3 Stocks That Should Make Big Moves Tomorrow
We Fools are big believers in the virtues of buy-and-hold investing. But we also recognize that this style might not suit every investor's fancy. If you like the adrenaline rush that results from stocks taking huge swings, this article is for you.
Below are three stocks that are heavily shorted, which means people are betting they'll go down. When big news arises, these stocks can make major moves -- either up or down -- based on whether the shorts are right. If the shorts are correct, a stock could plunge. If they're wrong, we could see the creation of an epic short squeeze.
I've identified heavily shorted stocks before, and sure enough, they've made some pretty big moves. For example, when I did this experiment last week, the average stock I highlighted changed price by an average of 9.4%.
One thing to be aware of is when a company is reporting earnings. Here are three companies you should watch when they report their quarterly results Tuesday:
Company | Short Interest | When to Watch | Estimated Revenue (millions) | Estimated Earnings Per Share |
|---|---|---|---|---|
AK Steel | 25% | Before market open | $1,400 | ($0.24) |
Cree | 9% | After market Close | $392 | $0.39 |
RF Micro Devices | 6% | After market close | $308 | $0.10 |
Source: Finviz.com; E*Trade.
Because AK Steel will release its information before the market opens, you can expect to see big moves by tomorrow morning. With the second two companies, however, earnings come out after the market closes, so the huge swings will likely take place in after-market hours trading.
AK Steel
It's no secret that the steel industry has been having a rough time lately. Apparently, however, investors see the industry turning the cyclical corner, as shares of AK Steel are up almost 50% since mid-April. But with one-quarter of AK Steel's shares sold short, there's also a sizable delegation that believes the recent run-up is uncalled for.
Most notably, AK's Middletown, Ohio, blast furnace experienced a mechanical failure in June that is expected to drag on earnings. That's especially troublesome because steel spot prices have risen somewhat, and AK hasn't been able to capitalize on this.
Cree
Cree is the company behind both the burgeoning LED lighting movement and these hilarious commercials touting the life span and energy efficiency of Cree light bulbs as compared to Thomas Edison's original.
But it's not so hard to see why shorts think this stock could fall. Currently, shares of Cree trade for about 100 times earnings. And more importantly, Cree's bulbs are, at their core, a simple commodity; over the long run, competition could easily drive prices down, crimping Cree's margins and taking the optimistic winds out of the stock's sails.
RF Micro Devices
This relatively small company is responsible for making radio frequency microchips. Though that may make it sound outdated ("You want me to invest in radios?!"), the technology plays a key role in providing an internal antennae for mobile devices.
Though it's hard to be 100% sure, RF's chips are said to be included in all of Apple's and Samsung's latest smartphones. With these two device makers dominating the landscape at home, and gaining market share abroad, it's not hard to see why shares are up 35% in 2013. But investors also need to be aware that when one or two customers make up a large portion of someone's business, any changes in these relationships could have outsized effects on long-term business prospects.
Exciting as it may be, there's a better way
Though watch big swings is fun, the best investing approach is to choose great companies and stick with them for the long term. Two of the companies I own -- accounting for 14% of my real-life holdings -- and plan to hold are highlighted in The Motley Fool's free report "3 Stocks That Will Help You Retire Rich." The report names stocks that could help you build long-term wealth and retire well. Click here now to keep reading.
The article 3 Stocks That Should Make Big Moves Tomorrow originally appeared on Fool.com.
Fool contributor Brian Stoffel owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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