For those of you who read my first post, I said that my first perfect stock was actually going to be Hayes Lemmerz (HAYZ) about a 2 weeks ago. During that time, it was floundering around $0.04/share and peaked at $0.18/share a couple of days later. After increasing 300% - 400% so quickly, most people wouldn't expect a stock to have the potential to do it again less than 4 weeks later. Despite the the slim odds, I really think Hayes Lemmerz has that potential and is my next "Perfect Stock" choice.
Hayes Lemmerz is a producer of aluminum and steel wheels for passenger cars and trucks. You already know about the aid being made available to auto suppliers in the U.S. by the federal government. There's even a good chance that more is coming down the pipe. What you may not know is that 80% of HAYZ's business is overseas with the majority being in Europe. Earnings are scheduled to be announced on 4/6/09. In all honesty, the numbers should be horrible based upon what has happened in the auto industry the past 6 to 9 months. The situation overseas is supposedly as bad as it is here. The bright side though is that the market is no longer punishing companies for poor past performance as long as the future is brighter. There are some real positive things currently happening that directly point to a HAYZ turnaround:
1. European government has recently launch several car buying incentive programs, which appear to be working. Auto sales have increased significantly from January to February of this year. Germany's February car sales rose 22% year-on-year. More European government aid is said to be in the works.
2. Earlier this week, Goldman Sachs upgraded the entire European automotive industry citing government assistance and improved signs of recovery.
3. Raw material prices have been slashed significantly. The spot price of aluminum alone is 60% less per ton now than it was last year.
4. A conscious effort over the last 6 to 9 months has been made to cut costs and lean operations to ensure no dollars are wasted.
Whether or not incentives, reduced raw material expenses, and cost cutting actually result in improved numbers is irrelevant at this point. What's important is the perception that things are getting better. That should be more than enough ammunition to move a stock with a $16 million market cap that averages around $2 billion in sales.
See the chart for HAYZ below.
You can see the initial push HAYZ made, but instead of the usual re-tracement caused by day traders exiting, the stock has been remarkably strong. The way the stock has level out is a sure sign of consolidation, which is typically a precursor to the next leg up. In watching the intra-day movements of HAYZ the past few days, each and every time the price is driven down below $0.15/share, buyers are quickly swooping in. Many longs are accumulating and holding. If this thing moves past $0.18/share, it is off to the races.
Institutional/ Insider Buying:
HAYZ is also beginning to attract some institutional buyers. Mffais.com shows that J.P. Morgan recently added to their already hefty position http://www.mffais.com/hayz.html . Also, http://www.thebuylist.com/default.aspx?Stock=hayz shows within the last week a mutual fund bought almost 850,000 shares of HAYZ. In other words, the stock has definitely gotten noticed. There haven't been any insider purchases, but that may be due to SEC guidelines. The turnaround has just recently occured and I am not sure if any insider purchases can be made so close to the earnings report. If I were a Hayes Lemmerz executive, I wouldn't want to catch a falling knife either the way things looked a month or two ago.
I'm no Nostradamus, but the past couple of weeks have been particular easy to read when it comes to the stock market. Have you guys picked up on the pattern? It is very clear that the market is in "bottom feeder" mode. When you combine the fact that the market is moving higher, the end of quarter rallies are in full swing, and so many stocks are oversold, the action should really be to no one's surprise. Hedge funds are finding the cheapest stocks (from a share price standpoint only) on the NASDAQ or NYSE and are pushing them up with or without news. The criteria appear to be a follows:
- No warrant stocks
- Around $0.30/share or less
- Have an average volume of at least 200,000 shares
- No heavy talk of bankruptcy
- In new hot sectors: Technology, Biotechnology, Financials, Housing, or Automotive
Most of the news regarding Hayes Lemmerz won't be disclosed until their earning announcement on 4/6/09. However, one thing we do know is that they recently announced that their losses per share have been overstated in previous years due to an accounting error. The implication is that the share price should have and should be be higher because of it.
Unless management comes out and says that there is no hope for the future and that they are closing the doors for good, this stock should move sharply upward after the earnings report in two weeks. However, HAYZ could move sooner with a pre-earnings run-up, further automotive friendly govenment policy, or hedge fund bottom feeding. These catalyst potentially make Hayes Lemmerz the perfect stock for the second time.