A couple months ago, I quit writing my "5 Stocks To Watch" series, but since then I have noticed the amount of value that's scattered throughout the market. With the S&P 500 falling 1% last week, we can identify individual stocks that are trading with significant momentum, many of which closed last week strongly. Therefore, I am taking a look at such stocks, in particular, five that I think could trade higher in the immediate future.
Becoming An Industry Leader
Last year, Western Digital (WDC) and Seagate Technologies trended almost identical in terms of performance. However, Western Digital has significantly outperformed Seagate over the last year, including the last month with a +11% differential.
The reason that Western Digital is outperforming its peer, and now has a market cap that's $1.5 billion larger, is because Western is stealing market share. For the last two quarters, Western's share of the hard disk drive market has increased; the company has made high-profile acquisitions; and Western's margins have remained stable - Seagate has not been as fortunate in these areas of performance.
For this fact, it appears as though more and more investors are leaving Seagate for Western Digital, and last week we saw as Western traded higher by 3.6% -- Seagate was slightly lower. Western Digital is currently $3 off its all-time high, and over the last two years, neither it nor Seagate has bounced off a pullback where both didn't create new highs. Therefore, with Western trading higher from $62.4 (late July) to its current price of $67.50, I think the stock will continue to trade higher until reaching new highs over $71. Like I said, this trading behavior has been consistent over the last couple years, and I see no reason why it would change now.
Growth In A Struggling Space
Retail stocks have performed badly this earnings season, as comparable store sales have been weak to say the least. Yet, while Ralph Lauren, Coach, and American Eagle all underperform, Michael Kors (KORS) has been a clear leader, with comp growth of 27% in its last quarter alone.
This is a company that saw its revenue grow 54.5% during its last quarter, and profit grow another 79.4%. Therefore, Kors is a company with growing comps and margins, as it continues to steal market share from competitors such as Coach.
As a result, Michael Kors has traded against the trend of the retail index, and is currently at new all-time highs. And after a 5% gain last week, I don't think the momentum has slowed. Moreover, I think Kors' trend is still favorable to produce large gains. At 6.5 times sales, some might say that Kors is expensive, but in this market you are going to pay for growth. Therefore, I think Kors is worth its premium, plus more, and that gains will continue.
Just Keeps Trading Higher
I hate to pat myself on the back too much, but when it comes to Rite Aid (RAD), I've been right just about all the time. For 2013, I made Rite Aid my "Value of the Year", along with Alcatel-Lucent, and despite a 130% gain this year, I still believe there is significant upside ahead.
Back on August 2, Rite Aid created new 52-week highs, and multi-year highs at $3.30. The stock has continuously ticked higher with small little pullbacks along the way. The reason for its one-year 167% gain is because of the company's shift from operating loss to consistent profitability, due to the patent cliff in healthcare.
Theoretically, generic drugs pay more to pharmacies than brand drugs, and with the best days yet to come for new generic introductions, I think Rite Aid is a near guarantee to produce higher margins and larger gains in the years ahead. Because after all, Rite Aid is still considerably cheaper than its competitors with a price/sales ratio of just 0.11, compared to CVS' 0.6 ratio.
With that said, Rite Aid looks to be holding steady around $3.15. The stock traded higher on Friday despite losses in the overall market. Therefore, with the company's same-store monthly sales rising, and its long-term trend pointing higher, I think Rite Aid sees gains next week, and for the next several years.
Not Even Close To Fairly Valued
Much like Western Digital, and Rite Aid, every time that ACADIA Pharmaceuticals (ACAD) sees a slight pullback, it has always trended to new highs shortly after. On Monday, we saw new highs of nearly $22, but by Thursday the stock had traded to below $20.
On Friday, Acadia rallied 5%, and is about $1 shy of new all-time highs. After a one-year 1,200% return, there are many who believe that ACADIA is reaching the end of its rally, and that the stock could see an extended period of consolidation. While the stock could pullback, ACADIA is nowhere near being fairly valued, nor has it reached the end of its long-term rally.
The company's soon-to-be-approved drug pimavanserin has proved in clinical testing to be one of the most effective antipsychotic drugs in the market, and most importantly, does not produce the harsh mind-altering side effects that are found with other anti-psychotics. As a result, pimavanserin is poised to control all of the Parkinson's disease psychosis market, a market that has no FDA approved treatment. And while the drug is still being tested in treating Alzheimer's disease psychosis, most analysts believe that pimavanserin will immediately make its presence felt in this indication for off label uses.
As a result, pimavanserin is going to steal revenue from several blockbuster products, and due to this fact, becomes an instant acquisition target. Moreover, analysts now see $2 billion in peak sales, but depending on its off label uses, sales could climb significantly higher. Therefore, Acadia is trading at just 0.85 times peak sales, which by comparison is substantially lower than Pharmacyclics' 5.4 times peak sales on its potential blockbuster cancer product. Therefore, I do think that Acadia trades higher long-term, and I also think that it continues its trend of creating new highs after a slight pullback, meaning gains in the coming week.
Value Of The Decade Pushes Forward
Finally, my largest holding, and my 'Value of the Decade" selection, XPO Logistics (XPO). The non-asset based truck brokerage company is completing a public offering, and is now trading about $3 off its all-time high. Prior to last Monday's offering announcement, XPO Logistics had climbed higher by more than 40% in the preceding six weeks. The large gains followed yet another acquisition - the largest yet - as the company acquired a profitable trucking business with more than $300 million in annual revenue.
Now, XPO Logistics is on pace to exceed $1 billion in revenue over the next year, which is quite an accomplishment considering it had just $177 million in the full-year of 2011. This is a company that's growing rapidly, has high ambitions, and personally I have bought into the plan that CEO Bradley Jacobs is executing. Jacobs, who had founded four previous billion dollar companies, including United Rentals, has proven himself as a top mind in business for the last several decades, and I believe he will succeed in turning XPO Logistics into a $4-$5 billion a year business.
Part of Jacobs' business plan has always included financing, but after this latest offering, the fear of additional financings should diminish. With that said, most XPO investors, including myself, expected this latest offering following the acquisition of 3PD. Yet, despite this expectation, the stock continued to tick higher. Now, with the offering out of the way, XPO Logistics can continue its upward trend.
On Friday, after a week of continuous loss, the stock traded against the market to close with a gain of 1%. To me, this is a positive sign that a post-offering rally could occur. Because after all, with Jacobs successfully building four previous billion dollar companies, and already meeting all of his initial XPO Logistics goals, I think investors will be quick to buy. Overall, investors understand the goals of this company, we accept them, and with financing behind us, we can sit back and relax as Jacobs and his all-star executive team takes this company to the next phase, which is profitability.
In the past, my "5 Stocks To Watch For Gains Next Week" series has been very popular, averaging more than 20,000 readers per week! And while the title itself is catchy, I always remind investors to read this article, which shows the true intention of the series, and how patience is what ultimately creates gains in this market.
I've always said, I am not a technical trader, and I could care less about 50-day moving averages. Instead, I monitor sentiment, day-to-day trading behavior, and look to buy stocks that are undervalued relative to growth and fundamentals. In the article linked above, I explain and show that my picks don't always produce instant profits, but are chosen because I consider each to be solid investments based on price. Then, by being patient, gains are usually realized, perhaps not in days, but definitely in the near future. I think that each stock in this piece definitely fits into this category - stocks that will rise higher in time.