Not even a Friday afternoon speech from Fed Chair Janet
Yellen could do much to get U.S. stocks out of the narrow
trading range we’ve seen the past four sessions. Trading
volume dried up ahead of Monday’s Memorial Day holiday
and the Russell 2000 index, the benchmark of the model
portfolio, ticked higher on the week and added to recent
We used a pullback in Active Power (ACPW) to add to our
position on Thursday. We’d also consider adding to our
positions in Martha Stewart Living Omnimedia (MSO) and
Unilife (UNIS) on the next market pullback.
One potential new name for the model portfolio that has
appeared on our radar screen is Merge Healthcare (MRGE).
Shares of the medical software producer have fallen 25%
from recent highs, even though the company posted better-
than-expected earnings last month.
Next week’s trading will be shortened by Monday’s
holiday, but we’ll still have a lot of economic data to
digest. Tuesday offers several pieces of housing data,
the purchasing managers’ index and durable goods orders.
On Friday, we’ll get a revision to first-quarter GDP,
with economists predicting a decline to a negative
As a reminder:
-- A Game Breaker is going to change the landscape of an
industry, as Intel (INTC), Microsoft (MSFT) and Wal-Mart
(WMT) did in their respective sectors. Investors can make
big money in these stocks by getting in before the crowd.
-- 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 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; $2.14; 3,350 shares; 3.95% of
the model portfolio; Game Breaker; $4.75 price target):
Active Power's flywheel energy technology keeps its
customers' mission-critical processes up and running. Its
hardware uses half as much space as that of existing
technologies, but it generates twice as much power. We
bought 300 shares on Thursday, as the stock pulled back
fractionally this week. Management has three solid
quarters under its belt and we believe the company can
move back toward profitability in the coming quarters.
Atmel (ATML; $8.85; 1,000 shares; 4.87%,
Inflection Point; $10 price target): The company makes
microcontrollers used in electronics. The shares added
nearly 4% to recent gains this week. As management
continues to expand margins in the coming quarters, we
believe the stock can move into the double digits.
Ballantyne Strong (BTN; $4.51; 2,650 shares;
6.58%; Stealth Stock; $6.25 price target): The company
distributes digital movie projectors and manufactures
screens and lighting equipment for theaters. The stock
ticked lower this week. We believe the new management
team can unlock value in the coming quarters.
Sonus Networks (SONS; $7.73; 660 shares; 2.81%;
Inflection Point; $26.25 price target): The company makes
communications equipment, including session border
controllers and diameter signal controllers. It was a
quiet week for the shares, which ticked higher. As
management integrates its restructuring plan in the
coming quarters, we believe the stock can trade back up
toward the double digits.
Standard Pacific (SPF; $8.35; 750 shares; 3.45%;
Inflection Point; $11 price target): This homebuilder
generates the majority of its revenue in California. The
stock ticked higher this week and added to recent gains.
The company has strong pricing power and we maintain that
shares can move into the double digits by the end of the
Synovus Financial (SNV; $29.05; 264 shares; 4.22%;
Inflection Point; $33.25 price target): This Georgia-
based bank operates branches throughout the Southeast.
The shares added more than 2% to recent gains this week.
We believe the company can continue to deliver above-
average growth in the coming quarters.
Yamana Gold (AUY; $3.78; 1,350 shares; 2.81%;
Inflection Point; $12.50 price target): This gold-and-
copper exploration company operates seven mines and
several ongoing development projects in Brazil, Argentina
and Chile. The stock fell 4% this week, along with the
underlying price of gold. That said, we believe
management will continue to focus on maximizing margins
in the coming quarters.
Builders FirstSource (BLDR; $12.60; 600 shares;
4.16%; Inflection Point; $17 price target): The company
distributes materials to homebuilders in the southern
U.S. The shares ticked lower this week, despite a better
outlook for housing starts. As management integrates the
Probuild merger in the coming quarters, we believe the
stock can move up toward the mid-teens.
Cott (COT; $9.60; 950 shares; 5.02%; Stealth
Stock; $10 price target): Cott produces and distributes
soft drinks, noncarbonated beverages and bottled water,
primarily focusing on private-label items for major
retailers. The stock added fractionally to recent gains
this week, along with the broader market. We believe the
company will continue to sustain its attractive 2.5%
dividend yield with solid cash flow.
Huntington Bancshares (HBAN; $11.26; 600 shares;
3.72%; Inflection Point; $13 price target): This Ohio-
based bank operates more than 600 branches across six
states. The shares added fractionally to recent gains
this week. We believe the company can continue to gain
market share in the coming quarters.
Martha Stewart Living Omnimedia (MSO; $5.16; 725
shares; 2.06%; Inflection Point; $7 price target): The
company operates in the home-goods segment, publishing
magazines, producing broadcasts and licensing products to
retailers. The stock rebounded fractionally this week.
We'd consider adding to our position below $5, as we
believe management can continue to unlock value from
Martha Stewart's core brands.
McDermott (MDR; $4.67; 800 shares; 2.06%;
Inflection Point; $11.50 price target): This engineering
and construction firm focuses on building and designing
offshore oil and natural gas facilities. The shares
bounced back fractionally this week. We believe
management can continue to turn the business around in
the coming quarters.
ON Semiconductor (ON; $12.66; 500 shares; 3.49%;
Stealth Stock; $15 price target): The company makes
analog, standard logic and discrete semiconductors for
use in data and power management. It was a quiet week for
the stock, which ticked higher. End-market demand remains
strong and we believe shares are attractively valued at
13x expected full-year earnings.
Pacific Sunwear (PSUN; $1.71; 3,850 shares; 3.60%;
Inflection Point; $4 price target): This specialty
retailer operates more than 500 stores in the U.S.,
selling surf- and skating-style apparel to teens and
young adults. The shares fell 11% this week, ahead of the
upcoming quarterly report on May 28. Earnings in the
retail sector have been a mixed bag this quarter, but we
believe the company has continued to outperform its
peers. We'd consider buying 300 or more shares, once we
get a look at the results.
SandRidge Energy (SD; $1.23; 1,600 shares; 1.08%;
Inflection Point; $8 price target): The company explores
for natural gas and oil in the U.S., primarily onshore.
It was a volatile week for the stock, which rebounded 4%.
We believe SandRidge appears oversold, relative to the
underlying price of oil.
TherapeuticsMD (TXMD; $6.50; 1,100 shares; 3.94%;
Game Breaker; $9.50 price target): The company develops
hormone-replacement medicines for women. The shares
ticked lower this week. We maintain that TherapeuticsMD
has an attractive clinical pipeline, with multiple
Unilife (UNIS; $2.47; 2,450 shares; 3.33%; Game
Breaker; $6.50 price target): This manufacturer of
retractable and prefilled syringes offers products with
convenience, safety and comfort advantages. The stock
dropped 17% this week. We'd buy 200 to 300 shares on the
next market pullback, as the company is ramping up
production and will likely announce new pharmaceutical
partnerships in the coming quarters.
Vantage Drilling (VTG; $0.37; 6,000 shares; 1.22%;
Inflection Point; $2.25 price target): This offshore
driller contracts its rigs for the exploration of oil and
natural gas. The shares lost 11% this week on little
news. Even so, the company's fleet is largely booked for
the remainder of the year and management continues to pay
Whiting Petroleum (WLL; $33.74; 123 shares; 2.29%;
Inflection Point; $51 price target): The company explores
for oil and gas in the Permian Basin, Williston Basin and
Green River Basin. The stock moved fractionally lower
this week, even though Whiting was upgraded to Buy on
Tuesday at Global Hunter. We maintain the company can
trade back up toward $40 in the coming quarters.
Zix (ZIXI; $4.61; 2,250 shares; 5.71%; Stealth
Stock; $5.75 price target): Zix is a leading producer of
email-encryption software that enables doctors to
automatically send information to pharmacies. The shares
ticked lower this week. That said, the company has a lot
of sales momentum and we maintain the stock can move over
$5 in the coming months.
David Peltier & TheStreet Research Team
The stock is down 20% from its March highs and this will improve our cost basis.
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Builders FirstSource and Standard Pacific are benefiting from positive April housing data.
This week, we added to one position after a pullback and are looking to do the same with others.
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