This is the fifth in my pre-earnings series on "momentum movers" — stocks which have made large, and even parabolic price moves in the past. A few years ago my Twitter stock guru pointed out that when a stock has a history of advancing quickly, history frequently repeats itself, and earnings often serve as a catalyst for those moves. Since then, I've kept a watch list of these issues. Here are five snapshots of momentum movers scheduled to report earnings next week, and my handicap of how their stock prices might perform. Don't be surprised to see them in play leading up to, and after they report earnings.
Cost Plus World Market (CPWM) (Scheduled to report May 18)
A year ago shares of Cost Plus World Market were on life support, rapidly bleeding out to the $2.60 level. The victim of a bad economy and slow sales, the CPWM chain looked like it might be headed the way of the old five-and-dime store. Flash forward to this month, when the share price recently hit new 52s, briefly piercing the $12.80 mark before falling back to its current price of $10.50. A blow-out fourth quarter was the catalyst, which saw the company swing from a money-loser to profitable in one fell swoop. With a market cap of roughly $225 million and projected earnings growth of 69% in 2011, a strong argument can be made that CPWM is undervalued.
The price movement in CPWM fits the bill of a momentum mover to a tee, but key questions remain. Does CPWM's current stock price truly reflect good and improving business conditions at Cost Plus, or is it more a function of the company's trader-friendly 13 million share float and over 10 percent of those shares sold short? And is the company's growth rate already built in to the current price, which could trigger a sell-the-news response barring anything but another blowout quarter?
My prediction: Unlike Dollar Tree (DLTR), which I discuss below, Cost Plus caters to a slightly more upscale customer base, with a highly eclectic and somewhat erratic array of product lines. At the same time the company posted good earnings and same-store sale increases last quarter, they lowered expectations for 2011. The economy has picked up a bit, but is still lagging, and my hunch is that will be reflected in CPWM's next earnings report — with sales picking up a bit, but lagging enough to discourage investors. I think the run in CPWM is over for the time-being. Obviously, however, a significant earnings beat could send these shares much higher given the micro-float and high level of short interest.
E-Commerce China Dangdang, Inc. (DANG) (Scheduled to report May 16)
I'm going to avoid the obvious, except to say that E-Commerce China Dangdang has one of the best ticker symbols in the market today. And no doubt the ups and downs of this volatile Chinese Internet play have left traders and investors both cussing and cheering, depending on which way the stock price is gyrating. Basically, DANG sells books and other products to Chinese consumers, with a space for third-parties to sell goods as well — kind of a hybrid between Amazon and E-BAY. Right now the company sports a PE of almost 1,500 and has scratched out a tiny profit over the past year. The share price has bounced between $18.30 and $36 since the stock debuted last December.
I only found one financial report filed for DANG. In it, the company reported gross income of $111 million, generating a net profit of about $2.7 million.
My prediction: It says a great deal when a stock that comes to market with so much fanfare and institutional interest has already attracted so many naysayers The short interest in this puppy is a whopping 44 percent of the 88 million share float. Perhaps institutions have been playing both sides of the fence with DANG. Given the large-scale shorting, earnings could ignite a short-lived, short-covering spree that will quickly lift the share price. Unless those earnings are stellar, however, my instinct here is that DANG's share price will rapidly tumble down to new 52-week-lows, especially if the market tone remains negative. Keep this one on watch, however, for when China stocks rally as a sector. It will happen someday, but right now the winds of disbelief have created a stiff headwind for these issues.
Dollar Tree (DLTR) (Scheduled to Report May 16)
On the subject of names, if ever a stock has lived up to its name for shareholders, Dollar Tree has. Throughout most of the 2000's DLTR shares based at under $20, occasionally pierced that level, then always retreated. Then came a near Depression in 2008 and shares of the super-discount retailer began as steady ascent that has pretty much continued non-stop. Right now they're sitting at $58 each, a buck off their 52-week highs.
Fundamentally, there's good reason for DLTR's steady ascent. Year-over-year the company grew revenue at a 12.4% rate, and their projections for growth going forward are bullish, at greater than 14% for both 2011 and 2012. The company is also putting expansion plans in play.
My prediction: A tough employment environment, coupled with a slow-growing economy and record high prices at the gas pumps will keep consumers on the hunt for low-cost goods. That's what Dollar Tree sells, and that's why their stock price should continue to climb. Making a trade prior to earnings, in expectation of a nice post-earnings price pop, is the way to play this one — and it seems like a low-risk, high-reward strategy. Even if the trade doesn't work out for a quick flip, odds are the share price of DLTR will continue to ascend over the long term.
Gulf Resources (GFRE) (Scheduled to report May 20)
Gulf Resources is the latest in a long and troubling line of publicly-traded Chinese companies that have been hammered by allegations of cooked books, fraudulent statements and, in some cases, the complete absence of any real business operations. According to GFRE's company profile, they sell bromine and other chemicals for a variety of industrial applications. According to naysayers, who have circled the wagons around GFRE shares and knocked the price down from $8 per share to a recent low of $2.30 cents a share, the company's books have been cooked in bromine. That hasn't stopped traders from jumping in off that share price low, pushing the price of GFRE's stock back up to about $2.90.
If legitimate, GFRE's financials would be the envy of many companies, with the company bankrolling net income of over $50 million last year, thanks to four very profitable quarters in a row.
My prediction: While the 19 million share GFRE float looks like an inviting target for traders betting long, especially with over 4 million of those shares sold short, I wouldn't want any of my money anywhere near this stock during earnings time, or any other. The tide against China-stocks like GFRE has turned into a tsunami, and just because share prices are low, doesn't mean they can't go even lower still. Remember what happened to so many internet stocks which once fetched hundreds of dollars per share?
Tengasco (TGC) (Scheduled to report May 19)
Tengasco is a small but profitable oil and gas producing outfit with operations in Tennessee and Kansas. They have proven reserves of 2.5 million barrels of oil, and have been gradually adding new wells. They have also increased their gross profit for four quarters in a row. The one albatross around the company's neck is an unusable natural gas pipeline that TGC is carrying on its books for substantial losses. Operations, however, have put the company in the black, and they recently were granted a $6 million credit line increase to $20 million. With a relatively small float of 33 million shares, market participants ran the price of TGC up through $1.50 recently, but it has now pulled back to .81 cents.
My prediction: I've followed this company for years, keeping it on my "oil and gas" stock watch list. I like the fact that they're gradually growing sales and reserves, and continue to drill new wells. They'll never be Exxon, but in a bullish environment for crude oil, TGC shares are worthy trading chits. Right now I'm neutral on TGC, and expect shares to consolidate around their current price level, especially if crude begins to correct lower following the early-year commodity run-up. I would, however, recommend keeping them on your trading screen for the next big run-up in crude oil prices.
Good luck and trade carefully.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.