HAYZ 3/25/09 - Can a Stock Be Perfect Twice?

Wow, my previous perfect stock choice Pier One Inc. (PIR) performed unbelievably well. I think I may have set a standard that I can't maintain, but I'm certainly going to do my best to try and keep it going. I didn't think another opportunity would arise so quickly for another perfect stock, but I can't help but make this next call.

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.

Fundamentals:

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.

Technicals:

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.

Momentum:

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

Despite the fact that HAYZ has recently made a big move, it could be on hedge funds' radar because it is so insanely cheap at $0.16/share.

News:

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.

Conclusion:

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.

The Perfect Stock 3/21/09 - Pier One (PIR)

This blog called "The Perfect Stock" is pretty self-explanatory in that it is about what we as stock investors and/or traders always seek: a scenario where catalysts, fundamentals, and technicals all align causing a stock to explode with 100% plus gains in a very short period of time. Over the past 6 months, shareholders have been punished by the stock market's unrelenting downward spiral. However, those of us who see the glass half full, view today as a once in a lifetime opportunity to recoup much of the money we have lost. The stock market has had over a 50% re-tracement from its highs and most experts believe that it has finally bottomed. Big money has been sitting on the sidelines and many stocks are at 5 to 10 year lows. Some are at all time lows. Fortunately for us, these occurrences can potentially give rise to what may be the best opportunity in years to make a significant amount of money in the stock market.

In finding the perfect stock, http://theperfectstock.blogspot.com will focus on quality and not quantity. So, do not expect a post daily. However, if and when a clear choice is apparent, I'll do my best to point it out. Periodically, there may be posts offering suggestions regarding tools that you may or may not know that more experienced traders use to get the jump on certain stocks.

My idea of "The Perfect Stock" has a combination of at least 4 of the 7 components listed below:

• Fundamentals
• Technicals
• Momentum
• Short Squeeze Potential
• News
• Institutional Buying
• Insider Buying

These things will be universal themes in the selection of the perfect stock. Please, take note of the date of each blog post. Because the market changes so quickly, a stock can only be considered perfect for a finite period of time. These picks are not meant to be long term holds, although many will have the potential for substantial gains over an extended period of time. If you decide to invest, pick your exit points wisely.

I had planned to start this blog last week and the stock I was going to focus on was Hayes Lemmerz Intl (HAYZ). However, I had some prior engagements and was unable to put my ideas together. It happens to be up about 400% since then and doesn't appear to be looking back. Although I still think no one should even consider selling HAYZ until it reaches about $0.40 - $0.45 a share (it's currently at $0.16/share), it's probably due for a bit of a pull back. Since it is no longer "perfect", I'll provide you with my next choice: Pier One Inc. (PIR).

Many of you may be thinking why in the world would I think PIR, which is a retail stock, is the perfect stock.

Fundamentals:

The last couple of weeks, the market's turnaround has largely been fueled by the actions of the federal government. Rumors of mark to market accounting modifications, a possible re-institution of the uptick rule, capital assistance for auto suppliers, and the Federal Reserve's promise to buy US Treasury Bonds and mortgage securities have sparked fierce buying in certain sectors. The most notable buying has occurred with auto suppliers, financials, and home builders. The buying has been so feverish the past 10-12 days that these sectors can't help, but to take a bit of a breather. So, what would be the next logical play? I would say that the best choice would be in areas that tend to move in tandem with either of the three sectors listed above. If we focus on the results of the Fed's action with mortgages, loans will now be available at record low interest rates. This should significantly stimulate home buying (the main reason the home builders have spike). The stock market is a forward looking indicator, so if home buying is expected to increase, it is reasonable to believe that home furnishings and decorum purchases will also increase. Who happens to be an industry leader in this area? Pier One Inc.

Technicals:

See below for a 3 month chart of Pier One:



I don't profess to be a die hard stock technician so I'm not going to try and wow you with concepts like moving averages and bollinger bands. However, the chart does pretty clearly show that this stock may have bottomed last week at $0.10/share and is in the process of a textbook reversal. Also, the corresponding volume (the bar chart portion below the line graph) shows that real interest is beginning to form. Pier One currently sits at $0.16/share and it's 52 week high is over $8.00/share. With the next big move, PIR will easily hit $0.40/share and will probably go as high as $0.70/share before encountering significant resistance.

Short Squeeze Potential:

With less than 90 million shares outstanding and 71% institutional ownership (per Google Finance), the float is tiny. Shortsqueeze.com says that there are approximately 5.9 million shares short. In other words, when it moves, it will move fast.

Supporting News:

News on Pier One was released after hours Friday, 3/20/09. They announced their earnings a little earlier than usual and of course they were horrible. However, what was important was that they have reduced their inventory significantly, are closing less stores than they had originally anticipated, and have reduced a large portion of their debt. The debt reduction was the key news. One of PIR's Hong Kong subsidiaries purchased $79 million of the debt.

Also, the company seems intent to quickly increase their share price so they aren't forced to be de-listed from the NYSE. The exchange requires that they maintain at least $1.00/share. I suspect more good news will come in the coming weeks in an attempt to keep the positive momentum.

Conclusion

Pier One sets up perfectly both fundamentally and technically by my standards of the perfect stock. However, I'm not the only person who thinks it is poised to fly. PIR was up 88% during after hours Friday, 3/20/09. I don't expect it to open Monday quite at that level, but if it drops anywhere between $0.20 - $0.25, I'd be all over it.