Stocks took a breather this week, as better domestic
economic data led some traders to position for the eventual
easing in the Fed's quantitative easing policy. As a result,
the Russell 2000 -- which serves as the benchmark for the
model portfolio -- fell for just the second time in the past
We used the volatility this week to add to our positions in
Kodiak Oil & Gas (KOG:NYSE) and SandRidge Energy (SD:NYSE).
We funded these purchases by taking profits off the table in
Callidus Software (CALD:Nasdaq) and Unilife (UNIS:Nasdaq).
In addition, we opened a position in McDermott (MDR:NYSE) on
Thursday by purchasing bought 450 shares. Shares of the
offshore energy engineering and construction firm have lost
30%, year-to-date. That said, exploration demand remains
strong and the company has a new chief executive coming in
later this month who we believe will focus on cutting the
company's bloated cost structure.
As a reminder:
-- A Game Breaker is going to change the landscape of an
industry, as Intel (INTC:Nasdaq), Microsoft (MSFT:Nasdaq)
and Wal-Mart (WMT:NYSE) did in their sectors. Investors can
make big money in these stocks by getting in before the
-- Inflection-Point stocks have a broken business model
that's on the mend, but have yet to be recognized by the
market. Investors who recognize a turnaround early can
pocket strong returns.
-- Stealth Stocks are often names unknown to the general
public, but can be hugely profitable investments --
especially when they have catalysts to boost their share
Also, Ones are stocks that we would buy at their current
quotes, Twos are stocks that we would buy on a pullback and
Threes are names that we would sell into strength.
Active Power (ACPW:Nasdaq; $2.96; 1,950 shares; 3.15% of the
model portfolio; Game Breaker): Active Power's flywheel
energy technology keeps its customers' mission-critical
processes up and running. Its hardware uses half as much
space as existing technologies do, but generates twice as
much power. The stock bucked the broader market trend this
week and rebounded 5%. The company has good technology and
we maintain the new management team can get the business
back on track toward profitability in the coming quarters.
Atmel (ATML:Nasdaq; $7.46; 775 shares; 3.16%, Inflection
Point): The company makes microcontrollers that are used in
electronics. It was a quiet week for the shares, which
pulled back 2%. We believe Atmel can continue to expand
margins over the coming quarters and that the stock has the
potential to move back up toward the double digits.
Ballantyne Strong (BTN:Amex; $4.57; 2,300 shares; 5.74%;
Stealth Stock): The company distributes digital movie
projectors and manufactures screens and lighting equipment
for theaters. The stock fell fractionally this week on
little news. We would consider adding to our position on the
next market pullback, as Ballantyne is trading at a discount
to tangible book value.
Builders FirstSource (BLDR:Nasdaq; $6.63; 950 shares; 3.44%;
Inflection Point): The company distributes materials to
homebuilders in the southern U.S. The shares dropped 5% this
week, as the new home sales report fell short of
expectations on Wednesday. That said, the stock is now down
15% from its October highs, even though Builders FirstSource
is gaining market share and can expand margins. We would
consider adding to our position on the next market pullback,
as we believe that the shares can trade back up toward the
high-single digits over the coming quarters.
Cott (COT:NYSE; $8.53; 700 shares; 3.26%; Stealth Stock):
Cott produces and distributes soft drinks, noncarbonated
beverages and bottled water, primarily focusing on private-
label items for major retailers. It was a quiet week for the
stock, which rebounded 2%. The company is keeping a tight
lid on costs and the shares provide investors with a solid
2.7% dividend yield.
McDermott (MDR:NYSE; $7.96; 450 shares; 1.96%; Inflection
Point): The company is an engineering and construction firm
that focuses on building and designing offshore oil and
natural gas facilities. We initiated a position in the stock
on Thursday by purchasing 450 shares. The stock has lost 30%
in 2013, but we believe that incoming chief executive
officer David Dickson is a good fit for the company. Dickson
can make necessary cost cuts and refocus the business back
to profitability. Demand for offshore energy exploration
remains strong and we believe the stock can move back up
toward the double digits over the coming quarters.
Pacific Sunwear (PSUN:Nasdaq; $3.28; 1,900 shares; 3.40%;
Inflection Point): This specialty retailer operates more
than 500 stores in the U.S., selling surf- and skating-style
apparel to teens and young adults. The stock rebounded 13%
this week, as the company posted solid quarterly results on
Thursday. Despite the backdrop of increased competition,
Pacific Sunwear delivered 1% same-store sales growth in the
October quarter and 6% improvement in the month of November.
The momentum is being driven by the retailer's private-label
and exclusive brands, especially for women. If management
can continue to execute over the coming quarters, we believe
that the shares can trade back up through $4.
SandRidge Energy (SD:NYSE; $5.46; 1,200 shares; 3.58%;
Inflection Point): The company explores for natural gas and
oil in the U.S., primarily onshore. We bought 150 shares on
Friday, as the shares moved 2% lower this week, along with
the broader market. That said, natural gas futures are
trading at seven-month highs and SandRidge can expand
margins in the coming quarters. We also raised our rating
from Two to One.
Standard Pacific (SPF:NYSE; $8.12; 750 shares; 3.32%;
Inflection Point): This homebuilder generates the majority
of its revenue in California. The shares ticked lower this
week on little news. The company has strong pricing power
and we maintain the stock can move back up toward the double
digits over the coming quarters.
Synovus Financial (SNV:NYSE; $3.43; 1,650 shares; 3.09%;
Inflection Point): This Georgia-based bank operates branches
throughout the Southeast. The stock ended the week
fractionally lower as the company digested its recent gains.
Even so, regional banks are poised to benefit from the
steeper interest rate yield curve and we believe that
Synovus can generate above-average growth over the coming
Depomed (DEPO:Nasdaq; $8.55; 700 shares; 3.27%; Game
Breaker): The company markets specialty drugs around its
oral drug-delivery system, Acuform, which are used to treat
Type 2 diabetes and post-shingles pain. The shares were hit
with some profit-taking the week and pulled back 3%. The
said, Depomed is carrying a lot of momentum into the new
year and we believe the stock can trade up toward the double
digits over the coming quarters.
Huntington Bancshares (HBAN:Nasdaq; $9.24; 600 shares;
3.03%; Inflection Point): This Ohio-based bank operates more
than 600 branches across six states. It was a quiet week for
the stock, which ticked higher. Industry profitability
should continue to improve along with the steeper yield
curve and we maintain that the shares can move up toward the
double digits in the coming months.
Kodiak Oil & Gas (KOG:NYSE; $11.05; 300 shares; 1.81%;
Inflection Point): The company explores for oil and gas in
the Williston Basin and Green River Basin. We bought 100
shares on Friday, as the stock fell 2% in a volatile week of
trading. That said, underlying commodity prices are firming
and we remain convinced that management can continue to
deliver above-average production growth over the coming
quarters. We also raised our rating from Three to Two.
Martha Stewart Living Omnimedia (MSO:NYSE; $3.15; 1,700
shares; 2.92%; Inflection Point): The company operates in
the home-goods segment, publishing magazines, producing
broadcasts and licensing products to retailers. The shares
were hit with some profit-taking this week and lost 14%.
Even so, we believe the new management team can unlock value
from the company's core brands and consider the stock
attractive to purchase below the $3 level.
ON Semiconductor (ONNN:Nasdaq; $7.51; 700 shares; 2.87%;
Stealth Stock): The company makes analog, standard logic and
discrete semiconductors for use in data and power
management. The stock added 6% to recent gains this week, as
traders rotated into the chip sector. ON Semiconductor
remains attractively valued, as the stock is trading at 10x
expected full-year earnings. We are convinced that the
shares can trade up toward the high-single digits over the
Solta Medical (SLTM:Nasdaq; $2.07; 4,250 shares; 4.79%;
Stealth Stock): Solta produces medical devices for non-
invasive treatments of wrinkles, acne, skin discoloration
and fat reduction. The stock added 3% to recent gains this
week, as the company presented at a Piper Jaffray investment
conference on Tuesday. We believe the new management team
can get Solta back on the right track and that the presence
of an activist investor should help keep a bid under the
TriQuint Semiconductor (TQNT:Nasdaq; $8.13; 1,000 shares;
4.44%; Inflection Point): TriQuint produces integrated
circuits for a wide range of industries, including wireless
handsets and communications networks. The shares added 3% to
recent gains this week. Activist investor Starboard proposed
changes to the Board of Directors and the entire sector
moved higher in anticipation of a supply deal between Apple
(AAPL:Nasdaq) and China Mobile. TriQuint is ramping its own
production and we expect the stock can trade up toward the
double digits over the coming quarters.
Unilife (UNIS:Nasdaq; $4.31; 1,400 shares; 3.29%; Game
Breaker): This manufacturer of retractable and prefilled
syringes offers products with convenience, safety and
comfort advantages. We sold 400 shares on Tuesday, at a
price that was about 11% higher than where the stock ended
the week, as the company announced a new injection device
supply agreement with Novartis. While this latest deal
lacked material financial details, Unilife has now landed
three major deals in the past month. If management follows
through with its guidance for more pharmaceutical
partnerships over the coming quarters, we believe that the
shares have another 50% upside potential.
Vantage Drilling (VTG:Amex; $1.81; 5,400 shares; 5.34%;
Inflection Point): This offshore driller contracts its rigs
for the exploration of oil and natural gas. The shares
pulled back 3% this week, even though underlying energy
prices pressed higher. The stock remains attractive to
purchase on pullbacks, as the company's fleet is fully
booked through 2014. We believe management can deliver solid
earnings growth over the coming quarters.
Yamana Gold (AUY:NYSE; $8.51; 775 shares; 3.60%; Inflection
Point): This gold-and-copper exploration company operates
seven mines and several ongoing development projects in
Brazil, Argentina and Chile. The stock fell 6% this week,
along with the underlying price of gold. We would consider
adding to our position on the next market pullback, as
management is keeping a tight lid on costs and the shares
offer investors a solid 3.1% dividend yield.
Zix (ZIXI:Nasdaq; $4.28; 1,700 shares; 3.97%; Stealth
Stock): The company is a leading producer of email-
encryption software that enables doctors to automatically
send information to pharmacies. The shares were hit with
some profit-taking the week and fell 7%. Even so, insiders
continue to buy the stock and Zix is carrying a lot of sales
momentum into the new year. We would consider adding to our
position if the shares move below $4.
Callidus Software (CALD:Nasdaq; $12.08; 150 shares; 0.99%;
Stealth Stock): Callidus produces enterprise software for
the management of sales staff, and the company's recent
growth has come from its Software as a Service (SaaS)
product offerings. We sold 150 shares on Friday, as the
stock gained 11% and set a new nine-year high. Even though
Callidus is carrying a lot of momentum into 2014the stock
has nearly tripled for us and we don't want to be greedy
with our gains.
Graphic Packaging (GPK:NYSE; $9.10; 200 shares; 0.99%;
Stealth Stock): The company produces paperboard packaging
that is primarily used by food and beverage makers. The
shares ticked higher this week and touched a new all-time
high on Wednesday. Graphic Packaging remains leveraged to
strong industry pricing and demand and we believe the stock
can move into the double digits over the coming months.
SunOpta (STKL:Nasdaq; $9.29; 125 shares; 0.63%; Stealth
Stock): This producer of natural and organic food products
also operates a joint venture that recycles industrial waste
and makes cleaning products. It was a quiet week for the
shares, which ticked higher. SunOpta is seeing steady top-
line growth and we maintain the stock can trade into the
double digits over the coming months.
Swift Transportation (SWFT:NYSE; $23.33; 125 shares; 1.59%;
Inflection Point): This trucking company transports goods
throughout the U.S. and Mexico. The stock ticked higher this
week on little news. We believe management can continue to
deliver solid growth in early 2014 and that the shares can
move up toward the mid-$20s.
David Peltier & the TheStreet Research Team
We are taking advantage of today's weakness in the oil-and-natural gas exploration sector to build up these two positions.
At current levels, the stock is trading at nine-year highs and it has gained more than 12% over the past three sessions.
The shares are trading 15% higher today after management delivered solid quarterly results overnight.
We took advantage of the market's volatility this week to add a new name to the model portfolio and make a few other adjustments.
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