Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
Welcome back, fellow Fools. Hopefully you're slowly coming out of your turkey-induced coma by now. Believe it or not, it's back to business as usual on Wall Street this week. And, though we don't think it prudent to focus on short-term movements, there are five stocks you should have your eyes on for big swings this week.
If you're a shareholder in any of these five companies, you should realize that a perfect storm of volatility is forming: Earnings are coming out this week, and your stocks are heavily shorted -- meaning lots of investors are betting against the company's success.
With heavily shorted stocks, the possibility for outsized moves is magnified. If you need any proof, just look at the five stocks singled out last week, which moved an average of 8% following earnings. This week, these are the five stocks worth watching:
|
Company |
% of Shares Short |
When? |
Expected Rev. (in millions) |
Expected EPS |
|---|---|---|---|---|
|
OmniVision (NASDAQ: OVTI) |
11% |
Wednesday |
$392 |
$0.43 |
|
ReneSola (SOL +0.00%) |
8% |
Thursday |
$360 |
($0.22) |
|
Titan Machinery (TITN +1.48%) |
38% |
Thursday |
$614 |
$0.48 |
|
Diamond Foods (DMND +0.00%) |
31% |
Friday |
$238 |
$0.17 |
|
Finisar (FNSR +0.00%) |
11% |
Friday |
$286 |
$0.39 |
Source: Finviz.com, E*Trade.
OmniVision
This company produces optical equipment used by the telecommunications and other big data industries -- most notably image sensors used in smartphones and tablets. Shareholders have endured a roller-coaster 2013, with the stock surging more than 23% in a single day back in May on strong earnings, only to drop precipitously on poor guidance in August.
The importance of OmniVision's relationship to Apple and its iPhone and iPad optic components cannot be understated. In this realm, Sony represents the greatest threat, as Bloomberg reported in late August that the company could be gaining market share.
ReneSola
ReneSola is one of many Chinese solar companies that finds itself on the list of highly shorted stocks. Despite the precarious position of these companies in the market -- relying heavily on subsidies from the Chinese government and a lack of tariffs from foreign governments -- its shares have preformed remarkably well this year, almost tripling in value.
Just a few months ago, the company was forced to price a secondary offering at 15% below market value. This just goes to show how difficult the financial situation is at the company, which hasn't turned a profit since the second quarter of 2011. The solar industry definitely represents an enticing play on future trends, but not every company is guaranteed to survive long enough to realize profitability.
Titan Machinery
Titan makes heavy-duty equipment used by both the construction and agricultural industries. So far, 2013 has been forgettable for its shareholders, as the company's stock is down more than 40% from its February highs. Much of that drop came in April when the company posted disappointing earnings from its 106 North American locations.
The biggest problem facing the stock is that investors are buying at prices with the assumption that the company will match analyst expectations. But in four of the past six quarters, Titan has come up short. With domestic competition from much more popular brands like Caterpillar and Deere, it's not hard to see why the stock is so heavily shorted.
Diamond Foods
Diamond Foods -- which focuses primarily on snack nuts -- is perennially on the list of heavily shorted stocks. That's because the company has been a mess over the past few years. A previous management team was ousted when accounting irregularities were found, and the company eventually restated earnings for 2010 and 2011 that wiped out $56.5 million in profits.
As the company has moved on from the scandal, shareholders have been rewarded: Shares are up 80% on the year. But investors need to be aware of the fact that sales of nuts -- which account for half of revenue -- were down an astounding 23% over the past year. Scandal or no, that's not a good sign.
Finisar
This company makes optical components that help transmit large amounts of data efficiently. So far this year, Finisar's stock is up 27% -- about in line with the broader market.
But as things stand now, shares trade hands for over 72 times earnings. Some are betting against the company because Cisco, Finisar's single largest customer, has shown sales weakness recently, and that could carry over to Finisar.
