5 Stocks That Showed Relative Strength in a Weak Market

 |  Includes: AIG, DNDN, GOOG, S, SIRI, VXX
by: NakedValue

The stock market experienced a broad sell-off amid European fiscal and political uncertainties. The Nasdaq index was down 31.75 points or 1.24% lower. The S&P 500 Index closed 11.73 points lower or 0.97%. But despite the selling, there were handfuls of stocks that defied the trend and displayed relative price strength. Investors should take a closer look at these stocks to determine if the catalysts for the current strength can persist.
American International Group (NYSE:AIG)
The international insurance company is well known to casual market watchers because of their near death experience during the 2008 financial crisis, but on Tuesday, the stock was essentially flat on the day, following below average trading volume. The strong relative price performance is likely attributable to the recent dissemination of hedge fund position disclosures. During the last quarter, large investment funds like Fairholme Funds, Glenview Capital Management, DE Shaw and Wellington Management purchased sizeable stakes. Once you factor in the strong fundamentals, it becomes easier to see the bull thesis. The stock trades at a trailing P/E of 8.08, a forward P/E of 7.93 and a price/book of 0.52.
Dendreon Corp (NASDAQ:DNDN)
The former high flying biotechnology stock finished the Tuesday $0.42 or 3.32% higher. The stock move was not backed by headlines, but may have been a continuation of the stock price bounce back since dropping from around $35 to $9 following weak earnings and revenue guidance from management earlier this month. During the most recent quarter, revenues were $49 million, but management withdrew their $350-$400 million guidance for 2011 because of physicians' concern about the reimbursement process associated with DNDN's $93,000 drug, Provenge.
Still, we view the company as an interesting investment opportunity at these price levels. While the physician reimbursement concern is a near term headwind, the drug is ultimately approved by the Centers for Medicare and Medicaid Service.
Sirius XM Radio (NASDAQ:SIRI)
The satellite radio company's shares have been volatile this month along with the stock market. During August, the stock's intra-day price ranged from $1.63 to $2.22. The stock price settled down Tuesday, closing up $0.01 or 0.53%. The company's price move was not driven by any obvious company specific headlines.
Sprint Nextel Corp (NYSE:S)
The national wireless communications company trades at distressed levels despite the increasing value of bandwidth as evidenced by the popularity of metered retail wireless data pricing. On Tuesday, the stock traded $0.11 or 3.16% higher on the day partially boosted by a Collins Stewart analyst's upgrade of the stock based on expectations that the company should show significant improvement by 2013. A less obvious reason for the stock's relative strength may be continued tailwinds from the Google Inc (NASDAQ:GOOG) acquisition of Motorola Mobility (NYSE:MMI). Many have started to speculate about other corporate combinations in the technology world. Many of these rumored possibilities include Sprint Nextel because of its central role in the growing smartphone market as well as the company's price tag.
iPath S&P 500 Short-Term Futures Index (NYSEARCA:VXX)
The instrument is an exchange traded note [ETN] sponsored by Barclay's. As a derivative on the S&P 500 implied option volatility, it is not surprising that VXX increased in price as the stock market declined. The ETN traded 55.67 million shares, which is well above the average three month volume of 37.53 million shares. The ETN closed at $32.87, a 2.14% increase from the previous day's close.
Based solely on the instrument's price graph since inception, it may be tempting to assume that shorting the security is a "free lunch," but there is much more to it than that. In addition to the costs of rebalancing and maintaining the security, backwardation and contango issues are the real driver of VXX returns. Any sudden shift can have sizeable consequences.

Disclosure: I own shares of DNDN, AIG, MMI. I am short shares of VXX. I may initiate a long position in GOOG, S over the next 72 hours.