It was a short but volatile week for stocks, which
dropped about 3%. As the calendar turned to July and the
beginning of the third quarter, traders had to digest a
Greek debt default and its pending referendum vote, and
lower-than-expected June jobs report. As a reminder, the
U.S. markets are closed on Friday, in observance of the
July 4 holiday.
We used the weakness to add to our positions in Pacific
Sunwear (PSUN:Nasdaq) and Sonus Networks (SONS:Nasdaq).
We also continue to research potential new names for the
model portfolio, as we're holding an above-average cash
position. Two new technology names that appeared on our
radar screen this week are Axcelis (ACLS:Nasdaq) and Dot
As we look forward to next week, Alcoa (AA:NYSE) kicks
off the second-quarter earnings season on Wednesday. As a
reminder for new readers, we provide a full preview of
each company's numbers in the model portfolio, including
a scorecard of consensus expectations and what to look
for on the conference call. Once we get a chance to
digest the results, we circle back and alert readers if
any action is necessary.
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; $2.02; 3,350 shares; 3.76% 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. The
stock fell 3% this week, along with the broader market.
That said, the company has a lot of operating momentum
and is attractive to buy on the next market pullback.
Ballantyne Strong (BTN; $4.73; 2,650 shares;
6.96%; Stealth Stock; $6.25 price target): The company
distributes digital movie projectors and manufactures
screens and lighting equipment for theaters. The shares
rebounded 2% this week. We maintain the new management
team can unlock value in the coming quarters.
Merge Healthcare (MRGE; $4.62; 875 shares; 2.25%;
Stealth Stock; $7 price target): The company produces
software for medical imaging and other health care needs.
The stock lost 5% this week, even though management
announced a partnership with Toshiba on Monday. We
continue to believe that Merge offers growth at an
Pacific Sunwear (PSUN; $1.14; 5,900 shares; 3.74%;
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. We bought 500 shares on Tuesday, as the
stock fell 8% this week. We believe the company was a
victim of window-dressing as traders looked to trim
losing positions ahead of the quarter's end. That said,
we believe Pacific Sunwear's sales can rebound in the
second half of the year.
Sonus Networks (SONS; $6.79; 760 shares; 2.87%;
Inflection Point; $26.25 price target): The company makes
communications equipment, including session border
controllers and diameter signal controllers. We bought
100 shares on Tuesday, as the stock lost 12% this week.
We believe Sonus was victim of the same selling pressure
that hurt Pacific Sunwear this week. We maintain that
management can cut costs and turn the business around in
the coming quarters.
Standard Pacific (SPF; $8.90; 750 shares; 3.71%;
Inflection Point; $11 price target): This homebuilder
generates the majority of its revenue in California. It
was a quiet week for the shares, which declined
fractionally. The company has strong pricing power and we
continue to believe the stock can move into the double
digits in the coming months.
Yamana Gold (AUY; $2.96; 1,750 shares; 2.88%;
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 dropped 2% this week. Even so, we
believe gold will be buoyed by equity volatility. In the
meantime, management is cutting costs and we'd consider
adding to our position on the next market pullback.
Atmel (ATML; $9.71; 800 shares; 4.31%, Inflection
Point; $12 price target): The company makes
microcontrollers used in electronics. The shares fell 2%
this week. We believe management can continue to expand
margins in the coming quarters.
Builders FirstSource (BLDR; $12.67; 600 shares;
4.22%; Inflection Point; $17 price target): The company
distributes materials to homebuilders in the southern
U.S. The stock moved 5% lower this week on little news.
We believe the pending ProBuild acquisition will
materially add to future earnings.
Huntington Bancshares (HBAN; $11.35; 450 shares;
2.84%; Inflection Point; $13 price target): This Ohio-
based bank operates more than 600 branches across six
states. The shares ticked lower this week. The company is
leveraged to higher interest rates and sports a solid
2.1% dividend yield.
Martha Stewart Living Omnimedia (MSO; $6.31; 850
shares; 2.98%; Inflection Point; $7 price target): The
company operates in the home-goods segment, publishing
magazines, producing broadcasts and licensing products to
retailers. The stock dropped fractionally this week.
Martha Stewart will likely remain range-bound until we
hear about potential competing offers to the Sequential
Brands (SQBG:Nasdaq) merger bid.
McDermott (MDR; $5.20; 800 shares; 2.31%;
Inflection Point; $11.50 price target): This engineering
and construction firm focuses on building and designing
offshore oil and natural gas facilities. The shares moved
4% lower this week, along with underlying energy prices.
Even so, we believe management can continue to turn the
business around in the coming quarters.
ON Semiconductor (ON; $11.46; 400 shares; 2.55%;
Stealth Stock; $15 price target): The company makes
analog, standard logic and discrete semiconductors for
use in data and power management. The stock lost 4% this
week on little news. We maintain that ON Semiconductor is
attractively valued at 10x expected 2016 earnings.
SandRidge Energy (SD; $0.76; 2,600 shares; 1.10%;
Inflection Point; $8 price target): The company explores
for natural gas and oil in the U.S., primarily onshore.
The shares dropped 20% this week, as energy prices fell.
We believe the move was largely technical, given the
quarter's end and maintain that SandRidge is better
hedged and has relatively less debt than its peers.
Synovus Financial (SNV; $30.53; 225 shares; 3.82%;
Inflection Point; $33.25 price target): This Georgia-
based bank operates branches throughout the Southeast.
The stock fell 2% this week. We believe the company can
continue to deliver above-average growth in the second
half of the year.
TherapeuticsMD (TXMD; $8.24; 900 shares; 4.12%;
Game Breaker; $9.50 price target): The company develops
hormone-replacement medicines for women. It was a
volatile week for the shares, which ticked higher. We
maintain that TherapeuticsMD has an attractive clinical
pipeline, with multiple potential catalysts.
Unilife (UNIS; $2.00; 3,050 shares; 3.39%; Game
Breaker; $6.50 price target): This manufacturer of
retractable and prefilled syringes offers products with
convenience, safety and comfort advantages. The stock
dropped 6% this week on little news. We believe the
company can continue to ramp production and sign new
pharmaceutical partnerships in the coming quarters.
Vantage Drilling (VTG; $0.17; 11,000 shares;
1.03%; Inflection Point; $2.25 price target): This
offshore driller contracts its rigs for the exploration
of oil and natural gas. The shares bounced back 2% this
week, even though the Baker Hughes U.S. rig count moved
higher for the first time since December. The company's
fleet remains largely booked and management continues to
pay down debt.
Whiting Petroleum (WLL; $31.33; 123 shares;
2.14%; Inflection Point; $51 price target): The company
explores for oil and gas in the Permian Basin, Williston
Basin and Green River Basin. The stock fell 11% this
week, along with underlying energy prices. That said, we
maintain the company can boost production growth in the
Zix (ZIXI; $5.12; 1,700 shares; 4.83%; Stealth
Stock; $6.25 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. Even so, the company is carrying
a lot of sales momentum in the second half of the year.
Cott (COT; $9.82; 700 shares; 3.82%; Stealth
Stock; $12 price target): Cott produces and distributes
soft drinks, noncarbonated beverages and bottled water,
primarily focusing on private-label items for major
retailers. The stock dropped 2% this week. We continue to
favor the company for its attractive 3.4% dividend yield.
David Peltier & TheStreet Research Team
We'll put cash to work on weakness.
With Greece-related weakness and our large cash position, we'll consider putting money to work.
Putting cash to work while stocks are down.
This week, we added to 2 positions in a volatile market as earnings season drew nearer.
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