While the markets have settled down a bit after the Federal Reserve's QE3 announcement, there is still plenty of action in this market. Today, I will discuss five names: three to take a look at currently, and two you might want to avoid. I'll start with the three to look at.
Groupon shares rallied almost 14% on Wednesday after the company announced it was entering the mobile payments space. After a successful Bay Area test run, Groupon has opened up the service to any merchant that runs a deal in the U.S. Each transaction will cost 15 cents, plus 1.8% for Mastercard (MA), Visa (V), and Discover (DFS), or 3% for American Express (AXP). The funds will also be available overnight, so merchants won't need to wait a few days for funds.
For those that questioned Groupon's business model, this might be what gets investors re-energized in the name. Groupon shares closed Wednesday at $5.34, up from the $4 yearly low, but still well off the 52-week high of $31.14. While it might be prudent to wait to see if this stock back tracks a little, those who questioned Groupon's future may now think twice. Wednesday's news won't send shares to $10 in the next month, but this could be the potential of a long-term bottom.
Medivation got approval for its prostate cancer drug a few weeks ago, and announced a few days ago that the drug is now available. Xtandi was approved a few months ahead of schedule, and Medivation (along with partner Astellas) has worked to accelerate production.
Medivation shares have soared in recent months, and have backed off a little from their recent high of $113. The company will be executing a 2-for-1 stock split over the next couple of days, so don't be surprised when this name is trading in the $50s next week. I am long for a quick trade in this name, as I think we could retest those highs post-split. However, I could stay in the name post-split, depending on market action. The average analyst price target is over $131 currently, implying almost 30% upside from here. This stock has had a huge run, but there appears to be plenty of upside remaining. The pullback from recent highs may just be the perfect opportunity to get long.
United States Oil ETF (USO):
On Monday afternoon, crude oil took a sharp fall in a matter of minutes. The exact reason has yet to be determined, but it doesn't appear that there was any technology issues. It appears that a large long investor/holder may have decided to exit. Also, the constant overhang that the United States might release some of the Strategic Petroleum Reserve has help knocked down oil.
The opinion now seems to be that crude oil will drop below $90, and just remember, gasoline prices are up an average of 25 cents over this time last year. With the U.S. election coming up soon, it would not be a shock to see an SPR release, in an attempt to keep gas prices down for the time being.
The USO was over $37 on Monday, but has now fallen nearly $3 in a matter of days, falling further after a huge build in U.S. crude oil supplies was announced Wednesday morning. Those that believe oil has more room to the downside will want to short this down to the $30 to $32 range, but for those thinking oil will quickly rebound, you probably have about 5% of quick upside possible.
Now, for the two stocks to avoid:
Questcor Pharmaceuticals (QCOR):
This is an easy one for investors to avoid, especially if you are not a short term trader. Questcor shares opened lower and plunged as much as 56% on Wednesday after a report indicated that Aetna (AET) would stop reimbursement for most uses of Questcor's main product, H.P. Acthar gel. Citron Research said Aetna will drop reimbursement for all uses except infantile spasms. Questcor also markets Acthar gel as a treatment for multiple sclerosis, neuromuscular conditions, and a kidney condition called nephrotic syndrome.
Questcor shares were halted multiple times throughout the day, including one halt for more than an hour. Questcor came out with a statement Wednesday afternoon stating that there would be no material impact on its results, but shares fell after trading resumed. On Thursday morning, the company reiterated this stance.
Questcor shares closed above $50 on Tuesday. At one point Wednesday morning, they were close to $22. Shares rallied and dropped throughout the day, climbing back close to $36 at one point. However, investors were not comfortable with the company's statement, and shares lost another $4 after the resumption of trading late Wednesday afternoon. For the day, shares ended down nearly 48% to $26.35. On Thursday morning, shares were up nearly 8%, but $28.38 is still a far cry from the $50 plus it traded for on Tuesday.
I would expect this stock to be volatile for the next few days and around its next earnings report as well. This is going to be one of the new battleground long/short stocks, and I would advise long-term investors to avoid it at all costs. It was a great day trading stock on Wednesday (I even made a small profit), but I would not suggest making any longer term moves on the name.
Deckers Outdoor (DECK):
I recently published a negative article on Deckers after a cautious analyst note came out Monday morning. The analyst, as I noted, was the same one whose report that UGG sales were struggling last year caused me to call Deckers at a short candidate. Deckers was over $90 then, and since has fallen mightily.
Deckers started the week just under $49, but has lost nearly $9 since then. Volume in the past two days has been nearly 12 million shares, and the 90-day average had been just 1.7 million shares. Wednesday's fall appeared to be as a result of that same analyst publishing another negative note on Deckers, stating that the company was dropping prices on some of its Classic UGGs and other products.
There has been some good debate on my Deckers articles, as well as a few others out there, about the impact of falling prices. Sheepskin prices have come down a bit, and that should help gross margins, but to what extent is the question. Is Deckers dropping prices to pass on savings to the consumer, or are they trying to spur demand because they just aren't selling anything right now?
Right now, there appears to be more going on than just my article or one analysts' note. The volume was extremely heavy Wednesday, especially at the opening. Are short sellers taking this name down again, or has a large investor finally bailed on the stock? I think that investors, both long and short, need to take a step back, and wait for Deckers to settle down. I would not enter a new short position here, although one more round of selling like this would push the name to $35. I also would not enter a permanent long position here either, mostly for the same reason. There is more going on with this name than meets the eye, and for that reason, it is a name to avoid completely for a little while.
Disclosure: I am long MDVN, and I may initiate short term long/short trades in QCOR in the next few days.