Archive for January, 2014

Speculating On Stocks

We all hear of those stocks where folks invested a small amount and came away with massive gains. You always hope to be that person, but you never seem to get lucky. Well chances are, most people never do. Those opportunities are few and far between. Just have to be in the right place at the right time.

Nothing wrong with a little speculation every now and again. If you’re going to do so with highly volatile stocks, you shouldn’t do so with much of your portfolio. I’d say no more than 5%-10% of the portfolio should ever go into something like that. Plus you need to do a good bit of research as well.

A lot of speculation these days tends to be in the biotech market. Lots of companies trying to get a drug on the market in various stages of drug trials, hoping to get the FDA to approve it. If the company is lucky enough to get approval, you could be in for a big payday.

Another method to gains is a small company that has a drug that makes it attractive to a bigger pharmaceutical company. Their drug pipeline is lacking, so they buy up a smaller company to gain access to the particular drug. Sometimes, just on rumors of big suitors, these companies stock can soar.

Take for example, Ariad Pharmaceuticals ($ARIA). Last year they had a drug on the market and they were up to $23. Then the FDA makes them pull it after some adverse reactions till they make some changes. The stock drops all the way down to $6. Then it goes even lower. They eventually make some changes and they are able to market again but to a smaller set of patients to prevent adverse side effects. The stock starts to go up again.

All of a sudden, there are rumors of several pharma companies interested in them for the leukemia drug, including GlaxoSmithKline($GSK) and Eli Lilly($LLY). They went from $6.75 a couple of days ago and are now up to close to $9 as of this morning. Some of the rumors suggest a price offering of $20 may be possible. Needless to say, anyone that bought into it are already happy and could have the potential to be even happier if the rumors turn out to be true. But this is usually the exception to the rule. There are plenty of others that have a quick rise and then a hard fall as their drug fails to get approval, or a buyer never comes.

So you have to be diligent and be prepared to get out quickly. Speculation isn’t for the faint of heart.

#1 – Always do your research on the company and see what they say as well as financial publications thoughts on the company.

#2 – Identify a catalyst for the stock to go up and how likely you think that is.

#3 – Set an entry and exit point for yourself once you find one that looks promising and stick to it.

#4 – If the stock rises, look to skim some of the profits off as these can tend to rise and fall quickly. You can keep your base amount invested, but pocket gains as they come.

#5 – If you hit your target, sell out of your position unless you find another catalyst likely to keep it going. You really need to justify staying in though.

Good hunting and good luck!

Staples ($SPLS) – Stock Pick for 1-23-14

Lately, Staples has gone on a bit of a slide this month. As of yesterday’s close, it was sitting at $13.83. I see this as a great buying opportunity here though.

Recently the company has relaunched their brand and made changes to how they do business online that has made them the #2 online retail spot just behind Amazon. During the past year they have increased their inventory from 75,000 products to over 400,000 products. With a larger range of options, more customers are coming to them to help supply their needs.

Their P/E ratio is much better than the specialty retail industry coming in at 18.80, compared with the industry at 47.98. They have a low P/S ratio as well at .37 compared to the industry at 2.37. That suggests a good bit of value to be had.

In the past year the stock has been as high as $17.30. I think they will start heading back that direction again as they continue to see strength from their online business. They also pay out a dividend that currently yields 3.5% which gives a little extra incentive on top of things here. If they re-test the previous year’s high, I see at least a 20% upside. So that’s why they are my latest stock pick.

*Disclosure: I purchased shares of Staples today in my IRA portfolio.

Update on Stock Picks From 2013

I apologize for not posting for so long. I had every intention of at least posting several times a week, yet life continued to throw curve-balls and kept that from happening. I’m back again though and hope to stay that way for a long time.

I wanted to revisit stock picks that I suggested on this site last year and see how they have been doing since then.

First up was Buckle ($BKE) – On January 22nd, the price was running at $45.26 at the time of my post. During the summer it went as high as $56.32. That would have been good for a 24% gain if sold at the high point. If you continued to hold on all year, you’d be back down to $45.71 currently. You would have earned dividends totaling $2.0059 over that period however. – Grade: A

Next  is VMWare ($VMW) – At the time on January 28th, the price was $98.39. Over the last year it went over a roller-coaster ride. It dropped as low as $64.86 by the time July rolled around. However if you continued to hang on and added to your position, you’d have ridden it back up to a high of $101.52. As of today’s close it was $98.51. So over the span of a year it was break even if you held on. At the high, good for a 3% gain. – Grade: C

Then we have Dollar Tree ($DLTR) – On the 28th of January it was at $41.25 during the time of my writing that day. It dipped a bit down to $38.43 over the next week or so. Then the rest of the year it kept on growing. By the time November rolled around it went as high as $60.19. Since then it’s lost $7. If sold around the high point you’d have looked at a 46% gain. – Grade: A

On February 5th, my pick was Riverbed ($RVBD) – During the time of my post it was $19.76 a share. It quickly went downhill from there and stayed there most of the year. It hit a low of $13.77. So it was down 30% at its worst. In early November it spiked up if you held on getting close to where it was  when i first recommended it. Then it jumped up a bit further and eventually got as high as $21.07 in the past few days. If you held on only you’d have been good for a 6.6% gain at this point. Dollar cost averaging to add to your position, you’d have done a lot better for yourself. – Grade: C

Then February 7th, I recommended Magna International ($MGA) – Their previous close price at that point was $52.96. For a few days it went as low as $50.77. However the rest of the year was phenomenal. It kept heading upward most of the year and went as high as $88.98 as of today. That was good for a 68% gain on the year. Plus you had some dividends along the way as well – Grade: A

February 18th I suggested both Visa ($V) and J.M. Smucker ($SJM) – Visa started off at $157.99. Over the year it grew and then took some breaks along the way. As of the past couple of days, it went as high as $235.50. Plus three sets of dividends payouts as well. If sold at the high, that was good for a 49% gain. – Grade: A

Smucker was at $89.88 at the time of my writing. By mid summer it had grown in price to $114.72 at its high. If you held till now it’s back down to $97.20. There were four dividend payouts during that period. If you sold at the high point, that was good for a 27% gain. Holding on till now would have been only 8%. – Grade: A

The next one was MDC Holdings ($MDC) – On March 1st they were at $38.43. They went as high as $42.41 after a few days. After that, it was nothing but declines, going as low as $27.00 in September. The home-building business just didn’t do very well in that stretch. If you were quick on the trigger, you would have got a 10% gain. However, if you had held on all the way to the bottom, you lost almost 30%. As of today it’s sitting at $31.12. – Grade: F if you held on.

June 12th was my last suggested stock to at least watch, Tesla Motors ($TSLA). On the 12th it was running at $97.73. I said you may want to look for a point on a dip to buy in cause it had a lot of potential. Well after that date, it never got any lower. So, I hope you got in cause it went for quite the ride after that. At the highest point at the end of September, Tesla went all the way to $194.50. You earned yourself a 99% gain if you sold at the high. I personally got out of a large part of my position at that point, but continue to hold the rest for the future growth. As of today it closed at $178.56. Still an 82% gain there. – Grade A

So the final tally was six Grade A large gainers, two at a Grade C that basically broke even and one that fell flat on its face for a Grade F. If you invested a hypothetical $10,000 on each of these stocks and sold at the highs as close as you could, you’d end up with $119,260. On a $90,000 investment total, that’s good for a 32.5% gain. I’d say that was a great year. I hope I can provide a lot more picks for this year and continue to find those Grade A gems.