Four Controversial Stocks That Keep Trending Higher

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A controversial stock is created due to performance. If a stock performs well then it receives upgrades, but when a high profile stock trends lower it creates controversy as investors jump to both sides of the fence. The stocks I’m looking at in this article fall into the category of controversial stocks due to excessive volatility; but here recently, longs have gotten the last laugh. Furthermore, each of these stocks is at crucial levels of psychological importance, and if crossed, these stocks could trend considerably higher.

Alcatel Continues to Rally on Hopes of Efficiency

Believe it or not, Alcatel-Lucent (NYSE: ALU) is now trading with a one-year gain, including a five day gain of 28%! The stock has returned 65% in the last three months as investors react to the company’s decision to restructure. This is a company with a market cap of less than $4 billion but has nearly $19 billion in sales. The company will now aim to sell and restructure much of its business over the next year to become more profitable with higher margins; and is able because of a $2 billion finance deal with Goldman Sachs. So far, investors have responded well to its plan.

On Monday Alcatel-Lucent rallied 5% after Goldman pulled the stock from its Conviction Sell list. This is encouraging because Goldman did the company’s financing deal. Alcatel has seen a number of upgrades as of late as investors buy into the idea of a more efficient Alcatel. In my opinion, the company is still grossly undervalued and has the potential to trade much higher. However, it won’t be overnight and the restructuring deal will take time to be properly executed. Therefore, I’d keep Alcatel on my watchlist, but also watch for periods of difficulty for good entry points.

Facebook Goes From Most Hated to Most Upside

In an overvalued social media space, it never made much sense for shares of Facebook (NASDAQ: FB) to trade with the most attractive metrics in the industry. Therefore, as the stock became obviously undervalued below $20 it began to rise as the company monetized mobile, began to roll out new services, and continued to show signs of a re-emerged adverting business. After a three month rally of 42% and a five day 15% return, Facebook is now pennies from $30.00; which is a very crucial level of resistance.

Facebook had no noteworthy news on Monday to entice its 3.20% rally. However, it bounced following speculation that surrounded its “Gifts” service and data of monthly mobile users for its app. The company is now trading with a near equal price/sales as Linkedin and has a forward P/E ratio of 45.63. Therefore, I do think it’s now overvalued, and believe its upside is limited. However, if the stock can surpass $30, and reach $31, then it might see a short-term rally as investors anticipate buying at those levels; making it a stock to watch.

Micron to Continue its Rebound?

After a five year loss of 36%, and more bad days than good ones in 2012, Micron Technology (NASDAQ: MU) has gotten off to a good start in 2013. The stock is now trading higher by 16.65% in the last five sessions, and according to Citi, the company could see a cyclical rebound in memory prices in 2013. This lack of a “cyclical rebound” has kept shares lower, but rumors of an acquisition and better days to come have pushed shares higher. The company continues to see weakness in its PC DRAM volumes, but investors now seem willing to bet that this change in demand could occur in the year ahead. Personally, I am not so confident.

Netflix Gets Back to Triple Digits

Netflix (NASDAQ: NFLX) crossed $100 on Monday for the first time since April of 2012. The company’s re-emergence has been led by licensing deals with Disney and on Monday news of a content deal with Time Warner pushed shares over the crucial price. The company has been in the news a lot with recent content deals that should give it an edge over competition from other companies such as Amazon and Coinstar. However, the company does still face slowed growth due to increased competition and lower margins due to higher costs. Yet at the moment, shares of Netflix are looking quite bullish, and it’s very possible that it rallies higher now that it has re-entered the triple digits.

Conclusion:

The neat thing about a controversial stock is that my opinion is just as challenged as any investor who follows the company. For every bull there is a bear and these opinions are strong and loud. As a result, every catalyst and earnings report carries a lot of weight. But perhaps even more important are analyst calls, as controversial stocks react greatly to the opinions of analysts, and analysts respond well to stocks that trade higher. Therefore, with each of these stocks on the rise, I’d watch closely, and wouldn’t be surprised if each trades considerably higher before finding level ground.  


BrianNichols is long ALU The Motley Fool recommends Facebook and Netflix. The Motley Fool owns shares of Facebook and Netflix. 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!

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