Stocks With Volatility Built In

by: Neoclassical Economist

The following companies have something interesting in common – they all have managed to somewhat confuse investors regarding the stock’s value, growth prospects, etc. That has resulted in high volatility and has attracted the attention of hungry, short-selling sharks. And in terms of volatility, this is only the beginning.

LinkedIn (LNKD) – the business-related social networking site, which debuted on the NYSE five months ago, is currently trading at $86.22, with a 52-week range of $60.14 to $122.70. Current P/E ratio is somewhere near 500, and for 2012 analysts are expecting earnings of $0.35, which still equates to a forward P/E ratio of 235. On the other hand, LNKD has a respectable book value of $396 million, or $43.80 per share. Clearly some investors are excited and hopeful about the stock’s future. But the reality is that this is a lot of speculation, and LNKD is currently overvalued.

LinkedIn has already generated lots of short interest. Currently, over 2.3 million shares are held short, out of the 9.04 million shares outstanding. This means 25.4% of all shares are shorted, and if you look at that as a percentage of the float, the short ratio is closer to 40%. Price volatility here is inevitable.

Travelzoo (NASDAQ:TZOO) is an internet media and travel search site. Currently trading at $29.27 with a 52-week range of $20.68 - $103.80. Current P/E ratio is 24.2 and forward P/E is 16.4. The stock has been hammered in the past few months, after the company and some of its officers and directors were sued for violations of the Securities Exchange Act of 1934. The allegations are that between April and July 2011, the company misled investors by failing to disclose some adverse facts about its performance, and that some serious illegal insider trading took place. A staggering 5.28 million shares of TZOO are being held short, or over 32% of all shares outstanding.

Now, I can't think of too many things that are worse than shareholders not trusting the management. The stock has recovered somewhat from the 52-week low it set a couple of weeks ago. However, the pending lawsuits, the high short ratio, and the recent upgrade from Jefferies to "Buy" almost guarantee that the price will be seesawing wildly for months to come, as nobody really has any clue what the stock is worth.

Tesla Motors Inc. (NASDAQ:TSLA) manufactures electric vehicles and related components. The current price is $27.94, with a 52-week range of $20.00 - $36.42. The stock has, in fact, never been profitable, and the latest quarter has been particularly blood-red. Shorts are all over this one like bees to honey, with 21.2 million shares held short or over 20% of outstanding shares. Yes, most all of us want to see green technology take off and continue to enjoy government subsidies. But there is just too much uncertainty in the industry, and unless you have a crystal ball in your lap, you cannot claim that TSLA will ever be profitable.

Trina Solar (NYSE:TSL) is trading at $7.20, and its 52-week range is $5.28 - $31.89. TSL has earnings projections of about $1.86 for 2012. The company has performed fairly well given the current conditions, and has remained profitable so far this year. It has a forward P/E ratio of 3.9 and it is trading well below book value.

The stock is as volatile as it gets. Just on Friday, Oct. 7, the price was down 24% on absolutely no news, then up 10% the next day, and so on. As I previously wrote, TSL is near the top of the list of most shorted solars, which I'm sure is the main driver behind its wild price volatility. But this is no Solyndra -- Trina will not go out of business, which cannot be said for some of its competitors.

Genco Shipping (NYSE:GNK) is trading at $9.29, with a 52-week range of $4.15 to $18.08. The 52-week low set in August 2011 also happens to be an all-time low. However, last Friday the price was up 7.4% which is becoming quite a routine daily movement on a percentage basis. It is true that Baltic Dry Index (BDI) shipping rates have plummeted since 2008, along with revenues, profit margins and stock prices. But now that the BDI is going up again, Genco's price has started to spike up and then down (but mostly up). The problem here is that the fears regarding the rift between China and the US, the financial woes in Europe, the continuing glut of ships and the low dry-bulk charter rates are still present. Genco may be trading below liquidation value currently, but don't expect that investors will behave rationally if BDI starts falling again. (NYSE:YOKU) is a Chinese internet television company; its internet television platform enables consumers to search, view and share video content quickly and easily across multiple devices. The stock price has been all over the chart, ranging from $13.76 to $70 in the past year. Much like Tesla, Youku has just not found the way to profitability and remains a very speculative play. While China has indeed shown a dramatic increase in the number of its online users, and its online popualtion is already the world's largest, that growth may easily be stifled by possible new regulation from the Chinese government.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.