The Meek Continue to Dominate Equities

Early in April after a month long run off the bottom I posted a list of equities that gained at least 60% in the preceding 4 weeks [Apr 5: The Meek Shall Inherit the Earth: 92 Stocks Over $10 Returning 60%+] The list was a whose who of beaten down merchandise. Generally, by week 4-5 of an oversold rally these type of names begin to peter out but the ramp has been relentless in lower quality, low price stocks. My gut tells me quant (and other varieties) of hedge funds have been shorting these names, using fundamental reasons - expecting some pullback after huge runs - only to be run over again and again even in week 6 and 7 of this rally. All it takes nowadays is saying "business has stabilized at the worst levels we've seen in decades" to elicit glee and massive short covering rallies.

While the market was flattish last week, I tend to look at the action underneath the surface and there was a lot of speculative fervor which was hidden by the indexes themselves. I will say it again, although I said it two weeks ago to no avail - generally when this type of stock is rocketing, we are Level Red of froth and it (usually) signals topping action as people run out of ideas in quality stocks. But much like August 2007 (but in opposite direction back then) we are seeing some very strange moves of magnificent quantity in individual names that do not square up with any reasonable fundamental reason; it just appears to be hedge funds leaning hard and being snared... in August 2007 the moves were down, now the moves are up.

The other explanation are mutual funds are running in to buy these type of stocks even after 40,60,80% type of moves - the same stocks they wanted nothing to do with 2 months ago. That doesn't seem like smart risk control but judging from results in 2008 it doesn't seem like risk control is priority #1 in mutual fund land, so perhaps this is contributing.

Here are the winners from last week with the following criteria

Criteria

1. Market capitalization $500M+
   
2. Average trading volume 200K+
3. Stock price $5+
4. Return this week 15%+

Many names that we've pointed out with weak fundamentals have their fingerprints all over this list; I still love Mohawk (MHK) myself - this was bid up 30% Friday, for $0.29 worth of earnings for 2009. For a company that makes carpets. Let's say the $0.29 is very wrong and indeed its $1.00 in EPS for 2009. So we're paying 50x forward earnings... for carpet. That is but one example of many - valuations simply do not matter to whomever is buying things. I know what the logic is; Mohawk was $100 at the all time peak during the housing bubble so still 50% off sale! Apply same logic to any number of names - as long as you believe we're heading back to those "good times" of the bubble economy... well then little things like earnings apparently do not matter. Masco (MAS) is the same kind of "housing company"...

Other names of interest - Las Vegas Sands (LVS) which continues to run, now up 200% in a month; but at $7.50 its still down from its previous $150. As long as you believe bankruptcy is off the table, limitless upside I suppose. CBL - commercial real estate is hot. BYD - Americans (increasingly unemployed) are using their home ATM and apparently heading to casinos. WYNN? See LVS and BYD. Radio Shack (RSH) - I have not been in one for 10 years but apparently the hot new item is digital TV conversion boxes - a very sustainable business model. CAKE, PFCB - remember, casual restaurants are the new Internet stocks circa 1999. Royal Caribbean (RCL) was at risk of bankruptcy a few months ago [Jan 30, 2009: Royal Caribbean Continues Free Fall] [Jan 28, 2009: Royal Caribbean to $1?]- now it appears the house ATM must be allowing Americans to once again freely cruise - much more time now without jobs. And in between cruises they are obviously sleeping at the highest end of hotels - only the best will do; see Starwood (HOT). And these same American consumers are using their American Express (AXP) to shop at Coach (COH) when they are not gambling, cruising, or buying Harleys.

Folks? What is the stock market "telling us"? We will soon be back to 2006 with unemployment in the 4% range, house flipping, gambling, cruising, shopping at high end stores, consipicious consuming, while sleeping in high end hotels. We just can't see it, because we are heathens... the market can look into the future and see it. So apparently "in 6 months" everything is back to 2006. This whole "getting back to reality" era? Just a nightmare - the Fed fixed it. Carry on loading up your credit cards and spending money you don't have - nanny state says it's fine. I have my doubts it is just that easy - but the stock market is "always correct" just as it was forecasting the great times ahead in October 2007 as it ran to all time highs. Or perhaps a more likely explanation is these are among the most highly shorted (for fundamental reasons) stocks on the entire exchange. Nah... green shoots it is. See you at the mall!

Two old holdings I am curious on were NuVasive (NUVA) and American Superconductor (AMSC) - the former had earnings this past week so it appears the market liked them; the latter is a "go to" play for Obama infrastructure/hope. We touched on Juniper Networks (JNPR) and Riverbed Technology (RVBD) - Juniper is earning nothing but cut enough heads to "stabilize" (and that's all you need in the future 'worker less' economy to thrive) - you don't actually need to make any money to be rewarded now; simply whisper "stabilization". I do wish I had not missed RVBD but I don't like to gamble on bipolar outcomes such as earnings. [Apr 24: Missed Opportunity in Riverbed Technology; Ok Results in Juniper Networks]

p.s. three gold names also made this list, foreshadow or China accumulation news reaction? We'll know soon I believe.

Symbol	Company Name	% Price 1 Week
TIN	Temple-Inland Inc	48.8
LVS	Las Vegas Sands Corp	47.5
ELX	Emulex Corp	44.6
JAVA	Sun Microsystems Inc	37.5
CBL	CBL & Associates REIT	34.0
NTGR	NetGear Inc	33.5
AAI	AirTran Holdings Inc	33.2
MHK	Mohawk Industries Inc	33.2
BYD	Boyd Gaming Corp	31.4
RSH	RadioShack Corp	27.3
AWI	Armstrong World Industries Inc	26.3
WGOV	Woodward Governor Co	26.1
IR	Ingersoll-Rand Co Ltd	26.0
JEF	Jefferies Group Inc	25.6
F	Ford Motor Co	25.0
NTY	NBTY Inc	24.9
CAKE	Cheesecake Factory Inc	24.3
EMN	Eastman Chemical Co	23.7
PTV	Pactiv Corp	23.5
IP	International Paper Co	23.1
PAS	PepsiAmericas Inc	23.1
NUVA	NuVasive Inc	22.7
ARA	Aracruz Celulose ADR	22.4
SEOAY	Stora Enso Sponsored ADR	22.1
PBG	Pepsi Bottling Group Inc	22.0
WL	Wilmington Trust Corp	21.7
AMSC	American Superconductor Corp	21.5
ALGN	Align Technology Inc	21.2
JNPR	Juniper Networks Inc	20.8
GOLD	Randgold Resources ADR	20.8
HST	Host Hotels & Resorts REIT	20.7
RCL	Royal Caribbean Cruises Ltd	20.7
WYNN	Wynn Resorts Ltd	20.7
WMS	WMS Industries Inc	20.5
USG	USG Corp	20.0
HMY	Harmony Gold Mining ADR	19.5
DLX	Deluxe Corp	19.5
CBG	CB Richard Ellis Group Inc	19.4
PFCB	P.F. Chang's China Bistro Inc	18.5
CYT	Cytec Industries Inc	18.3
BKD	Brookdale Senior Living Inc	18.0
WFT	Weatherford International Ltd	18.0
CMTL	Comtech Telecommunications Corp	17.9
WAB	Wabtec Corp	17.5
PNK	Pinnacle Entertainment Inc	17.2
WU	Western Union Co	17.1
PKG	Packaging Corp of America	16.9
TCK	Teck Resources Ltd	16.8
SNA	Snap-on Inc	16.8
MAS	Masco Corp	16.7
ACF	AmeriCredit Corp	16.7
COH	Coach Inc	16.7
EBAY	eBay Inc	16.6
STAR	Starent Networks Corp	16.6
BRCD	Brocade Communications	16.3
KGC	Kinross Gold Corp	16.3
AXP	American Express Co	16.0
HOT	Starwood Hotels & Resorts	15.9
CCJ	Cameco Corp	15.7
JLL	Jones Lang LaSalle Inc	15.5
EGO	Eldorado Gold Corp	15.4
ORB	Orbital Sciences Corp	15.3
RVBD	Riverbed Technology Inc	15.3
ISRG	Intuitive Surgical Inc	15.3
ACOR	Acorda Therapeutics Inc	15.1