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.
The list I'm going to share really shouldn't matter too much if you're a long-term, buy-to-hold investor. We know that one quarter's earnings does not a company make. At the same time, it's worth noting that we're all human, and if we see one of our stocks up or down by huge amounts, it can cause an emotional reaction.
Consider this article a chance to prepare for that emotional reaction.
Every week, I publish a list of stocks I believe will make huge moves in the coming trading days. I get this list by looking for highly shorted stocks that are reporting earnings. Last week's picks proved eerily true, moving an average of 12% the trading day after quarterlies were made public.
Here are the five stocks to look for this week.
| Stock |
% of Shares Short |
When |
Expected Revenue (in Millions) |
Expected EPS |
|---|---|---|---|---|
|
Smith & Wesson (SWHC +1.11%) |
30% |
Wednesday |
$138 |
$0.21 |
|
Avanair (NASDAQ: AVNR) |
12% |
Wednesday |
$22 |
($0.07) |
|
Joy Global (JOY +0.00%) |
18% |
Wednesday |
$1,100 |
$1.11 |
|
Ciena (CIEN +0.36%) |
18% |
Thursday |
$568 |
$0.24 |
|
lululemon athletica (LULU 2.97%) |
25% |
Thursday |
$376 |
$0.41 |
Sources: Finviz.com, E*Trade.
Smith & Wesson
Smith & Wesson is one of America's largest manufacturers and sellers of firearms. Shareholders in the company have experienced a solid 2013, with the stock trading 45% higher than it was on Jan. 1. Expectations, however, have been damped down lately. The stock trades for just 9 times earnings, but even that may be optimistic in light of slowing gun sales across the entire industry.
Avanair Pharmaceuticals
Avanair's immediate future depends on the success of Nuedexta, the company's drug for the treatment of pseudobulbar affect -- which manifests itself in uncontrollable fits of both crying and laughter. For most of the year, investors were treated to great returns. Starting in September, however, questions started to arise after Gravity Research posted a bearish report alleging the company had taken part in illegal off-label marketing of Nuedexta and was in dire straits financially.
Joy Global
Joy Global provides heavy machinery used by mining companies worldwide. Things haven't been going to well for the company or its shareholders: shares are down 15% this year. Even if Joy meets expectations, earnings and revenue will have fallen 46% and 31%, respectively. The main culprit is the fact that capital spending in the mining industry is lagging, and coal -- which Joy's equipment is specialized to mine -- is especially out of favor at the moment.
Ciena
Ciena provides communications networking equipment for use by telecommunications and cable companies. So far, 2013 has treated investors mighty well, as shares are up 50%. What that hides, however, is that shares are down 15% since late October. The most likely reason shorts are piling in has to do with weak guidance offered up when networking bellwether Cisco reported earnings in November.
lululemon athletica
Finally we have everyone's favorite retailer of athletic apparel for -- primarily -- women. Lulu was one of the hottest companies around coming out of the Great Recession, but a series of missteps have hurt the company's reputation. First, there was a case of the company's luon pants that were too sheer -- read: see-through. That was followed by the announced resignation of CEO superstar Christine Day. And if that weren't enough, there are reports surfacing that Lulu's pants might be showing a little too much once again.
