In Part 1 of this series I discussed starting with a good story and then examining the metrics, or first starting with the metrics via a stock screen and then look at the story behind the numbers.

A third possibility is to start with an idea that springs off the pages of a business journal. Some years ago, in the 25th anniversary edition of Money Magazine they listed a group of stocks that had gone up during this tenure. The one I liked the best that withstood closer scrutiny was Southern Company (SO), the electric utility.

The story and the metrics were great. It was located in one of the most desirable growth areas of the country. There was a favorable business climate, cheap housing, cheap land, good weather and an abundance of labor. The numbers were strong as well.

American Superconductor (AMSC) gapped lower right out of the gate this morning, thanks to a bearish write-up in Barron's (subscription required) over the weekend. In a piece titled "Flagging Winds from China," author Bill Alpert warns of "signs that China's boom in wind power is slowing." As points of concern, Alpert points to dropping prices and rising inventories in the wind-turbine industry.

AMSC tumbled to a loss of more than 6% Monday morning, deepening its year-to-date decline of 18%. The stock has suffered four consecutive Friday closes beneath its 10-week moving average, and AMSC is now trading below its 20-week moving average, as well. Going forward, these formerly supportive trendlines could switch roles to act as resistance.

Mela Sciences (MELA) gapped higher right out of the gate Monday, with the shares surging roughly 12% on Monday morning. Over the weekend, Barron's noted that the stock is "worth a close look ahead of a regulatory vote on Nov. 18," and traders are apparently taking the suggestion to heart.

The financial publication described its opinion on the shares as "cautiously optimistic," explaining that analysts believe MELA could double if its MelaFind device receives the OK from a Food and Drug Administration (FDA) panel this Thursday. However, warned Barron's, a regulatory thumbs-down "could cut the shares in half."

Today the DJIA challenged 2-year highs, on a closing basis. A rise in housing helped on the surface based on improvements year over year, although the report is in part to the comparisons from a year earlier because the levels are so low. The Yen is also reaching an inflection point at the highs against the dollar not seen in years and years, and the hope is still there is more quantitative easing to come. Earnings and ongoing merger momentum helped to keep the indexes heading in the right direction.

Here were today's unofficial closing bell levels:

Dow Jones 11,164.05 +31.49 (0.28%)
S&P 500 1,185.62 +2.54 (0.21%)
Nasdaq 2,490.85 +11.46 (0.46%)

Top Analyst Calls
Top Earnings This Week

It was only a month ago I wrote a story comparing Oracle Corp. (ORCL) and Hewlett Packard (HPQ), concluding the latter to be the better opportunity from a value investor's perspective. At the time Oracle was $27.49. Yesterday it closed at a new 52-week high of $29.23 -- a gain of 6.33%.

During this time, Oracle insiders have been selling shares and the trend is negative. In September alone, almost $300 million of the stock was sold off. If you examine Barron's weekly summary of insider activity, as one source, you will find that Oracle has been in the top five companies on the sell side for many weeks. As the stock has been rising, insiders have been selling into strength.

Humble copier company Xerox (XRX) is suddenly the toast of Wall Street. In addition to a bullish Barron's feature earlier this week, the stock garnered a rush of attention from optimistic options players Thursday. Although the security has yet to establish a firm foothold in double-digit territory, it seems that hopes are running pretty high for Xerox.

On Thursday, call volume on XRX surged to 28 times the norm, with roughly 103,000 contracts crossing the tape. Most of the volume was focused on the January 2011 series of options, as one trader closed out a block of 35,000 January 7.50 calls and exchanged them for 35,000 contracts of the January 9 call. By rolling these calls up to a higher strike, the speculator is indicating that he expects additional upside from XRX during the intermediate term.

Having accepted a speaking engagement at a university school of business recently, I had to think about what introductory information I could impart to the students about investing that would be practical, immediately useful and establish a foundation for whatever direction their paths might lead. This was supposed to be the first in a series. However, since I pull no punches and can be a little edgy in my candor and presentation, who knew if I would be invited back?

My outline had five basic elements. The first thing I told them was to start now!

Over the weekend, Barron's published a very favorable cover story on Xerox (XRX), noting that the company is branching out to "recast" itself as a service company. The article points out that Xerox has seen steady increases in earnings, which have repeatedly topped the Street's expectations. In fact, Xerox CEO Ursula Burns went as far as to say that "Shareholders clearly love us because we can deliver predictable earnings growth."

The article also notes that the Street is a bit behind as far as coming to terms with how Xerox's new businesses will perform. This leads some to believe that the shares could trade at a "reasonable 8.6x estimated earnings for the year ahead." Yes, 8.6 times the estimated earnings in the coming year. The article also states that although Xerox stock is trading "well below" its five-year price-earnings ratio of 13x, a move to 12x would result in a "jump of at least 50%." So, just a move toward the five-year P/E ratio could result in a 50% jump -- good numbers, but let's take a look at XRX's technical performance to see what technical hurdles lie in the road.

Last week's Barron's (Sept. 6) was full of great stock insights and the favorable reports on Noble Corp. (NE) and Raytheon Company (RTN) were well articulated. Often you hear that by the time the news hits the streets, it's too late to get in on the bargain. This is a myth; both of these stocks are good examples proving the point because they were bargains before the stories were published and remain so today.

This is not to say that a broadly published story will not have an impact on the stock price -- it may. However, there is not a one to one correlation and there are many other factors to weigh. Also, given the number of financial publications, blogs, press releases, analysts calls and more, almost every company's stock is in the news, if not daily then weekly.

Harman International (HAR) is starting to sound like an interesting value play.

Harman has seen its stock price cut nearly in half during the past month -- falling from a high of $53.36 at the end of April to around $33 -- but it seems to have found some recent support.

Plus, it must be doing something right because it was the lucky recipient of a bullish review in Barron's this weekend.

Viacom (VIA.B) is getting some attention. According to reports, financial publication Barron's is enthusiastic about the value of the media company's shares. Indeed, Barron's makes a compelling case.

The price of the stock, in terms of the P/E ratio, does look rather inexpensive. When you put the P/E ratio against the technical strength of the shares, there's no way not to be intrigued. Viacom is up by a double-digit percentage on a year-to-date basis, and it isn't far from a 52-week high.

I found an interesting article over on Barron's that takes a look at Fastenal (FAST) and its prospect for a good year thanks to the perceived economic recovery.

The article notes that Fastenal had a rather difficult year last year as the company was "hammered" (their pun, not mine) by the recession. The company saw sales drop 17.5% and profit drop 34.1%. Last year, the company took on cost controls, cut its workforce, and cut hours for its employees. According to the article, these measures helped, as Fastenal saw daily revenue increase 2.4% in January and 4.4% in February, which was the company's first year-over-year sales gains since late 2008. The article adds that the company's balance sheet is "another big plus," with no debt and a dividend that produces a 1.7% yield.

C.H. Robinson Worldwide (CHRW) was the subject of a rosy write-up in Barron's over the weekend, with the financial publication noting that the company is well-positioned to benefit as "trends in the transportation industry are reaching an inflection point." In fact, portfolio manager Quoc Tran of Lateef Investment Management believes that "a stake in C.H. Robinson [is] the best way to enjoy a rebound in the transportation sector."

The stock enjoyed a modest boost Monday morning in the wake of the Barron's endorsement, with CHRW breaking out above short-term pressure from its 10-day and 20-day moving averages. The stock has added roughly 40% during the past year, capitalizing on support from its longer-term 10-month and 20-month trendlines.

Defense firm Oshkosh Corporation (OSK) is wallowing in red ink, after Barron's published a downbeat article on the company over the weekend. After securing a $3 billion, five-year Army contract, the author warns that "Oshkosh may have won the battle but lost the war."

The main thrust of the article appears to be an argument against further price appreciation for OSK, which has "gained 448% over the past 12 months based on a booming military business," according to Barron's. Plus, Tom Harenburg, a longtime investor in the company, adds that profit margins on the Army deal "are meager."

Valeant Pharmaceuticals (VRX - option chain) stock is trading lower today after an article in Barron's (subscription required) over the weekend said the company could see trouble ahead if its experimental epilepsy drug, which is undergoing the regulatory review process, is not profitable enough to offset declining royalties from its hepatitis C treatment. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on VRX.

This morning, VRX opened at $32.15. So far today the stock has hit a high of $32.95 and a low of $31.88. As of 11:30, VRX is trading at $32.07, down $1.21 (-3.6%). The chart for VRX looks bullish.