Three winners and one laggard isn't a bad ratio to have on Wall Street, and if maintained for the long term, it means you are likely outperforming.
In this article we're going to look at one of those winners since the launch of TheStreet.com Stocks Under $10 -- and one of those that has not fared as well.
, a solid winner in our Stocks Under $10 model portfolio, is the third portfolio stock that's made a double-digit intraday percentage move since we launched Stocks Under $10 in May.
We want to take you through part of our thought process behind this pick, and what we believe makes our strategy repeatable. But we also want to talk about a stock that didn't do as well -- and how we adjust our strategy in reaction.
At first glance, we saw that OraSure had a strong portfolio of products on the market, an interesting pipeline of pending approvals and a clear timetable for when things were going to happen.
The stock was also around $7.50, down 45% from when it reported earnings in late March. Investors wanted a strong second-quarter outlook and when the company didn't provide that top-line guidance, investors totally ignored what was happening beneath the numbers.
But when we looked back to the late March price spike that followed the FDA's approval of Orasure's oral fluid test for HIV, we knew that this stock wasn't going to be driven by the type of penny beat on the bottom line that moves mature businesses like
No. This one would move on its growing list of possible near-term catalysts and management's good relationship with the Federal Drug Administration and Center for Disease Control.
When combined with some of the pieces of data that make up our proprietary "Alpha Factor," we knew we had to own the stock for its high potential velocity, strong management, solid fundamentals and growing list of pending catalysts. So far, that analysis has been rewarded.
Is our methodology foolproof? Of course not. No one's is.
Let's talk about a pick that hasn't worked out exactly according to plan.
shocked us when it came out and lowered its second-quarter revenue guidance by a whopping 20%. We knew going in that the DRAM and Flash businesses were volatile. But SimpleTech management had said on its first-quarter conference call that it was exiting the retail side of the Flash business, so you can imagine the shock we felt when the company attributed about 50% of its shortfall to the Flash business.
Identifying what went wrong is easy. We took what management said on its first-quarter conference call and assumed it was accurate and had been accounted for in the second-quarter forecast. It wasn't. (Although judging by the 26% decline in the stock, we weren't the only people surprised by the news.)
But that's no excuse. We work hard to be better than everyone else, and we got beat this time. So we will salvage what we're left with here. This is a nominal 1.7% investment in the model portfolio, and it's in a company that could still have a solid second half and live to fight another day.
As we continue to invest in the sometimes speculative under-$10 market, we will come across big gainers like OraSure and stocks that stumble like SimpleTech. Our job is to differentiate the good guys from the bad guys more often than not, if we want to run a successful portfolio. And that's exactly what we plan to do.
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Will Gabrielski and David Peltier are TheStreet.com Stocks Under $10 Investment Team.