Stocks Under $10 Weekly Summary
October was one of the most volatile trading months in recent history and ended this week with a furious rally. When the dust settled on Friday, the Russell 2000, the benchmark of the model portfolio, moved nearly 5% higher for the week. To put the action this month in perspective, the Russell 2000 lost more than 5% in the first half of the month, only to rebound more than 12% from the lows by Friday’s close.
The final leg up on Friday, was sparked by news that the Bank of Japan boosted its quantitative easing economic stimulus program. U.S. stocks and the dollar added to recent gains, which also caused another leg down in energy and materials prices.
We used post-earnings declines this week in Cott (COT) and Yamana Gold (AUY) to add to our positions. Regarding potential new additions to the model portfolio, we’re taking a look at Acco Brands (ACCO) and Merge Healthcare (MRGE) , which both posted solid quarterly reports this week.
Here is a list of companies in the model portfolio that have confirmed their third-quarter reporting dates:
Nov. 5 -- Depomed DEPO; McDermott (MDR) and SandRidge Energy (SD) ;
Nov. 6 -- Kodiak Oil & Gas (KOG) ;
Nov. 7 -- Ballantyne Strong (BTN) and
Nov. 10 -- Unilife (UNIS) .
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 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 prices.
Also, Ones are stocks that 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. ONES
Active Power (ACPW:Nasdaq; $1.84; 3,050 shares; 3.35% 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 existing technologies do, but it generates twice as much power. The stock ticked higher this week, as the company posted solid quarterly results on Tuesday. We believe the worst is already behind Active Power and that management can deliver against easier year-over-year comparisons in the coming quarters.
Atmel (ATML:Nasdaq; $7.42; 1,000 shares; 4.42%, Inflection Point; $10 price target): The company makes microcontrollers that are used in electronics. The shares gained 4% this week, as the company announced strong quarterly results on Wednesday. We believe that management can continue to expand margins in the coming quarters.
Ballantyne Strong (BTN:Amex; $4.49; 2,500 shares; 6.69%; Stealth Stock; $6.25 price target): The company distributes digital movie projectors and manufactures screens and lighting equipment for theaters. The stock bounced back 15% this week, ahead of the company's upcoming quarterly report scheduled for Nov. 7. Despite the gains, we believe that Ballantyne remains inexpensive, trading at a discount to tangible book value.
Builders FirstSource (BLDR:Nasdaq; $5.93; 1,400 shares; 4.95%; Inflection Point; $10.50 price target): The company distributes materials to homebuilders in the southern U.S. It was a quiet week for the shares, which gained more than 3%. Builders FirstSource is leveraged to lower interest rates and we believe that management can continue to expand market share.
Cott (COT:NYSE; $6.07; 1,200 shares; 4.34%; Stealth Stock; $10 price target): Cott produces and distributes soft drinks, noncarbonated beverages and bottled water, primarily focusing on private-label items for major retailers. We bought 100 shares on Wednesday, as the stock fell 6%. The company posted quarterly results on Wednesday that fell short of expectations. Even so, management continues to generate solid cash flow and we believe the 4% dividend yield is secure. Extreme Networks (EXTR:Nasdaq; $3.59; 1,700 shares; 3.64%; Inflection Point; $8.75 price target): The company makes Ethernet switches and recently doubled its size with the acquisition of Enterasys Networks. The shares added 14% to recent gains this week, as the company reported solid quarterly results on Tuesday. Extreme has good technology and we believe that recent changes should increase productivity.
McDermott (MDR:NYSE; $3.84; 1,525 shares; 3.49%; Inflection Point; $11.50 price target): This engineering-and-construction firm focuses on building and designing offshore oil and natural gas facilities. The stock lost 5% this week, as the strong U.S. dollar caused another round of selling in commodity and materials names. That said, we continue to believe the new management team can turn the business around in the coming quarters. Pacific Sunwear (PSUN:Nasdaq; $1.52; 3,800 shares; 3.44%; 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. It was a quiet week for the shares, which moved fractionally lower. We believe that exclusive and private-label brands will continue to drive store traffic in a choppy retail environment. SandRidge Energy (SD:NYSE; $3.90; 1,750 shares; 4.07%; Inflection Point; $8 price target): The company explores for natural gas and oil in the U.S., primarily onshore. The stock fell fractionally this week, along with the broader energy sector. Even so, as we alerted readers in a special report this week, SandRidge has less debt and as is better hedged to lower oil prices than its peers.
Sonus Networks (SONS:Nasdaq; $3.47; 1,375 shares; 2.84%; Inflection Point; $5.25 price target): The company makes communications equipment, including session border controllers and diameter signal controllers. The stock added 8% to recent gains this week, along with the broader market increase. We believe that new products can continue to drive growth in the coming quarters.
Standard Pacific (SPF:NYSE; $7.40; 750 shares; 3.31%; Inflection Point; $11 price target): This homebuilder generates the majority of its revenue in California. The shares fell 7% this week, as the company reported quarterly results on Thursday that missed analyst consensus estimates. Orders and deliveries were lower than expectations, but the company continues to have strong pricing power. We believe the $100 million stock buyback program will help keep a floor under the price in the near term.
Synovus Financial (SNV:NYSE; $25.36; 264 shares; 3.99%; Inflection Point; $33.25 price target): This Georgia-based bank operates branches throughout the Southeast. The stock added nearly 4% to recent gains this week. We believe that management can continue to deliver above-average growth in the coming quarters.
TherapeuticsMD (TXMD:NYSE; $4.44; 2,225 shares; 5.89%; Game Breaker; $9.50 price target): The company develops hormone-replacement medicines for women. The stock added more than 4% to recent gains this week. We maintain that TherapeuticsMD has an attractive clinical pipeline, with multiple potential catalysts.
Yamana Gold (AUY:NYSE; $3.98; 1,350 shares; 3.20%; 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. We bought 125 shares on Thursday, as the stock dropped 29% this week. Yamana posted results on Wednesday that fell short of expectations, due primarily to lower realized commodity prices. That said, management remains prudent with its cost-cutting and we believe that production will continue to ramp at key mines in the coming quarters. TWOS
Huntington Bancshares (HBAN:Nasdaq; $9.91; 600 shares; 3.55%; Inflection Point; $11 price target): This Ohio-based bank operates more than 600 branches across six states. The stock added more than 4% to recent gains this week. The company offers a solid 2.4% dividend yield and we believe that management can continue to deliver solid growth in the coming quarters.
Kodiak Oil and Gas (KOG:NYSE; $10.79; 500 shares; 3.22%; Inflection Point; $17 price target): The company explores for oil and gas in the Williston Basin and the Green River Basin. The shares ticked higher this week, ahead of the upcoming quarterly report set for Nov. 6. We continue to believe that the planned Whiting Petroleum (WLL) acquisition makes strategic sense.
Martha Stewart Living Omnimedia (MSO:NYSE; $4.33; 1,350 shares; 3.49%; Inflection Point; $5.75 price target): The company operates in the home-goods segment, publishing magazines, producing broadcasts and licensing products to retailers. The stock bounced back nearly 5% this week, as the company posted solid quarterly results on Tuesday. We believe that management can continue to improve profitability in the coming quarters. ON Semiconductor (ONNN:Nasdaq; $8.29; 800 shares; 3.95%; Stealth Stock; $11 price target): The company makes analog, standard logic and discrete semiconductors for use in data and power management. The shares moved more than 4% higher this week, as the company reported solid quarterly results on Thursday. It appears that the industry slowdown in the chip sector has already reversed and ON Semiconductor is seeing higher demand from industrial and automotive customers. We view the stock as attractively valued, trading at less than 9x expected 2015 earnings.
Swift Transportation (SWFT:NYSE; $24.70; 175 shares; 2.58%; Inflection Point; $27 price target): This trucking company transports goods throughout the U.S. and Mexico. The stock added more than 3% to recent gains this week. We believe the shares can continue to move up toward our price target, as we think that management can continue to deliver consistent growth.
Unilife (UNIS:Nasdaq; $3.67; 2,350 shares; 5.14%; Game Beaker; $6.50 price target): This manufacturer of retractable and prefilled syringes offers products with convenience, safety and comfort advantages. The shares rebounded 6% this week on little news. We believe that management will continue to announce new pharmaceutical partnerships in the coming quarters.
Vantage Drilling (VTG:Amex; $0.97; 7,400 shares; 4.27%; Inflection Point; $2.25 price target): This offshore driller contracts its rigs for the exploration of oil and natural gas. The stock lost 2% this week, as Vantage announced mixed quarterly results on Friday. The company had to execute emergency repairs on its Titanium ultra-deepwater drillship, which cut into profits during the period. Even though Vantage has acknowledged that industry dayrates are falling, management believes the jackup fleet has only 5% re-pricing risk. The company continues to pay down debt and we’d consider adding to our position on the next market pullback. Zix (ZIXI:Nasdaq; $3.30; 2,250 shares; 4.43%; Stealth Stock; $5.75 price target): The company is a leading producer of email-encryption software that enables doctors to automatically send information to pharmacies. It was a quiet week for the shares, which moved fractionally higher. We maintain that’s Zix’s sales growth is poised to ramp heading into the new year. THREES
Depomed (DEPO:Nasdaq; $15.40; 150 shares; 1.38%; Game Breaker; $15.75 price target): The company markets specialty drugs around its oral drug-delivery system, Acuform, which are used to treat some symptoms of Type 2 diabetes as well as post-shingles pain. The stock added fractionally to recent gains this week, ahead of the upcoming quarterly report scheduled for Nov. 5. We believe that management can continue to leverage the Acuform brand, but would view the shares as a potential source of funds, if we need to make room for a new name in the model portfolio.
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