Monday, July 9, 2012

5 Stocks Under $10 that Could Double

As I recently noted [2], there is ample reason for investors to use caution right now, so selling winners looks like a sound move. At the same time, we're also being presented with opportunities to redeploy cash into vastly oversold stocks. I track a wide number of stocks, and a number of them are now trading at levels that will -- in hindsight -- prove to be great windows of opportunity.

Here are five stocks that are now below $10 per share that could double by mid-decade.

1. Maxwell Technologies (Nasdaq: MXWL [3])
This company is a leading provider of ultra-capacitors, which can store a lot of energy and then unleash it in a burst. These devices have a range of applications in the transportation, industrial and power generation sectors.

Maxwell's stock has fallen from $21 back in February to a recent $6.50 on concerns that demand in China -- a key market [4] -- is slowing. Yet Maxwell's long-term prospects are quite bright, as a range of new products that are hitting the market in the next year or two will feature the company's ultra-capacitors.

Investors are likely fretting that management will again cut guidance when second-quarter results are released, but shares [5] appear to have support in the $6 range -- with considerable upside down the road. Company insiders certainly think so -- they started buying shares at $10 in late April and have done more buying at ever-lower levels since then.

2. Polycom (Nasdaq: PLCM [6])
This provider of audio and video-conferencing equipment was above $30 a year ago but is now below $10. Polycom has noted a slowdown in key markets, and analysts expect sales growth to be flat this year, with only single-digit gains in 2013 to around $1.6 billion.

Clearly, this company benefits from a strong global economy [7], but a weak global economy can also help: Many companies implement video-conferencing equipment to cut down on costly business travel when business slows, holding virtual meetings instead of face-to-face meetings. Good times or bad, Polycom has generated at least $74 million in free cash flow [8] for each of the past seven years, which has pumped up net cash above the $600 million mark. That's roughly one-third of the company's entire market value [9].

3. Take Two Interactive (Nasdaq: TTWO [10])
This video game maker continues to suffer from a lack of timeliness [11]. Many investors are avoiding it simply because near-term results will likely be uninspiring due to a dearth of hot new gaming titles. Yet the company's fiscal fourth quarter, ending next March, should see the release of a pair of hotly anticipated titles: Grand Theft Auto 5 and Bioshock: Infinite.

Right now, there is some debate whether the release dates for those titles will be pushed out by 90 days, which is why this stock is now down below $10. Still, with potential earnings [12] power in excess of $2 per share in either fiscal (March) 2013 or 2014 (depending when those games ship), and a widely-respected product development team, this stock should move back into favor, and perhaps above $20, when it becomes more timely.

4. Peerless Manufacturing (Nasdaq: PMFG [13])
This maker of industrial filtration equipment and other environmental products has seen its stock pummeled from $27 in early February to a recent $8 due to a recent slump in gross margins. Yet an expansion in international markets should help blunt pricing pressures. A number of countries in the Middle East and Asia are enacting stricter environmental standards, and management recently noted that the level of bidding activity for new contracts outside the United States now exceeds domestic activity.

Sales are expected to rise at a double-digit pace in coming years, which should help earnings rise at an even faster pace, perhaps hitting $0.50 a share by fiscal (June) 2014. The promise of projected strong growth is why this stock was nearly 250% higher early this year, and if you have a multi-year time frame, then a return to that level is possible if management can convert the current pipeline of discussions into orders.

5. Allscripts (Nasdaq: MDRX [14])
I profiled this company roughly two months ago [15], and we're just weeks away from the new management team's introduction to investors. When second-quarter results are announced, look for a discussion of how profit [16] margins and sales momentum can be restored, which may attract bottom-fishers into this beaten-down stock.

It's important to remember that the migration to electronic medical records is a powerful long-term investing theme, and this company should remain a major player in the movement.

Risks to Consider: Until the market rebounds, these stocks could move sideways.

Action to Take --> A floor appears in place for these beaten-down stocks. When the market eventually rebounds, these stocks possess outsized upside potential and could perhaps double or more.

A "Panic" Trade Setup with Triple-Digit Potential

Interest rates are falling around the world, and policy makers are finding new ways to add liquidity to the economy. There is a sense of panic in the news, and Bloomberg noted that the European Central Bank, Bank of England and People's Bank of China acted within 45 minutes of each other to add liquidity to the economy. While these three actions dominated the market news, central banks in Kenya and Denmark also reduced their interest rates before U.S. stock markets opened after the July 4th holiday.

Synchronized rate cuts and quantitative easing show the banks are worried about the economy. These actions follow another round of easing seen last month when the U.S. Federal Reserve announced an increase in its quantitative easing program and were joined by central banks in Australia, Switzerland and four other countries. Central banks usually act independently and the flurry of activity is leading some analysts to believe they are coordinating their actions like they did when the global financial crisis struck in 2008. Coordinated central bank action would indicate the problems with the economy are severe, and the policy makers must be very anxious if they are working together.

These actions follow several weeks of economic news that has generally been "worse than expected". Several economic indicators are pointing to a very strong chance of a recession in the U.S. One of the most reliable economic indicators, the ISM Report on Manufacturing, slipped into contraction territory in June.

In other words, central bankers are worried... and traders should be ready.

During a recession, stock prices usually decline... and fast. Given these facts, it makes sense for traders to get ready for a decline. There is one trade that could deliver big gains if stocks fall - an exchange traded note (ETN) that tracks market volatility, Velocity Shares 2x VIX Short-Term ETN (TVIX).

An ETN is like an ETF in that it tracks an index, however, an ETF buys the stocks in the index that it tracks. ETNs buy notes, or derivatives, that track the index. That can lead to pricing anomalies. Take a look at this chart of TVIX to see what I mean...

This ETN is backed by Credit Suisse and when the company suspended issuing new shares in TVIX, the price soared. Once they lifted the suspension, the price collapsed. This can be seen in the center of the chart. Because of those problems, some traders seem to be wary of TVIX, but that creates a potential buying opportunity. The price is near a 52-week low and offers very inexpensive insurance against a stock market crash. (more)

Next Major Move

Long Term Stock Market Forecast:

The weekly dollar chart is VERY IMPORTANT to watch as a short term trader and long term investor because trend changes in the dollar means you open positions will also likely change direction.

So, if we apply technical analysis to the dollar chart as seen below. You will notice we are able to create a market forecast and predict roughly where price is likely to move and how long it should take to get there. If the dollar can break above the red resistance level then we can expect a rally for 4 – 8 weeks and a price target around the 87-88 level.

If this is the case then stocks and commodities would likely do the inverse price action and move lower, sharply lower…

Dollar Long Term Market Forecast

Dollar Long Term Market Forecast

Stock Market Predictions & Gold Market Forecast Conclusion:

In short, the next weekly candle stick on the dollar chart could be a game changer for those who are long the overall stock market.

I will admit that the current market conditions are not easy to trade because of all the headline news rolling out of Europe each week along with economic data. And I feel as though we have been tip toeing through a mine field for the past 12+ months waiting for extremely negative news are extremely positive news to trigging a wave of buying or selling that will make our jaw drop, but it has yet to happen. Remember always use stops and don’t get over committed in a headline driven market.

Trade of The Week & Gol, Oil, Dollar and SP500 Outlook

Good Morning,
I did a very detailed video this morning really drilling down on the dollar index, crude oil and how I draw trend lines.

The market is at tipping point and odds favor lower prices. That being said headline news will always override setups because traders are emotional and everyone is waiting on news to trade these days.

Pre-Market Analysis Points:
- Dollar index is holding up strong in bullish pattern and keeping pressure on stocks and commodities.
- Oil had a strong impulse wave bounce and a pullback will likely be bought in a few days.
- Natural gas is looking more bullish but must pullback before we look to get long in a couple weeks.
- Gold, gold miners and silver remain in down trends and I’m not looking to short them. Rather waiting for a bottom to form.
- Bonds are trading higher and about to test the upper limit of its channel and just talked about in the morning video and right on queue.
- SP500 is setup for lower prices and that is exactly what we are seeing this morning.
- Poor economic numbers are hitting the market hard this morning pulling it lower on high volume.

United Health Group (NYSE: UHN)

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The company's UnitedHealthcare segment offers consumer-oriented health benefit plans and services to national employers, public sector employers, mid-sized employers, small businesses, and individuals. This segment serves through a network of 754,000 physicians and other health care professionals, and 5,400 hospitals. Its OptumHealth segment provides personalized health management services, decision support services, access to networks of care provider specialists, well-being solutions, behavioral health management solutions, financial services, and clinical services. This segment serves individuals through programs offered by employers, payers, government entities, and directly with the care delivery system. The OptumInsight segment offers software and information products, advisory consulting services, and business process outsourcing services to hospitals, physicians, commercial health plans and government agencies. Its OptumRx segment provides a multitude of pharmacy benefit management services, including prescribed medications and patient support. This segment also offers claims processing, retail network contracting, and rebate contracting, as well as management and clinical programs, such as step therapy, formulary management, and disease/drug therapy management programs.

To review potential trading opportunities with UnitedHeath's stock, please take a look at the 1-year chart of UNH (UnitedHealth Group, Inc.) below with my added notations:

UNH rallied nicely from a low of $42 last October to a high at $60 in April of this year. The stock has now formed what appears to be a Double Top price pattern (red). Double Tops are reversal patterns and are as simple as they sound: Rallying up to a peak (T), selling off to a support, and then rallying back up again to approximately the same top (T). As with any price pattern, a confirmation of the pattern is needed. UNH would confirm this pattern by breaking the $54 support (navy), which was also a previous resistance.

Keep in mind that simple is usually better. Had I never pointed out the Double Top pattern, one would still think this stock is moving lower if it simply broke through the $54 support level. So, whether you noticed the pattern or not, the trade would still be the same.

Gerald Celente - The Biggest Story of the 21st Century

Today top trends forecaster Gerald Celente spoke with King World News what he called, “the story of the 21st century.” He also discussed gold at length, and stated, “’s rigged (the gold market). Again, go back to the LIBOR scandal, they were lying about the severity of the crisis by rigging the numbers.” Celente is the founder of Trends Research, and the man many consider to be the top trends forecaster in the world. Here is what Celente had to say: “Eric, the big news is the formation of a European Central Bank, in the same fashion as the United States central bank. Of course there’s the ECB now, but what’s really going on now, it’s not about bailing out the banks of Spain, Greece, Italy, Ireland or Portugal, no, that’s not what that last G-20 meeting was all about.”

HCN in powerful bull market, hugging its 200-day moving average

Health Care REIT (NYSE:HCN) — This Real Estate Investment Trust’s (REIT) portfolio consists of senior and health care real estate, including senior housing communities, skilled nursing/post-acute facilities, medical office buildings, inpatient and outpatient medical centers, and life science facilities. Last year, HCN also acquired Genesis Healthcare Corp.

This REIT has had a steady increase in earnings, reporting $2.18 in 2010 and $3.01 in 2011, and with estimates of $3.56 for 2012 and $3.93 for 2013. It has high predictability due to the large number of triple net leases and the resultant revenue stream.

Technically HCN is in a powerful bull market as it hugs its 200-day moving average and bullish support line. However, following last week’s breakout, it appears slightly overbought as confirmed by the stochastic.

Buy the stock under $56 for a run to $63 or as a long-term hold. HCN has a dividend yield of 5%.

Trade of the Day – Health Care REIT (NYSE:HCN)

US Weekly Economic Calendar

time (et) report period Actual forecast previous
3 pm Consumer credit May -- $6.5 bln
7:30 am NFIB small-business index June -- 94.4
10 am Job openings May -- 3.4 mln
8:30 am Trade deficit May
-$48.2 bln -$50.1 bln
10 am Wholesale inventories May -- 0.6%
2 pm FOMC minutes 6-22
8:30 am Weekly jobless claims 7-7 364,000 374,000
8:30 am Import price index June -- -1.0%
2 pm Federal budget June -- -$43 bln
8:30 am Producer price index June
-0.2% -1.0%
8:30 am Core PPI June 0.2% 0.2%
9:55 am UMich consumer sentiment July 73.2 73.2