Good morning and happy Thursday. Yesterday, we got involved in an Overnight Trade position with Verifone Systems Inc. (PAY). We liked the company due to its really strong growth capabilities and because it appeared to have fairly underestimated EPS and revenue estimates. Last night, in after hours, PAY reported very solid earnings with an EPS of 0.29 vs. the expected 0.26 and revenue of over $240 million while expectations were around $227. The stock did well in overnight trading, and it is up over 5% in pre-market trading. I got involved at 17.25, and it is trading at 18.35. I am going to look to sell towards the open and take my profits for around a 7-8% gain.
Our Play of the Week, Big Lots Inc. (BIG), reported their earnings this morning. This trade has been tough with the market’s woes, but it has been able to stay close to our purchase level at 36.50. The company beat estimates with earnings at 0.68 vs. the expected 0.67. The company also upped their future forecasts. The stock is trading around the 37.00 range. My exit range was 37.97 and up. I am going to readjust this one and look to exit for a minimum of a 2% gain at 37.22.
Both trades are looking pretty good, so let’s take a look at what new trades we have for today…The chart on the left shows the problems we still face from unemployment that was further showcased in unemployment claims this morning. Yet, the market is not reacting to it at all, so it is okay for us. Still an interesting chart.
Buy of the Day: Quidel Corporation (QDEL)
Analysis: Days when the market bolts up or down significantly are tough days to know what to do because it is hard to say we can rise a lot more to make 3% gains in individual stocks, when they are opening up 4-6%. Then, it is even harder to say we will move down and analyze the market that way. Therefore, what we want to do is find the slipper that has not had the movement the market has had but should. The market is looking up today with futures above 150 points all morning on the Dow. China’s comments that they will hold onto European bonds, some very strong earnings reports, the plugging of the oil leak, and some slightly lower unemployment numbers have helped keep futures strong.
Therefore, we want to find some companies that have not had the movement they deserve as of yet. One of these companies
would be Quidel Corporation (QDEL). Quidel supplies medical testing kits for a number of diseases and reproductive processes. They are in the healthcare sector and have seen there stock price drop quite significantly along with most other companies in the field. The company, however, should be well positioned for a rise after getting a great upgrade from Wedbush Morgan today from Nuetral to Outperform with a target price of $15. The stock closed yesterday just under 11.
The company was upgraded because it is a strong company with good fundamentals, but it has seen its share price drop too fast due to the market factors and some overambitious product developments.
Wedbush comments, "QDEL has historically been a lean and nimble company, effectively managing seasonal flu variances but the recent acceleration in R&D associated with ambitious product development plans (targeting molecular dx, years away from market) may have led to the recent capitulation…Shares of QDEL have been down every day for last seven trading days and are off 25% over the last month versus a 10%, 12%, and 11% decline in the comps (VIVO and IMA), BTK index, and S&P 500, respectively."
Therefore, the upgrade should set QDEL back on the right path along with the strong market today. The stock is heavily oversold, undervalued, and right at that lower bollinger band. Like Wedbush commented, the stock has dropped 25% over the past four weeks. The stock had some very poor earnings right at the end of April, which has propelled this one down. It is now though so far down that it is presenting a great buying opportunity.
I am hoping that the upgrade and market can act like a catalyst to really send this one off. If it opens lower than the range I have set, then we want to buy it. If it opens higher, though, wait to see if it will come down.
IN PROGRESS
Entry: We are looking to buy in the range of 11.25 – 11.35.
Exit: We are looking to exit for a 2-4% gain.
Buy of the Day #2: Moody’s Corp. (MCO)
Analysis: Moody’s has been in trouble. Like QDEL, this is a stock that keeps on falling. This one has dropped over 30% in the past month. It has been in bad shape ever since it has come under fire for participation in the housing bubble that was one of the major causes of the Great Recession. Further, they are facing legislation that could hinder their ability to make a lot of money. Buffett, today, is going to testify for Moody’s to the US Crisis Panel. While, at the same time, Greenlight Fund manager David Einhorn had some pretty harsh commentary for the company this morning on CNBC.
He commented that the company is going to have some major issues in the long term with this new legislation and the fact that the company does not take a long-term approach to their ratings. He said he is still shorting this one.
This does not sound like something we want to buy. Yet, we are not looking at MCO for its long-term or even medium-term prospects. We are looking at for today. The stock is down about 3% in pre-market trading, and it has been slowly creeping up throughout the morning. This movement is showing me that even the weak stocks that are falling significantly are going to get a boost from the market movement. When we have a big down day, we do the same thing in reverse with stocks that have moved too much to the upside.
This is a stock that is just so undervalued. The Einhorn comment will not help it, but it is soon forgotten. The market’s bright eyes are taking in this exceptional start to the day, and it will help MCO make a rise. The stock is oversold, undervalued, and on its lower bollinger band. I think that with Buffett testifying and the great market movement. MCO could be a great short-term trade.
Entry: We are looking to enter from 20.10 – 20.20.
Exit: We are looking to gain 2-3%.
Good Investing,
David Ristau
