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.