As I wrote a few weeks ago, traders and fans of low priced stocks should ignore fallen blue chips like Ford Motor Co (NYSE: F) and Sirius Satellite Radio (NASDAQ: SIRI) and focus more on smaller volatile stocks like China Precisions Steel Inc (NASDAQ: CPSL) and Solarfun Power Holdings (NASDAQ: SOLF). Not just because fallen blue chip stocks are all about guessing major business trends and the time lags involved with pricing those into their stocks -- good luck with that -- but because these lesser known plays offer much more predictability due to their speculative nature.
Earnings, profit margins, product potential is all well and good for long-term investors in higher-priced names, but here in the gutter of the stock market (also known as penny stock land), those variables are highly irrelevant to predicting hourly, daily and even weekly price swings. Down here it's all about self fulfilling prophecies, pumping and message board hype.
Take for example, Middlebrook Pharmaceuticals (NASDAQ: MBRK), mercilessly pumped by TheStreet.com's Adam Feuerstein for the past several months as a takeover candidate, as his sources indicate bidders in the $6 to $8 range. Now he might be right -- not that it's going to matter to the SEC -- and while he certainly can't compete with CNBC, in terms of effectiveness, his credibility and frequent teasing have predictably pumped this stock up a solid 20-30% so far.
Suntech Power Holdings Co. (NYSE: STP), which saw its stock surge some 150% in 2007, didn't have such a good 2008 so far with its stock plunging about 44% year-to-date. But since setting a 52-week low of $28.19 on March 22, the stock has rebounded nicely, up over 55%. Roller coaster or what?!
Well, today, the maker of photovoltaic cells and modules said first-quarter earnings more than doubled on 76% higher revenue. Earnings reached $55.8 million, or 33 cents an American depositary share, beating analysts estimates of 28 cents. Revenue reached $434.5 million. Gross margins also expanded nicely and Suntech reiterated revenue estimates for 2008.
Early in the morning, STP shares jumped over 7% in premarket trading in response to the report but have not kept this up. Shares are now trading at $45.73, down over 1%, probably declining with the rest of the sector following Goldman Sachs's downgrade of Solarfun (NASDAQ: SOLF) to Sell from Neutral. SOLF shares are down over 18% taking LDK Solar (NYSE: LDK), Trina Solar (NYSE: TSL) and Canadian Solar (NASDAQ: CSIQ) down with it -- 5%, 8% and 13% respectively, to name but a few.
Solarfun Power (NASDAQ: SOLF) is recently down $4.81 to $21.66. Goldman Sachs says, "Premium valuation unwarranted; downgrade to Sell." SOLF manufactures PV cells and PV modules. SOLF June option implied volatility of 100 is below a level of 127 prior to Q1 EPS on May 21 and near its 26-week average of 99 according to Track Data.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Solarfun Power (NASDAQ: SOLF) is recently up $3.71 to $28.95 in pre-open trading.
SOLF reported Q1 EPS of 32 cents versus consensus estimates of 16 cents. SOLF reported Q1 net revenue of $171 million, an increase of 529% from the fourth quarter of 2007.
SOLF is a manufactures PV cells and PV modules.
SOLF June option implied volatility of 127 is above its 26-week average of 98 according to Track Data, suggesting larger price risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Forget about overwhelmingly random stock market noise and small daily percentage moves exemplified by the likes of all the most popular names such as Yahoo! Inc (Nasdaq: YHOO), Citigroup Inc (NYSE: C), Pfizer Inc (NYSE: PFE), Google Inc (Nasdaq: GOOG) and Apple Inc (Nasdaq: AAPL). Don't be fooled by the all-too-frequent daily commentary-those stocks are really only good for long-term investors and the few truly professional traders out there.
If you're neither, focus more on market inefficiencies because not only are they more predictable, but they're ideal for smaller investors and traders thanks to their illiquidity. Meaning the market offers up these high profit probability opportunities that the big boys can't and won't take advantage of-they're strictly for us little guys.
I'm talking about price moves created by the quirks of the finance industry itself-namely the media circus, stock promoters and hype that influence the great derided microcap market. For example, when a CNBC reporter inadvertently suckers amateurs by pumping a penny stock (good short selling opportunity as the stock is now down 50% in a month) or when a stock promoter is paid to hype a stock (another one down 50%+ in one month since).
Solarfun Power (NASDAQ: SOLF) is scheduled to report Q1 EPS on May 21.
SOLF, a manufacturer of PV cells and PV modules, closed at $22.84 Friday.
SOLF June option call implied volatility is at 123, puts are at 134; above its 26-week average of 96 according to Track Data, suggesting larger price risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Experience has taught me to respect the price action the day after earnings. So when I see LDK trying to break out of a now 5-month old range, pretty much between $30 and $40 -- yes it was up to $50 in January and $20 in March, but those are outliers -- this is a very bearish sign. It's so bearish that I suspect that unless solar plays really heat up again, this stock will need many more weeks or months to break $40, and even then, it's got a ton of resistance all over the place due to bitter buyers in at much higher prices who will be looking to cut their losses.
Solarfun Power (NASDAQ: SOLF) is scheduled to report Q1 EPS on May 21. SOLF over all option implied volatility of 75 is below its 26-week average of 94 according to Track Data, suggesting decreasing price risk.
Last month at the Sundance Film Festival, I saw some great movies, partied it up a bit and schmoozed with celebrities. Perhaps it's the pseudo-celebrity status that came with my TV show or the $300,000+ personal loss I took on an investment I truly believed in, but I never get starstruck anymore. Not with celebrities and definitely not with companies. And as an investor, you can learn from this. I'll explain.
While at the festival, I bumped into "celebrity" Maria Bello, and my ability to have a casual conversation with her led to an interesting encounter highlighted by some flirting and several great pictures (see them all HERE).
Ms. Bello barely gave starstruck, incredibly crazed, fans the time of day; after all, nobody -- celebrity or not -- can really take anybody who's screaming and crying in awe of their presence very seriously. So, while it was a fun moment for me, I couldn't help but think how this related to the stock market.
Over the past few months, solar stocks have had more than their fair share of ups and downs. Last month, they were so volatile it seemed as if I was writing an article about another solar play every other day, introducing investors to the sector by casting the characters in a fictional movie to be called Solar's Eleven, encouraging buying on breakouts in this article, and warning investors to drop them as if they were poorly selling music artists in this article. (Yes, I go over the top sometimes, but it's all to help you better understand how the stock market works.)
So, what changed? Perception. While these companies all still have great potential, they are speculative and in bear markets, speculative stocks, especially those that don't continuously put out spectacular news, get crushed -- as shareholders in Apple (NASDAQ: AAPL), Baidu.com (NASDAQ: BIDU) and VMware (NYSE: VMW) have learned the hard way.
After nailing the top in Apple (NASDAQ: AAPL) and warning investors this would be a painful year, I've been getting hundreds of emails from people asking me what to do next? As if suddenly after two correct predictions, I'm Nostradamus or David Blaine!
Make no mistake, I'm neither a forecaster nor a magician, I'm just a trader who bases his decisions around these key elements: a distrust of everyone and every company on Wall Street (made easier by the likes of MBIA (NYSE: MBI), E*Trade (NASDAQ: ETFC) and Countrywide Financial (NYSE: CFC); a respect, bordering on religion, for charts and a quick trigger finger if the charts turn against me. I know people want longer term predictions, but I believe those to be 100% guessing games and potentially hazard to your investment health. Pregnant women should avoid them at all costs. Just kidding, it's fine for some people, but I like to make my predictions and cash out, so I can enjoy stress-free weekends if you catch my drift.
So, here's what I see right now: two weeks in and we're already halfway to my 10%-down market prediction, and Apple is down 15% (take that you stereotypical cheerleaders, go date some football players)! The markets are definitely rolling over, and while it's usually a long, drawn-out process, the charts seem to have little concern for what's normal as all the major indices have formed perfect head-and-shoulders patterns (a very bearish sign) and investors are rightfully freaking out.
You just have to laugh at price targets. Investors love them, so analysts and "experts" keep using them. I think they are dangerous – even though they are long-term in nature, they influence people's short-term expectations. When I wrote this article about Solarfun (NASDAQ: SOLF), I predicted further strength ahead, but I didn't know the stock would break out to all-time highs. Even though it did, I would've written the article exactly the same, because my only aim was to predict the overall price trend.
So when I see a $300 price target gets slapped onto Apple (NASDAQ: AAPL) here and here, I become determined to wave a caution flag instead of being yet another cheerleader. Which brings me to why I think buying this stock is becoming increasingly dangerous – cheerleading. Cramer, Yared, Smith, Johnson, Williams, Jones and Brown (two commentators and the five most common last names) love the story - the new products, the developing product cycle, the margins, the potential for growth, blah blah blah. Everybody is so incredibly comfortable in assuming that business performance is directly related to stock performance. I think there's a correlation, but it's not as high as everyone believes – incredibly well managed General Electric (NYSE: GE), whose stock was up an astounding 0.37% in 2007 comes to mind. So, I'd like you to consider a different variable – expectations. And expectations for Apple are already sky-high.
To a cynical guy like me, Apple's story seems too perfect, and it's been my experience that when everyone gets this excited about a stock that has decupled (10 times) within four years, caution is warranted. Mainly because if this company disappoints in any way, these cheerleaders could turn faster than a Spears' sibling when she's fertile.
Financial journalism is all about breaking news. News is easily researchable and journalists feel comfortable voicing their opinions. But the truth is that most news -- no matter how fabulous a company's PR firm makes it sound -- usually means little to a company's stock (it's more about the market's expectations, something that is not very researchable).
And that's why I prefer to write about companies whose stock charts are breaking out, as I have with Mercadolibre (NASDAQ: MELI) here, Solarfun (NASDAQ: SOLF) here, INVESTools (NASDAQ: SWIM) here and TheStreet.com (NASDAQ: TSCM) here (all of which are nicely, and somewhat predictably, higher) and LDK Solar (NASDAQ: LDK) here (which, in my defense, never reached my breakout price of $77; instead it tanked, exemplifying the risks involved with buying stocks before breakouts). After all, while it's fun to learn about breaking news and new products, it's even more fun to profit from the stock market (my apologies to all financial journalists, but you guys just aren't traders)!
As I wrote a few weeks ago, traders and fans of low priced stocks should ignore fallen blue chips like Ford Motor Co (NYSE: F) and Sirius Satellite Radio (NASDAQ: SIRI) and focus more on smaller volatile stocks like China Precisions Steel Inc (NASDAQ: CPSL) and Solarfun Power Holdings (NASDAQ: SOLF). Not just because fallen blue chip stocks are all about guessing major business trends and the time lags involved with pricing those into their stocks -- good luck with that -- but because these lesser known plays offer much more predictability due to their speculative nature. 
Solarfun Power
Forget about overwhelmingly random stock market noise and small daily percentage moves exemplified by the likes of all the most popular names such as 
Last month at the Sundance Film Festival, I saw some great movies, partied it up a bit and schmoozed with celebrities. Perhaps it's the pseudo-celebrity status that came with my 
Over the past few months, solar stocks have had more than their fair share of ups and downs. Last month, they were so volatile it seemed as if I was writing an article about another solar play every other day, introducing investors to the sector by casting the characters in a fictional movie to be called 
After 
You just have to laugh at price targets. Investors love them, so analysts and "experts" keep using them. I think they are dangerous – even though they are long-term in nature, they influence people's short-term expectations. When I wrote 
Financial journalism is all about breaking news. News is easily researchable and journalists feel comfortable voicing their opinions. But the truth is that most news -- no matter how fabulous a company's PR firm makes it sound -- usually means little to a company's stock (it's more about the market's expectations, something that is not very researchable).
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