If you like roller coasters, adrenaline, and mood swings, then this article is just for you. Sunday marked the beginning of the third quarter for most publicly traded companies. That means that though the last few weeks have been relatively quiet on the earnings front, we're about to start getting a deluge of company-specific news.
Last quarter, I singled out five companies that were poised to make big moves based on the fact that many traders were betting against them. If a highly shorted company releases positive news, a short squeeze will be on. If news is bad, shorting could continue indefinitely.
It turns out I was right: The stocks I mentioned moved an average of 16% on their first-quarter earnings releases. Below are the five stocks with the percentage of investors betting against them, when their earnings dates are expected to be, and how each company is expected to perform.
|
Company |
% of Float Short |
Earnings Date |
Expected Revenue |
Expected EPS |
|---|---|---|---|---|
| Westport Innovations (Nasdaq: WPRT) | 40% | Aug. 4* | $98 M | ($0.30) |
| VirnetX (NYSE: VHC) | 33% | Aug. 10-15 | $500 K | ($0.06) |
| MAKO Surgical (Nasdaq: MAKO) | 54% | Aug. 6-16 | $26.6 M | ($0.20) |
| Diamond Foods (Nasdaq: DMND) | 51% | N/A | $226 M | $0.44 |
| First Solar (Nasdaq: FSLR) | 36% | Aug. 6-11 | $823 M | $0.99 |
Sources: Thompson Reuters, company releases, E*TRADE. *2011 release date. N/A = not available.
No love from our Foolish community
Three of these five companies are getting no love from our CAPS players, and for good reason. Diamond Foods is a stock that you should stay away from at all costs. The company has a lowly two-star rating. That might have to do with the fact that Diamond fired its CEO and CFO in February over improper payments to walnut growers and has yet to restate its financial performance over the past two quarters.
VirnetX is a company that holds the patents for a number of technologies that help secure real-time communications via the Internet. Although the company's stock is up over 40% in 2012, it has a measly one-star rating from our CAPS community. The key patents to pay attention to are foundational 4G patents. It's yet to be seen if the courts or major corporations will agree that VirnetX holds the patents, making this a somewhat riskier play.
Finally, we have First Solar, another company with a lousy two-star rating. The company has been pounded over the past year, down close to 90%! The main culprit has been the complete erosion of the thin-film business that the company once relied on. Some Fools even think the company would do much better to split its thin-film manufacturing and its R & D divisions into separate companies.
Our community likes these, but still be careful
Last quarter, MAKO was on the list of stocks to make big moves, and I wrote: "The company's product has one undeniable trend pushing it forward: an aging demographic with an obesity problem that wants to stay active." That trend, however, wasn't enough to produce stellar earnings, and MAKO's stock fell precipitously on lighter sales and operations than were expected.
Apparently, our CAPS players still like the company, as it garners a coveted five-star rating. The upcoming release will go a long way to show whether last quarter's numbers were just an aberration or the company is truly having trouble gaining traction with its RIO Surgical system for knee and hip replacements.
The last company on our list is another five-star holder, Westport Innovations. The company designs engines that can run on natural gas for several different industries. As Westport simply designs, but does not manufacture, the engines, it is highly reliant upon joint ventures to churn out products that can be bought.
The past few weeks have seen a flurry of announcements regarding joint ventures, so investors are obviously optimistic. It could take years for this story to really play out, but it's worth paying attention to how Cummins does in designing its own natural gas engine, the first real competition to Westport.
Expect big things in coming months
If last quarter was any indication, these stocks will be showing huge moves as we soldier forth into earnings season. But earnings announcements aren't the only thing that can cause huge shifts in the stock market. Major political elections like this year's presidential one can also carry heavy consequences for the market.
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