Wednesday turned out to be a wild trading day with the Dow Jones trading in a near 200 point range. There were several stocks that traded with big gains and large losses throughout the day with market moving developments. Below we are looking at 6 stocks with strong movement, into the after hours, in an attempt to decide if the movement was significant to the future of the company. The goal is to determine whether or not the activity of these stocks is to be continued or if the stock will reverse and trend the opposite direction.
The McClatchy Company (MNI) posted a gain of more than 60% on Wednesday after slimming its debt and reporting that ad sales are recovering. Despite the strong gains, the stock's still trading with a loss of nearly 50% over the last year and 95% during a five year period. The company's in a position to where it can not make mistakes with its market share and revenue descending each of the last four years. And although the news Wednesday was encouraging, I'm not ready to buy this news and I fear that MNI could be facing Chapter 11 in the future. There is no way to know for sure, which is why I'm not buying, because there are simply too many questions.
Halliburton Company (HAL) continued on Wednesday after BP's (BP) allegations that Halliburton was responsible for the 2010 Gulf of Mexico oil spill and destroyed the evidence. Whether or not the accusations are true it's almost certain that a rumor such as this would affect the company's stock. And because of this allegation the stock's fallen nearly 9% over the last three days including 6.10% on Wednesday. I'm buying this news and believe it would be a great opportunity to purchase a fallen stock in a growing company. Halliburton grew revenue by 40% and earnings by 25% during its most recent quarter and I don't see any way this news could affect its future growth. Therefore, I'm buying and will ride out the abhorrent publicity until the fundamentals of this company ultimately drive the stock higher.
THQ Inc (THQI) just seems like a company in turmoil and has fallen by 16% over the last three days. In addition, the stock's fallen by an additional 15% in after hour trading after cutting its revenue by 25% on poor uDraw sales. The stock's fallen by 75% over the last year and 95% during the previous 5 years, as a result of revenue that consistently declines. At this time, I see no value in this stock or its current position. I see no bottom for its stock at any point in the near future and worry that it could at some point in the near future be facing bankruptcy. Therefore, I believe the stock's reaction to this news is appropriate as it appears to be the beginning of a harsh time for this company.
Caterpillar (CAT) has lost 3% of its value during the last three days, which may not seem to be relevant, but during the same period the Dow Jones has gained 1.5%. This movement is very strange for a company that almost always leads the Dow Jones in contribution to point gains, yet on Wednesday the stock accounted for a 8.10 point loss on the Dow Jones which is uncommon when the market trends higher. So although its loss doesn't seem like a lot, it's actually the largest loss to the Dow Jones of any other stock in the market during this period. And I have been unable to find any reason to validate it trending against the market, since the company hasn't released any discouraging news.
The stock has posted a gain of 32% since October 3 which is highly volatile for a stock with such a large valuation, therefore, I believe the three day loss is nothing more than profit taking. I would buy on the recent pullback because the company is growing at a faster rate than nearly all of the Dow components -- but as it approaches the $100 milestone its gains may stall -- which could have contributed to the pullback. I believe that in the near future, with improving fundamentals, this stock will trade at a level much higher than $100 and its current range will be nothing more than a distant memory. I see no reason to not purchase the stock during this pullback, because as a long-term investment it will return large gains.
I believe that Pacific Sunwear of California (PSUN) brought about more progress in becoming a profitable company after the markets closed on Wednesday then at any point of the last year. The stock surged 44% in after hours after the company announced that it was going to close 200 stores. The company's fought hard to keep its stores, but after four years of declining revenue and slipping margins, the company was forced to close branches. Investors have responded with optimism and excitement with profitability being a likely scenario during the future.
It's no secret that the company operated with too many stores returning a loss, but now the company will be able to nearly start over and focus on improving its profitable stores and making the company more efficient. This will give the company an opportunity to start from scratch and possibly avoid bankruptcy. In addition to the company closing 200 stores, the company's received a $60 million loan in return for a 20% stake in the company and two seats on the board. I am definitely buying this news and believe that the recent developments could be the start of a new chapter in a company that can improve its operations rather than just trying to survive.
G-III Apparel Group (GIII) has returned 10% during the last five days and is now trading with a 21% gain in after hours after beating 3Q expectations. The company increased revenue by 13% year-over-year and posted a profit $43.6 million, a gain of nearly $900,000 over last year. The stock's declined by 34% over the last year as investors have anticipated weak earnings. Therefore, the quarter was a surprise and I'm buying the news short-term. Because of the company's strong quarter I am optimistic that it can perform well throughout the remainder of the holiday season and since it trades with a low valuation compared to earnings, I believe it could continue to rise. However, the company still faces long-term issues and I am not comfortable purchasing the stock as a long-term investment.
Disclosure: I am long CAT.