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The Meek Continue to Dominate Equities

 Apr 26, 2009 11:55 PM UTC
Symbol Sentiment Start Return Closed
HOT n/a
AXP n/a
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RVBD n/a
COH n/a
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NUVA n/a
LVS n/a
MAS n/a
AMSC n/a

Graphic_arrow1 Via Fund my Mutual Fund:  

Early in April after a month long run off the bottom I posted a list of equities that gained at least 60% in the preceding 4 weeks [Apr 5: The Meek Shall Inherit the Earth: 92 Stocks Over $10 Returning 60%+] The list was a whose who of beaten down merchandise. Generally, by week 4-5 of an oversold rally these type of names begin to peter out but the ramp has been relentless in lower quality, low price stocks. My gut tells me quant (and other varieties) of hedge funds have been shorting these names, using fundamental reasons - expecting some pullback after huge runs - only to be run over again and again even in week 6 and 7 of this rally. All it takes nowadays is saying "business has stabilized at the worst levels we've seen in decades" to elicit glee and massive short covering rallies.

While the market was flattish last week, I tend to look at the action underneath the surface and there was a lot of speculative fervor which was hidden by the indexes themselves. I will say it again, although I said it two weeks ago to no avail - generally when this type of stock is rocketing, we are Level Red of froth and it (usually) signals topping action as people run out of ideas in quality stocks. But much like August 2007 (but in opposite direction back then) we are seeing some very strange moves of magnificent quantity in individual names that do not square up with any reasonable fundamental reason; it just appears to be hedge funds leaning hard and being snared... in August 2007 the moves were down, now the moves are up.

The other explanation are mutual funds are running in to buy these type of stocks even after 40,60,80% type of moves - the same stocks they wanted nothing to do with 2 months ago. That doesn't seem like smart risk control but judging from results in 2008 it doesn't seem like risk control is priority #1 in mutual fund land, so perhaps this is contributing.

Here are the winners from last week with the following criteria

Criteria

  1. Market capitalization $500M+
  2. Average trading volume 200K+
  3. Stock price $5+
  4. Return this week 15%+
Many names that we've pointed out with weak fundamentals have their fingerprints all over this list; I still love Mohawk (MHK) myself - this was bid up 30% Friday, for $0.29 worth of earnings for 2009. For a company that makes carpets. Let's say the $0.29 is very wrong and indeed its $1.00 in EPS for 2009. So we're paying 50x forward earnings... for carpet. That is but one example of many - valuations simply do not matter to whomever is buying things. I know what the logic is; Mohawk was $100 at the all time peak during the housing bubble so still 50% off sale! Apply same logic to any number of names - as long as you believe we're heading back to those "good times" of the bubble economy... well then little things like earnings apparently do not matter. Masco (MAS) is the same kind of "housing company"...

Other names of interest - Las Vegas Sands (LVS) which continues to run, now up 200% in a month; but at $7.50 its still down from its previous $150. As long as you believe bankruptcy is off the table, limitless upside I suppose. CBL - commercial real estate is hot. BYD - Americans (increasingly unemployed) are using their home ATM and apparently heading to casinos. WYNN? See LVS and BYD. Radio Shack (RSH) - I have not been in one for 10 years but apparently the hot new item is digital TV conversion boxes - a very sustainable business model. CAKE, PFCB - remember, casual restaurants are the new Internet stocks circa 1999. Royal Caribbean (RCL) was at risk of bankruptcy a few months ago [Jan 30, 2009: Royal Caribbean Continues Free Fall] [Jan 28, 2009: Royal Caribbean to $1?]- now it appears the house ATM must be allowing Americans to once again freely cruise - much more time now without jobs. And in between cruises they are obviously sleeping at the highest end of hotels - only the best will do; see Starwood (HOT). And these same American consumers are using their American Express (AXP) to shop at Coach (COH) when they are not gambling, cruising, or buying Harleys.

Folks? What is the stock market "telling us"? We will soon be back to 2006 with unemployment in the 4% range, house flipping, gambling, cruising, shopping at high end stores, consipicious consuming, while sleeping in high end hotels. We just can't see it, because we are heathens... the market can look into the future and see it. So apparently "in 6 months" everything is back to 2006. This whole "getting back to reality" era? Just a nightmare - the Fed fixed it. Carry on loading up your credit cards and spending money you don't have - nanny state says it's fine. I have my doubts it is just that easy - but the stock market is "always correct" just as it was forecasting the great times ahead in October 2007 as it ran to all time highs. Or perhaps a more likely explanation is these are among the most highly shorted (for fundamental reasons) stocks on the entire exchange. Nah... green shoots it is. See you at the mall!

Two old holdings I am curious on were NuVasive (NUVA) and American Superconductor (AMSC) - the former had earnings this past week so it appears the market liked them; the latter is a "go to" play for Obama infrastructure/hope. We touched on Juniper Networks (JNPR) and Riverbed Technology (RVBD) - Juniper is earning nothing but cut enough heads to "stabilize" (and that's all you need in the future 'worker less' economy to thrive) - you don't actually need to make any money to be rewarded now; simply whisper "stabilization". I do wish I had not missed RVBD but I don't like to gamble on bipolar outcomes such as earnings. [Apr 24: Missed Opportunity in Riverbed Technology; Ok Results in Juniper Networks]

p.s. three gold names also made this list, foreshadow or China accumulation news reaction? We'll know soon I believe.

<table width="346"><colgroup><col width="64" /> <col width="218" /> <col width="64" /> </colgroup><tbody><tr height="17"> <td height="17" width="64">Symbol</td> <td width="218">Company Name</td> <td class="xl22" width="64"> % Price 1 Week </td> </tr> <tr height="17"> <td height="17">TIN</td> <td>Temple-Inland Inc</td> <td class="xl22"> 48.8 </td> </tr> <tr height="17"> <td height="17">LVS</td> <td>Las Vegas Sands Corp</td> <td class="xl22"> 47.5 </td> </tr> <tr height="17"> <td height="17">ELX</td> <td>Emulex Corp</td> <td class="xl22"> 44.6 </td> </tr> <tr height="17"> <td height="17">JAVA</td> <td>Sun Microsystems Inc</td> <td class="xl22"> 37.5 </td> </tr> <tr height="17"> <td height="17">CBL</td> <td>CBL & Associates REIT</td> <td class="xl22"> 34.0 </td> </tr> <tr height="17"> <td height="17">NTGR</td> <td>NetGear Inc</td> <td class="xl22"> 33.5 </td> </tr> <tr height="17"> <td height="17">AAI</td> <td>AirTran Holdings Inc</td> <td class="xl22"> 33.2 </td> </tr> <tr height="17"> <td height="17">MHK</td> <td>Mohawk Industries Inc</td> <td class="xl22"> 33.2 </td> </tr> <tr height="17"> <td height="17">BYD</td> <td>Boyd Gaming Corp</td> <td class="xl22"> 31.4 </td> </tr> <tr height="17"> <td height="17">RSH</td> <td>RadioShack Corp</td> <td class="xl22"> 27.3 </td> </tr> <tr height="17"> <td height="17">AWI</td> <td>Armstrong World Industries Inc</td> <td class="xl22"> 26.3 </td> </tr> <tr height="17"> <td height="17">WGOV</td> <td>Woodward Governor Co</td> <td class="xl22"> 26.1 </td> </tr> <tr height="17"> <td height="17">IR</td> <td>Ingersoll-Rand Co Ltd</td> <td class="xl22"> 26.0 </td> </tr> <tr height="17"> <td height="17">JEF</td> <td>Jefferies Group Inc</td> <td class="xl22"> 25.6 </td> </tr> <tr height="17"> <td height="17">F</td> <td>Ford Motor Co</td> <td class="xl22"> 25.0 </td> </tr> <tr height="17"> <td height="17">NTY</td> <td>NBTY Inc</td> <td class="xl22"> 24.9 </td> </tr> <tr height="17"> <td height="17">CAKE</td> <td>Cheesecake Factory Inc</td> <td class="xl22"> 24.3 </td> </tr> <tr height="17"> <td height="17">EMN</td> <td>Eastman Chemical Co</td> <td class="xl22"> 23.7 </td> </tr> <tr height="17"> <td height="17">PTV</td> <td>Pactiv Corp</td> <td class="xl22"> 23.5 </td> </tr> <tr height="17"> <td height="17">IP</td> <td>International Paper Co</td> <td class="xl22"> 23.1 </td> </tr> <tr height="17"> <td height="17">PAS</td> <td>PepsiAmericas Inc</td> <td class="xl22"> 23.1 </td> </tr> <tr height="17"> <td height="17">NUVA</td> <td>NuVasive Inc</td> <td class="xl22"> 22.7 </td> </tr> <tr height="17"> <td height="17">ARA</td> <td>Aracruz Celulose ADR</td> <td class="xl22"> 22.4 </td> </tr> <tr height="17"> <td height="17">SEOAY</td> <td>Stora Enso Sponsored ADR </td> <td class="xl22"> 22.1 </td> </tr> <tr height="17"> <td height="17">PBG</td> <td>Pepsi Bottling Group Inc</td> <td class="xl22"> 22.0 </td> </tr> <tr height="17"> <td height="17">WL</td> <td>Wilmington Trust Corp</td> <td class="xl22"> 21.7 </td> </tr> <tr height="17"> <td height="17">AMSC</td> <td>American Superconductor Corp</td> <td class="xl22"> 21.5 </td> </tr> <tr height="17"> <td height="17">ALGN</td> <td>Align Technology Inc</td> <td class="xl22"> 21.2 </td> </tr> <tr height="17"> <td height="17">JNPR</td> <td>Juniper Networks Inc</td> <td class="xl22"> 20.8 </td> </tr> <tr height="17"> <td height="17">GOLD</td> <td>Randgold Resources ADR</td> <td class="xl22"> 20.8 </td> </tr> <tr height="17"> <td height="17">HST</td> <td>Host Hotels & Resorts REIT</td> <td class="xl22"> 20.7 </td> </tr> <tr height="17"> <td height="17">RCL</td> <td>Royal Caribbean Cruises Ltd</td> <td class="xl22"> 20.7 </td> </tr> <tr height="17"> <td height="17">WYNN</td> <td>Wynn Resorts Ltd</td> <td class="xl22"> 20.7 </td> </tr> <tr height="17"> <td height="17">WMS</td> <td>WMS Industries Inc</td> <td class="xl22"> 20.5 </td> </tr> <tr height="17"> <td height="17">USG</td> <td>USG Corp</td> <td class="xl22"> 20.0 </td> </tr> <tr height="17"> <td height="17">HMY</td> <td>Harmony Gold Mining ADR</td> <td class="xl22"> 19.5 </td> </tr> <tr height="17"> <td height="17">DLX</td> <td>Deluxe Corp</td> <td class="xl22"> 19.5 </td> </tr> <tr height="17"> <td height="17">CBG</td> <td>CB Richard Ellis Group Inc</td> <td class="xl22"> 19.4 </td> </tr> <tr height="17"> <td height="17">PFCB</td> <td>P.F. Chang's China Bistro Inc</td> <td class="xl22"> 18.5 </td> </tr> <tr height="17"> <td height="17">CYT</td> <td>Cytec Industries Inc</td> <td class="xl22"> 18.3 </td> </tr> <tr height="17"> <td height="17">BKD</td> <td>Brookdale Senior Living Inc</td> <td class="xl22"> 18.0 </td> </tr> <tr height="17"> <td height="17">WFT</td> <td>Weatherford International Ltd</td> <td class="xl22"> 18.0 </td> </tr> <tr height="17"> <td height="17">CMTL</td> <td>Comtech Telecommunications Corp</td> <td class="xl22"> 17.9 </td> </tr> <tr height="17"> <td height="17">WAB</td> <td>Wabtec Corp</td> <td class="xl22"> 17.5 </td> </tr> <tr height="17"> <td height="17">PNK</td> <td>Pinnacle Entertainment Inc</td> <td class="xl22"> 17.2 </td> </tr> <tr height="17"> <td height="17">WU</td> <td>Western Union Co</td> <td class="xl22"> 17.1 </td> </tr> <tr height="17"> <td height="17">PKG</td> <td>Packaging Corp of America</td> <td class="xl22"> 16.9 </td> </tr> <tr height="17"> <td height="17">TCK</td> <td>Teck Resources Ltd</td> <td class="xl22"> 16.8 </td> </tr> <tr height="17"> <td height="17">SNA</td> <td>Snap-on Inc</td> <td class="xl22"> 16.8 </td> </tr> <tr height="17"> <td height="17">MAS</td> <td>Masco Corp</td> <td class="xl22"> 16.7 </td> </tr> <tr height="17"> <td height="17">ACF</td> <td>AmeriCredit Corp</td> <td class="xl22"> 16.7 </td> </tr> <tr height="17"> <td height="17">COH</td> <td>Coach Inc</td> <td class="xl22"> 16.7 </td> </tr> <tr height="17"> <td height="17">EBAY</td> <td>eBay Inc</td> <td class="xl22"> 16.6 </td> </tr> <tr height="17"> <td height="17">STAR</td> <td>Starent Networks Corp</td> <td class="xl22"> 16.6 </td> </tr> <tr height="17"> <td height="17">BRCD</td> <td>Brocade Communications </td> <td class="xl22"> 16.3 </td> </tr> <tr height="17"> <td height="17">KGC</td> <td>Kinross Gold Corp</td> <td class="xl22"> 16.3 </td> </tr> <tr height="17"> <td height="17">AXP</td> <td>American Express Co</td> <td class="xl22"> 16.0 </td> </tr> <tr height="17"> <td height="17">HOT</td> <td>Starwood Hotels & Resorts </td> <td class="xl22"> 15.9 </td> </tr> <tr height="17"> <td height="17">CCJ</td> <td>Cameco Corp</td> <td class="xl22"> 15.7 </td> </tr> <tr height="17"> <td height="17">JLL</td> <td>Jones Lang LaSalle Inc</td> <td class="xl22"> 15.5 </td> </tr> <tr height="17"> <td height="17">EGO</td> <td>Eldorado Gold Corp</td> <td class="xl22"> 15.4 </td> </tr> <tr height="17"> <td height="17">ORB</td> <td>Orbital Sciences Corp</td> <td class="xl22"> 15.3 </td> </tr> <tr height="17"> <td height="17">RVBD</td> <td>Riverbed Technology Inc</td> <td class="xl22"> 15.3 </td> </tr> <tr height="17"> <td height="17">ISRG</td> <td>Intuitive Surgical Inc</td> <td class="xl22"> 15.3 </td> </tr> <tr height="17"> <td height="17">ACOR</td> <td>Acorda Therapeutics Inc</td> <td class="xl22"> 15.1 </td> </tr> </tbody></table>

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