Big moves happen on the market every day. But is it possible to predict which stocks will make big moves before they happen?
No one can be right 100% of the time, but I've been calling out big movers for over a year, and they've largely borne out my predictions. For instance, last week, the two stocks I singled out moved an average of 10%. What's the secret? These companies are both heavily shorted and are reporting earnings in the coming week -- a recipe for volatility.
So what's the catch? While we know there's a good chance these stocks will make big moves, it's impossible to know whether or not these moves will be up or down. What that means for investors is that instead of trying to time the market, shareholders should prepare for volatility before the week begins.
If you hold shares of Cirrus Logic, (CRUS 2.94%), Cliffs Natural Resources Inc (CLF 7.96%), or Arch Coal Inc (NYSE: ACI), here's what the market is expecting, when you should prepare yourself for volatility (i.e., when earnings are announced), and what you should really keep your eyes on.
|
Company |
% of Shares Short |
When? |
Expected Revenue (millions) |
Expected EPS |
|---|---|---|---|---|
|
Arch Coal |
18% |
Tuesday |
$718 |
($0.42) |
|
Cliffs |
34% |
Tuesday |
$998 |
$0.02 |
|
Cirrus Logic |
18% |
Friday |
$143 |
$0.32 |
Sources: E*Trade, finviz.com.
Source: Arch Coal.
It should be no surprise to see a company like Arch on this list. As it is, coal companies have been hit very hard over the past few years. Shareholders haven't been spared, either: Over the past three years, shares have lost 85% of their value.
The big problem is simply that there's an oversupply of metallurgical coal, and with demand stagnant, prices for coal have fallen into a range that hinders Arch's ability to turn a profit. Because of high overhead and fixed costs, the company -- and its shareholders -- need to hope for higher coal prices in the near future. Shareholders should pay particular attention to whether or not management sees prices going up anytime soon.
Source: Cliffs Natural Resources.
Much like Arch Coal, Cliffs Natural Resources is being punished hard by low iron-ore prices. As if the stock's 80% decline since 2011 weren't enough, just last month the company was booted from the S&P 500.
While it's important to see whether financial results match expectations, investors should also listen in to see whether management sees ore prices rising anytime soon. They should also look closely at the company's cash flow statement to see whether or not the dividend will remain in place. A 3.1% yield isn't too bad, but if it isn't safe, it may be worth looking elsewhere for income-generating stocks.
Source: Cirrus Logic.
Though Cirrus has its hand in many industries, it is best known for supplying the audio-processing chips found in iPhones. The company's stock took off in 2012 when iPhones were flying off the shelves, but shares since fallen more than 50% on worries that margins will shrink.
While guidance certainly matters, the company's performance relative to Wall Street expectations will likely be what drives the stock following earnings. In order for Cirrus to be an enticing stock to own in the long run, the company needs to diversify its offerings and reduce its reliance on a single customer -- even if that customer is one of the world's most successful technology companies.
