Most retail investors who closely follow the market have certain stocks that they watch more intensely. Back before Spectrum Pharmaceuticals' (SPPI) debacle, I used to say that I could pretty much tell you the days that it would rise and fall, based on whether it broke out towards the end of a session or if it sold-off towards the end of a session following a rally. The same can be said for countless other stocks, there are certain trends and trading tendencies that almost tell us when a stock might rally. With that being said, I am looking at five stocks that I follow closely, stocks that I believe could rally next week.
Seeing as how I already mentioned Spectrum Pharmaceuticals, I might as well stay on topic, by saying that it could very well rise next week. The stock has now lost a mind-boggling 43% since March 13, which occurred after the company finally acknowledging fundamental weakness due to generic pressure of its bestselling drug Fusilev. The company is now forecasting a sales drop of 60% in 2013 for Fusilev and is guiding for total revenue between $160 and $180 million; coming just weeks after the company guided for sales growth in 2013.
It is important that I reiterate that I by no means believe that Spectrum is a "buy' at this point in time. In order for Spectrum to be a "buy" we would need a shortage of the generic Fusilev or significant growth from one, or both, of its other FDA-approved drugs. Investors must remember that prior to its "fall" the company was expecting full-year sales around $300 million and traded with a market cap of $720 million. Therefore, it was trading with a price/sales ratio of 2.40 and was highly profitable. Now, after the revised guidance and its current market cap of $423 million, the stock is trading with a price/sales of 2.50 and most likely will not achieve profitability in 2013.
Spectrum is not cheap and its fall does not indicate value. But with that being said, the market is very methodical following a large loss. Spectrum has been in a free-fall, but saw gains during the last two days of last week. Therefore, with the stock finding support at $7.00 and with most of the short targets being reached, it is very possible that the stock will breakout next week with large gains (which often occurs after a large loss). My only advice is to be careful, just because it may rally doesn't mean it's sustained, and with the stock appropriately valued, any gains will most likely retreat back to reflect its current price.
Arena Pharmaceuticals (ARNA)
Staying on the topic of healthcare, shares of Arena Pharmaceuticals rallied higher by 6.20% on Friday, and saw total gains of 8.20% during the last three days of the week. This came after a longer downtrend took shares below the bottom level of its seven month trend.
With each passing day the company is getting closer to the launch of its weight loss drug Belviq, a drug that won't face the marketing challenges of Vivus' Qsymia but has taken longer to launch into the market. As a result, investors have become discouraged; however Friday's gains were enlightening, especially following months of disappointment. Currently, Arena investors are in a "wait-and-see" mode, as we await the launch of the drug and we are ready to realize its level of success in a very large market. With that being said, I would watch the stock closely, as gains with this level of conviction often lead to longer trends higher.
Rite Aid (RAD)
Shares of Rite Aid actually fell 0.52% on Friday; however the stock is still trending as though it's ready to breakout significantly higher. Ever since December the stock has been on an uptrend, following its first quarterly profit in several years. Now, there are many who believe the company could achieve profitability for the full-year, after posting eight consecutive quarters of increased adjusted EBITDA including better margins with a higher ratio of generic prescriptions.
The company is still massively undervalued, trading with a price/sales ratio of just 0.06, about 10 times cheaper than Walgreen, and is trending in a manner that is very attractive to investors. Back on March 13 the stock broke through its resistance at $1.75 and is now trading at $1.91. Since reaching its 52-week high of $1.95 (last week) the stock has pulled back once to $1.84. However, during the last two sessions of last week, the stock showed strong support at $1.90, and with it hovering at 52-week highs, I think it's worth watching, and that it could break through towards $2.00 by the end of next week, to continue its trend higher.
FleetCor Technologies (FLT)
FleetCor Technologies has very quickly become both a very intriguing company and stock with its rapid fundamental growth. The stock has returned gains of 41% in 2013 and last week it broke-out to create new highs with a gain of 9%. This is a company that is growing its top line by more than 40% and continues to improve its margins. As a long-term investment, I think it's a great story, trading with a forward P/E ratio of just 18.20, but as a short-term investment, I think it could very well trade significantly higher as well. This is a stock that continues to gain institutional support and trade higher regardless of market performance. And with it posting such a strong close to the week, I would watch for further gains at the start of next week.
For six months analysts and investors have been trying to call the bottom of Apple, and now it may have finally been realized. On Friday, we received our first major sign that a turnaround might in fact occur. The stock, with its 2% gain, crossed its 50-day moving average for the first time since the beginning of October. Furthermore, the stock is now trading with a positive return over the last month, this is also the first time that this has occurred in the last six months.
Fundamentally, the stock is being driven by the speculation of a cheaper iPhone, as RBC's Amit Daryanani joins the team of analysts who believe that this will soon occur. Daryanani expressed his belief that this new iPhone will add $22 billion in revenue and an EPS of $5 to next year's fundamentals. Yet regardless if this occurs, investors must remember that this is still a stock trading at just 7.0 times next year's earnings minus cash and has future growth of at least 20%. Therefore, it's cheap and with these technical indicators being crossed, we could see great buying interest next week.
Just because a stock looks as though it could rally to trade higher, doesn't mean that it will actually occur. With the markets in Europe being so volatile and earnings fast-approaching, it is hard to know what next week may bring. Therefore, invest with caution, and while you may explore the possibility of short-term gains, try to become a more well-rounded long-term investor that uses price to capitalize on value.