Each week, I like to find beaten-up stocks that I believe have the potential to surge higher (or lower) in coming days due to a specific event-driven catalyst. I especially like when these stocks with near-term growth potential also qualify as solid long-term plays.
I compile my ideas in the Rocket Stocks portfolio. Remember, each pick has a specific catalyst.
With the market down huge, there are plenty of short-term opportunities out there.
Despite the Dow Jones falling about 5% over the past week, various credit indicators, such as TED spreads and low bid/cover ratios, keep on improving.
Long CSX (CSX): On Monday, Jan. 12, CSX lowered fourth-quarter earnings to 63 cents per share and projected revenues of $2.7 billion. It reports on Jan. 20 and could see a sizeable earnings pop despite analysts' estimates of $1 per share on $2.8 billion dollars for the fourth quarter. CSX, which is down about 80% from its June high of $71 in late June, said that preliminary data showed that the firm earned 90 cents in the quarter ended in December, excluding a hefty one-time charge; once you factor in this one-time charge, earnings equate to 63 cents.
They key here is that CSX’s rail business is operating with higher-than-average EBITDA margins, despite the global slowdown. The ultimately question for investors and traders alike is: With CSX down 80%, should they buy or sell? My guess is that once the official numbers are released on the Jan. 20, CSX could trade into the mid-$30s.
Long Interactive Brokers (IBKR): Interactive Brokers could also see an earnings pop, as increased market volatility will boost trading volumes and fourth-quarter profit margins. The company handily beat the Street's earnings expectations last quarter, reporting 65 cents, up 23% year over year, versus 53 cents, as its market-making business grew by 600 basis points. Additionally, options trading, which offers even more-lucrative commissions, grew 10% last quarter, improving the firm's EBITDA margins. At the low range of its 52-week range, Interactive Brokers could move into the lower $20s on positive news.
Long US Bancorp (USB): USB, which is one of Warren Buffett's largest financial holdings, has taken the fewest number of asset writedowns among any financial services firm and will likely report an upside earnings surprise, based on lowered analysts estimates for the sector and a positive expansion in the firm's net interest margin. Since short-term interest rates are incredibly low, USB is one of the only financial firms that can “borrow short and lend long,” coining a 1% to 2% spread
For ideal trading ideas, make sure to explore this week's Rocket Stock 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:
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
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. At the time of publication, Altucher had no positions in stocks mentioned.
Posted on Jan. 16, 2009
