Themarket is currently a game of musical chairs. You must stay
active to find winning trades even as you prepare for the
possibility that the music may stop, taking all stocks on a
downward path. That's why it's sensible to focus on stocks with
near-term catalysts. They may deliver quick gains, which enables
you to book profits and move to cash while you wait out any coming
pullback.
But if these catalysts fail to materialize, thenshares could
fall considerably. That's why it's important to stay abreast of
events, as they move quickly. I recommend a stop-loss for these
kinds of stocks as insurance if the catalysts don't happen.
1. Diamond Foods (Nasdaq:
DMND
)
I profiled this company back in
early July
and though shares have risen more than 10% since then (including a
15% gain since Aug. 14), considerably more upside may soon be had.
That's because Diamond's auditors appear to be finalizing their
review of the company's books (which only involved the needed
restatement related to prices paid to walnut growers in 2010 and
2011).
Diamond has no control over the timing of theaudit 's
completion, but upon completion, look for a quick re-filing of
recent financials and the opportunity for analysts to re-assess
their valuation. Note that shares have tumbled more than 76% during
the past 12 months.
"Diamond is a growth stock, and we have every reason to believe
it goes back to being perceived as such," predict analysts at D.A.
Davidson. With a positive outlook, they anticipate more than 100%
upside from current levels once problems are resolved.
2. Kit Digital (Nasdaq:
KITD
)
After deep struggles, this stock has announced plans to seek a
buyer. This provider of video and content delivery systems has
managed to acquire several niche players before its stock imploded.
Some suggest those assets could be sold off piecemeal to help
regain financial stability. The entire board has been turned over,
and the current one has the mandate to do whatever it takes to
unlock shareholder value.
3. Monster Worldwide (NYSE:
MWW
)
Like Kit Digital, Monster has also been looking for a buyer.
For its part, the company has stumbled from its perch as one of the
leading employment websites. But it still has considerablecash flow
, so it's likely a perfect target for private equity firms that can
fix the broken business and bring it public again down the road.
Both are high-risk, high-reward set-ups.
4. Citigroup (NYSE:
C
)
If you're a subscriber to my
$100,000 Real-Money Portfolio
, then you know I'm a fan of this banking giant. Recall that
Citigroup failed a stress test with regulators this past spring
that would have paved the way for stock buybacks and a
majordividend hike.
At the time, management effectively said "we'll be back" to the
regulators. And they've spent the rest of the summer letting
continued solid cash flow fatten up thebalance sheet . A few
recentasset sales also strengthened Citigroup's finances. As an
example, Citigroup had a capital ratio (known as Basel III) of 7.2
in the first quarter, though that figure jumped to 7.9 in the
second quarter, and likely now exceeds 8.0.
When will Citigroup sit down with regulators again? The bank is
hinting as soon as January. But this is acatalyst that more will
anticipate, so shares are likely to strengthen throughout coming
months. That may partially explain why shares have rallied nearly
20% during the past month.
Risks to Consider:
These stocks are in the doghouse for good reason. If they fail
to deliver these catalysts, they could stay there.
Action to Take -->
These are opportunities that deserve further research, and you
should only own them once you are satisfied with your owndue
diligence .
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.