In this article, we will review our 2013 Russell picks (which are currently 3 for 3 with an average return of 12% in less than 3 weeks). We will also introduce two additional stocks that we believe will soon be added to the Russell 2000.
On May 31, Russell Investments will initiate its 2013 reshuffling of the Russell 2000 index (also known as "the Russell" or "R2K"). This event represents a unique opportunity for investors who can identify the winners (and losers) before they are selected.
When the new Russell 2000 list is announced, ETFs and other fund managers will be obligated to buy the new additions and sell the deletions. This will create millions of dollars of demand (or selling pressure) for the winners (or losers). Being early to buy or short the right names has been money-maker for our readers. Our 2011 picks went 6 for 6, outperforming the market by an average of 19% in just six weeks.
After a one-year hiatus, we've returned to offer our 2013 predictions. Thus far, the results have been as impressive as they were in 2011. Here's our current official portfolio and performance statistics:
Non-official picks for R2K inclusion are: NEO, UNXL, and VRNG.
Non-official picks for R2K deletion are: BERK.
As you can see, we're off to a fast start. All three picks are in the green and have returned an average of 12% in less than 3 weeks. You can view our original selection articles by clicking on the Initial Price links.
The landscape is shifting fast, with market movements, earnings reports, and new IPOs impacting the likely outcomes. Accordingly, our focus on making safe trades is paramount. Today, we are highlighting two more picks that we believe will be added to the Russell. Both are being added to our unofficial list of picks for reasons we detail below. Here's a quick rundown on each:
Vringo (VRNG) - Wild Card LONG
Float, excluding institutional holdings
Due to some legal risks, this is not an official Pipeline Data R2K pick. However, barring a disaster, we believe Vringo will be added to the Russell 2000. For those of you who enjoy a little extra risk, this one might be for you.
Vringo has been a hotly contested stock ever since James Altucher wrote his controversial article on "Why Google Might Be Going to $0". The excitement began when Vringo merged with I/P Engine, which purchased a series of Internet-related patents from Lycos. The merged entity is now in the process of suing Google (GOOG) and others from infringement.
The stock spiked after the article surfaced. By the time Russell did its 2012 evaluation, Vringo's valuation had more than doubled to $40 million, but not enough to be added to the R2K. Later, the company raised a substantial sum of money, increasing its total shares outstanding to over 80 million. Thus, its market cap is now more than enough to gain entry into this year's Russell.
With 20% of its total shares short (and over 30% of its effective float), VRNG is susceptible to a short squeeze. We're sitting this one out, but for more risk-minded investors, being added to the Russell could serve as a spark ahead of Russell Investment's official announcement.
NeoGenomics (NEO) - Wild Card LONG
Float, excluding institutional holdings
NeoGenomics operates a network of cancer-focused testing laboratories in the United States. The company currently offers cytogenetics testing, Fluorescence In-Situ Hybridization ("FISH") testing, flow cytometry testing, immunohistochemistry ("IHC") testing, and molecular testing. Each of these testing services are widely utilized to determine the diagnosis and prognosis of various types and subtypes of cancer and to help predict a patient's potential response to specific therapies.
Management has been executing well, which led to a great year for NEO. We believe the company will be rewarded by gaining entry into the Russell 2000. However, a couple factors keep us from adding it to our official portfolio:
From a fundamental perspective, DSOs/ Receivable turnover has become a watch factor. The company has a strong billing team, but the expiration of the TC Grandfather Clause and other managed care / network trends seem to have pushed out their cash conversion cycle. This may explain their recent round of funding. From a trading perspective, the shares have run and NEO's average daily volume should enable fund managers to accumulate shares fairly easily.
This combination of factors leaves investors with more risk and less opportunity for reward than we would like to see.
More to come…
We'll be issuing many Russell updates in the weeks / months to come. To get the latest picks automatically, simply hit the "Follow" button under my picture at the top of the page.