01/13/2006 12:00 am EST
Beth Gaston Moon , with Schaeffer's Investment Research, uses contrary analysis to find fundamentally and technically strong stocks that are out-of-favor. For 2006, she goes for ground shipping as a conservative play and "shoots for the moon" with a drug speculation.
"My conservative pick for the coming year is FedEx (FDX NYSE). The stock earns a Schaeffer's Equity Scorecard rating of 8.0, thanks to superb price action that has been forged against a backdrop of investor skepticism. FDX shares have rallied strongly since late September, using the support of their ten-week, ten-day, and 20-day moving averages along the way. In December, the shares powered through the 100 level. Not only is this century mark significant from a psychological perspective, but it acted as resistance on FDX in December 2004 and March 2005. The shares are now trading near all-time highs.
"Options players have gathered in the bearish camp, procuring bearishly configured put positions by the delivery truck-load. This is reflected in the security's Schaeffer’s put/call open interest ratio rating of 0.81, which is higher than 94% of the past year's worth of data. Additionally, Zacks data reports that there are just as many analysts who rate the stock a ‘hold’ as they do a ‘buy.’ Should FDX continue to saunter higher, some of the ambivalent analysts could move to the bullish camp. Brokerage upgrades could have positive short-term repercussions on the shares. Fundamentally speaking, FDX has a decent track record during earnings seasons, issuing positive surprises in four of the past five quarters. The leading express transportation company is next due in the earnings confessional in early March.
"My speculative pick for 2006 is New River Pharmaceuticals (NRPH NASDAQ), which has a market cap of $1 billion and an average trading volume (during the past three months) of just over 100,000 shares. But this specialty pharmaceutical company was one of the top initial public offerings in the healthcare sector during 2004. From its debut date of August 5, 2004, through the end of that year, the shares rallied $73.5% while the offering raised $246.9 million. In 2005, the stock gained an additional 247%. While its rally has been dramatic, it has also been steady. NRPH has used the support of its ten-week and 20-week moving averages to moved gradually higher ever since its initial debut. In other technical news, the shares have shown solid relative-strength performance compared with both the AMEX Biotechnology Index and the AMEX Pharmaceutical Index.
"The stock remains somewhat of a hidden gem, attracting little attention from Wall Street or Main Street. According to Zacks, not a single analyst has NRPH on its radar screen. Meanwhile, the stock is not yet optionable, so an entire faction of speculative players is currently shut out (making the equity's rally that much more impressive). NRPH is clearly not an ‘overloved’ name, and therefore has room to run higher as people begin to warm up to the shares. Finally, the equity stands to benefit from short-covering support. Last month, the number of shorted NRPH shares increased by nearly 12%, leaving almost 11% of the stock's float sold short. It would take nearly a week to cover all of these positions at the security's average daily volume. If the shares continue to push higher, a short squeeze could develop, providing NRPH with some additional short-term buying power."
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