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25 momentum stocks for the gambler in you
Every year, a small group of stocks emerges as the toys that speculators love to trade. Forget earnings, growth, fundamentals. Just trade em -- and dump em next year.
By Jon D. Markman
Stock market got you down? All the cant-miss financial stocks, consumer product stocks and technology stocks in your portfolio missing in action? Is your broker droning on about how he cant make you any money in this low-volatility environment, whatever that is, and maybe youd be interested in some municipal bonds or a certificate of deposit paying 2%? Brother, can you spare an annuity?
Well then, its time, my friends, for you to step into the casino! Yes, throw your cares about fiscal responsibility away and enter the world of stock speculation circa 1999. This is a world where the bright lights of the big city are shining all day and all night, where volatility is in the house, where momentum is not just another eight-letter word.
If the symbols got four letters or trades on the American Stock Exchange, have we got a stock for you! And so, let us turn to our annual end-of-October list of the shares that have blown away the competition this year with gains of 100% or more.
Stocks for the stretch drive
Very often, longtime readers will recall, these stocks do really well into year end and then fall apart in the next calendar year. They do well in the stretch drive of the fourth quarter, apparently, because all the portfolio managers who have scoffed at their gains all year finally wake up and smell the alpha. These babies are improvised explosive devices with lit fuses, and, after the recent unpleasantness in the broad market, many appear ready to blow the pockets off of short-sellers khakis.
Our primary criteria for this list are that the companies must have market capitalizations greater than $50 million, prices above $2 and trading volume of more than 25,000 shares a day. Last year, that would have netted us hundreds of companies. This year, there are only 100. To make sure that we are looking at stocks that are still in up-trends and arent round-tripping from being up 300% to flat, I have added criteria that the stocks must have been up in the past three months and the current price must be above its average price of the past 10 weeks and 50 weeks. That gets us down to 82 incredible names. The following table lists the top 15 through Oct. 24.
| Markmans big gainers list -- 2004 | | Company | Industry | Mkt Cap. | % Chg YTD | Oct. 25 price | StockScouter ranking | | Travelzoo (TZOO, news, msgs) | Internet | $960 million | 559.2% | $65.14 | 3 | | Air T (AIRT, news, msgs) | Air delivery | $75 million | 452.0 | $27.73 | 1 | | Cenuco (ICU, news, msgs) | Education services | $71 million | 445.5 | $6.00 | 4 | | W.R. Grace (GRA, news, msgs) | Chemicals | $772 million | 361.9 | $11.62 | 4 | | QSound Labs (QSND, news, msgs) | Electronics | $53 million | 342.8 | $6.92 | 3 | | Terra Nitrogen (TNH, news, msgs) | Chemicals | $400 million | 333.5 | $21.38 | 4 | | Jupitermedia (JUPM, news, msgs) | Internet | $627 million | 322.6 | $20.31 | 5 | | Novatel Wireless (NVTL, news, msgs) | Business services | $583 million | 305.7 | $24.57 | 5 | | Riviera Holdings (RIV, news, msgs) | Casinos | $72 million | 288.2 | $21.00 | 5 | | Viewpoint (VWPT, news, msgs) | Multimedia software | $162 million | 280.0 | $3.07 | 3 | | Kmart Holding (KMRT, news, msgs) | Discount stores | $8.1 billion | 273.2 | $90.28 | 6 | | Isonics (ISON, news, msgs) | Chemicals | $76 million | 270.1 | $3.65 | 3 | | Elan (ELN, news, msgs) | Drug delivery | $9.7 billion | 267.5 | $24.92 | 3 | | Vaalco Energy (EGY, news, msgs) | Indep. oil & gas | $156 million | 263.6 | $5.04 | 5 | | NitroMed (NTMD, news, msgs) | Drug manufacturers | $577 million | 206.0 | $23.65 | 3 |
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So what binds these names together? At first glance, absolutely nothing. The businesses are all over the place, from Internet travel services to casinos, energy and drugs. They are mostly very small companies, but there are a couple of large companies thrown in as well.
The cement that glues these ideas into a single concept is that they have all been appointed as appropriate trading vehicles by speculators. And that is just about all you need to know. As one of my mentors once pointed out, dont confuse the economy with the market, and dont confuse investing with speculating. All are separate beasts, and they require that you use different sets of judgment.
This place is a real zoo
Lets consider Travelzoo (TZOO, news, msgs). Are you kidding me? If this stupid stock were a baseball team, it would be the Boston Red Sox. Its got long hair, a beard and is just, as Fenway Park natives say, for idiots. All this company does is provide a place for travel companies to advertise low fares. It isnt a travel brokerage, like Orbitz (ORBZ, news, msgs). Travelzoos basically just an online newsletter. To be sure, reported revenue and earnings per share are high and rising ($28.4 million and $4.9 million, respectively, over the past 12 months). But, at the current price, that amounts to an astronomical price/sales multiple of 31.2 and a price/earnings multiple of 212. Compare that to industry averages of 0.8 and 33.
Yet that doesnt stop stock speculators from using it as a plaything. Every time Travelzoo has hit its rising 50-day moving average in the past year, it has bounced like an Olympic gymnast. Its at that point again right now, and, purely from a subjective chart-reading point of view, it looks a lot now like it did back in August before its latest 100% advance.
The second stock on the list, Air T (AIRT, news, msgs), operates in the red-hot air-cargo services space out of its home base in North Carolina. I wrote about larger companies in this space last week -- they are some of the leaders of the Dow Jones Transportation 20 Index, such as Expeditors International (EXPD, news, msgs). Speculators are always looking for small-cap, low-float ways to exploit larger themes, and Air T is their toy.
The companys earnings and revenue growth have supported the move, and its price/sales and price/earnings multiples look fine on the surface at 1.25 and 40. Dig a little deeper, however, and youll see that, historically, this company has sold for multiples of around 0.5 and around 10, respectively. The chart is rounding into shape at the moment, but, from a risk-management perspective, it would be a lot better if it were to consolidate either for another month or drop 12 points.
W.R. Grace (GRA, news, msgs) is virtually a pure play on expectations that Congress will pass rules in the next session that relieve large industrial companies from much of their responsibilities to asbestos victims. It looks pretty cheap right now, has the momentum, and, if you have the stomach for volatility, strength of character to buy on dips, or positive insight into the Congressional bill-making process, it should be good to go for the rest of the year.
Jupitermedia (JUPM, news, msgs) is one of the last of the old-time Internet marketing companies that derives its revenues from providing images, research and events to information-technology professionals. It is actually covered by three analysts, and its forward price/earnings multiple of 46 isnt out of line with its projected growth of 36%. It is certainly expensive -- with a price/sales multiple of 9.8 -- but, as a speculative instrument, it is not way out of line. The chart is constructive for further advance through the end of the year.
The StockScouter winners
Now what about the best-returning stocks with high ratings from MSN Money's StockScouter rating systems? Here are the top 10 for the year. Same rule applies.
| StockScouter's favorite big gainers -- 2004 | | Company | Industry | Mkt. Cap. | % Chg YTD | Oct. 25 price | StockScouter ranking | | Research In Motion (RIMM, news, msgs) | Commercial services | $15 billion | 157.0 | $84.47 | 10 | | Chicago Mercantile Exchange (CME, news, msgs) | Business services | $5 billion | 132.3 | $169.35 | 10 | | General Maritime (GMR, news, msgs) | Shipping | $1.4 billion | 116.7 | $37.85 | 10 | | Tesoro Petroleum (TSO, news, msgs) | Oil & gas refining | $2.1 billion | 111.1 | $30.45 | 10 | | Tsakos Energy Navigation (TNP, news, msgs) | Shipping | $762 million | 107.2 | $38.00 | 10 | | Ultra Petroleum (UPL, news, msgs) | Independent oil & gas | $3.7 billion | 103.4 | $49.56 | 10 | | Autodesk (ADSK, news, msgs) | System software | $5.7 billion | 102.6 | $49.86 | 10 | | OMI (OMM, news, msgs) | Shipping | $1.7 billion | 101.7 | $18.08 | 10 | | First Marblehead (FMD, news, msgs) | Credit services | $3.1 billion | 138.6 | $49.66 | 9 | | Delta Petroleum (DPTR, news, msgs) | Independent oil & gas | $565 million | 133.1 | $14.15 | 9 |
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These should catch a nice bid through the rest of the year as they have constituencies both among speculative and fundamental players. Its interesting to note that several of these stocks -- Chicago Mercantile Exchange (CME, news, msgs), Tesoro Petroleum (TSO, news, msgs), Tsakos Energy (TNP, news, msgs), Ultra Petroleum (UPL, news, msgs), Autodesk (ADSK, news, msgs) and OMI (OMM, news, msgs) to be exact -- have been on my StockScouter lists all year.
I will track both lists and report back in my end-of year wrap up.
Fine Print
For a full screen of the list, click here . . . For more information on Travelzoo, click here . . . For more information on W.R. Grace, click here . . . For more information on Jupitermedia, check here.
Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jon.markman@gmail.com; put COMMENT in the subject line. At the time of publication, he held positions in the following stocks mentioned: Ultra Petroleum.
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