The market has handed investors some nice, consistent returns over the long run, but in the short term it can often be as unpredictable as an episode of The Real World. In a pair of articles, I explored the market's so-called "fat tail" distribution -- the tendency of stocks to make huge moves that seem extremely statistically improbable. Since then, I've been following "five-sigma moves," or one-day price moves that are five standard deviations or more from a stock's average one-day change.
Keep in mind that we're looking at the price change relative to the stock's historical volatility, and not just the same old jittery "most active" stocks. So even though stocks like Shuffle Master, Novastar Financial, and Sierra Wireless saw some big movement last week, you're not going to see them on this list because of their higher average volatility.
Here's a taste of a few of the five-sigmas from the past week:
|
Stock |
Date |
Change |
Sigmas |
CAPS Rating (out of 5) |
|---|---|---|---|---|
|
Digene |
6/4/07 |
26.9% |
7.0 |
** |
|
Bowater |
6/5/07 |
10.2% |
6.0 |
* |
|
Solectron |
6/4/07 |
15.1% |
5.1 |
** |
|
Cascade Corp. |
6/8/07 |
12.2% |
5.1 |
*** |
|
National Semiconductor |
6/8/07 |
14.7% |
5.0 |
*** |
It's important to note that when I looked at stocks that made five-sigma moves in the past, they didn't always move in a predictable fashion following the event. In other words, not all of the stocks that jumped way up turned back down, nor did all of the stocks that fell through the floor start to bounce back up.
The key is to figure out whether the big move was because of a legitimate change in the company's fortunes, or whether it was simply investor overreaction. To get a better idea of which of these stocks might be worth a deeper look, I got some help from The Motley Fool's new CAPS investing community.
The amazing, shrinking National Semi
As one of the major suppliers of analog and mixed-signal semiconductors, along with competitors like Maxim
This was exactly the case for National Semi last week, when it reported fiscal fourth-quarter and year-end financial results. At $0.28 per share, earnings were solidly above Wall Street's expectation of $0.23. Revenue also came in slightly above the Street's numbers and, at the midpoint of management's projections, revenue for the next quarter will also come in higher than analysts had previously estimated.
Concurrently, the company announced that it will be conducting an accelerated repurchase program for $1.5 billion of its stock as part of a larger $2 billion buyback authorization. The accelerated buyback will be executed by Goldman Sachs and will use a $1.5 billion bridge loan. The bridge loan will then be partially repaid through $1 billion of debt that will be offered by Goldman.
The debt shouldn't be too much of a burden for National Semi, since the company has historically produced a lot of cash from its operations and, according to its earnings release, has more than $800 million in cash offset by almost no debt. Given the current state of the debt market, the company should also be able to get pretty good terms on the notes it plans to sell.
Multiple CAPS players gave National Semi the thumbs-up based on recent insider buying activity. One player, nikkg1b, calls National Semi "the royalty of the Chip sector." Glow007, the most recent player to comment on National Semi, likes the stock simply because it's "a great company with sound fundamentals."
So far, 118 CAPS players have chimed in on National Semi, and there's always room for more. Take a stroll on over to CAPS and let the community know what you think of the opportunity at National Semi. And while you're at it, check out some of the other five-sigma stocks mentioned above -- or a few of the other 4,600 stocks on CAPS.
More CAPS Foolishness:
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Fool contributor Matt Koppenheffer enjoys his weekly statistical rendezvous even more than he likes watching the crazies duke it out on The Real World. He does not own shares of any of the companies mentioned. For three months straight, the Fool's disclosure policy rocked and rolled all night and partied every day. You can't imagine the hangover that followed.
