The markets have been particularly unpredictable over the last week as the Dow Jones lost more than 2.5% of its value. Monday and Tuesday posted decent gains however Wednesday brought great loss with questions regarding Italy's debt coming to the forefront of economic concern. The next few weeks will most likely consist of ups and downs with the market reacting to every word out of Europe.
With Italy in the spotlight and rising concerns in Spain including continuous problems with Greek investors can be assured that the markets will be volatile. With that being said, I believe that volatile markets create both short and long-term opportunities and I have listed six stocks that have fallen over the last week that I believe have upside potential during next week. Each of these stocks have been very volatile over the last three months and are trading at levels that I believe present value.
General Motors (GM) has lost 11% of its value since announcing earnings on Wednesday. The company met top line expectations and exceeded bottom line expectations yet investors weren't satisfied and the stock trended lower. The only weakness that I have identified within GM's report was Europe, which posted a $300 million loss, and led the company to lower guidance within its European region.
However, sales in Europe produced an additional $1 billion year-over-year which I believe shows progress considering the financial crisis that is taking place within the eurozone. Overall, GM had a decent quarter but it was heavily affected by the strong movement within the market caused by European fear. Therefore I believe that GM lost more in value than what it should have, and is now presenting value for short-term investors looking to make a quick profit.
I wouldn't be surprised to see GM regain all of its loss in the coming week if the market recovers and trends higher. Because stock performance is controlled by news out of Europe, and although GM may have trended lower regardless if the market had trended higher I don't believe that its earnings were bad enough to justify an 11% loss.
Alcatel Lucent (ALU) has lost 30% of its value over the last 5 days after a disappointing earnings report. The quarter itself wasn't all that bad, in fact, the company is operating with margins 100% greater year-over-year and it posted income of $267 million compared to $25 million in 2010. Therefore, I believe the stock's loss was a result of the company lowering guidance as a precaution because of assumed weakness in Europe.
Much like GM I can't find a way to justify the reaction considering the stock has lost 70% of its value over the last 6 months, because of weakness in Europe. I assumed the price was already factored into the stock, however, panic within the market and a devastating market reaction on Wednesday caused ALU to trend significantly lower. And although I believe the stock would make a great long-term investment from its current position I am near positive that it will return large gains in the near future for the investor that takes advantage of its price.
The company has organizational issues but it also has encouraging partnerships in the most heavily populated areas of the world. And I believe these partnerships will bring the company profits in the next 3 years after the trial period of its 4G LTE network is complete. But regardless of its long-term potential the stock is oversold and is presenting value and will most likely post gains over the next week assuming that nothing particularly damaging comes out of Europe.
I am not going to suggest that Green Mountain Coffee Roasters (GMCR) would make a good long-term investment. However I am suggesting that it will post moderate gains at some point next week. This stock lost over 40% of its value after announcing earnings below expectations, despite the quarter being its best quarter to date. Most investors know the story behind GMCR therefore I will not bore you with the details.
However, there are striking similarities between GMCR and Netflix (NFLX) which leads be to believe it could trade similar to NFLX after it posted a disappointing earnings report. Netflix posted a similar level of loss but recovered within ten days to post a gain of 20%. And although its unknown if GMCR will post a similar level of return I believe that GMCR is a better investment than NFLX with less competition and no factual reason to believe that its business is declining. Therefore this reaction to its earnings may have given investors an opportunity to ride the stock higher as history repeats itself.
Because one fact that I like to share with new investors is that a stock is incapable of maintaining a price-to-earnings above 100 forever, it has to come down at some point, and when it does it can create value for investors that are willing purchase shares. And I believe that GMCR is presenting value and although it may fall slightly lower before recovering some of its loss it will most definitely rise from this point in the near future.
Macy's (M) simply made the mistake of announcing earnings on a day when the Dow Jones crashed by nearly 400 points. Macy's earnings were solid yet because of the market its stock posted a loss. We've seen this reaction with several stocks during earnings season: Harley Davidson (HOG), JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), etrade (ETFC), among several others that each trended lower with the market despite strong earnings.
However, each stock recovered once the market trended higher to post gains, with most reversing to post large gains within a few days. I expect a similar reaction with Macy's and I wouldn't be surprised if this stock posts gains of nearly 10% during next week as its strong earnings are reflected through its stock price.
After looking at SodaStream's (SODA) 5 day chart you wouldn't guess that the company just announced exceptionally strong earnings. The company increased revenue 41% year-over-year and posted an EPS of $0.50 which was high above expectations. The strong earnings were a result of additional vendors which include companies such as Target (TGT) and Best Buy (BBY) selling SodaStream's product. As a result the company is expecting higher sales for Q4 and increased its full year revenue guidance by 6%.
Therefore with earnings this strong most would assume that the stock would be trading with very high gains. However the stock is trading with a 4% loss since announcing earnings despite its initial 13% gain which immediately followed its earnings report. Since the 13% pop the stock has declined including a 8.7% loss on Thursday which I believe is very surprising considering the company's strong earnings. Much like the stock performance of Macy's and General Motors I am unable to justify the trend of this stock which should be traded significantly higher.
The only explanation is that investors were simply taking profits which caused a domino effect and because of the stock having a relatively small market cap it caused large loss. Therefore I believe that SODA is presenting a significant amount of value and with solid earnings and an illogical trading pattern I expect for SODA to post very large gains over the next week as more rational investors capitalize on its value.
Apple (AAPL) has lost 5% of its value or $18.38 billion from its market cap over the last two days. Most believe the loss has been a result of questions surrounding its high expectations and fear that margins may decline with increased material prices. I believe these fears are ridiculous and that investors are simply trying to find an issue in a perfect company with flawless fundamentals.
The company has great returns on equity and assets with no debt including incredible operating and profit margins. And the company increases its earnings and revenue by billions year-over-year during each quarter and creates the most innovating products in the world. In my opinion Apple is the perfect company and analysts are just looking for something negative in the company. But with a remarkably successful iPhone 4S and a much anticipated new iPad later in the year I can't find any reason to be pessimistic regarding this company.
In fact I don't believe there will be too many chances to purchase shares under $400 over the next five years. Therefore I believe the stock is presenting significant long-term value along with short-term value in a stock that is almost certain to recover just as quickly as it fell.
Disclaimer: As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy but rather informational purposes only.