Good investing often requires us to look amongst the stock market's under the radar stocks. It is among these names that we will likely find the best opportunities because of various factors, including limited analyst coverage and institutional ownership that make the stocks more prone to excessive stock price moves.
Here is a list of 6 under-the-radar stocks that investors should take a closer look at. Not only did their stock prices make major moves on Wednesday, they did so on heavy volume even though the broad market was generally lightly traded.
6 Stocks With Unusual Trading Activity
1. YRC Worldwide Inc (NASDAQ:YRCW) - The trucking company's stock traded down nearly 9% on roughly double the stock's normal daily trading volume. Despite being a Fortune 500 company, the stock is extremely distressed and volatility is very high ahead of a likely reorganization that will substantially dilute existing shareholders. Because of the small market capitalization of around $55 million, investors should take stock moves with a grain of salt.
Much of the stock's recent volatility has come on little or no fundamental news. For example, last week the stock jumped 43% on 9x average daily volume without a news catalyst. While some hedge funds have piled into the stock, we think investors should exercise extreme caution. While the reorganization places the current stock roughly in line with the stock valuations of competitors, it does not necessarily address all of the operational issues and the industry headwinds that should continue to hinder the company, including slower demand, rising health care costs, higher regulatory standards on emissions and higher energy costs.
2. PMI Group, Inc (PMI) - The mortgage insurer's stock rallied $0.27, more than 23% higher than the previous close. The stock price move was backed by heavy trading volume, nearly 5x the daily average over the last three months. The stock was propelled by a note from credit rating agency S&P saying that an additional downgrade of PMI was unlikely, and that the company would likely maintain solvency through the second quarter of 2012.
Still, while the note from S&P is a relief, the company's stock is still down 65% in 2011 and trades at very distressed valuations. The company has a price/book value of 0.65. Since the start of the year, short interest in the stock has slowly crept up from 25.63 million to 33.52 million shares.
3. Radian Group Inc (NYSE:RDN) - The mortgage insurer's stock rallied nearly 10%, largely in sympathy with PMI's news. The price move happened on nearly 2x average daily trading volume. We previously highlighted the stock among '7 Cash Rich Stocks Near 52 Week Lows', but the strong balance sheet is succeptible to even modest further downside in the gigantic US housing market.
Like PMI, Radian's move was in part a relief rally following a shift towards extremely bearish stock sentiment. RDN's short interest had also crept up since the start of the year and trades at less than half of the 52 week high. The company's stock is valued at a price/book of 0.58, but real upside in the stock should continue to be limited by fundamental weakness in the housing market, uncertainty in the government's capacity to continue stimulating, and Radian's own consistent efforts to issue stock during price strength.
4. MGIC Investment Corp (NYSE:MTG) - The mortgage insurer's stock rallied nearly 13% on 3x the daily average trading volume over the last three months. The company is riding the same industry bounce as PMI and RDN. MGIC has a forward P/E of 6.37 and a price/book of 0.76.
5. Eastman Kodak Inc (EK) - The iconic camera company declined 3.75% on twice the normal daily trading volume on an otherwise low volume day. The stock closed very close to its 52 week low despite an absent of company headlines. The price move could very well be a continuation following negative headlines from the previous week, including Legg Mason's complete exit out of EK after a decade and -90% of returns, as well as an unfavorable court ruling by the US International Trade Commission in EK's case against Apple Inc (NASDAQ:AAPL) and Research in Motion (RIMM).
For all of the company's problems, investors may find some solace in the fact that revenues stabilized during 2009 and 2010 at around $8 billion. While this does not ensure that the company's sales will not resume their decline, it offers a glimmer of hope for a distressed stock. In addition, the company's sentiment is so bearish and short interest so high (as of 6/15, days to cover was 7.01), the stock could be poised for a technical bounce, even in the absence of a fundamental turnaround. Still, investors should approach the stock with caution.
6. JA Solar Holdings (NASDAQ:JASO) - The Shanghai based solar company's stock price traded 8.25% lower on nearly 2.5x average daily trading volume. The stock now trades close to its 52 week low and at less than half of its 52 week high. The stock prices of Chinese solar plays have been under pressure because of various issues, including: competitive issues, demand concerns and a growing broad market skepticism of US-listed Chinese companies.
In the summer trading doldrums, stocks can still display impressive price action, but much of happens amid unconvincingly wimpy volume. The above mentioned names are under-the-radar stocks that made meaningful stock moves on unusually large volume. Investors would be wise to take a closer look and determine if the moves are a one-off event, or if they signal a start of a new trend.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in YRCW, EK, MTG over the next 72 hours. I own RDN. I would not buy YRCW at current prices, but may consider doing so upon stock price weakness.