As our elected officials toy with plunging the U.S. and world economies into another state of siege, it’s once again time to project how earnings reports will affect the stock price of “momentum movers”—equities that have curried favor with the day-trading crowd, or have a reputation for making quick price moves.
As I’ve noted before in past articles with the same theme, earnings can be a catalyst, both to the upside and the downside for the stock price of these issues. If you can make a solid educated guess as to which way the price will go, it can turn out to be a good recipe for quick trading profits. On the other hand, if you’re wrong, it can be a painful lesson in the sometimes pocketbook-punishing power of market forces.
Glu Mobile, Inc. (GLUU): Scheduled to report on July 27
For many moons now, Glu Mobile has been the darling of daytraders. The company makes and markets some of the most popular mobile games in the sector. Its properties include Call of Duty, Guitar Hero 5, Deer Hunter and a host of other well-known names. The company also has a key strategic relationship with NVIDIA Corp.
Like so many mobile gaming and “app” plays, Glu isn’t a profitable company. In fact, on a net income basis per quarter, it has been in the red to the tune of $2.5 million, $5 million, $1.1 million and $2.4 million dating back from its most recent reporting period. Despite the losses, the company’s share price has risen relatively steadily during that time from under a buck to its current level at $5.65 per share. Arguably, outside of being a good “story stock,” there’s not much in Glu’s earnings record to support the rise, as gross income has increased only incrementally.
My prediction: As long as overall market conditions remain bullish, GLUU shares will continue to accelerate in price—barring an earnings disaster. That ‘s because the GLUU story in particular, and mobile apps and gaming in general, will be in the spotlight for years to come. I’m not saying it will be a straight line up, and I would expect price dips to be the norm. But GLUU’s relatively small float size of 39 million shares, and growing short interest that currently number 5.36 million shares bode well for further gains.
L&L Energy (LLEN): Scheduled to report on July 29
If you’re at all active in the stock market, then I don’t need to recount specifics about the last 12 months of carnage that “China plays” have endured. I can’t remember a complete sector falling from grace as quickly or completely since the bursting of the internet bubble.
The question remains as to which, if any, of these companies will survive as the true growth stories that their financial numbers indicate. Right now, that’s the position the shares of Chinese coal producer L&L Energy find themselves in. If you can believe the financials, then the company has gradually and consistently been building revenues and net income. Looking at that financial report is like reading the past performances of a race horse that wins every race. Of course, some have called into question L&L’s numbers, and the stock has had a highly volatile trading pattern.
My prediction: It seems like the shares of almost all “China plays” have become little more than trading chips in a war between long term investors, momentum traders and short sale specialists. Over 4 million of LLEN’s 20 million share public float have been sold short, although that number has actually decreased a bit recently.
My gut feeling tells me that LLEN will be one of the survivors of the U.S. exchange-traded Chinese plays, but will find share price appreciation tough sledding until the veil of mistrust has been lifted from the sector—no matter how good earnings appear to be.
Pacer International (PACR): Scheduled to report on July 28
As goes the economy, so usually goes shipping, trucking and freight companies. Pacer International is a mid-size air delivery, freight and shipping company, operating over 1800 double-stack railcars, 16, 500 containers, and almost 16,500 chassis. With the economy lurching to and fro, but essentially going nowhere over the past few months, the same has been true of PACR’s stock price, which tends to follow the markets higher and lower, as indicated by its relatively high beta of 2.32; recently, despite the markets’ run-up over the past two weeks, PACR shares have been confined to a relatively narrow range, bottoming at a technical support level of about $4.50 per share.
In the past, market participants have managed to run up the price of PACR shares fairly quickly, usually in response to news of a recovering/growing economy. And perhaps that’s true of most shipping and transportation stocks across the board. As a result, traders most likely keep this one on their radar screens, waiting for the right moment to strike—if and when it comes.
My prediction: Unless PACR blows past earnings estimates, which vary widely from .04 - .11, or the market amps up on good economic news, then it will tread water at current levels of around $4.80 per share, or even look for new 52-week-lows under $4.42 per share, touched in March.
That said, a stellar earnings report, combined with good news on the economic front, will send the share price of PACR higher. Right now, I’m neutral on PACR, and would be surprised by a significant earnings beat, but it’s a stock worth keeping on your radar. And any significant earnings miss may make PACR a decent short candidate. Already almost 20% of PACR’s 35 million share float is sold short, and that number could increase with bad earnings news.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.