As a long term focused valuation methodology, Greatly Overvalued is the most negative rating we can have on a stock. In our view, this rating means one of two things: either the stock is too hot and has risen too quickly, or the stock has seen deterioration in underlying fundamentals that have not yet been reflected in their stock. Just because a stock is overvalued doesn’t mean that it is due for a slide, but rather we think that it is not an attractive buy candidate and may be ripe for taking profits. Essentially, these stocks are trading for higher levels of price-to-cash earnings and price-to-sales (among other fundamental valuation metrics) than has been normal throughout their recent history.
At Ockham, we recently released a new stock screening tool on our site that we now use daily around the office to more efficiently wade through our coverage of over 8400 stocks. One interesting filter we used today was to see stocks that have our Greatly Overvalued rating, and also have been mentioned in the financial media within the last 30 days according to RazorWire. These stocks represent a subset of our most negative ratings that are also attracting some attention lately either because of earnings releases or some other reason to be mentioned on business television or influential financial blogs.
I am aware that the image of the screener is too small to read, so the list has been recreated below. These stocks come from a variety of sectors but the highest concentration is in Basic Materials, Consumer Goods (particularly auto-related), and Energy sectors. We are not saying investors in these stocks need to sell and plant their money on the sidelines, but it may be worthwhile to reexamine exit strategies because their prices have become a bit too stretched based on current fundamentals. So, here are the 18 stocks that met the criteria listed in order of largest capitalization to smallest.
Greatly Overvalued Stocks with at least one RazorWire Capture in the Last 30 Days:
First, before you read the WSJ bit, check out this video. It will put everything into context nicely.
(is that Eddie Murphy as Br’er Fox?!)
Finding out that a lather can easily be worked up in response to a regulatory bitchslap, the Department of Justice will be next to line up against Goldman Sachs, sort of like the couples skate of regulation. Awww!
Federal prosecutors are conducting a criminal investigation into whether Goldman Sachs Group Inc. or its employees committed securities fraud in connection with its mortgage trading, people familiar with the probe say.
The investigation from the Manhattan U.S. Attorney’s Office, which is at a preliminary stage, stemmed from a referral from the Securities and Exchange Commission, these people say. The SEC recently filed civil securities-fraud charges against the big Wall Street firm and a trader in its mortgage group. Goldman and the trader say they have done nothing wrong and are fighting the civil charges.
Prosecutors haven’t determined whether they will bring charges in the case, say the people familiar with the matter. Many criminal investigations are launched that never result in any charges.
Line up and get a piece while rage against the big bankers has reached its breaking point: the regulators are so desperate to get your respect back, they’re trying to take down the largest piece of prey they can find.
Before you let them park a wooden horse in your driveway, make sure you check the trunk for termites.
Improve Your Market Timing: The Bullish Engulfing Pattern
The Bullish Engulfing Pattern is a bullish reversal pattern and is considered a major candlestick formation.
The pattern is most effective when found at the bottom of a downtrend.
The pattern represents a change in investor sentiment and is characterized by an initial gap down from the prior trading day.
The stock will not follow through with the initial gap and will begin to trade up on increased volume.
The mature pattern will end the session with a close above the prior session’s open, thus engulfing the prior session’s real body.
The pattern is considered stronger when the stock trades up from a larger gap down and if it not only engulfs the real body but the entire trading range of the prior session.
Sometimes you will see a situation when the Bullish Engulfing Pattern wraps around and engulfs several prior sessions and that is a very convincing reversal scenario.
The Pattern is additionally effective when combined with a pre-defined level of support as represented by chart patterns, major moving averages, Fibonacci levels and trend lines.
Oscillators such as Stochastics or RSI can also confirm a changing sentiment from being oversold to becoming more bullish.
William talks about fraud, or "control fraud" and the criminogenic environment of the Wall Street-Washington world. The regulators themselves were a huge problem because when regulators who hate regulation are appointed, it leads to a self-fulfilling prophecy of failure, "anti-regulation." There’s much more in this interview, click on the picture to watch. Transcription’s below. - Ilene
H/tip Barry Ritholz
April 23, 2010
BILL MOYERS: Welcome to the JOURNAL. We’ll get to two big battles in Washington in just a moment — financial reform and the future of the internet. But first, I want to thank those of you who wrote after you heard me say last week that the JOURNAL will come to an end with next Friday’s broadcast. It’s true, and all of us here were touched by your messages of regret.
I will miss the virtual community of kindred spirits that has grown up around this broadcast — viewers like you, as we say, whose unseen but felt presence reminds me of why I have kept at this work so long. But it has been a long time, and that’s why I can assure you that my departure is entirely voluntary. Many of you wrote to say you were alarmed at the possibility that we are being pushed off the air — that higher ups or dark powers pointed to the door and said, “Go.”
You can relax; it didn’t happen. I’m leaving for one reason and one reason alone: it’s time. Believe me, it wasn’t an easy decision: I like what I do, cherish my colleagues and enjoy your company. But I’ll be 76 in a few weeks, and there are some things I want to do that the deadlines and demands of a weekly broadcast make impossible. So for me, it’s now or never. I informed public television of my decision more than a year ago, intending to leave back in December. But my colleagues at PBS asked me to extend the series four more months to give them time to prepare a new public affairs series. More on that next week.
Now to the big rumble of this week — and I’m not talking about that volcano in Iceland. I’m talking about the fight to reform our financial system.
In case politicians don’t understand what’s at stake, the market kindly gave them a little reminder with a nasty close for equities today. In the early morning it seemed people were quite willing to ignore GS’s misfortunes in its dealings with the ever more schizophrenic government. Washington simply cannot understand why it can’t destroy speculation and leverage yet keep the equity market up, as it is the only economic driver in the US since easy credit is no longer available. Tough indeed: since nothing or close to nothing is manufactured in the US we need our upper class’s investments to skyrocket so it is inclined to spend thereby providing service jobs. US politicians have a lot of work on their plate with the financial reform. Any measures too drastic in terms of balance sheet reduction will be tough on financial assets and curb lending, and any measures to curb speculation on commodities will hit this asset class hard and the commodity stocks along with them (miners are amongst leaders in US equities). European politicians have one fine mess to sort as well and money markets are pricing in higher Libor and funding difficulties ahead already. Without expanding too much on the subject, there is no one I would like less to depend on to make the right decisions.
While stocks were within reach of new highs to start the day in the US, it seems market participants felt like taking risk off before the brainiacs try to figure out what it is exactly they want to do, and by the same token give them a reminder as to the consequences of any stupid decision. S&P is pretty close to posting a H&S on the tops (though the neckline is slightly downward sloping which is not ideal) and the support zone is 1,175/1,180. Watch out below. Similar observation on the Nasdaq future with a neckline support at 1,990. The Nikkei joins in the H&S galore, and the Dax which seems to have been more resolutely bearish (understandable given that the epicenter of the main crapshow the market is focusing on is Europe). After a 61.8% or close retracement of the initial sell-off, if the Dax goes to make new lows next week the markets should in theory accelerate to the downside. For good measure, the French index (CAC) is…
A week ago we were practically speechless when we showed that the Treasury had redeemed nearly $494 billion in Bills in April. A truly stunning number and an indication of just how much cash the Treasury needs to have access to to keep rolling its ridiculously short average maturity debt load. Today we stand even more speechless: according to today’s DTS, the Treasury has now redeemed $596 billion in Bills in Aprils: an all time world record, even when accounting for the Fed’s steroid abuse period of SFP 1 (we are currently in the second iteration). Add $47 billion in Notes and there are almost $650 billion in redemptions. This number is simply ridiculous. Forget the interest expense: this ever increasing roll is the number one danger to the US and world economy. Should the Treasury be unable to keep issuing shorter and shorter dated debt (and it already is skirting away from even the belly of the curve), it is for all intents and purposes game over.
The US turned in a fairly robust quarter in Q1 2010, with real GDP growth meeting expectations at 3.2% annualized. This comes on the back of a very robust annualized 5.6% growth in the previous quarter. This is the best growth two-quarter growth we have seen since 2003.
However, when one digs deeper, it is obvious this growth is unsustainable because it is predicated on a reduction in savings rates and a releveraging of the household sector. As a result, I expect weak GDP growth in the second half of 2010.
The problem with the BEA reported numbers is the composition of GDP growth. The BEA says in its data release:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent.
The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The "second" estimate for the first quarter, based on more complete data, will be released on May 27, 2010.
The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending and in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports.
So the gain in GDP was due to consumption, while GDP decelerated from Q4 2009 due to inventory, exports, residential investment, and state and local government spending.
Translation: These numbers are entirely dependent on an increase in consumer spending. Everything else is becoming a drag on…
This week’s risk aversion trade is nowhere more evident than in the spike of Net eureo shorts for the week ended April 27, as reported by the CFTC. After having retreated to as low as 66k two weeks ago, the net speculative position in the european currency has surged, hitting record resistance in the 97k range. (see chart below). And even as Europe fears drove speculators to abandon the euro, the one currency which is sitting in no man’s land, the USD, this week saw net longs rise to the highest value since August of 2008. Feel free to oull up a chart fo the EURUDF pair and see when the last time it was preparing to blow out so wide was,
The sectors that brought us to the ridiculous highs are getting sold off. The financial sector now faces a choice between offering a sacrificial lamb or becoming a regulated utility. We hope it opts for the first (we have a few candidates in mind), as the latter will likely lead to the prompt realization that we never really emerged from the great depression v2. Goldman once again reminded everyone today who is still in charge. As for tech, say good bye to the stimulus wave. In fact, Q1 GDP will be merely the next point on a declining curve. Unless a new stimulus is instituted promptly, this is now the middle of the W. The same for the artificial and one-time bounce in GDP as we have been saying since April of 2009. The bears, for the first time in 13 months are finally smelling blood. And we have a weekend chock full of catalysts, number one and two being the Greek bailout and the resultant civil war, and Lloyd Blankfein on Charlie Rose, digging himself into an even deeper hole. The best damage control for the squid right now is silence. Pity that stooping to the level of the morts has always been the mollusc’s weakest side, and soon to be its undoing. Also add to that the Bund short-end screaming tighter, and the surge in the dollar, as in the sudden and dramatic evaporation of all carry trades, and you have set the stage for the Lehman unwind. Next week will be fun.
MEE – Massey Energy Corp. – News the coal producer is being looked at by the Federal Bureau of Investigation following the tragic explosion at one of the firm’s mines in West Virginia on April 5, 2010, fuelled bearish options trading activity today and pushed Massey’s shares down 5.9% to $38.90 as of 12:45 pm (ET). Earlier in the session Massey’s shares declined 9% to an intraday low of $37.43. Shares of the underlying stock are currently down 31% since April 5, 2010, when the stock touched a new 52-week high of $54.80 before falling on news of the mining accident. Investors piled into put options on Massey today, with trading traffic heaviest in out-of-the-money puts in the May contract. The May $35 strike attracted the most volume with more than 12,600 puts changing hands at that strike by 12:50 pm (ET). It looks like at least 6,700 puts were purchased there for an average premium of $0.97 apiece. Put-buyers make money if Massey’s shares fall another 12.5% from current price of $38.90 to breach the average breakeven point to the downside at $34.03 by May expiration. News of the FBI’s involvement, coupled with investors’ voracious appetite for puts on the stock today, boosted Massey’s overall reading of options implied volatility 22.5% to 64.53% as of 12:55 pm (ET).
CSTR – Coinstar, Inc. – Shares of the provider of diverse services, such as self-service coin counting and Redbox $1-a-day movie-rental dispensaries, are up more than 21.5% to $46.44 as of 12:10 pm (ET). Earlier in the session Coinstar’s shares surged 32% over Thursday’s closing value of $38.21 to attain a new 52-week and intraday high of $50.35. One options player reeled in hefty profits by selling a previously established long call position in the May contract. It looks like the investor initially purchased 600 in-the-money calls at the May $35 strike for an average premium of $2.83 apiece back on Monday April 26, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $36.51. Today the trader sold the calls for $14.40 each, banking average net profits of $11.57 per contract. Perhaps expecting continued bullish movement in the price per Coinstar share, the investor established a fresh optimistic stance on the stock by purchasing 600 calls at the May $50 strike for an average premium of $2.20 apiece.…
I could not help noticing that China’s imports from Japan fell 16.2pc in December. Imports from Taiwan fell 6.2pc. The strong yen strikes again: Honda decides to build a high-performance hybrid Acura in Ohio – instead of its home nation of Japan. The firm’s continued shift in p...
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To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
In an effort to reach the angry mob, CNBC's Rick Santelli goes all Sesame Street on the numbers behind the US Debt Ceiling Rise. Focusing for two minutes on what this practically means for every man, woman, child, and politician, the shouting Chicagoan points out that when the US breaches this new limit then the world's entire population will be on the hook for $2,346 each (and $52,409 per US person).
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -6.5 in its latest reading, data through January 20. The latest public data point is a reduced contraction from last week's -7.6 (a slight downward revision from -7.5). This is the highest level (i.e., least negative) since early September. However, the underlying WLI declined fractionally from an adjusted 123.3 to 122.8 (see the third chart below).
Early last December Lakshman Achuthan, the Co-founder of ECRI, spoke with Tom Keene on Bloomberg Television's Surveillance Midday. You can watch the video on the ECRI website here, with bold heading Recession Update. The eight-minute video is well worth watching in its...
Some combination of better made cars, and less Americans able to pay new car prices has conspired to push up the average age of U.S. vehicles to a new record high. Reflecting this sea change, one of the best investment g...
Shares of battered tech company Research in Motion (NASDAQ: RIMM) are seeing much strength during Friday's trading session.
Fairfax Financial Holdings released a 13G filing with the SEC this morning, in which they disclosed a 5.12% stake in Research in Motion.
Currently, shares of Research in motion are up over 4% at $16.85. Over the last year, Research in Motion is down over 72%.
Research In Motion Limited is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service.
Top 5 RisersStockRatingAnalysisASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving.CZZSTRONGBUYThe recent earnings history for Cosan Ltd shows significant improvement while projected valuation continues to rise.STLDBUYProjected value continues to rise for Steel Dynamics while long term increases in earnings growth are also becoming more widely expected.PSESTRONGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a fe...
Major markets and major index ETFs corrected slightly today after the stock market’s euphoric party yesterday
Major markets suffered a slight hangover today, as the S&P 500 dropped .57%, the Dow Jones Industrial Average dropped .18%, the NASDAQ dropped .46% and the Russell 2000 Index dropped .34%, after yesterday’s crazy Fed and Tech Sector induced Wall Street Party. The NASDAQ, in particular, partied very hard, so hard in fact that the NASDAQ reached its 11 year record high.
The major market index ETFs were hungover too as the SPDR S&P 500 ETF lowered .51%, the SPDR Dow Jones Industrial ...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Here is the virtual portfolio weekend update. Basically a recap of the positions and some notes about the trades. As usual, I'll post the previous week's P&L for comparison. Not the greatest of week in general!
AA Money
Only transaction last week as we bought back the AA Feb 9 puts on Tuesday for close to a 70% profit. The idea is to sell another set of put as soon as we get a chance.
Previous week P&L - $400.00
We lost some ground this week, but we'll keep on selling premium!
FAS Money
We also lost some ground in this virtual portfolio, but we have sold plenty of premium for the coming week. A little correction would go a long way to help! On Wednesday we sold the FAS Feb 72 puts (already good for 50%), on Thursday we added the Jan4 78 calls and on Friday we had to roll the Jan 78 puts to the Jan 80 puts. We were hoping for these ones to expire worthless on Friday, but a late stick killed that hope.
Previous week P&L - $4372.00...
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Here's the latest Stock World Weekly. We discuss the Fed's next move, and it's new policy for more QE-cating. Brief review of Sabrient's trade ideas for 2012 (already doing well) and a few new buy-writes from Phil and Pharmboy. Enjoy! (Feedback appreciated - give some life to the comment section below.)
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(