Editor's note: This column was submitted by Stockpickr member Timothy Sykes.
In the near future, all the best stock-pickers will be computers. As much as we try to fight this trend, it's inevitable -- we human stock-pickers must acknowledge that we are a dying breed. The good news is that right up until the very end, we will continue to randomly pick stocks and seek out patterns based on our gut and/or our intellect. So, let's have fun with it and learn as much as is humanly possible.
Even though he's the man who's creating the machine that could single-handedly bring an end to all human stock-pickers, I must thank James Altucher for inviting me to share my thoughts here. James is a big believer in fundamental analysis, so as much as the picks below are based on technical analysis, many of them have near perfect fundamentals as well.
Shamelessly named after the
, my portfolio,
, features aggressive growth companies, all of which have demonstrated incredible price volatility, a quality I require in all of my plays.
After all, I'm an impatient kind of guy, so if there's volatility, I know I'll be able to hop on and off somewhere along the ride. Most of these plays are hitting new highs, but some of them have recently been introduced to the dark side of the momentum pendulum.
Let me preface this by saying that with the overall market seemingly ready to usher in a feisty bear, these stocks may get absolutely slaughtered. On the other hand, if there's any market rally, these plays likely will be the market's biggest winners. For trading purposes, it's important to remain open to going either long or short because either way, there's some fun to be had -- something that these algorithms will never be able to enjoy.
. This giant Chinese Internet play basically represents that entire country's future of e-commerce. Last week, it reported blowout earnings and all the stock's short-sellers -- nearly $800 million worth of shares are sold short -- had to run for cover simultaneously.
Now, analyst earnings estimates, along with Baidu's stock price, have risen nicely, but thanks to the overall market's recent troubles, at $200, Baidu is already nearly 10% off its recent highs. Granted, the stock price is almost $30 higher than before earnings, but my nine years of market experience have taught me to never underestimate the importance of a big earnings move. Consult the algorithms for the exact odds, but I'm guessing that the vast majority of stocks have traded higher for months after following a 20%-plus on better-than-expected earnings.
We must all remember that for all the whining about Baidu's valuation, at current prices, the stock is trading with a forward price-to-earnings ratio of 55 while the company is projected to grow at 112% this year and 77% in 2008. This is a premium company and no matter the threat of competition from
and Stockpickr (should the algorithms decide that the Chinese search-engine market has greater potential than the U.S. stock market), Baidu should enjoy a premium valuation.
Now the technician in me loves the chart because the stock broke the all-important $160 price that nobody last year, when the stock was trading at $50, thought possible. I say buy the stock on weakness because this company has everything going for it, and I wouldn't be surprised to see the stock reach one analyst's $302 price target in the next nine-12 months.
2. Intuitive Surgical
. This company represents nothing less than the future of medicine. After watching the stock struggle to break out of a multiyear range back in 2004 -- resulting in my never having the guts to pull the trigger to buy shares -- it pains me to see the stock up nearly tenfold since then. But I won't whine about it ... well, maybe a little; I am only 26 years old, please give me some time to mature.
For all my antimachine talk, I'm glad that this company's robotic-surgery systems are gaining mainstream acceptance. The cost savings, pain savings and quicker recovery times greatly benefit us humans.
Like Baidu, Intuitive Surgical recently surged over $200 a share as a result of blowout earnings. Unlike Baidu, and in the face of overall market weakness, at $211, ISRG has managed to hold its recent gains and even managed to make new highs.
Normally, I would say this stock is overvalued and overextended, and that you should wait for the price to come down some. But since I've been waiting for more than three years to invest at the right price -- while missing out on this company's incredible run -- I have to say buy just a partial position now and add to your position if the price drops.
For everyone concerned about valuation, remember that medical-device makers sometimes deserve rich valuations based on expectations that are many years out. There's literally no other major competitor to Intuitive, so it has the marketplace wrapped up for the foreseeable future. That sounds deserving of a premium valuation, and any short squeeze (again, more than $800 million worth of shares are sold short) might lead to an even richer valuation in the $250 range.
Remember that as much fun as it is to play these volatile companies, don't play with money you can't afford to lose, don't let your trading be controlled by your ego; take your losses quickly, and keep a trading diary so you can actually learn from your successes and your failures!
To see the rest of my aggressive growth picks, check out my portfolio,
, at Stockpickr.
At the time of publication, Sykes had no positions in stocks mentioned, although positions may change at any time.
Timothy Sykes is a hedge fund manager, star of the reality show
and author of the upcoming book
An American Hedge Fund
. He can be reached at
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