TFN eNews 11/02/2009: Could this quarter-a-share stinker have some 35% upside left?
Published via e-mail broadcast on November 2, 2009
In today’s TFN eNews:
* Banking mayhem creates blue chip penny stocks
* A risk-controlled trade
* Why earnings season looks so different
Dear TFN eNews reader,
Shares in CIT Group Inc. (NYSE:CIT) fell 65% to below a quarter when trading resumed on the NYSE this morning. (Shares had been suspended after the company filed for bankruptcy on Sunday.) Fitch Ratings downgraded the long-term Issuer Default Ratings of CIT Group Inc. to ‘D’ from ‘RD’. The ratings of CIT Bank and the company’s other operating subsidiaries remain unchanged as they were not included in the bankruptcy filing.
During the crazy trading day that followed, shares of unrelated Citigroup Inc. (NYSE:C) fell 7% to $3.83. C already absorbed a major body blow on Friday when accounting expert Robert Willens estimated the company would likely have a $10 billion Q4 charge on its tax-deferred assets — representing 10% of C’s tangible equity and about 25% of its $38 billion in deferred tax assets.
(The company says he has no clue what he’s talking about…)
Gains and losses in share price today afforded a cheap an market-based “ratings” system as to how investors are looking at banks.
Mitsubishi UFJ Financial Group Inc. (NYSE:MTU) was among the only gainers.
*** If you missed out on the market’s wholesale generation of “blue-chip penny stocks” last year, this may be one of those second chances.
You remember last November, when the financial crisis handed out a once-in-a-lifetime opportunities like a suburban housewife desperately trying to get rid of 3 bags of mixed candy to 5 trick-or-treaters on Halloween.
Even blue chips trading for $20, $30, even $50 were suddenly reduced to measly “penny stocks:
Look at Fannie Mae (NYSE:FNM), which plummeted from $36.74 on Jan. 4, 2008 to a 52-week low of just 30 cents! Last week , even this stinker had recovered to over $1.10… rewarding investors who bought at the lows with 266% gains.
Or take Impac Mortgage Holdings (formerly NYSE:IMH, now OTC:IMPM), which fell from over $35 during its dividend-rich NYSE heydays to just 12 cents. Could you believe it went from a quarter on March 6 to $2.75 these days?
Stocks like Boise Inc. (NYSE:BZ), a troubled paper maker diving from $9.70 in Jan. 2008 to just 5 cents in 2009. It’s now trading up over $4.50.
Am I saying that CIT will rise 1,000% by February? Notatall. That’s highly unlikely, because under the proposed plan of reorganization, all existing common and preferred stock will be cancelled upon emergence from bankruptcy… which could be in late December or early January.
Under this provision, CIT shares are already worthless. And yet, the fact that today’s price collapse was halted at 25 cents indicates that there may be a little speculative upside left to play this.
I think risking $260 buying 1,000 shares of CIT has a some highly speculative upside upside at this point. Maybe as much as 35% this week. It’s risky, of course, as shares of all companies that have their “self-destruct” button pressed. Like the shareholders of Bear Stearns, you may end up kissing that $260 goodbye.
For those of you who’re less risk-embracing, this is a great opportunity to build your own little “Speculative Equity Cluster” using two other stocks with different risk levels as buffers. You could allocate a thousand bucks as follows:
75 shares of MTU @ $5.40 a share
100 shares of C @ $3.86 a share
800 shares of CIT @ $0.26 a share.
Put a -50% stop loss on CIT, and a -20% stop loss on MTU and CIT. This way, you’re still risking $260 or roughly 26% of the total. But you have three quarters of your principal protected, and can use any upside move of your cluster elements subsidize your risk.
You won’t be able to buy CIT through most mainstream trading accounts that limit your choices to shares trading above $1. And you’ll have to move fast… as fluctuations to the upside may me very short indeed as the emergence date exercises a gravitational pull.
Wait until tomorrow morning around 10 AM to buy CIT… just in case there’s more bad news moving the price lower.
We’ll update you on the process of this play.
*** Earnings season is slowly winding down. It’s been less than a month, but the second half of the season looks dramatically different that the start.
TFN’s Andrew Snyder writes: “It’s amazing how earnings sentiment has changed over the past two weeks. In mid-October, any figure close to analyst estimates was enough to send share price up by double-digit proportions. Now, an out of place comma in an otherwise pristine report can send shares plummeting.
“Just look at Wonder Auto Technology (NASDAQ:WATG) share owners. Before this morning’s bell, the Chinese auto parts manufacturer revealed its third-quarter financials. With top-line growth of over 50% leading to $6.5 million of net income, which beat expectations, investors would expect a rational market to send share price higher.
“But this market isn’t rational. As I write, shares of the $320 million company are down by nearly 8%. The only possible reason share price is down on the news comes due to a small decrease in margin performance. Although the company issued annual revenue guidance of $208 million, which is above the expected figure of $204.27 million, Wonder Auto’s expected annual profit is $23 million, just a hair shy of the Street’s estimated $23.3 million.”
But wait, there’s more… more proof of this market’s inherent lack of reason. Read on right here… http://www.todaysfinancialnews.com/investment-strategies/earnings-season-why-does-it-look-so-different-10263.html
*** 3 tiny stocks you need to own now! This upstart financial information network has generated 67 double-digit gainers so far in 2009!
Find out what “ridiculous” method they found to reliably pick winning stocks. You need to read this! http://www.todaysfinancialnews.com/HSC/ridic/WHSCK901.html
*** Quote of the Day:
“We tax everything that moves and doesn’t move.”
– Hillary Clinton, DailyTimes.com.pk
Recommended Reading:
Earnings season: Why does it look so different?
Today’s Top 3 Financial News Stories:
Telegraph.co.uk – It is Japan we should be worrying about, not America “Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world’s second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending — and allowing it to push public debt beyond the point of no return.”
MoneyNews.com — Swanson: Not Time to Sell “I think it likely we’ll see the market rally for the next three to five days and then go into a down to sideways mode for a few weeks before turning higher and having another big run. But we may have seen the low of the correction last week. If not, then I’d look for a final low in the 990 to 1,015 area of the S&P 500. But one shouldn’t be too negative about this market and if you aren’t in anything you should be looking to use weakness as a place to buy.”
Bloomberg.com — Dollar Falls as Manufacturing Grows; Oil, Copper, Gold Rally “The dollar slid against high-yielding currencies, led by the Australian dollar, as China reported a surge in manufacturing and investors bet factory production in the U.S. accelerated. Oil, copper and gold climbed.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
Next Article: Three ways to play Dana’s earnings
Be the first to leave a reply.
Your comments are welcome
Follow TFN via RSS or Twitter |
 |
 |
 |
Advertisement
Latest Headlines
- The Big Picture for Sinobiopharma, Inc. (SNBP)
- Beazer Homes USA, Inc. (BZH) and Hovnanian Enterprises, Inc. (HOV) up despite horrid housing news
- The FDA catalyst: 2010 moves in MannKind (MNKD), Roche Holding (RHHBY), Acorda Therapeutics (ACOR) show it still works!
- Steepest drop since Feb. 2009: Here we go again!
- Is the silver run over? Coeur d’Alene Mines (CDE), Silver Wheaton (SLW), Alto Group (ALTO), Hecla Mining (HL), Endeavour Silver (EXK) close down