Five Beat Down Stocks Leading the Market On Monday
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After a Black Friday rally the market came crashing down on Monday as investors took profits off the table. The market has now turned back its focus on the fiscal cliff, despite strong Black Friday sales and equally impressive home equity loan figures. With that being said, there are a few stocks rallying in Monday’s trading day, and these are all stocks that have been beaten down for most of the last year.
*Facebook and Zynga one-year loss from IPO
With the Dow posting a near 100 point loss it is encouraging that these five stocks are trading higher, as of Monday midday. Each of these companies trade with high betas and have a tendency to trade with excessive losses on down days in the market. However, the news that has driven these stocks higher does not necessarily mean that a long-term trend higher is in play, although any of these stocks could see further gains. Take a look at what drove each stock higher.
Facebook – On Monday, BTIG’s Richard Greenfield and Bernstein’s Carlos Kirjner joined the recent list of analysts who have upgraded shares of Facebook. Both think revenue will “explode” now that ads are being incorporated to mobile, and because the company is rolling out new services. The most significant provider of gains was most likely Greenfield’s $1.55 billion revenue expectation for Q4, which is far above the $1.49 billion consensus.
Alcatel-Lucent – The stock continued from its 10% rally on Friday thanks to talks with Goldman Sachs about a potential loan. The telecom equipment giant is looking to monetize its near 30,000 patents after failed talks with RPX earlier this year. The company is also looking to unload some of it less profitable businesses, which span across 130 countries. The company now hopes to raise more than $500 million from these talks, which will hopefully provide a more cost efficient company.
Zynga – This company’s valuation tends to trade with Facebook. In the past, royalties from Zynga accounted for 10% of Facebook’s total revenue. Therefore, higher guidance leads some to believe that Zynga is seeing a recovery. However, Facebook’s guidance comes from its new services, and advertising from mobile. Facebook’s reliance on Zynga is diminishing, with only 7% of its revenue from Zynga royalties during its last quarter. With that being said, Zynga still trends with Facebook, and investors are buying what may be an oversold stock.
James River Coal – James River moved by double digits after an upgrade from Raymond James, to Outperform from Market Perform. The firm cited ample liquidity, expectations for a winter rally in U.S. natural gas prices, and an undervalued stock. The company has seen drastic declines in the last few years as weakened demand and layoffs in its Eastern Kentucky/ West Virginia region of production have faltered. Coal stocks have rallied in the last two months and James River has led the charge, but will it continue?
Knight Capital – The company made headwinds back in August following its technical glitch that caused a near bankruptcy, and over the weekend the company said that it may sell the unit. This particular segment is the company’s largest and most profitable, but because of the risks associated with high frequency trading, investors are obviously hoping to see it go.
The developments above have moved each of these stocks by midday on Monday, but due diligence should be performed as to whether or not any are a good investment. With each of these stocks trading with large one-year losses it is possible that Monday’s movement was a technical rally. Therefore, investors should take time to look into other facets of the businesses to determine whether or not all, or any, will continue to move past Monday’s gains.
BrianNichols is long FB, ALU. The Motley Fool owns shares of Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!