Wednesday, May 23, 2007

"Virgin Stocks" from Stockbee a.k.a Pradeep Bonde

This is an interesting stock picking strategy developed by Pradeep Bonde over at Stockbee. His strategy is more rigorous and easier for selecting candidates than the one used here. I took a more protracted path; I first visited Hoover's IPO performance list and did an eyeball search for candidates which were trading below their IPO price. They have data going back to 1996 so if you have the time you pull performance data all the way back to then - such as Yahoo!s. For simplicities sake I went for 2006:

January-March 2006

Himax Technologies (HIMX)
China GrenTech Corp (GRRF)
Clayton Holdings (CLAY)
Nextest Systems (NEXT)
Morton's Restaurant (MRT)
Cardica Inc (CRDC)
Digital Music Group (DMGI)
American Telecom Services (TES)
Altus Pharmaceuticals (ALTU)

April-June 2006

Aventine Renewable Energy (AVR)
PGT (PFTI)
Replidyne (RDYN)
Golfsmith International (GOLF)
Verasun Energy (VSE)
Luna Innovations (LUNA)
Vonage Holdings (VG)
Restore Medical (REST)
Basin Water (BWTR)
Northstar Neuroscience (NSTR)
American Mold Guard (AMGIU)
Corel Corporation (CREL)
Sealy Corporation (ZZ)
Castle Brands (ROX)
Visicu (EICU)

July-September 2006

Omni Financial Services (OFSI)
CBRE Realty Financial (CBF)
Porter Bancorp (PBIB)
DivX Inc (DIVX)
Home Diagnostics (HDIX)
GeoMet (GMET)

October-December 2006

Universal Power Group (UPG)
Dayton Superior Corp (DSUP)
Fuwei Films (FFHL)
Melco PBL Entertainment (MPEL)
US BioEnergy (USBE)
WSB Financial Group (WSFG)
NewStar Financial (NEWS)
DCT Industrial Trust (DCT)
MEDecision (MEDE)
Smart Move (MVE)
Netlist (NLST)
Willdan Group (WLDN)
Allot Communications (ALLT)
Emergent BioSolutions (EBS)
AdCare Health Systems (ADK)
Thermage (THRM)
Canadian Solar (CSIQ)
One Beacon Insurance (OB)
Catalyst Pharmaceutical (CPRX)
Globalstar (GSAT)
Debt Resolve (DRV)
Optium Corp (OPTM)
Achillion Pharmaceuticals (ACHN)
Susser Holdings (SUSS)
Ivivi Techbnologies (II)
LeMaitre Vascular (LMAT)

I then screend out any IPO which did not have 3 consecutive profitable quarters (based on most recent reporting as per Barchart.com). As you can see from the swathe of red this cut out alot of the candidates:



Stocks in the dark green had experienced net income growth over their most recent three quarters (actually I was a little generous with China GrenTech Corp):

China GrenTech (GRRF), Aventine Renewable Energy (AVR), Fuwei Films (FFHL), and Netlist (NLST).

I then pulled up charts for these 4 stocks:






From a charting perspective Fuwei Films (FFHL) gets cut given it has only recently dropped below its IPO price after a surge of speculative buying. Its reported earnings trend is good, but there isn't the volume buying interest to support a turnaround. Netlist (NLST) drifted badly on what had been solid earnings growth in its most recent three quarters (but... see later). However, demand could be making a return given May's selling volume was considerably less than that from mid-April's gap down when the company reduced its earnings outlook. The 20-day MA is a big test as this contained rallies earlier during the year. I would consider this a good dollar-cost-averaging candidate. Momentum buyers will probably want to look at China GrenTech (GRRF) - although I am leary of Chinese stocks at this stage of the market proceedings. It made a nice break of $11.82 resistance on improving technical strength and if it can push past the nascent 200-day MA it could go on a nice run. The best candidate of the four looks to be Aventine Renewable Energy (AVR). There was a solid pick up in accumulation in March after the stock capitulated in January. $17.50 looks to be an important price level as it marked the neckline of the January-March triple bottom. The last two months have seen a well behaved consolidation as gains are digested on a retracment back to $17.50 support. Watch for an upcoming MACD trigger 'buy' on oversold stochastics, and a return to the accumulation trend in on-balance-volume. Stops can go on a closing break of $17.50.





 
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