Choose Giants Over Cowboys Stocks This Season

Even though the Dallas Cowboys defeated the New York Giants in last night’s season opener of the NFL, in today’s stock market, “giants” are the better option for investors over “cowboys”. Obviously, we’re not talking about the New York football Giants but certain kinds of stocks that are analogous to giants and cowboys.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Giants Versus Cowboys

At the end of an economic cycle, large cap stocks (or giants) outperform small cap names, and value stocks outperform growth names (or cowboys). If we can agree that the economic cycle is aging, and that our Ibbotson data resource has history correct, then we can agree on the investment style for the day. It doesn’t matter if you are from New York or Dallas, but if you are from Philadelphia or Chicago, well that’s another story. You see, that would make you an eagle or a bear, ready to rise on Fed stimulus or as a contrarian market play.

Stocks that might be giants could include names like Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG), Pfizer (NYSE: PFE), Verizon (NYSE: VZ), Coca-Cola (NYSE: KO) and Wal-Mart (NYSE: WMT). However, the trend holds for the group, better than it might for all individual ideas. Clearly, large cap cyclical stocks are not going to necessarily add value to the game plan. Therefore, we might want to keep players like Caterpillar (NYSE: CAT), Bank of America (NYSE: BAC) and Alcoa (NYSE: AA) off the roster. Also, industry specific issues might cause a bad idea to have a good day, like say Exxon Mobil (NYSE: XOM) might on an Iran scare; or a good idea to have a bad day, like Kraft Foods (NYSE: KFT) might on higher agricultural prices due to drought.

The trend might not hold on the downside for all the “cowboy” stocks either, but if we were to choose some all-star failures, we might include high-beta growth ideas trading at valuations hard to justify when growth gets reconsidered. A lot of the types of names we would put on the cowboy squad have already seen share decline, like for instance Netflix (Nasdaq: NFLX), Facebook (NYSE: FB), Chipotle Mexican Grill (NYSE: CMG), lululemon (Nasdaq: LULU) and priceline.com (Nasdaq: PCLN). The cowboys would definitely include small cap rookies, which are notorious for fumbling on rainy days, say for instance names like Vivus (Nasdaq: VVUS), First Solar (Nasdaq: FSLR) and Zynga (Nasdaq: ZNGA).

I hope you enjoyed the game, whether your team won or lost. The season is long, and will be full of trials and triumphs, but until the season changes, I think you’ll do better with the giants than the cowboys. This article was easy for me to write, being a Philadelphia Eagles fan, and having enjoyed great victories over the Giants while always loving to hate the Cowboys.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Stocks Moving on News - 08-24-12

Friday's stocks moving on news include Apple, Samsung, Nokia, Research in Motion, Zynga, Bristol-Myers Squibb and Sales- force.com.

Apple (Nasdaq: AAPL) and Samsung (OTC: SSNLF.PK) each lost on a Korean ruling that both companies infringed upon the other’s patents, but Apple lost more. The result is a partial ban of their products in South Korea. The court ordered Apple to stop selling its iPhone 3GS, iPhone 4, iPad 1 and iPad 2, while it stopped Samsung from selling its Galaxy S2 and a few other products. That’s a harsh result for both companies, but it’s good news for Research in Motion (Nasdaq: RIMM), Nokia (NYSE: NOK) and others. The shares of Apple are down fractionally in the pre-market while shares of Samsung were down 0.9% in Korea. Look for Nokia to shine today. In an unrelated story, we just suggested it is time for Apple to split its shares.

A report published this morning says Zynga (Nasdaq: ZNGA) bosses have left town as the stock collapsed this month. At least four important managers have fled for other jobs. ZNGA shares are down 70% since their IPO opening last December. I warned about Zynga’s valuation and competitive position in an article authored last February.

Bristol-Myers Squibb (NYSE: BMY) dropped its Hepatitis C drug development after one of its patients died of heart failure. The drug BMS-986094 was being tested and has been discontinued in the interest of the safety of patients. The drug was under mid-stage review, and has now been placed by the FDA on clinical hold. The stock is down only fractionally in early going, as the company seems to have cut its losses early enough. We’ll see what develops with the limited study pool of patients.

Salesforce.com (NYSE: CRM) is down 4.3% in early going. Despite reporting better than expected results for the latest period, the company said it would earn $0.31 to $0.32 in the coming third quarter; that matched against Street views for $0.34 on average.

Friday’s highlighted earnings reports include Eurocastle Investments (ECT.AS), RenaSola (SOL), Syswin (SYSW), 24SevenTechnology (TFSO.OL), AAC Technologies (2018.HK), Ackermans en van Haaren NV (ACKB.BR), China WindPower Group (182.HK), China Shanshui Cement (691.HK), Tat Technologies (TATT), The Madison Square Garden Co. (MSG) and several others. Yesterday saw big losses from Big Lots (NYSE: BIG) and Guess (NYSE: GES), so the two will be under scrutiny today.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Sell High-Beta Small Cap Stocks

During my time on Wall Street, I learned all about high-beta stocks and their sensitivity to the economy and stock market. I inherited a group of them when promoted into a stock-picker’s role as an Emerging Growth Analyst in early 2000. The companies I inherited represented my predecessor’s favorite forays into every hot new technology, and I was the lucky boy stuck holding them just as the dotcom bubble was about to pop. I survived though, and realizing a complete overhaul was going to be necessary, I still managed to beat the S&P 500 that year, despite following the high risk group.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

High Beta Stocks

I see too many risks being realized in the coming months, and have determined to warn you to exit most high beta stocks before the fall, especially undercapitalized small-caps. By fall, I mean decline, not the season, though the two may be interrelated. While I present a list below, I suggest investors review their portfolios for high-beta shares, and inspect the fundamentals of each to determine whether corporate specific operating results will be strong enough to fight a tide that will come against the segment in the coming year. It’s already begun.

So I ran a screen looking for high beta-stocks of 1.5 or higher, trading at a price of $5 or more, with up to $1 billion in market cap and up to $100 million in revenue, but without earnings. Those smaller names without earnings but with high hopes tend to take the biggest hit when capital dries up. It’s because they are dependent upon it before gaining operating traction.

My screen turned up 22 stocks that are listed by beta coefficient below (highest to lowest). A couple came through with positive earnings expectations near-term, so I marked those with an asterisk. I then weeded through the stocks one-by-one to understand where greater risk might lie. For instance, companies with higher debt are at greater risk in downturn and should exaggerate decline even further. I was dissatisfied though with the number of candidates for downgrade, as too few were clear cut calls. So I expanded the hunt to include stocks trading from $4 to $5; that turned up a second table of names below. The reason too few candidates showed up in our first screen is probably because many have already been penalized as the global economy has deteriorated. The price action of these stocks precedes and exaggerates tangible economic changes.

You can see that here in the six-month chart comparing the SPDR S&P 500 (NYSE: SPY) and the Russell 1000 High Beta ETF (NYSE: HBTA). The high-beta group led the decline, exaggerated it and has not recovered with the SPY.

This trend likely submerged many of our candidates under the initial $5 per share qualifier starting in the second half of May. Here’s that first list ranked by their beta values.

Company & Ticker	Price	Beta	Debt/Equity	P/S
First Financial (Nasdaq: FFCH) *	12.49	3.2	N/A	3.3
Triangle Petroleum (Nasdaq: TPLM)	6.14	2.7	N/A	21.2
FX Energy (Nasdaq: FXEN)	7.21	2.5	62%	10.3
Blue Dolphin Energy (Nasdaq: BDCO)	6.35	2.4	51%	1.5
OncoGenex Pharma (Nasdaq: OGXI)	14.43	2.3	8%	34.1
Endeavor Int’l (NYSE: END)	8.81	2.2	446%	5.3
Sangamo BioSciences (Nasdaq: SGMO)	5.04	2.1	N/A	18.4
Affymax (Nasdaq: AFFY)	16.71	2.0	9%	6.4
JMP Group (NYSE: JMP) *	5.84	1.9	239%	1.4
Alpine Global (NYSE: AGD)	5.63	1.8	N/A	5.1
Immersion (Nasdaq: IMMR)	5.53	1.7	N/A	5.1
CUI Global (Nasdaq: CUI) *	6.90	1.7	30%	1.9
Nektar Thera… (Nasdaq: NKTR)	8.49	1.7	141%	12.5
IntriCon (Nasdaq: IIN) *	5.28	1.6	66%	0.5
Gladstone Capital (Nasdaq: GLAD)*	8.51	1.6	70%	4.5
OraSure (Nasdaq: OSUR)	10.59	1.6	7%	6.0
Scorpio Tankers (Nasdaq: STNG)	6.38	1.6	38%	2.7
Derma Sciences (Nasdaq: DSCI)	9.63	1.6	N/A	1.9
BroadVision (Nasdaq: BVSN)	8.18	1.6	N/A	2.4
Depomed (Nasdaq: DEPO)	5.10	1.5	N/A	4.8
Rentrak (Nasdaq: RENT)	19.19	1.5	1%	2.3
Alnylam Pharma (Nasdaq: ALNY)	18.44	1.5	N/A	11.6

Since the second list of stocks trading from $1 to $5 per share is too long, I only include stocks trading higher than $4 here.

Company & Ticker	Price	Beta	Debt/Equity	P/S
Agenus (Nasdaq: AGEN)	4.83	1.9	N/A (Neg.)	7.1
Halozyme (Nasdaq: HALO)	4.82	1.6	N/A	9.3
Glu Mobile (Nasdaq: GLUU)	4.71	2.1	N/A	3.9
Array BioPharma (Nasdaq: ARRY)	4.66	1.6	N/A (Neg.)	5.0
The9 Limited (Nasdaq: NCTY)	4.63	2.1	N/A	8.0
Arrowhead Research (Nasdaq: ARWR)	4.62	2.7	20%	36
Mitek Systems (Nasdaq: MITK)	4.52	2.7	N/A	10.7
MCG Capital (Nasdaq: MCGC)	4.49	1.5	87%	4.4
Targacept (Nasdaq: TRGT)	4.33	2.1	2%	1.8
Essex Rental (Nasdaq: ESSX)	4.14	1.7	284%	1.1
GenVec (Nasdaq: GNVC)	4.08	1.7	N/A	3.2
SmartHeat (Nasdaq: HEAT)	4.04	2.5	16%	0.2
Miller Energy (Nasdaq: MILL)	4.02	3.5	8%	4.8
Plures Tech (Nasdaq: MANY)	4.00	5.9	38%	2.4

In the second part of this report, we’ll offer the results of our due diligence into the company specifics of both lists of high-beta stocks. From there we will determine which stocks are the true sell candidates, giving credit to their company specifics. To be notified of the second report via email, follow my column at Seeking Alpha and at our Wall Street news blog.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.