After a historic 1,200-point rally last week, investors and traders alike should approach this week with caution.
Value plus snapback potential equals opportunity. Every week, I share my snapback ideas with
readers through my Rocket Stocks portfolio at Stockpickr.com. Today, for
subscribers, I'm giving a preview of next week's picks and recapping how
First, a quick recap:
: Up 20% on the week after its third-quarter earnings more than tripled, beating the Street's expectations. Arch Coal reported net income of $97.8 million, or 68 cents per share, compared with $27.2 million, or 19 cents per share, a year ago.
CF Industries Holdings
: Up 40% despite its third-quarter profits falling as it recorded higher unrealized losses on its natural gas hedges. Still, sales rose 75% to $1.02 billion, the result of substantial price increases for all of CF's fertilizes
: Up 10% on the week after swinging to a third-quarter profit and reaffirming its outlook for a profitable 2008.
: Up 15% despite having its third-quarter profit fall by more than 9% from a year ago. Net income for the quarter went to $1.15 billion, or $2.18 a share, down from $1.27 billion, or $2.09 a share, a year ago.
( BBBB): Down 25% after giving a bleak outlook for the rest of the year.
Cliffs Natural Resources
: Up 15% even after CEO Joe Carrabba said that he sees a protracted recession in 2009. He also said: "We have not changed our view of the growth of the steel industry. We believe a super-cycle is here and we are just in a hiccup at the moment."
( ICO): Up 40% after beating estimates by 4 cents.
Even after last week's move, this week's
offers some very interesting snapback ideas.
For example, biotech company
has fallen from a high of $10 per share to its current $5 per share. There are two activist investors in the company, Carl Icahn and DellaCamera Capital, both of whom are pushing the company to sell parts of Enzon.
In fact, in a recent letter to management, DellaCamera said: "At the Company's recent stock price of $6.42 per share, Enzon's equity market capitalization is approximately $290 million. As you may recall, we have previously calculated Enzon's remaining 75% stake in its PEG-Intron royalty stream to be worth $300 million alone! In addition, the Company had over $190 million of cash and marketable securities as of June 30, 2008 which Enzon could easily tap to implement a share repurchase program, particularly in light of the Company's undervaluation. Indeed, every share that is bought at a discount to intrinsic value makes every remaining share worth more; at current prices, Enzon could repurchase more than half of its outstanding shares with just this existing cash".
Since writing this letter on Oct. 6, shares of Enzon have fallen an additional 25%.
An additional positive going forward is that Enzon's Oncaspar-IV cancer drug, which treats actue lymphoblastic leukemia, received orphan drug status in the EU. According to Enzon, this will "block rival versions of the drug from the market for 10 years if regulators approve Oncaspar-IV for sale." While this is not a game changer, there have been rumors that the company might sell the drug off to a larger European-based drug marker.
Two things to take away: 1) Shares of Enzon are extremely beaten down, despite any real change in its business, sales or revenue, and 2) activist investors who have large financial stakes in Enzon are pushing the company to break itself up.
Remember: While this week's
does include some solid earnings plays, such as
, in all likelihood, the broader market will be mixed following a historic rally.
For more ideas, including
( XTO) and
, make sure to check out this week's
To find the snapbacks and potential breakouts on a regular basis, check out these Stockpickr portfolios, which I use in my own research each week:
Always check the
, a list of stocks that lost big the day before, because they can snap back hard.
When you check this list on Stockpickr, you can see which stocks are owned by the quality hedge funds and mutual funds. Pay attention to those. The funds will be buying at the lower prices and likely supporting the stock.
Ditto for the
. You must check the above two lists every day if you hope to find volatile stocks that can snap back
and others can often be found in this category.
: These are potential breakout plays.
: These are trades triggering that day in various back-tested trading systems we've developed.
: Perhaps someone knows something?
: These are stocks that hedge funds are accumulating shares of and demanding change in. Believe me, these hedge funds piggyback each other. And once they start rocking the boat, things happen quickly. This should be on the must-view list.
One final place to frequent is the
section on Stockpickr, where ideas such as those presented in this article are thrown around daily. And you can further discuss your ideas and share opinions in Stockpickr's
At the time of publication, Altucher and/or his fund was long Arch Coal, Cliffs and Foster Wheeler, although positions may change at any time.
James Altucher is president of
LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for the
and the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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