Be forewarned, this article isn't for the faint of heart. I'm going to be introducing five stocks that could make huge moves during this earnings season.
But whether those moves are up or down is hard to tell. The reason these stocks are liable to make such moves is because they are heavily shorted. Major news announcements usually have an exaggerated effect on heavily shorted stocks, and earnings announcements definitely qualify as a "major announcement."
I scoured the markets for the most popular shorted stocks twice last year to identify big movers. The first time, my five selections changed price an average of 16% after earnings were announced. The second time, the effect was even more pronounced, with the average stock moving 19%!
I'll let you know what to look out for this earnings season, and at the end, I'll offer you access to a special free report on three stocks I've put almost 20% of my real-life money behind.
|
Company |
% of Float Short |
Earnings Date |
Expected Revenue |
Expected EPS |
|---|---|---|---|---|
|
Velti (NASDAQ: VELT) |
34% |
March 11 |
$105 million |
$0.59 |
|
VirnetX (VHC +7.14%) |
36% |
Feb. 28* |
$1 million |
($0.16) |
|
GT Advanced Technologies (NASDAQ: GTAT) |
30% |
Feb. 4 |
$98.1 million |
($0.07) |
|
Research In Motion (RIMM +3.52%) |
32% |
March 28 |
$2.9 billion |
($0.29) |
|
ITT Education (ESI +0.00%) |
32% |
Jan. 24 |
$314 million |
$1.81 |
Sources: Finviz.com, E*TRADE. *Earnings date for same period in 2012.
Two that our community believes in... but should they?
Among these five stocks, two stick out as candidates that our Foolish community is willing to line up behind -- as evidenced by their high CAPS ratings.
Velti, a company hailing from Dublin, specializes in mobile marketing and advertisement. Though our community believes in the potential here, things haven't been rosy for investors lately. The company's most recent earnings announcement revealed a 62% increase in revenue -- which is great -- but that was more than eclipsed by increased research and development costs, and the company reduced its fourth-quarter guidance. As a result, the stock plunged 36%.
As other Fools have pointed out, with Google still not having a definitive platform for its mobile advertising, a company like Velti could still be a big winner, but it needs to make all the right moves to do so.
The other company garnering a lot of support from our community is GT Advanced Technologies. The company specializes in providing silicon deposition reactors to the solar power industry, and its year has been nothing short of terrible: Shares are down 63%.
Over the last two reportable quarters, orders from Chinese and European solar manufacturers have fallen off a cliff, showing a sequential 77% and 97% drop, respectively. As a whole, the company's revenue is down 38%. The company also announced it would be reducing its workforce by 25%.
And yet, Foolish energy expert Travis Hoium sees a silver lining, stating, "On a technology front I think the company is just starting to hit its stride. ... Whether demand comes from China, Europe, the Middle East, or the U.S., I expect the solar market to grow and GTAT should benefit."
Two getting no love from Fools
First up on our no-love list is one-star-rated VirnetX. The thesis behind this company is actually quite simple: Bulls believe that the company's patents for 4G LTE will be bringing in cash for years to come. The company can license use of the patents for a fee, and sue those who infringe on the patents.
The problem, as bears see it, has to do with the fact that the company is highly reliant on courts to help it collect money, and the fact that other companies could out-innovate (or out-patent) VirnetX in the future.
Next on the no-love list is ITT. I've been hounding the for-profit education industry for years now, and it seems like a lot of chickens have been coming home to roost lately. Whether it's due to high student loan defaults, low graduation rates, or growing numbers of indebted students, the industry is in trouble.
ITT, in particular, has shown a 13% decline in revenue and a 25% dip in earnings in 2012, and it's hard for me to see this company succeeding in the future.
Everyone's got an opinion on RIMM
Finally, we have Research In Motion, the company behind BlackBerry smartphones. I've already called out the company as one to stay away from; RIMM has witnessed shrinking revenue over the past three years, and unprofitability over the past 12 months.
Yet there are plenty of vocal BlackBerry fans who assert that the company's newest operating system, BlackBerry 10, will be RIMM's saving grace. Whether that actually plays out remains to be seen.
