Due to capital constraints, time limitations or the simple fact of life getting in the way, most people cannot trade frequently enough to make most trading strategies work, and that is why I write this weekly Rocket Stock column.
My main goal here is to find stocks that can rise in the coming week, no matter how the market moves. I like to look for snapbacks, earnings plays and other tradable market catalysts. As a general rule, you want to buy extreme weakness and sell extreme strength.
Last week’s volatility was particularly nerve-racking, as the Dow Jones Industrial average broke below 8,000; however, we can take solace in the fact that the market held those levels and rallied back almost 10% intraday.
Here is this week’s Rocket Stocks portfolio.
First up are shares of Heinz (HNZ), a $10 billion global diversified foods company that is No. 1 or 2 in its product line in more than 50 countries. Heinz sells 650 million bottles of its HJ Heinz ketchup each year, with its top 15 brands accounting for more than two-thirds of its annual sales and a two-year compounded growth rate of 12%.
Despite the negative growth connotation that normally is associated with diversified consumer companies, Heinz’s sales have increased from $8.6 billion in 2006 to $10.1 billion in 2008, with operating income rising from $1.4 billion to $1.5 billion during the same time.
During the same time frame, Heinz’s earnings per share rose from $2.10 to $2.63, which equates to a 12% annual compounded growth rate. The expectations for 2009 are for earnings to reach $2.91 per share. Heinz had average gross, operating and net margins of 36%, 15% and 8%, respectively, over the past 10 years. Additionally, input costs have fallen off a cliff and should act as a positive tailwind to earnings going forward.
Heinz reports earnings on Nov. 21; you will likely see a nice 5% to 6% pop after earnings.
I also like shares of Optimer Pharmaceuticals (OPTR). According to a recent study, its developing gastrointestinal infection treatment was more effective than another competitor’s product. In the study results announced on Monday, 92.1% of patients treated with Optimer's OPT-80 were cured, compared with 89.8% taking ViroPharma's (VPHM) Vancocin, which is already on the market.
Optimer CEO Michael Chang said: “This study highlights the important differentiating features of OPT-80, including lower recurrence and higher global cure rate than Vancocin, the only FDA approved antibiotic for the treatment of CDI.”
I think shares can pop 20% this week.
I also like shares of KongZhong (KONG), which develops markets and distributes consumer wireless services. KongZhong is currently trading at a huge discount and has been for some time. With a market cap of $108 million, total cash on the balance sheet of $130 million and no debt, Kong is trading at insanely low valuations.
Trading below its cash on hand, KongZhong is a great earnings play.
For more ideas, including Anheuser-Busch (BUD), Goldman Sachs (GS) and Fluor (FLR), check out this week’s Rocket Stocks portfolio.
To find the snapbacks and potential breakouts on a regular basis, check out these Stockpickr portfolios, which I use in my own research each week:
The Daily Hot List: This must-view portfolio of what stocks are making moves and why is posted at midday each day.
Always check the Biggest Percentage Losers, a list of stocks that lost big the day before, because they can snap back hard.
When you check this list on Stockpickr, you can see which stocks are owned by the quality hedge funds and mutual funds. Pay attention to those. The funds will be buying at the lower prices and likely supporting the stock.
Ditto for the 52-week-low list. You must check the above two lists every day if you hope to find volatile stocks that can snap back
Biotech Short Squeezes: Dendreon and others can often be found in this category.Stocks Rising on Unusual Volume: These are potential breakout plays.
Stockpickr's System Trades of the Day: These are trades triggering that day in various back-tested trading systems we've developed.
Stocks With Unusual Options Activity: Perhaps someone knows something?
Latest Activist Situations: These are stocks that hedge funds are accumulating shares of and demanding change in. Believe me, these hedge funds piggyback each other. And once they start rocking the boat, things happen quickly. This should be on the must-view list.
One final place to frequent is the Answers section on Stockpickr, where ideas such as those presented in this article are thrown around daily. And you can further discuss your ideas and share opinions in Stockpickr's Member Forums section.
By James Altucher
Posted on Nov. 16, 2008
