In a recent post on his personal blog, trader Timothy Sykes told investors to "respect the hype" in six particular penny stocks. This perspective runs in-line with Tim's philosophy that investing in penny stocks is a probability game technical analysis is the best way to play. Although I'm sure money can be made by playing the greater fool theory, after looking at some of Tim's picks, I have concluded that the risks surrounding one of them -- BioSolar (OTC BB: BSRC) -- are enormous.
BioSolar is currently being "pumped" by Beacon Research according to Sykes, and we should all "respect the pump," he argues. While I understand short-term traders try to profit from quick share price moves in these sort of companies, this situation seems way too risky for the average trader or investor.
My main concerns: 1) Beacon Equity's report makes several outlandish assumptions, 2) the company's CEO appears to have ties to other penny stocks (he did not deny those claims via my recent email exchange with him), and 3) I'm highly skeptical of BioSolar's ability to create new technologies for a variety of reasons.
The purpose of this piece is to raise important issues any potential investor should see before investing in BioSolar. I have no position (long or short) in this company, I am not accusing BioSolar or its executives of perpetrating a fraud, and I am not personally aware of any short sellers involved in this stock.
Anyone with any money invested in U.S. stocks must check out a recent Financial Times (UK) piece about the United States economy.
"At the heart of the problems is the bursting of the housing bubble that helped to power American growth since this economic cycle started six years ago. The end of the bubble has brought a brutal slide in home construction, house price falls that threaten to undermine household wealth and consumer spending, and turmoil in the credit markets that are used to finance housing."
Indeed, the housing market's collapse had serious ramifications outside of the weakening homebuilders. Subprime mortgages have shaken the credit markets into almost complete fear of providing credit, especially to real estate loans. Consumer spending has been suffering as a result of adjustable rate mortgages (ARMs) and an inability to cash out of real estate.
The exchange stocks have been hot issues in the past few quarters as investors have been betting on increased trading activity from hedge funds, higher volatility, and so on.
But just this week, exchange stocks have received a beating harder than the markets as a whole. I believe that if a snapback rally occurs next week, these stocks should bounce back harder than the overall market. Two particular exchange stocks have appealing charts: CME Group (NYSE: CME) and NYSE Euronext (NYSE: NYX). Both of these charts display similar characteristics, as you can see below:
Momentum stocks, by nature, quickly become falling knives when share price strength weakens. DayStar Technology, a solar panel stock that traded up with its peer group, is no different. Although I don't know much about the particular economics of the company, I'm well-aware of how 'pumped' stocks soon fade into oblivion.
As you can see from the chart below, DayStar was recently unable to hold the crucial $7 per share resistance level. Additionally, the stock has soon retraced its recent gains each time it has become overbought on the RSI indicator (red circles on the chart).
As I said before, the stock is down today. Although this might appear to be a 'rest' from recent strength, I believe the stock is prime for a roll over. Be careful and protect your profits.
There are several risks surrounding Garmin at the present time. The most important risk to consider, in my opinion, is the potential for a weakening 'momentum story' in the stock. As Priya Ganapati outlined for TheStreet.com, weakening margins and slowing revenue growth are two potential risks facing the company. If the company does in fact report either of these circumstances has 'come to fruit,' I expect the stock to get a haircut.
However, there are still many bullish arguments behind the stock. The most rational of these, in my opinion, is the very reasonable multiple currently attached to the stock. As of now, the stock trades for roughly 21x forward analyst earnings. If the company does in fact deliver solid earnings results in coming quarters, I believe the stock is prime to rally.
The momentum is certainly behind gold. As you can see from the chart on the right, gold just hit a fresh high and has been in an uptrend since late 2006. The commodity began it's strong move with a perfect breakout in mid-2007 during which the metal has run more than 100 points.
The future of gold is certainly hard to call but I believe the commodity should show a positive return in 2008 as the U.S. economy should weaken and doubts about the dollar (and other currencies) remain.
An interesting perspective on 2008: Don't buy real estate dips, financials, look at commodities, some foreign currencies
Do not buy any "dips" in houses or real estate
I think that for most retail investors, avoiding real estate (especially in the first half of this year) is a very smart decision. Don't be a hero and try and catch the bottom in these stocks. It's simply not worth the risk.
Sell consumer oriented issues. Don't "bottom fish" in the financials. Favor high quality, special situations with strong balance sheets.
In my opinion, bottom-fishing financials in the late first half of this year should prove to be a low risk, market-beating opportunity. Many of the financials that have been marked down in the most recent downturn have almost no risk of going bankrupt. I think buying many of these stocks now will prove to be a smart decision several years from now but I do believe that many of them haven't yet bottomed. I am going to post about this in coming weeks.
But I think now could be an interesting time to become involved in LDK for a short-term trade.
First off, the stock is again-lagging other solar stocks on the market. For example, Solarfun Power (NASDAQ: SOLF) is up 35% in the last five days and First Solar (NASDAQ: FSLR) is up 12%. Comparably, LDK is down about 30% since the day the company reported earnings. Considering this, I think the stock is ripe for a bounce-back trade.
Although I think the questions surrounding the CEO's "lifestyle" are pertinent, I think they should be overlooked in favor of getting a piece of this high growth name at such an opportunistic time to buy. In short, I think the stock makes sense after a recent pullback.
Fundamentally, American Apparel appears very confusing at first. The older generation of readers is probably very baffled as to why a company that sells light-colored, tight fitting clothes is in the middle of a humongous growth cycle, understandably so. However, I'm more aiming this post towards those members of the younger generation who know just how powerful this concept is.
The company reports earnings after the bell on Thursday and, in my opinion, is going to deliver results that are above Wall Street's estimates as well as guidance that is slightly above the forecasts. If this isn't going to be a 'blowout quarter,' then why would buying the stock into earnings make sense? The answer is simple: I'm convinced that many fund managers are simply not willing to risk owning a big momentum stock like RIM into an earnings report this late in the year. Their yearly performance figures are simply too important for fund marketing to take such a speculative risk. But this creates opportunity for small investors if they are willing to take the risk. If the company does deliver solid numbers, confirming many analyst forecasts and nullifying any doubts surrounding the stock, I think the stock will make a quick move to $115 following the release.
Considering that most BloggingStocks readers shouldn't be taking this position, I'd like to explain why this stock is a buy even after a strong move following the release of earnings. First, I think the stock is going to 'catch-up' to other momentum names and, more importantly, I think fund managers are going to increase their exposure to this name after they receive confirmation that RIM is the smartphone play for 2008 -- a theme that certainly worked in 2007.
There's an old saying on Wall Street: don't try and catch a falling knife. This simply means don't try to buy a stock making new lows before it begins showing some strength. I've tried to catch a falling knife before in The Bon-Ton Stores, Inc. (NASDAQ: BONT) here and it ended up humbling me, to say the least. I think that Tuesday Morning is a falling knife and you, the investor, should avoid being the cutting board into which this knife stabs.
Tuesday Morning revised its outlook yesterday and it wasn't pretty. Before this cut, analysts and management were expecting roughly 85 cents per share in earnings for the year; however, management brought its expectations down to about 60 cents per share on greatly-reduced sales estimations.
I'm not going to try and concoct an argument against solar stocks. In fact, I'm sure solar technology will do huge things for the American energy crisis in years to come, but I know one thing after watching the market for several years -- any sector or stock that gains a stubborn, cult-like following is probably going to end up suffering at some point in the future. The most cult-like stocks, in my opinion, are momentum stocks.
Don't get me wrong, I play momentum stocks. However, I admit I'm just playing the greater fool game when I'm trading these stocks. In other words, I admit I'm just trying to be another person trying to pull money out of the market by buying an irrationally-priced asset and hoping to sell it at an even more irrational price. The problem comes when investors and traders come along and try to justify the valuation the stock is currently receiving. I've learned a lesson I'd like to share with momentum traders: don't try to rationalize your buys by claiming the stock is 'undervalued' and looks long term, especially if that is way different from your normal decision making process that takes advantage of certain strengths you have cultivated over time.
James Altucher wrote a powerful article which appeared on TheStreet.com Wednesday. This article managed to destroy Barron's anti-Cramer arguments, in my opinion. Through legitimate backtesting (following Cramer's recommendations -- wait 5-10 days, etc.), Altucher found that Cramer actually managed to outperform the market.
However, I had one issue with Altucher's article. While he was perfectly justified in disputing their use of the Friday close in their performance tracking, I think the one month holding period is way too short for many of Barron's ideas to materialize. Unlike Cramer, they are a much more long-term oriented crowd focused primarily on valuation. As a result, I'd argue a one-year holding period makes much more sense for creating their track record.
What should you do? Don't get involved in these disputes! You should read Barron's and watch Cramer! Anything you can do to help bring more ideas to your radar screen for further research is a worthwhile use of time in this game.
For the quarter, Gymboree earned 19 cents per share on $182.4 million in revenues. These results, which demonstrated huge year-over-year growth, managed to beat the consensus estimate, which was looking for 15 cents per share on $180 million sales.
Additionally, the company increased its third quarter and full year outlook. Gymboree now expects to earn 84-87 cents per share in the third quarter, leading me to believe the company will be able to beat the current consensus estimate of 88 cents per share. For the year, the company expects to earn $2.50-$2.53 per share, an increase from its previous guidance of $2.42-$2.46 per share. Again, I think the full year consensus estimate of $2,55 per share should be rather easy to beat.
While it seems surprising at first that the stock sold off on this news, this seems like a classic "buy the rumor, sell the news" reaction. The stock rose nearly 5% during the day, presumably on whispers of a solid quarter, and the earnings report didn't bring in enough buyers to offset those who were closing their pre-earnings trades.
Target probably wouldn't sell its credit card business because its becoming a more and more important contibutor to earnings. Moreover, reengineering the real estate portfolio or increasing the already-aggressive buyback would probably require borrowing. At the present time, borrowing at attractive rates is difficult.
Despite Target's rise in the last few years, the stock remains cheap. As breakingviews noted, the stock trades for just 14x earnings -- the same price as Wal-Mart (NYSE: WMT) -- despite growing much faster than Wal-Mart and possessing much more favorable growth prospects than Wal-Mart.
After soaring nearly 15% when Ackman's $2 billion investment in the company was rumored and revealed, the stock has come back to earth and retraced all of those gains. At these levels, Target is an appealing investment opportunity. The stock is undervalued vs. its peers and possessing loads of free options, most importantly the potential for Ackman to unlock value.
Target looks like an incredible long-term investment and I've been contemplating adding it to my long term buy and hold portfolio for the last month.