The S&P 500 ($SPX) rose 2.2% and the broader Russell 3000 ($RUA) rose 2.1% during the past week ending July 22nd, 2011; this almost completely reverses the 2.1% and 2.2% losses during the prior week. Of the 4,600 stocks that were tracked, 87 stocks trading above $1 at close on July 22nd rose more than 15% during the week. These biggest gainers stocks were analyzed to determine if they would continue going up, or if they would reverse their moves going forward. The following are the best buy and sell ideas based on that analysis:
Buy Gafisa SA Ads (GFA): GFA is a Brazilian builder of residential homes and communities and commercial structures across Brazil. Over the last fifty years, it has been recognized as one of the foremost professionally managed homebuilders, having completed and sold more than nine hundred developments and constructed over four hundred million square feet of housing in Brazil. It was up 17.6% during the week and is down 32.1% YTD.
GFA trades at a 10 price-to-earnings ratio (P/E) on a trailing-twelve-month (TTM) basis and at a forward P/E of less than 5-6, in the lower one-third of its historic P/E range. Revenue and earnings are projected to increase from $2.15 billion and $1.12 in 2010 to a projected $2.69 billion and $1.11 in 2011 and $3.18 billion and $1.73 in 2012. The stock is down 46% from the $18.24 highs in October 2010, mostly on account of high inflation, interest rate hikes by the central bank, and a 40% cut in the government outlay for low-income housing. Furthermore, recent weakness below the $12-$14 range can be attributed to the most recent March 2011 quarter report when the company reported 4 cents in earnings, well short of the analyst consensus estimate of 20 cents.
At issue is whether one believes that the Brazilian real estate market is a bubble, and whether when the party ends will it be a soft landing or a hard one like in the U.S. We believe that overall the Brazilian economy is strong and the strength in the real estate market, although not without bumps, is sustainable, fueled by an expansion of the middle class and lower unemployment numbers. While it is difficult to precisely call the bottom, we believe that the sell-off is overdone and that GFA shares are now attractively priced to be bought.
We first put out a buy on GFA last week on Tuesday when the stock was trading in the $8.50s. We reiterate our buy recommendation, and with the stock up 20% since our initial buy recommendation, we would start here with a small position and add to it stages to take advantage of any temporary weakness in the price. Analyst targets for GFA are a mean of $12, with a high of $12.60, still above the current price in the $9.80s; and of the three analysts that cover the company, one rates it a strong buy, one a buy, and the last one rates it at hold.
Sell Advanced Micro Devices (AMD): AMD is the second largest producer of microprocessors, GPUs and chipsets in the world, behind market leader Intel Corp. (INTC). It provides microprocessors for server platforms, including multi-core processors; it also provides embedded processor products for vendors in industrial controls, digital signage, point of sale, medical imaging, set-top box and casino gaming machines, as well as enterprise class telecommunications, networking, security, storage systems and thin-clients, or computers; and it provides integrated graphics processor chipsets and discrete chipsets for desktop and notebook PCs, professional workstations, and servers. The stock was up 20.5% during the week and is down 5.3% YTD.
AMD traded higher last Friday, up 19% for the day, based not on a stellar quarterly report, but mainly because expectations were so low going into the report. Specifically, AMD reported $1.57 billion in revenue and 9c in earnings versus analyst estimates of $1.58 billion and 8c, and it guided revenue for the September quarter slightly higher to $1.70-$1.76 billion versus the consensus $1.70 billion estimate. We believe that with the stock sharply up, and trading at a fair valuation of 16 times TTM earnings and at 10-11 forward P/E, it has already captured most of the upside from the earnings report.
Our focus now would be on the long-term risks, including concerns over the declining forecast for PC sales, the ability of AMD’s Fusion-chips to compete with Intel’s high-end Sandy Bridge chips, and over the company’s ability to find a top-talent new CEO to guide the company going forward. The stock has positive momentum and is likely to get stronger and move above $8, but we would sell it into any rally between $8 and $9. It would seem that analysts agree with us as the mean target for AMD is $8.76, slightly above the current price at $7.75; and of the 33 analysts that cover the company, eleven rate it buy/strong buy, 16 rate it hold, and six rate it at underperform/sell.
National Bank of Greece Ads (NBG): NBG is a financial service bank operating via 1,808 branches in Greece and eleven other countries. It provides a full range of financial products and services to corporate customers and private individuals alike, including retail and corporate lending, investment banking services, insurance, asset management, brokerage, leasing and factoring. The stock was up 21.3% during the week, but is down 11.9% YTD; it is down 89% below its $13.53 all-time high in late 2007. Only one analyst covers the stock, and has a target of $1.60 and a hold rating on it. We would be neither buyers nor sellers in NBG; we would simply avoid it. With the Greek crisis still unfolding, it is difficult to make a case of investing in the stock; however, at the same time, with the stock down 89% from its highs, it is too risky to short as any resolution or indication of that would result in a short squeeze and quick rise in the stock price.
Buy Molycorp Inc. (MCP): MCP is engaged in the mining and processing of rare earth ores at the mountain pass facility near the CA/NV border. The rare earths are critical inputs in existing and emerging applications including: clean energy technologies, such as hybrid and electric vehicles and wind power turbines; multiple high-tech uses, including fiber optics, lasers and hard disk drives; numerous defense applications, such as guidance and control systems and global positioning systems; and advanced water treatment technology for use in industrial, military and outdoor recreation applications. MCP was up 15.4% during the quarter and is up 20.9% YTD.
MCP trades at a forward 15-16 P/E, while revenues and earnings are projected to increase from $35 million and 54c loss in 2010 to projected $385 million and $1.75 in 2011 and $651 million and $3.86 in 2012. Shares have corrected almost 25% from their recent highs in early May, and the company is projected to report June 2011 quarter report on August 11th after the market close. Analysts are projecting $95 million in revenue and 44c in earnings for the June quarter, a huge sequential jump from the $26 million and 1c reported in the prior March quarter.
Analyst targets for MCP are a mean of $94, and a high of $120, well above the current $60 price; and of the seven analysts that cover the stock, five rate it at buy and two rate it at hold. MCP shares due to current losses can still be bought at a huge discount to its growth rate; that is, the company trades at a forward 15-16 P/E while earnings are projected to grow 100%. Furthermore, there may be huge upside to the analyst estimates if rare earth prices continue to remain strong. We would be buyers of MCP ahead of the earnings report.
Avanir Pharmaceuticals (AVNR): AVNR develops products to treat the central nervous system and inflammatory diseases. The U.S. Food and Drug Administration (FDA) recently approved NUEDEXTATM for the treatment of pseudobulbar affect (PBA), and it is also in phase 3 development of AVP-923 for the treatment of diabetic neuropathic (DPN) pain. Furthermore, its first commercialized product, Abreva, is marketed in North America by GlaxoSmithKline Plc Adr (GSK) Consumer Healthcare division and is the leading over-the-counter product for the treatment of cold sores. The stock was up 15.0% during the week and is down 4.4% YTD. The stock was up on news on Thursday last week that the congressional inquiry into the pricing of NUEDEXTATM, alleging that the company over-charged for the pill, had concluded, and the company was notified that after a review of the information AVNR had provided to the FDA, the agency had decided that it did not intend to pursue the matter any further.
E*Trade Financial Corp. (ETFC): ETFC is a provider of online brokerage and banking services primarily for retail clients worldwide via etrade.com. The stock was up 15.6% during the week and is up 21.1% YTD. Recently, the stock has been up due to renewed takeover speculation, this time tied into Citadel taking a 9.8% stake in the company, and urging the company to explore strategic alternatives to maximize shareholder value, a code-word for selling the company to a strategic buyer.
Hyperdynamics Corp. (HDY): HDY is engaged in the exploration and production of oil and gas in the offshore coast of the Republic of Guinea in West Africa. The stock was up 21.7% during the week, and it is up 9.9% YTD. Two analysts currently cover the stock, and they have both given an $8 target, well above the current $5.45 trading price; and one rates it at strong buy and one rates it at buy.
United Rentals Inc. (URI): URI provides construction industrial equipment rentals and sales through 531 locations in the U.S. and Canada. The stock was up 15.1% during the week, and it is up 16.4% YTD. The stock was up last week based on a quarterly report on Tuesday after the market close whereby the company missed earnings estimates, but showed improved margins and higher rental revenue. Analysts have a mean price target of $38, with a high of $50, well above the current $26 price; and of the thirteen analysts covering the company, twelve rate it buy/strong buy and one rates it at hold.
Advanced Battery Technologies (ABAT): ABAT is a manufacturer of rechargeable polymer lithium-ion batteries for cell phones, laptop computers, PDAs, and digital cameras. The stock was up 37.6% during the week, it is down 61% YTD, and it is down 85% from the highs in 2007. ABAT trades at a very cheap forward 3 P/E, while revenue and earnings are projected to increase from $88 million and 48c in 2010 to a projected $136 million and 52c in 2011. No guru funds hold this stock, and only analyst covers the stock, rating it at hold and a price target of $6. ABAT trades at such low valuation due to uncertainties surrounding allegations of fraud at the company, and we would steer clear of this company despite the low valuation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.