Monday's Market Movers: Are Any Worth Buying?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s easy to see a large pop in the morning and to be suckered into the prospects of quick gains. This trend-chasing behavior often produces large loss, but sometimes the move is a part of a larger trend higher. Let's look at Monday’s top movers to determine if more gains are to come or if trend chasers will ultimately experience loss.
BlackBerry (NASDAQ: BBRY)
After six months of solid performance, shares of BlackBerry once again shot higher on Monday, by more than 14% after news regarding carriers and rumors of a buyout. First, the stock popped about 5% at the market open when AT&T announced that it would sell the Z10 for $200 with a two-year contract starting March 22, much sooner than some expected.
A second pop, producing the “real gains,” came when the CEO of Lenovo made some very compelling statements about acquiring BlackBerry. The CEO, Yang Yuanqunig, said in a French paper, “As for BlackBerry, the acquisition could possibly make sense. But first I have to analyze the market well and understand what is the exact weight of this company.”
While the market overreacts to any hint of an acquisition, retail investors need to pay attention to one part of the statement, where Yang says, “first I have to analyze the market.” This is not an overnight acquisition -- BlackBerry is a $12.6 billion company with a market cap of $7.67 billion, and at this point, who knows if its new BB10 operating system will be successful in U.S. markets.
My guess is that any potential acquirer will want to wait and gauge BB10’s success and then value the company accordingly. Therefore, as acquisition rumors die, as will the stock price, meaning I would wait and buy at a cheaper price if you’re entertaining the idea of an investment in BBRY.
Zynga (NASDAQ: ZNGA)
Shares of Zynga saw significant short covering as rumors began to circulate that one of Yahoo’s two significant acquisitions could be Zynga. Last week it was Open Table and Yelp that saw massive gains when Yahoo’s M&A chief announced that the company was working on two significant acquisitions. On Monday, Wunderlich’s Blake Harper fed the speculation by naming Zynga as a potential suitor.
The interesting thing about Zynga’s 10% rise on Monday is that there was virtually zero validity to the rumor that caused the spike. With BlackBerry the rise came after the potential acquirer’s CEO made a statement about the company. But in the case of Zynga, it was an analyst who said that Zynga “could” be a suitor. Therefore, there is no reason to add fuel to this fire, or to buy shares of a troubled company whose stock has increased more than 65% in 2013. At this point, all potential speculation is perfectly priced into the stock.
Coleman Cable (NASDAQ: CCIX)
While Zynga and BlackBerry’s rally came as a result of speculation, shares of the small cap company Coleman Cable saw a double-digit rise after Q4 earnings. The company posted Q4 revenue that beat expectations, rising by 13% year-over-year (yoy), and an EPS of $0.40 that crushed expectations by $0.12.
The rise in copper played as much a role in Coleman’s fundamental rise as its 6% increase in business demand. However, according to the company, this parade isn’t going to last long. Already, the company is guiding for Q1 revenue that is below the Street’s expectations and an EPS number that is in line with the consensus.
The good news is that this is a stock trading at just 6.84 times next year’s earnings and a price/sales ratio of 0.20. Basically, the stock is cheap, and with double-digit growth I’d buy regardless of the Street’s Q1 expectations.
Genworth Financial (NYSE: GNW)
Shares of Genworth Financial didn’t rise to the same degree as the others on this list, but its 6.71% gain is still worth noting. The stock has now risen more than 50% in the last three months and with its gain on Monday it broke through previous resistance. The rally came after a bullish piece in Barron’s reminded shareholders that despite large gains, the stock is still trading at book value and could in fact double once more. According to Barron’s, the surging mortgage market combined with the pullback of the FHA from mortgage insurance could be a major catalyst for the stock.
In terms of upside, Genworth is one of the better valued companies among the housing/mortgage related plays in the market. It trades with a price/sales of just 0.48 and is expecting 100% bottom line growth over the next year. My primary problem is that up until this point, the gains have been speculative and industry-related. The company’s sales are still flat, and although it is much more attractive compared to other plays such as The Home Depot and Zillow, I would be careful investing in a company based on “potential catalysts” after the stock has already doubled from lows.
In my book, Taking Charge With Value Investing (McGraw-Hill 2013), I discuss the importance of capitalizing on human behavior, such as chasing trends due to speculation. Smart investors don't gauge upside based on the performance of a stock, but rather the importance of the catalyst that created the movement of the stock.
You can often find distinctions between performance and fundamentals, and when you do this, and invest with a clear mind, you are able to capitalize and make good investment decisions. With that being said, make sure to always consider what catalyst created stock movement and if that catalyst was worth the move compared to the stock’s valuation. By doing this you’ll be one step ahead of an illogical market.
Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!