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3 pedal-to-the-metal stock strategies
To win CNBC's stock-picking contest, go for pure acceleration. Be aggressive, very aggressive or totally insane. You have nothing to lose and a Maserati to gain.
By Jon D. Markman
How much money can you make in two months in the stock market? Were about to find out, as CNBC launches a contest to see who in America can trade his way to the greatest pile of dough in 38 (trading) days.
Contests are not realistic, but they can be very instructive. You can experiment with techniques youd never consider using with your own money, and who knows -- maybe itll work out. A short-term trading contest is a chance to get in touch with your inner Jim Cramer. Shoot the moon. Go for broke. What have you got to lose?
CNBC Squawk Box Fantasy Portfolio Challenge
Win a 2006 Maserati GranSport
Click here for details.
Of course, every trading contest has rules that aggravate purists. In this one, you have to stick to companies listed on the New York Stock Exchange, Nasdaq and American Stock Exchange with market capitalizations greater than $500 million. You will get end-of-day prices for every pick, with no limit orders allowed. And you cant trade options or ETFs. But you do get to trade quite a bit, if thats your thing: up to 25 trades a week are permitted.
Having participated in these sorts of contests for years, privately and publicly, in addition to running my own and other peoples money, I think I can offer some insights on how to learn something while having fun in these two months.
The main thing you should know is that this is not about value or investing for the long term. Unless you get unbelievably lucky, this is not your chance to show everyone why that large-cap media stock thats been languishing in your portfolio at $47 for the past four years is really worth $58. And this is also not about risk management, portfolio management, dollar-cost averaging or anything else that smacks of prudence.
Related news and commentary on MSN Money
This is about pedal-to-the-metal acceleration from start to finish. If you want to win, you cannot afford any "cash drag" -- or unproductive assets. You must get fully invested from the first day. And you will probably need to focus on low-priced, low-float, high-volatility stocks concentrated in a small number of hot sectors.
Although quite a lot of trading is permitted, my guess is that the winners will turn out not to have traded very much. They are likely to have portfolios of five to 15 names, a handful of which will react very positively either to first-quarter earnings announcements, company-specific news, commodity prices or a merger.
The rules state that an individual can only submit one portfolio, but I will propose three here: One aggressive, one very aggressive and one totally insane.
Totally insane
One of my theories on these contests is that you can make it easy on yourself -- and do incredibly well -- by simply picking the 10 lowest-priced stocks that the contest allows, with absolutely no other criteria. I chose the following list screening the MSN database for stocks over $500 million and asking for Last Price "low as possible." These are not my final choices. I will provide a final list just before the contest starts in my Strategy Lab journal on Monday, April 3.
| Totally insane: Lowest-priced stocks available | | Company | Market cap | Industry name | Exchange | 3/24 Price | | Macronix International (MXICY, news, msgs) | $588 million | Semiconductor | Nasdaq | $1.18 | | CMGI (CMGI, news, msgs) | $671 million | Internet services | Nasdaq | $1.38 | | EuroZinc Mining (EZM, news, msgs) | $927 million | Industrial metals | AMEX | $1.74 | | Primedia (PRM, news, msgs) | $548 million | Publishing | NYSE | $2.08 | | Covad Communications (DVW, news, msgs) | $571 million | Comm. equipment | AMEX | $2.13 | | Gateway (GTW, news, msgs) | $885 million | Computers | NYSE | $2.38 | | Hanarotelecom (HANA, news, msgs) | $1.1 billion | Internet services | Nasdaq | $2.40 | | Scor (SCO, news, msgs) | $2 billion | Insurance | NYSE | $2.52 | | Rhodia (RHA, news, msgs) | $1.6 billion | Chemicals | NYSE | $2.56 | | Ivanhoe Energy (IVAN, news, msgs) | $603 million | Oil & gas explor | Nasdaq | $2.63 | | Nortel Networks (NT, news, msgs) | $12.7 billion | Processing sys | NYSE | $2.93 | | Cambior (CBJ, news, msgs) | $820 million | Gold | AMEX | $2.99 | | Crystallex International (KRY, news, msgs) | $611 million | Gold | AMEX | $3.15 | | Miramar Mining (MNG, news, msgs) | $524 million | Gold | AMEX | $3.14 |
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With a methodology like this, the worst thing you can do is look carefully at the fundamentals or the charts of the stock on the list. You will always find a lot of faults, and you will probably end up knocking out the names with the most potential. The reason the stocks are so low-priced is that they have experienced problems. Those problems are well-known. Now they are mostly forgotten by former momentum traders, and with expectations so low, their prices can be lifted by the merest whiff of good news.
My guess is that in two months, four or five of the stocks on this list could be up 40% or more, a couple will be down 30% or more and the rest will be mostly flat. Because several of the ideas are either precious or industrial metals, this list of stocks will probably live and die with that sector. Several stocks are from the down-and-out-but-slowly-recovering telecom-equipment group, led by names such as Covad (DVW, news, msgs), Nortel Networks (NT, news, msgs) and chip-maker Macronix International (MXICY, news, msgs).
Very aggressive
Another way to accomplish the same goal with less volatility is simply to screen the MSN Money database for StockScouter 9s and 10s being driven forward by the greatest number of "tailwinds." That is, they are the top-rated stocks in the MSN StockScouter universe that are also in the most top-rated market capitalization tiers or industrial sectors.
To find these names, I screened the database for: - 9s and 10s with market caps over $500 million;
- StockScouter Valuation, Technical;
- Ownership and Fundamental factors of B or better;
- Market preferences "in favor."
That provided me with 40 names on Monday. I then sorted those by price, low to high, again and came up with the following list. As you can see, most of the companies are either in telecommunications, energy, chemicals or food-making, although one entertainment company sneaked in as well. This list will need a lot of help from crude oil and natural-gas prices.
| Very aggressive: StockScouter 9s and 10s with tailwinds | | Company | Market cap | Industry name | Scouter rating | 3/24 close | | General Communication (GNCMA, news, msgs) | $607 million | Long-distance carriers | 10 | $11.85 | | Gruma (GMK, news, msgs) | $1.3 billion | Processed goods | 9 | $12.16 | | Premium Standard Farms (PORK, news, msgs) | $556 million | Meat products | 10 | $17.60 | | Marvel Entertainment (MVL, news, msgs) | $1.6 billion | Movie production, theaters | 9 | $19.82 | | The Hain Celestial Group (HAIN, news, msgs) | $959 million | Processed goods | 9 | $25.18 | | Goodrich Petroleum (GDP, news, msgs) | $651 million | Independent oil & gas | 9 | $26.26 | | American Vanguard (AVD, news, msgs) | $531 million | Agricultural chemicals | 10 | $29.05 | | Denbury Resources (DNR, news, msgs) | $3.5 billion | Independent oil & gas | 10 | $30.47 | | Shuffle Master (SHFL, news, msgs) | $1.1 billion | Diversified machinery | 9 | $33.66 | | Westlake Chemical (WLK, news, msgs) | $2.2 billion | Specialty chemicals | 10 | $34.05 | | Headwaters (HW, news, msgs) | $1.6 billion | Industrial metals & minerals | 10 | $39.04 | | Airgas (ARG, news, msgs) | $3.1 billion | Industrial equipment | 10 | $39.58 | | St. Mary Land & Exploration (SM, news, msgs) | $2.3 billion | Independent oil & gas | 10 | $40.90 | | Rowan Companies (RDC, news, msgs) | $4.7 billion | Oil & gas explor | 10 | $42.87 |
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Aggressive
A third group of stocks might be considered merely "aggressive" if they are hand-chosen for reasons that are more systematically fundamental and technical. This is not to say that they are safe, by any means. We are still trying to go all-out to win a two-month sprint. But they have a little more thought behind them, which can be a slim reed to lean upon for a short period of time.
One approach: Start by stacking your entire grubstake into a single stock that has a potential catalyst looming in the two-month time frame. If the reaction is positive, sell and roll the entire amount into a new idea that similarly has a catalyst ahead. Here are a handful of stocks (none of which I actually own) that fit this approach. As you can see, several of these are higher in price than I would consider likely to win. But they all have high current-relative strength plus a catalyst ahead that could provide more rocket fuel in the coming two months.
| Aggressive | | Company | Last price | Market cap | | Century Aluminum (CENX, news, msgs) | $39.28 | $1.2 billion | | Central Parking (CPC, news, msgs) | $16.09 | $513 million | | Texas Industries (TXI, news, msgs) | $63.90 | $1.4 billion | | Sterling Construction (STRL, news, msgs) | $23.60 | $193 $million | | Innovex (INVX, news, msgs) | $5.42 | $104 $million | | Immersion (IMMR, news, msgs) | $8.16 | $200 million | | Ryan's Restaurant Group (RYAN, news, msgs) | $13.86 | $583 million | | Smith & Wesson Holding (SWB, news, msgs) | $6.40 | $250 million | | 24/7 Real Media (TFSM, news, msgs) | $10.29 | $481 million | | Colt Telecom Group (COLT, news, msgs) | $5.03 | $1.9 billion |
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Over the next week, send me your top ideas -- no more than two per person -- and I will assemble a SuperModels readers' portfolio to track over the course of the contest. Remember, they must be over $500 million in market cap and trade on one of the three major exchanges. Include a one-sentence reason for each idea. E-mail jon.markman@gmail.com and put CONTEST in the subject field.
Fine Print
To learn more about the CNBC contest, click here.
At the time of publication, Jon Markman did not own or control shares of companies mentioned in this column.
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