure out how in the world a stock that hit it's 52 week low today and is bordering on bankruptcy could be a perfect stock?
This afternoon, a report was released that CIT was involved in talks with the federal government regarding the receipt of aid, which would allow the company not to fail. Despite, what the general public would have you to believe, small business is the backbone of this country. Because CIT services so many of these companies, the government is afraid of the economic consequences if it is allowed the fail. It has been reported that the talks are quite far along. This kind of news can cause a "V-shape" reversal in a stock.
Also, the financial sector has been taking a beating the last month or two after a sizable runup off their lows. People are now finally beginning to believe that this recent drop has been a bit overdone. Meridith Whitney, who has probably been the financial sector's biggest bear, came out today with something actual positive on a least one giant member of the group-- Goldman Sachs. That change in sentiment spearheaded a strong reversal in most all financials. The rally is likely to continue for the group particularly if Goldman's numbers are as strong as most people believe.
Let's take a look at couple of charts from CIT. First is the 3 month chart.
As you can see the stock has pretty much dropped from $4/share to $1/share in a little over a month. You can also see that the volume has increased significantly and the selling has accelerated the last couple of days. The action looks an awful lot like shorting to me. Now look at the 7/13/09 intra-day chart:
After hitting the low early in the morning the stock rose 20%-30% throughout the day. This type of action is typical of a stock reversing from its lows. With news accompanying the reversal, it is highly probable that the rise will continue.
According to shortsqueeze.com, there are over 50 million shares of CIT being shorted. With heavy institutional ownership, that represents a large portion of the float. As the stock gains in price, particularly with news of a government bailout, the shorts will cover. The squeeze will cause a huge pop in the share price and a lot of money could be made the next couple of days because of it.
Based on the massive selling the last couple of days, there will probably be news released of some institutional selling in the next couple of days. However, there are still some mutual funds that have invested large sums of money in belief that CIT will recover. RiverSource Investments LLC, bought 12.7 million shares between March 31 and June 30, bringing its stake to 44.3 million, according to a July 10 regulatory filing. Other buyers in recent months include Fidelity Investments, Brandes Investment Partners LP, Vanguard Group and Wellington Management. Also hedge-fund manager Edward S. Lampert of ESL Investments (better known for his controlling stake in Sears Holding Corp) bought shares in the struggling company. All the big money buyers does lead one to believe that a recovery could be on the horizon.
CIT ended today's session at $1.35/share and ended after hours trading up another 25% at $1.70/share. In my opinion, this is just the beginning. Ideally, you'd like for news of progressing talks to leak throughout the week without any significant details released. That would allow the stock to achieve a snowball effect thus crippling the shorts. Personally, I'd like to get out before a formal deal is announced and then re-evaluate afterwards. To often, government aid is dilutive or non-beneficial to the shareholder. It may not be the case in this instance, but I'd prefer not to take any chances. I can't quite predict where the stock will go, but I feel confident that there is still a huge opportunity to make some good money. Just be sure to take your profits. News, technicals, short squeeze potential and institutional buying makes CIT the next perfect stock.
Left Behind Games is in the business of developing and publishing video game products based upon the Left Behind series of novels. The Company also derives revenue from in-game advertising consisting primarily of fixed product placement. The Company focuses on developing products that are Christian based and offer a less graphic experience to sexual themes and gratuitous violence.
On Friday 6/19/09 Left Behind Games released some pivotal news that could jump start the company to some big sales. They announced that Wal-Mart, the nations largest retailer, has approved a test market in many of their stores for the company's video games. In addition, LFBG.OB is in the process of hiring new marketing representatives throughout the U.S. to directly market to other retailers, large churches and Christian groups. As a result of that news release Friday morning, the stock exploded over 400% to finish at $0.07/share. With a little over 200 million shares outstanding, the stock could have quite a bit of room to move.
At first glance you might be scratching your head regarding whether this company's concept of Christian themed video games can really make money. I'll offer a few strong points as to why it could do very well:
Profitable - The company has weathered the development phase in establishing its products. According to the one of the company's recent filings, because so much time and money in past years went towards development, it currently only costs LFBG.OB $1.50 to produce each video game unit. The games retail for around $20.00 a piece. So, you can see that the margin is ridiculously high.
Untapped Market - We all know how big the video gaming industry is. Software sales of video games are expected to exceed $21 billion dollars in the next 4 or 5 years. The company is already at the forefront of the Christian theme videos games. So, it is reasonable to project that even a small penetration of this niche could yield huge dollars.
Brand Recognition - As stated earlier, The Left Behind video games are based on the extremely popular Left Behind Book Series. These books have sold around 65 million copies in the last 10 years. Although it may or may not be that familiar to you, the brand itself has an unbelievable following.
Remember "The Passion" - In 2004 Mel Gibson took a leap of faith by personally developing and financing the blockbuster movie, "The Passion of Christ". He basically had to go about it alone, because no one believe that people would be interested in seeing a Christian based movie. He had a limited marketing budget and basically went directly to churches in hopes of gaining viewer support. To make a long story short, the movie went on to be one of the highest grossing movies of all time and it has been estimated that Mel Gibson and his production company grossed nearly $1 billion when factoring in international sales, DVD sales and television rights.
I think it's safe to say that Christians aren't a bad group to market.
The stock has done virtually nothing over the past year. It had a high of about $6 a share about 3 years ago, but with some dilution over the years, it probably equates to around $1.50 - $2.00 a share now. However, the company has never been in a better position to really do some big things until now. So, for the sake of looking at technical indicators to see if the stock can potentially move higher, I'll focus just on the chart from Friday.
As you can see from the chart, the stock surged to $0.14/share around the first hour of trading. After a 50% re-tracement, the stock consolidated by settling between $0.065 - $0.08 per share the last 3 hours of the trading session. You can tell by the two high volume buy spikes in the last hour that the MM's were in share collecting mode after the morning spike. If a 2 million share buy can't even move the stock a penny, you know they were in control. However, MM's are more inclined to run a stock the next trading day if there's been a satisfactory re-tracement (50% is standard because all these MM's are just computer based algorithms anyway) coupled with a push from new buyers. With so many buyers at or above the current share price and such a compelling story, I'll guarantee that they'll be a gap up Monday morning.
Conclusion:With the press release occurring on a Friday, there really was not a lot of time available for investors/traders to do any thorough due diligence for such a relatively obscure company. Of course the fact that Wal-mart is willing to sell their product is the main reason for the quick surge in the stock price. However, I think it is clear that this company has great potential and that others will want to invest come Monday. I've haven't even mentioned the award winning CEO who happens to be one of the founding developers of the popular 3D Madden Football games. I tend to be a bit hesitant of stocks that have already had a big run-ups. A lot of times, it's "even money" if the stock continues to rise or tanks the next trading session. However, although I can't guarantee it, all the signs are pointing to this one having a big follow up day. I can't say that I have a good feel for entry or exit points, but if things go well, we'll see 20 cents or more tomorrow. Personally, I'd be content with that. However, with such strong prospects, it wouldn't at all surprise me if a lot of people put this one in their long term portfolio. LFBG.OB potentially the next perfect stock.
Per business filings, Metabasis Therapeutics is a biopharmaceutical company that has established a broad pipeline of product candidates and advanced discovery programs targeting large markets with significant unmet needs. The company’s product pipeline includes clinical-stage product candidates and advanced discovery programs for the treatment of metabolic diseases such as diabetes and hyperlipidemia, as well as product candidates and advanced discovery programs for the treatment of liver diseases such as hepatitis and primary liver cancer.
Although the description of the company sounds pretty dynamic, they have recently fell upon some very difficult times financially. Currently, they are facing a severe cash crunch and are bordering on bankruptcy. A couple of weeks ago, they instituted a corporate restructuring that reduced their staff by 85% as a means of conserving cash. Also, they are seeking all strategic options to somehow increase their capital. Things don't look bright.
On Friday 6-5-09 after hours, Metabasis Therapeutics announced receipt of a $2 million payment from Roche in recognition of advances made on their research collaboration, which is focused on applying Metabasis’ HepDirect® liver-targeting technology to Roche’s proprietary lead nucleosides in order to develop new treatments for hepatitis C viral (HCV) infection. In addition, Metabasis announced that Roche has formally accepted MB11362 as a clinical candidate for development. Although $2 million is not nearly enough to rid MBRX if all their financial woes, the infusion of cash does afford them a little more time to seek other resolutions. However, I think the most critical news is Roche's formal acceptance of MB11362. This news implies that there is indeed value with the company (at least more than the $12 million market cap they are currently sporting) and should aid them in their quest to be acquired or obtain additional financial backing. The market seemed to like it as shares practically doubled during after hours.
Check out the chart of MBRX below:
The stock reached an all time low several days ago at $0.21/share and has responded well with a "V" shaped bounce on increased volume. Because of the volume, particularly on Friday, it looks like the news may have leaked. The intra-day volume for a stock this cheap still hasn't been over a million shares so despite the runup of the past three or four days, there still appears to be plenty of upside. There's only 35 million shares outstanding with the float being about half that (Google Finance says 60% institutional ownership but I deducted some more due to the recent activity I've seen on http://www.mffais.com/mbrx). Such a tight share structure is perfect for a quick runup.
Other small cap biotech/pharma stocks like MBRX's have been on fire as of late. Individual names have bounced off their 52 weeks lows and surpassed their 52 week highs in less than a week. HEB, AGEN, and SOMX are just a few names that have seen unprecedented leaps in the their share price in a very short time frame. However, the best example of the craziness in this sector was what happened with Xtent (XTNT) just this past Thursday. Ironically, the makeup of XTNT is very similar to MBRX. Both are biotechs on the brink of a collapse with similar floats. XTNT too was struggling around its 52 lows when it released in my opinion a relatively unimpressive press release by industry standards. It stated that the company had conditional approval from the FDA for an Investigational Device Exemption (IDE) authorizing it to begin its clinical program. On this news alone, the share of XTNT jumped from $0.30 to $2.69 in two days. When investors/traders see this kind of action in a sector, they definitely take note and stay on the lookout for the next best thing.
Part of the reason why this stock has taken a beating is because mutual funds and institutions have recently been dumping the stock at a high rate. However, in spite of the company's slide over the last year, there has been no insider within the organization that has sold. As a matter of fact, the CEO began accumulating shares back during Nov. 08 between $0.49 and $0.75.
Moves in this sector have been explosive and I expect MBRX to follow a similar pattern. I believe the after hours trading Friday was just a precursor for things to come Monday. Usually, a massive move in the premarket is a bad sign for someone trying to chase as stock; however, XTNT also doubled in the premarket before its run. Had you bought during the open after the aggressive premarket buying, you still could have made 4 times your investment. Right now, MBRX sits at $0.36/share. As far as a trading strategy, I would think that anything under $0.70/share would be a decent entry point. Be on the look out for a quick spike during the first 10 minutes of trading followed by a possible drop as some take quick profits. If this happens, an ideal place to buy would be after that first big dip. This was an $8 stock less than two year ago and has a 52 week high of over $2.00 share. So, the upside is huge. It could hit at least $1.50/share Monday if things go well, but nothing is a guarantee. All you can do as an investor/trader is put yourself in the best position to let the market work for you. I wouldn't hold this long term due to fears of dilution, but I'd take what I could get on Monday. Because of news, sector precedence, and a favorable share structure, Metabasis Therapeutics (MBRX) has the goods to be the next perfect stock.
Titan Pharmaceuticals, Inc. is a bio pharmaceutical company developing proprietary therapeutics primarily for the treatment of central nervous system (CNS) disorders. The Company is focused on the clinical development of the following products: Probuphine for the treatment of opioid addiction and Iloperidone (also called Fanapt): for the treatment of schizophrenia and related psychotic disorders. Titan directly develops its products and utilizes corporate partnerships for marketing and distribution such as the one with Vanda Pharmaceuticals, Inc. for iloperidone.
Titan Pharmaceuticals was bordering on bankruptcy, had laid off the bulk of their employees, and shutdown much of their operations. However, the company's fortunes all changed on 5/7/09 when FDA granted approval to market Fanapt. Vanda plans to make Fanapt available in pharmacies later this year. Titan is entitled to receive royalties on global net sales of Fanapt equal to 8 percent on annual net sales up to $200 million, and 10 percent on annual net sales above $200 million. Titan incurs no ongoing expenses associated with this potential future income. Global sales from this class of drug exceeded $20 billion in 2007. In other words Titan will be getting paid millions and possibly billions of dollars over the next 5 to 10 years to do absolutely nothing. Talk about a cash cow!
See chart for TTNP.PK:
As you can see from the chart above, Titan spiked after the FDA announcement. Then, for about a week and half it appears that the market was trying to weigh if the company's new valuation was justified. Over the past week the stock has begun to explode upward. So, it appears obvious that the market still believes the stock us undervalued.
There are several things that can take place to continue to push TTNP.PK's price higher:
- Vanda doesn't currently have enough money to move forward with the launch of Fanapt. As a result, anything that they can do to improve their position in making this happen will push TTNP.PK's stock up (ie. partnership with big pharma, buyout from big pharma, secondary offering to raise money, etc.).
- Titan could now be a buyout target. Companies with lots of cash should be willing to buy Titan at a premium for the strong possibility of huge future earnings at absolutely no expense.
- Probuphine is a bit of a wildcard. It appears that there are some patent issues keeping it from getting off the ground. If somehow this is resolved favorably, the stock could again see a sharp move higher.
- With Titan currently being on pink sheets, they could consider re-listing on one of the major exchanges. Several months ago, they were delisted from the American Stock Exchange. However, it is not likely they will do so because management still seems to be in cost cutting mode. I think Titan believes that they can achieve a significant increase in share price without it.
At Titan's closing price Friday 5/22/09 of $1.30/share, the company has a market cap of a little more than $75 million. When considering the potential revenue from Fanapt over the next 5 to 10 years, many believe the current valuation is still far too cheap. I believe the current momentum of the stock will push the share price to at least $1.70 in the next week or two. I highlight $1.70 as a price point because that is where TTNP.PK peaked the first day after the FDA approval was announced. Many investors blindly bought in around this price and it should act as a temporary level of support for the stock. I wouldn't expect the stock to move much beyond this point until one of the catalyst listed above take place. Only with these occurrences would I be confident in saying the stock will comfortably move beyond $2.00 a share. Because the stock has already had a nice run, you could gamble and hope for a pullback closer to a $1.00, but don't count on it. If such action does take place, expect it to be met with ferocious buying. Word continues to spread about this gem of a stock. I've failed you by not posting about it at $0.70/share when I had a chance. However, now is better late than never because I feel there is still excellent profit potential for investors. Titan Pharmaceuticals, potentially the next perfect stock.
Callon Petroleum is engaged in the exploration, development, acquisition and production of oil and gas properties. The Company’s properties are geographically concentrated primarily offshore in the Gulf Coast Region both onshore and offshore.
As I've mentioned in the introduction, oil and natural gas have been on fire recently. Nothing tells the story better than a chart so see below for visuals of the impressive turnaround in the two commodities:
Oil began it's reversal a few months ago, but natural gas has turned the corner only a few weeks ago. Most of the credit for the turnaround goes to China because of their stimulus and massive energy needs. As natural gas continues it's reversal, you can be assured that more and more money will flow into the sector. The main beneficiaries from the standpoint of share price appreciation will be the low float stocks furthest from there 52 week highs. CPE has a float of less than 10 million shares and currently sits at $2.93/share with a 52 week high of over $28/share.
On 5/12/09 the company reported Qtr. 1 2009 net income of $2.4 million, or $0.11 per share, significantly exceeding analysts consensus, which was a net loss of $0.07 per share. The biggest reason for the upside surprise was due to Callon's successful hedging strategies. For example, in spite of depressed oil prices averaging around $43/barrel for the quarter, their realized oil price was over $60/barrel. The stock moved 30% today in response to the report. Because the price of oil and natural gas continues to find higher trading ranges, it is reasonable to believe that next quarter's earnings will be even better.
See the chart of Callon Petroleum below:
As you can see, this stock bottomed in March and has been on a steady climb ever since forming a (very bullish) cup handle. After a stock has a major run, the earnings report often determines if the momentum is stopped or if the trend continues. I believe the favorable report catapults CPE further along its current path.
Catalyst to move CPE higher:
I've already mentioned the significance of the earnings report, but I see several other factors that will move the stock up:
- Expect analyst upgrades and institutional buying. They'll wait for a nice pullback and then they will "back up the truck". Look for both to happen in the next couple of weeks.
- Expect Insider buying. There has been no insider buying or selling since the end 2008. Now that the insider "quiet period" is over and it is fairly clear that prices are on the rise, look for management to begin accumulating shares again.
In conclusion, oil and natural gas stocks are highly dependant upon commodity prices. As the economy recovers and more money is printed, it is no surprise that the depressed prices of 4 or 5 months ago would be a distant memory. I believe oil may level out at this level, but natural gas has a ways to go. This should keep the sector moving in a positive direction and reward those companies with strong management and results. Be patient with CPE. After an already large move, you may or may not hit your target right away, but slow and steady can also make you a lot of money. Callon Petroleum Company(CPE) is the next perfect stock.
Gold Horse International is engaged in three business sectors in China: construction, residential and commercial real estate development, and hotel management. The stock was taken down steadily and is just beginning to see the light of day despite great earnings.
In the wake of the economic downturn, the Chinese government has vowed to do everything possible to stimulate its economy. Part of that stimulus plan is to foster construction and real estate. 4 trillion RMB is being released to encourage affordable housing, rural development and infrastructure projects. GHII.OB is set up perfectly to capitalize on these measures.
GHII.OB's 2008 revenue was around $67 million, which yielded an eps of $0.10. The company has already completed 2 quarters in 2009 and has provided guidance of $90 million for the year. Book value is $0.43/share. These financial indicators are impressive for a stock currently sitting at $0.13/share.
Check out GHII.OB's 1-year chart below:
As you can see, GHII.OB traded over $1.00/share less than a year ago. After consolidating for months, today's 44% move looks to be the start of a breakout.
I've already mentioned that Chinese stocks are hot right now. With the promising China manufacturing numbers that were release today regarding expansion for the first time in 9 months, I predict that you could see some crazy stock run-ups the next few weeks in Chinese stocks that could rival what we saw in late 2007.
Also, 5/18/09 is a major investment conference focusing on Chinese companies in New York. With all the money that's still waiting on the sidelines, this could be a great opportunity for Gold Horse to lock in some big money ownership, which will inevitably push up the stock price.
Stocks have made a tremendous run and we look to be primed for DOW 9000. As we inch closer to that number, look for many stocks to give up some gains soon as profit taking occurs. However, GHII.OB is nowhere close to being overbought and appears to still have room for at least a double based on this blog's strict criteria. Gold Horse International (GHII.OB) the next perfect stock.
As a result, I decided to change up the post a little bit today. In order to really make money, you need to buy or target a stock before the run starts. So, this post will be about a stock that is not yet perfect, but is setting up to possibly be one. The stock on the perfect stock radar is Thomas Properties Group, Inc. (TPGI).
Thomas Properties Group is a real estate company that owns, acquires, develops and manages offices, as well as mixed-use and residential properties. So why is TPGI on my perfect stock radar? Well, it already has a lot of perfect stock qualities:
- It's in a beaten down sector that's now on the rise - Real estate operations stocks like REITs and property management companies, which were taken down with the housing bubble, have been steadily climbing the last two months.
- There's been lots of insider buying - TPGI's CEO has been aggressively accumulating shares. He has purchased approximately 200,000 shares in total the last 4 to 5 months. http://www.gurufocus.com/news.php?id=52396
- The company has had some positive news - On 4/3/09, it was announced that the company was retained by Korean Air to develop a nearly 1.8 million-square-foot office, retail, condo and hotel project on the southwest corner of Wilshire and Figueroa in Los Angeles' financial district. The new complex is expected to cost $1 billion.
With so many great things going for Thomas Properties Group you may be asking why is it just on the radar? Really, it's there for just one reason: Technicals.
See TPGI's chart below:
As you can see from the chart, the stock bottomed 2 months ago and has been trading sideways ever since. Such a pattern is often considered bullish because lengthy consolidations such as this typically yield explosive moves up once a reversal occurs. The stagnation of the trading pattern also shows that the stock has yet to participate in the real estate operations run i mentioned earlier. With the stock currently at $1.27/share it needs to show some upward momentum before it screams "buy".
The Quarter 1 2009 earnings report is scheduled for May 5. There is a very strong chance that a lot of investors are waiting on the sidelines to see if anything overly negative pops up during the report before buying. Also, TGPI has less than 25 million outstanding shares and heavy institutional ownership. If the report is pretty clean and the stock gets some positive momentum, it won't require that much for it to hit $3.00/share quickly.
I feel the downside in this stock is minimal, but the upside is tremendous. The earnings report appears to be the catalyst to get this stock moving. If it's favorable, look out! Right now, the technicals show only a potential breakout. That's not quite enough to make TGPI perfect, but it definitely puts it on the radar.
If you haven't been watching the news, one of the world's biggest stories has involved the swine flu epidemic that is sweeping Mexico and now the U.S. The outbreak in Mexico is being blamed for at least 1,000 infections and 81 deaths. There have been 20 reported cases in the United States so far, but fortunately, none have been fatal. It is believed, right now, that the flu only spreads from human-to-human contact and human contact with live pigs. Today, Federal officials have declared this a public health emergency. Also, the quick spread of this new flu strain has caused world-wide alerts for those traveling to Mexico and the U.S.
Public health emergencies often cause an overreaction, which quickly progresses into public panic. In scenarios such as this, the stock market responds equally as violent in those companies that may offer a solution. Novavax (NVAX) is said to be able to produce a vaccine from an emergent strain of flu virus in 12 weeks. The company has contacted the U.S. Centers for Disease Control and Prevention to offer help and is also trying to contact the Ministry of Health in Mexico.
On Friday NVAX spiked 75% to $1.42 with a lot of the action coming late in the day. It was up another 35% during after hours so obviously the run is not done. I see $3.00 as literally a guarantee. However, it has the potential to go much higher and run a couple of days especially if words gets out that US and Mexican agencies are accepting of NVAX's help.
If you're a skeptic and think you've missed too much of the NVAX run, expect strong moves as well from other vaccine stocks like VICL, DVAX, and BCRX. Novavax (NVAX), the next perfect stock!
Don't forget that if your looking for some additional trading ideas, check out my other blog at http://yourtradingtips.blogspot.com .
China Energy Corp is a company that produces and processes raw coal for heating and power generation in Inner Mongolia. Without boring you with details of their total operation, the main revenue driver is their coal production. Before the nay sayers begin their criticism of this stock, let me be upfront with some perceived negatives of this company:
- A lot of people just don't trust Chinese microcaps for whatever reason
- The company's website is currently being redone, so it's not active
- The balance sheet's not that great due to recently upgrades in their coal mine
Okay, now that I've got that out of the way, let me tell you why I think this stock could double or better in the next 2 to 3 weeks.
We all know that no country has been immune from the recent economic challenges. Even China, which has fared better than most, has seen a sharp decline in growth. Despite this negative trend, the country continues to be starved for energy. The most sought after energy source happens to be coal. China depends on coal for about 75 percent of its annual energy production and consumes about half the world's coal. Finding a buyer is never an issue. Customers are willing to buy how ever much a company is willing to sell.
Energy stocks in general have begun to trend up after a massive drop. Oil is now solidly over $50/barrel and coal stocks have clearly been participating in the rally. Most of these stocks have seen at least 30% gains since the beginning of March 09. This uptrend is clearly seen in the 1 month chart of the Market Vector Coal ETF (KOL) below:
In December 2008, CHGY.OB finished the production expansion of one of its coal mines. The annual coal production is scheduled to increase 80% from 500,000 tons to 900,000 tons per year. Also, after a precipitous fall, the price of thermal coal finally leveled out and has recently shown signs of an upward trend.China Energy had a dismal 3rd quarter in 2008 caused by mine preparations, production halts due to the 2008 Summer Olympics, and the overall sentiment of a slumping economy. However, the company responded in quarter 4 with much better production numbers and an EPS of .09/share. On word of that news, the stock's price jumped significantly off its all time low of $0.04/share 3/16/09. Keep in mind that 2008 quarter 4 numbers still did not include production from the mine expansion. Quarter 1 2009 will be the first results actually including the new production. Due to ramp up adjustments, the true production results of the expanded mine won't be revealed until quarter 2 2009. Using a conservative coal price estimate of $60-$65, the earnings in quarter 1 2009 should far exceed those from quarter 4 2008. The balance sheet should quickly improve and for the next year or two, this company will be a true cash cow.
Look at the chart below for CHGY.OB.
You can see the stock bottomed in mid-March and followed with a parabolic spike after the release of quarter 4 2008 earnings. What occurred next is a classic "cup handle". The stock dips as the day traders and quick flipper exit. Then, it slowly ramps back up on lower volume as investors begin to evaluate how much of a steal this stock really is. The sellers dry up and then the stock is consistently hit with accumulating buyers.
According to China Energy's latest SEC filings, it has 45 million outstanding shares. Approximately, 41.5 million shares are held by insiders who have yet to sell. That only leaves about 3.5 million shares for the trading public. Look at how heavily weighted the "blue bars" (which represents buys) are on the volume portion of the chart above in the last week. Based on the amount of buys, how cheap the shares are, and the number of shares traded the past two weeks, the float is incredibly thin. With Quarter 1 2009 earnings due out in less than 2 weeks, CHGY.OB has the makings of a rocket waiting to blast off.
A conservative EPS estimate for CHGY.OB in 2009 is $0.40 - $0.45. With its stock price currently sitting at $0.23/share, you're looking at the current year PE being a ridiculously low 0.5. An EPS of around $0.11 is expected by those of us who follow this stock closely for the upcoming quarter. However, very few people know anything about this stock, so these huge earning growth estimations are flying completely under the radar. I do suspect that some eye brows will be raised when China Energy's 10Q is filed some time around April 15 and people see 300% - 400% year over year gains in earnings. Sure, you could find some faults with this company, but I say the technicals and earnings make this the next perfect stock.
I had mentioned in a previous post that I might at some point include some stock market trading tips on this site. After contemplating that idea, I decided that it would be best to put those things on a separate blog. This blog is at http://yourtradingtips.blogspot.com/ and the first post deals with finding trading or investment relevant news. Check it out when you get a chance.