By James Altucher
Posted on April 20, 2009
Predicting the future is virtually impossible, but if you take a no-nonsense approach to the stock market, profits may soon follow.Â
What do I mean by a "no-nonsense approach"?
1. Every trade you place should represent no more than 1% of your total capital or assets under management.  Keep your losers/losses under control and the winners/profits will take care of the rest.
2. Every trade must have a specific catalyst that you attempt to game. After the catalyst has occurred, you dump the position. No matter what.
3. Do not buy something just because you think it is cheap. There are tons of cheap stocks currently in the market, but that doesn't mean they won't fall even more. A cheap stock can get cheaper and cheaper and cheaper as it painfully eats away at your capital. The ideal long trade is a cheap stock with a catalyst that may propel it higher.
4. Keep very tight stop orders on all positions. There are many different opinions of what the ideal stop order is. I use 5% to 7%.
5. Keep a close eye on the CBOE Volatility Index, commonly known as the VIX. There is no better gauge of raw fear in the market than this index.
With this in mind, here is this week’s Rocket Stocks portfolio of stocks that could surge higher in the coming days.
Axsys Technologies (AXYS), long ahead of earnings: This company is currently up for sale, and any update on the possible $60 price offer could move the stock into the mid-$40s.
We know Obama isn’t going to shortchange the defense sector. He just wants to make the budget "smarter." This is where Axsys comes into play.
Axsys Technologies is a global leader in the design and development of high-performance surveillance cameras, imaging systems and related motion control technologies used in various military applications around the world. It makes cameras and ultra-high-powered lenses used in everything from highway surveillance to unmanned bombers in Afghanistan and Iraq. Its largest customers include Raytheon (RTN) and the British Aerospace.
Over the past five years, shares of Axsys Technologies are up more than 300% vs. a decline in the S&P 500 of 45%. From 2004 to 2007, Axsys’ net sales went from $78.2 million to $171.6 million, while operating income went from just $6.8 million to $23.3 million in that time period. Overall, the firm’s backlog, which is a measure of existing orders vs. current production levels, grew from $75.6 million to $140.2 million from 2004 to 2007. Backlog here is $200 million, with 91% of that backlog being shipped within 12 months.
The company recently completed first-round action bids from larger defense contractors.
Forest Laboratories (FRX), long ahead of earnings this week: With $2 billion in cash and no debt on its balance sheet, shares of Forest Laboratories are an interesting long, particularly given the recent consolidation in the biotech sector. The company is trading for just 6.6 times forward earnings estimates per share and has several drugs ending phase III testing, which may serve as an additional catalyst throughout 2009. Shares of Forest Labs are moving higher this week.
First Cash Financial Services (FCFS), long ahead of earnings this week: First Cash operates 94 U.S pawn stores and 160 U.S short-term loan stores. First Cash is also positioned to capitalize off of the slowing Mexican economy. Mexico’s gross domestic product will likely shrink by 1.6% in 2009, hurt by the fact that almost 80% of Mexico’s exports are sent to the slowing U.S economy. First Cash is the second-largest pawn shop operator in Mexico, operating more than 200 stores. For full-year 2008, First Cash’s earnings per share were up 35%, same-store sales were up 13%, and total revenue was up 19%.
Recently Cash America International (CSH) pre-announced a better-than-expected quarter, which may signal additional strength for First Cash’s quarter.
This week’s Rocket Stocks portfolio also includes earnings trades on Potash Corp. of Saskatchewan (POT) and Bank of America (BAC).
At the time of publication, Altucher had no position in stocks mentioned.
