Tripling Your Money: The Long And Short Of It

Includes: FB, FBIO, TDC
by: Mark Gomes

It was another record-breaking week for the Poised To Triple portfolio of stocks we've been presenting on Seeking Alpha. Continuing our unprecedented string of triples, Facebook (NASDAQ:FB) hit 54.83 on Friday -- 204% above the level at which we added the stock to our portfolio about a year ago.

At the time, sentiment toward Facebook was at rock bottom. The negative feelings were certainly justified (but only somewhat). Facebook's horribly executed IPO hampered the company's credibility. Months later, investors were fretting over the eccentricities of Mark Zuckerburg and a daunting transition to the mobile world.

However, as we predicted, those fears would soon be overshadowed by a successful mobile transition, which sent the shares back up to, and beyond, its IPO price. At last, investors are starting to understand what an incredible asset Facebook is. In our opinion, it has become the preeminent online communications medium, making it a near-requirement for virtually any Internet user to join. In the wake of Google's (NASDAQ:GOOG) outstanding Q3 results and all-time high, we believe Facebook's potential continues to be aptly summed thusly: "Google knows what you're looking for, but Facebook knows who you are."

With its ascent into 200%+ territory, Facebook has officially become the 16th of our 22 Core Portfolio selections to double, triple, or be acquired since we started contributing to Seeking Alpha in 2009.

That being said, outperforming the market is not just about picking superior long positions.

In fact, our biggest winners of the week included two troubled companies that we recommended betting against.

The first pick was Coronado Biosciences (CNDO). I wrote about it on July 22 when the stock was $8. I wasn't certain it was going to drop, but felt it was a good bet. On Monday morning, its experimental Crohn's disease treatment (which used eggs from parasitic worms found in pigs) failed in a clinical trial.

The news sent the shares plummeting to $1.91, generating a 75% profit for investors who were short the stock. Looking forward, with its flagship hope in the rejection pile, it is abundantly clear that CNDO has a long road ahead of it.

The second short idea was made by my good friend and fellow analyst, Josh Burwick. On March 13, he wrote a negative article about Teradata (NYSE:TDC) and how Amazon's (NASDAQ:AMZN) Big Data efforts were going to put a dent in its business. At the time, the stock was $58.50. Well, on Monday evening, TDC pre-announced negative Q3 results. This sent the shares down to 46.50 in Monday's after-hours session. That's a $12 drop from Josh's initial price, good for a 20%+ profit for those who shorted the stock. The shares continued lower as the week wore on, settling the week at $42.64.

Unlike CNDO, TDC's future isn't so dim. The company plays in the fast-growing Big Data space. Its issues are competitive. In other words, the company is finding its place in this market (and investors are finding that place to be less attractive than its prior position). As a result, short sellers may consider taking their profits at these levels.

As you can imagine, winning shorts like these enforce my belief in shorting overvalued stocks. The top two things to know about shorts are that 1) good ones will make you money when they go down and 2) they can protect your portfolio from losses when the market is falling, because they usually fall with the market.

In an upcoming article, I will discuss the basics of shorting stocks and present a short idea from PTT Research that could bolster your portfolio even as the market continues to make new highs.

Disclosure: I am long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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