MorningWord 12/30/14: Explosive Cocktails

by Dan December 30, 2014 8:30 am • Commentary

Most of your favorite financial pundits and bloggers are in the process of rolling out their “Surprise” lists for the markets in 2015.  As expected most of these peeps take a lot of heat for their hit rate but I would guess that the “Consensus” lists don’t get as many clicks.  A surprise list is not my bag, as I feel most of what I write on this space, or speak about on CNBC is a bit of surprise as there can be little argument about the random walk hypothesis and its impact on outcomes in the financial markets.

For me, I like to look at interesting trade set ups.  And there isn’t a better time of year, than that of year end to start considering unloved stories that have the potential to surprise. There are few more interesting potential trades than massively oversold stocks with high short interest, poor analyst sentiment, large concentrations of top holders and market caps that could make the companies easy tuck-in acquisitions for larger competitors.

Scanning the list of Nasdaq short interest, the four names below stick out to me. First because of their one time market darling status very early in 2014, and now due to their left for dead status:  

3D (DDD):

-down 65% on the year,

-36% short interest,

-top 5 holders own 17%

-9 Buys, 15 Holds, 4 Sell rating

-$3.5 billion market cap

 

FireEye (FEYE):

-down 24% on the year, down 65% from its all time high made earlier in the year.

-18% short interest,

-top 5 holders own 30% of the shares outstanding.

-15 Buys, 12 Holds, 2 Sell rating)

-$5 billion market cap

 

Invensense (INVN):

-down 22% on the year, and down 40% from the all time highs made earlier this year.

-36% short interest,

-top 5 holders own 30% of the shares outstanding.

-7 Buys, 7 Holds, 1 Sell rating

-$1.5 billion market cap

 

Ubiquiti (UBNT):

-down 33% on the year, down 46% from the all time high made earlier in the year.

-35% short interest, the CEO and Founder owns 65% of the shares outstanding.

-10 Buys, 6 Holds, 1 Sell rating

-$2.7 billion market cap

 

I’m not saying that I want to step in and buy all of these stocks, but dang, look at the FEYE chart as an example, your downside is probably 10-20% with the potential for a double if it were to become an M&A target:

[caption id="attachment_49385" align="aligncenter" width="687"]Screen Shot 2014-12-29 at 9.47.43 PM FEYE 2 yr chart from LiveVol Pro[/caption]

When it comes to options we’d want to structure trades in names like these as defined risk, but allowing for a lot more upside than other stocks near their highs.  Stay tuned.