Russell Rebalance Could Push These Stocks Even Higher!
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Last year, these three stocks weren’t even on the radar of most retail investors, but have since returned incredible gains. Now, another catalyst could catapult each even higher, along with continued fundamental improvements.
What Are The Russell Indexes?
The Russell Indexes combined are tracked by more than $4 trillion, meaning that institutional and retail investors alike invest in their indexes more so than all other U.S. equity indexes combined. Among its offerings, are the Russell 2000, 3000, and Global indexes, which are among the most popular.
On Friday, Russell indexes began the process of rebalancing, which means purchasing new stocks and selling others. Those that are sold, no longer qualify, either falling below the requirements or being above the requirements.
Those that are purchased are typically IPOs or stocks that now meet certain requirements, while they may not have in the year prior. In this piece, I am looking at three such stocks; they are stocks that could move considerably higher with the rebalancing of Russell indexes.
From Bankruptcy To Large Gains
Last year, YRC Worldwide (NASDAQ: YRCW) was a $50 million company, today it is valued at $265 million. Its large gains have come after the company posted its first quarter of operating profit in many years’ time.
Moreover, the company is in talks to acquire a fellow trucking company, Arkansas Best, a company growing at more than 15% annually with over $2 billion in annual revenue. Currently, YRC Worldwide trades at 0.05 times sales, which is by far the cheapest in the transportation sector.
If the company can continue to improve then large gains can be created. On Friday, gains of almost 2% occurred due to it being added to the Russell funds. Thus, I’d watch this stock over the next week, as it trades near 52-week highs.
Unprecedented Data & Large Sales Potential Have Pushed This Stock Higher
Sarepta Therapeutics (NASDAQ: SRPT) did not qualify for Russell funds last year, trading with a market cap of just $100 million. However, on Friday, it was added to both the Global and 3000 Russell indexes with a market cap of $1.2 billion.
Sarepta Therapeutics’ large gains were created after data for its Phase 2 Orphan candidate Eteplirsen for the treatment of Duchenne Muscular Dystrophy. Currently, there are no approved products for this disease, and analysts project that it could result in revenue of $700 million annually.
The company is awaiting an FDA decision on whether or not Eteplirsen’s approval can be accelerated. Sarepta Therapeutics continues to trade higher, as continuous checks on data from the Phase 2 trial indicate a drug that improves the outcome of the disease with time. With its institutional ownership on the rise, over the last year, I’d watch this stock, as the Russell inclusion could push shares even higher.
A Fallen Retailer Rebounds
Christopher & Banks (NYSE: CBK) was a $55 million company last year – following a five-year 94% loss – but is now a $250 million company after a one-year 470% gain.
After four-years of revenue and margin declines, Christopher & Banks saw top-line growth in fiscal 2013 and margin expansion. While revenue growth was minimal, it has recently seen a boost, with 16% top-line growth during its last quarter.
The company is improving rapidly, and was added to both the Russell Global and 3000 indexes last Friday. After large gains, the stock is still cheap, trading at just 0.55 times sales, which is 50% less than the industry average. Thus, with continued improvements, and additional buying pressure, gains could be created.
Last year, at this time, not one of these three stocks were on the radar as potential top-annual performers, but all have produced market-leading gains over the last year.
In my book, Taking Charge With Value Investing (McGraw-Hill, 2013), I explain how the best investors continuously reassess the market and individual stocks, and are rapidly able to change their outlooks with changing fundamentals.
Such is the case with these stocks, as the outlook has changed with fundamental improvements, and now with a new catalyst, we could see further gains in the immediate future.
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