Sometimes it makes more sense to do the opposite of what everyone else is doing.
That is usually likely to be the best decision at the end of the year, when window dressing and other unusual end-of-year positioning takes place. This often includes buying the winners (or uniquely attractive plays), and selling the red flags. That could create overbought and oversold scenarios, which in turn might be exceptional contrarian trades as the new year begins.
As this year comes to an end, two stocks look poised to reverse course at least in the beginning of the new year: Twitter Inc. (TWTR) and BlackBerry Ltd (BBRY) .
Right now, these stocks are almost at opposite ends of the spectrum when it comes to investor sentiment. Twitter could not be loved more than it is right now, but BlackBerry has practically been shunned.
Since Dec. 2, Twitter has flown. The stock moved from the mid- $40s to over $70 in less than a month. This is almost unheard of, but given the unique catalysts that exist at the end of this year it is also not surprising. There are many hedge funds that are lagging this market and they want to make up ground before the year comes to an end. What better way to do that then with a company that has all of the bells and whistles investors are looking for?
Twitter was embraced and promoted aggressively over the last few weeks and investors followed suit. The rally in the stock has brought valuation levels to what perceived fair value might be four or five years from now (if everything goes right), so the stock is extremely rich, but investors love it and no one is questioning recent gains. That is, no one but me and a few others.
The majority of Wall Street still thinks that Twitter is solid, and I don't really have any problem with the business model either, I just don't like the valuation. The stock has increased too much, and it did it recently for all of the wrong reasons. Sure, good news must accompany a move like this, but the main catalyst came from hedge funds who were trying to catch up with this market. They seemed to have done that because the rally in Twitter in the month of December was huge.
Given this situation, Twitter should be avoided until it comes back down to support levels again.
The second stock is BlackBerry, which instead of being loved is hated by Wall Street. Management seems to be making all the wrong moves and even though the product itself is solid, management's indecisiveness has caused serious harm to the financials of BlackBerry.
Enterprise level customers, who were the backbone of BlackBerry's business, have departed because they had no idea what was going to happen to the company. Management seemed as if they wanted to sell, but BlackBerry customers did not have an idea of who the buyer might be, then they started to worry about the sustainability of the business.
Instead of sticking with BlackBerry, many customers turned to their competitors, and this is exactly why BlackBerry is stuck with a glut of inventory and financial losses on their books.
It should be noted that BlackBerry is still a company with a solid product, and now that prior management has backed off the company may actually begin to regain footing. I find it extremely healthy that one of the founders has sold off most of his shares because it was he who was trying to force the issue of a buyout and that is what confused clients.
That confusion no longer exists, at least not as it had before, and it almost seemed as if the perception on the street changed at one point this week, but then the conversation changed, too.
Instead of concern about management, or the direction of the company, the topic was short selling, and the rally this week was initially attributed to short covering. The attention to short covering caused the material change that happened this week to be quickly forgotten, and the stock fell back on Thursday.
As I write this piece Twitter was giving up some of its recent gains, and BlackBerry was increasing some, and I think this pattern will continue. I believe, for the next couple of months at least, that Twitter retraces back to support levels, and if BlackBerry even catches a small break it could soar.
Consider these to be calls contrary to popular belief, but ones I believe will serve investors well. Avoid Twitter around $70, and consider BlackBerry. Most importantly, have a great start to your new year.
No comments:
Post a Comment