The long-awaited market pullback has finally begun - or at least there is a chance that the markets will continue its downward trend. Last week, the S&P 500 lost 2% of its valuation, and has traded lower by almost 5% during the last month. With that said, my "5 Stocks To Watch" from last week had an average return of almost 3%. The reason was because I sought individual stocks with catalysts, and these catalysts produced gains despite the market's overall weakness. Therefore, I am looking at five more stocks that could see similar performances, regardless of the market's short-term trend.
This Company Is Too Good To Fall Too Much Lower
In the last month, Regeneron Pharmaceuticals (REGN) fell 17%, and has lost more than $6.5 billion from its market capitalization since mid-May's all-time high. During this time, the news surrounding this company involved enrolling the first patients in the trials of sarilumab and strong data that could expand the use, and revenue, for Eylea. Thus, it has been a good month for the company, but not for its stock.
Regeneron has slipped, and for no apparent reason. Sure, there has been some insider/institutional selling, but after a five-year 1,400% return, why wouldn't early investors take some profits? Now, at $215, I tend to believe there is a great deal of value being presented.
The stock is currently trading at just 13.4 times sales, which is relatively cheap in the class of Orphan drug companies. If you consider sales potential for Eylea alone, Regeneron is trading at just five times peak sales, and has a massive pipeline with other blockbuster products such as the Phase 3 cholesterol drug Alirocuma. Overall, I think there is a great deal of upside being presented, and considering the fundamental upside of this company, I can't see how it would continue to fall lower. Therefore, with the stock being attractive, I wouldn't be surprised to see some buying pressure in the upcoming week; following a long month.
Expecting A Short-Term Recovery
The next stock to watch is one of my favorites, Rite Aid (RAD), a stock that I've covered many times. Prior to earnings, I said here to sell ahead of earnings; or that the stock could pull back. Since $1.21 I have continuously said to buy the stock, and although I do think that lower guidance for the second half of the year could lead to consolidation, I do think we get a short-term bump this week.
So far, in the last three quarters, Rite Aid has consistently exceeded all of its own expectations. The company has under promised and over delivered; perhaps afraid to be too bullish because of the trouble it has experienced in recent years. However, there are drastic fundamental and macro changes occurring - leading to profitability and higher margins - and I do think the stock will continue to trade higher, long-term.
In my opinion, last week's $0.35 pullback should be viewed as healthy, especially considering the gains that Rite Aid has created. This is a stock that has seen gains of 200% from 52-week lows and is improving rapidly. Yet, despite these gains and Rite Aid's new found level of success, the stock is still trading about six times cheaper than its larger competitors; relative to sales. For this fact, and because the company has exceeded all of its own expectations - with room to drastically expand its margins -- I think investors might very well buy on its short-term weakness. The bottom line: The stock still has way too much upside to see a sudden and steep move lower, thus I believe it will recover next week.
No Headlines Are Good Headlines For This Stock
It has been a tough year for the cruise company Carnival Corporation (CCL), as news regarding electrical and fire problems aboard has led to fear among consumers, slashed guidance, and weak earnings during its most recent quarterly report. The company has had to deal with soft ticket pricing, higher-than expected trip cancellations, and higher sales/admin costs. With that said, expectations for the cruise company are at rock bottom levels, and for this fact, upside could be created.
Back in May, the stock lost 7% of its value as the company cut EPS guidance to $1.45-$1.65, compared to a consensus of $1.97, due to the issues noted above. However, as Seeking Alpha contributor Jeffrey Dow Jones notes, "this is an industry that periodically suffers from high profile setbacks," but as a secular industry, it always bounces back.
So, why am I so bullish on Carnival heading into earnings on Tuesday? First, the stock is cheap, underperforming the S&P 500 with a YTD loss of 10%, with a yield of 3%, and a forward P/E ratio that is below the consumer sector, thus I think investors might be attracted to the stock. Then, most importantly, is the silence surrounding the company. Lately, we've seen no negative headlines surrounding the company and with its busy season in full-swing, I view this as a sign of optimism. Yes, we already know that prices are lower than usual, but due to value pricing and new ship renovations, I wouldn't be shocked to see a sudden bullish update on volume - pushing the stock higher after earnings.
Late Rally After Phenomenal Quarter
In the final three days of last week, Kroger (KR) lost 5% of its valuation. The stock traded higher by 2.4% on Friday, but the post-earnings losses on Thursday still produced a surprising loss despite this one-day gain. For the quarter, Kroger slightly missed on the top line but then beat on the bottom line. The company significantly outshined its peers by posting growth in margins and in same store sales. Furthermore, the company raised FY13 EPS guidance and said that same store sales will rise (on average) 3% year-over-year for the fiscal year.
There wasn't anything negative to report from Kroger. This is a non-cyclical stock that is forecasting long-term earnings growth of 10% and saw a 32% rise in free cash flow year-over-year. With that said, I think Kroger's loss was the perfect storm of a stock that had risen 35% YTD combined with a market that saw its Dow Jones tank by more than 300 points; and that Kroger's losses were unrelated to the quarter.
Personally, I'd buy this stock quick! With a beta of just 0.66, this isn't the type of stock that will rise 20% in one-week, but slow-and-steady gains are very possible; and should be attractive in an unstable market. The stock is trading at just 12 times earnings with a price/sales of 0.18! Therefore, as with most stocks that trade illogically post-earnings, I think Kroger could see moderate gains in the week ahead; regardless of the market's overall trend. Moreover, the company has a shareholder meeting on Thursday, and I am willing to bet the company will be sure to remind investors that its quarter and guidance is rock solid.
Playing Ahead Of Shareholder Meeting
Since ending my multi-year bull rant for Spectrum Pharmaceuticals (SPPI) back in March, I have promised myself to say nothing particularly nice about the company until either new products are brought to market or new supply issues occur with generic Fusilev. However, this is a company that just recently reported positive data on Belinistat, its late-phase product for the treatment of peripheral T-cell lymphoma, and with a shareholder meeting on Friday, combined with rock-bottom expectations; I think we might see some upside.
Look, just because I am saying that Spectrum looks interesting as a play ahead of its shareholder conference does not mean that I have forgotten about the misleading and possibly criminal actions on behalf of the company regarding its own guidance; which led to a 35% collapse back in March. Yet, I acknowledge that the stock itself has been oversold for several months and that the potential for short-covering is always sky-high, due to almost 40% of its float being short.
Over the last three months, the stock has rallied almost 15% and has seen its shares short decline by more than 1.5 million. In addition, there has been some speculation that sales of both Folotyn and Zevalin have been performing better than expectations, but like I said, it is speculative. When it's all said and done, the company still has a large pipeline and three marketed drugs. It has hit a bit of a rough spot, but once I put aside my frustration, I must admit that the long-term upside is still promising. With that said, I would watch the stock ahead of the upcoming shareholder conference, and would not be surprised if the company announces data-related or sales-related news that creates a spark for the oversold stock.
It's a rough market, and if you are seeking short-term gains, then you have to be willing to speculate and seek potential catalysts. In my opinion, each of these stocks has the potential to trade higher short-term, but I still urge all investors to "read this article" about the best way to identify such stocks and to play such trends to create the best possible returns. Hopefully, you can find gains in a market that has all the makings of being bearish.