Wednesday’s Best Performing: What, Why, and How to Play
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
During a mostly flat trading day, there were five stocks with above average volume that saw major session gains. In this piece I am looking at these stocks, determining why each rose and how investors might want to play the movement.
- Research in Motion lost more than 21% of its value on Friday after the company presented reasons to worry about its services pricing for the BB10. However, on Wednesday, it was among the best performing stocks in the market, with no news. Such a move does appear strange. Perhaps it is short covering, but my guess is that its performance on Wednesday is a result of continued optimism for the BB10. Over the last three months, RIMM has rallied more than 70%, and all of its gains have been due to speculation. Yet, this is a company seeing revenue declines of nearly 50% over the last year, and I see no reason to suggest that anything will change. Apple and Google remain the kings of the industry and investors have already priced in a successful BB10 launch. As a result, I’d be cautious and avoid buying at these levels.
- Rite Aid continued to trade higher on Wednesday in response to earnings on Dec. 20. The company recently posted its first profit in five years and is seeing significant fundamental improvements. In addition, the company has revised its guidance upward and continues to execute on its restructuring plan. Yet despite its more than 40% return since earnings, I believe RAD is a buy and will continue to trade considerably higher due to it being largely undervalued prior to earnings. However, because of its 40% return, I would watch for a short-term pullback in the near future, which should present a great buying opportunity.
- Bill Ackman’s 20 million shares short in Herbalife is the short for the stock; and Ackman’s 342 page research including his reasons has been enough to push the stock lower by more than 35% in the last week. However, on Wednesday it rose more than 5% as the company supposedly prepares to answer the questions made by Ackman. Therefore, despite a forward P/E ratio of 6.02 and a price/sales of 0.72, I would not buy, but rather wait for the company’s response to a very compelling short stance.
- Ford continued to add gains to Monday’s performance, with a return of more than 8% over the last two sessions. On Wednesday it was news of a higher than expected profit-sharing with its union, indicating a potentially better quarter than expected. Yet despite these gains, Ford is still trading with a 25% loss since January 2011, and a forward P/E ratio of 8.76. Therefore, I would definitely buy this stock for the long haul.
Each of these stocks has seen multi-day or week trends that have contributed to the movement we saw on Wednesday. The investment outlook for each company is different, yet is worth you due diligence as an investor. Therefore, I have provided you with my opinion, and my brief overview, but now it’s your turn to determine whether or not any fit into your portfolio.
BrianNichols owns shares of Ford and Rite Aid. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford. 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!