5 Stocks Trading On Very High Volume
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Fears that nagged market at years end are bearing fruit today. News from Europe is progressing more or less as expected. Losses are building up and growth is slowing. Greece is expected to sign a deal resulting in losses of 70% for its bond holders. Europe still has a long way to go, and so does Asia. China's economy is slowing at an increasing rate. Our own economy is on shaky footing, in part because of dependence on international trade. The American economy is challenged by low incomes and burdened with debt, obstacles that will have to change in order to move forward. Companies that rely on consumerism and spending will struggle in 2012. Income levels are at historic lows, according to a report from the census bureau. Jobs and wages are a central theme in the current political debate, the outcome will surely impact the markets.
The markets are uncertain. The Dow Jones Industrial Average (NYSEMKT: DIA), S&P (NYSEMKT: SPY) and Nasdaq are all up for the year, extending gains made in the second half of last year. However, there is just no conviction in the market. Volume is a very important part of a strong market and its missing from this one. The technical indicators show me an overbought and weak market. In order to profit through these tough times you have to look for strong markets, find the volume and find a profitable trade. Here is a look at the top four returns for high volume on Friday.
Talbot's (NYSE: TLB) is of particular interest. The chain of women's apparel stores has been struggling. It closed over 80 stores in 2011 and has been considering selling itself. TLB already turned down an offer for $3/share from stake holder Sycamore Partners. Talbot's shares had been trading around $1.50 in early December 2011 but rose to around $2.75, where TLB has been consolidating. The announcement Friday that Talbot's was for sale sent the shares up as much as 22% during the day. The move was an impressive bounce from the 30 day moving average, piercing a resistance level in place since last summer.
Talbot's has been struggling to produce a profit for years. Fiscal 2011 results were poor with analysts expecting losses to continue into 2012. Sales declined by 6.6% and total traffic declined by 3.6% in the third quarter alone. Traffic decline was actually listed as a plus, because it was up from the previous quarters 5% decline. Talbot's is going nowhere. It's only value is to another retailer looking to grow. It can't make money. Talbot's is a definite no buy, this one's good for selling calls and buying puts.
FelCor Lodging Trust Inc (NYSE: FCH) is a leading holder of high end hotels. FelCor owns easily recognizable names like Doubletree, Embassy Suites, Marriott and others. FCH also made and impressive bounce from the 30 day moving average on Friday. FCH had been trading flat since August of last year, consolidating between $2 and $3. The move Friday came with a significant volume spike. The only reason I can see for anyone to be interested is the dividend. The stock currently yields over 16%, despite an inability to post a profit. The board is expecting to reduce the corporate debt and increase revenue in 2012. Revenue gains are expected through rate increases and increased occupancy.
FelCor is worth watching. The forward looking guidance puts FCH at a p/e of around 9.9. This shift to profitability will undoubtedly spark investor interest. If volume continues to increase FCH could easily rise to $6 and $8 from its current level around $3.50.
Sears Holdings (NASDAQ: SHLD) has been active since the first of the year. 2011 was a hard year for the discount retailer, shares ended the year down more than 50%. Since the beginning of 2012 SHLD has had increasing support. Volume is increasing along with momentum. The stock is currently trading around $49, just below a significant resistance level. Sears results in 2011 were disappointing. The net loss increased to nearly $4/share from the previous years $1.98. Rumors of a buyout is what's driving the stock higher. Speculations of top shareholder Eddie Lampert taking the company private will only inflate value for a short time. Short covering is also in the mix. The current short ratio is over 13% and the technical picture is screaming to short more. Sears fundamentals are a shambles, negative earnings per share and cash flow are never a good reason to buy. The activity in this stock is reactionary and counter to the prevailing trend. This is another one to steer clear buying, but it's ripe for option trading. High volatility, high short interest and technical resistance make me want to sell calls on Sears.
Cogent Communications Group (NASDAQ: CCOI) is on the way down, or is it? The stock made three year highs Friday, breaching long term resistance around $18. The move triggered massive selling, sending the stock down more than 15%. The stock had been overvalued, with a p/e over 50. The stock has a solid following among institutional investors, over 90%. That plus inside ownership just about equals 100% of the company. The short ratio is a high 11.7%.
Earnings in 2011 are an estimated 690% higher than 2010 and are expected to rise further in 2012. With the short interest and p/e so high I expect to see Cogent continue to trade down and sideways into the second quarter of 2012. Earnings surprises in the second half of the year will spark a rally that will be accelerated by short covering. Cogent is a must watch stock on my list. I'd be looking to buy the April $12.50 calls at about half the current price.
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