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The big reversal on Friday
Following a weaker than expected employment report Friday morning, major indices gapped lower and traded down about 1.5%. It looked like yet another rout on the level of the August-September declines was in store. Yet by mid-day, the bad news of late and continuing uncertainty over when the Fed might raise rates seemed fully baked in to the market, and stocks began to climb. And climb they did with major averages closing at session highs, with the Dow Jones industrial average up 200 points after earlier falling as much as 258 points. In fact, The Dow and S&P 500 closed up more than 1 percent for their biggest intraday upside reversal since October, 2011.
Why a positive turn is due
- We’ve made it through September, which is historically the weakest month of the year for stocks (See: Stock Market Slump: Why September Is The Worst Month For Stocks)
- Regarding China, I predict an increasing number of economists and media pundits will soon place less emphasis on the “horror headlines” and provide more constructive insight on the real steps the Chinese government is taking to ramp the country’s growth. News out of China has been a major source of weakness in the U.S. market. Yes, growth in China’s GDP has slowed from 10-15% a few years ago to 7% now…although that may be a generous number from the government. But over the longer term, China has met its goal to transform from a rural, agricultural economy of two decades ago to an industrial and urban-based economy today with a rapidly growing middle class. China is still in the early innings of developing a consumer-driven economy and I would argue that GDP growth of 5-7% driven by consumer spending is much healthier for both Chinese citizens as well as the global economy than 10-15% growth in GDP driven by government-funded projects and “bridges to nowhere.”
- Low gas prices boost consumer spending which drives the U.S. economy. Second quarter U.S. GDP was revised upward to 3.9% (from 3.7%) boosted in part by gains in consumer spending
- Despite the gloom and doom headlines in August and September, U.S. wages continue to slowly increase, consumer spending is up, and inflation remains tame (see MarketWatch)
- Fears/market prediction of a U.S. recession overblown. The noted economist Paul Samuelson once quipped: “The stock market has called nine of the last five recessions.”
While one day does not a trend make, Friday’s action was pretty convincing that the there is plenty of money on the sidelines and the bottom may be in.
“Whether we’re talking about socks or stocks,
I like buying quality merchandise when it is marked down”
– Warren Buffett
Everyone loves to buy stocks on sale, and my partner, (Harris Shapiro of FocusedStockTrader.com), and I like four companies that are stronger, more robust business now than before the market correction, yet shares of these companies are trading at a deep discount to just two months ago.
In no particular order, these 4 Great Stocks to buy are:
Solar3D, Inc. (SLTD) @ $2.78
Solar3D, Inc. (web site) provides photo voltaic based power systems for residential, commercial, and agricultural markets. It also designs, finances, integrates, and manages systems ranging in size from 2 kilowatt for residential loads to multi megawatt systems for larger commercial projects. Solar3D also offers various installation services, including design, system engineering, procurement, permitting, construction, grid connection, warranty, system monitoring, and maintenance services to its solar energy customers.
Following the brutal months of August and September, SLTD shares closed Friday at $2.78. This is down 51% from the high of the year and 11.7% from our recommendation made in March. However, SLTD is rapidly growing in sales and stature with multiple new contracts, record revenue, record order backlogs, and the acquisition of Elite Solar.
- Solar3D’s SUNworks Division Secures $1M Contract in Nevada (Jul 14)
- Solar3D’s SUNworks Division Contracted by Several California-Based Agricultural Companies for Solar System Installation (Jul 16)
- Solar3D Announces Preliminary Second Quarter 2015 Revenue; Up 95% Over the Previous Quarter (Jul 22)
- Solar3D’s SUNworks Division Signs $2.5 Million Contract With Fresno-Based Baloian Packing (Aug 3)
- Solar3D’s SUNworks Division Secures $3.5 Million Contract With CA-Based Trading Company ( Aug 5)
- Solar3D Reports Record Quarterly Revenue of $11 Million with a $22.7 Million Sales Backlog (Aug 7)
- Solar3D Achieves Record Month for New Residential Sales (Aug 10)
- Solar3D to Acquire Leading Solar Power Company Elite Solar (Aug 12)
Note: Acquisition target Elite Solar expects sales to approach $20 million in 2015 and EBITDA (earnings before interest, taxes, depreciation, and amortization) to be approximately $2.2 million.
- Solar3D Aims to Dominate California Agriculture Sector With Anticipated Acquisition of Elite Solar (Aug 20)
See also: SLTD August 2015 Investor Presentation
Vuzix Corporation (VUZI) @ $4.59
Trading 8% below Intel Corporation investment in VUZI @ $5.00/share in January
Vuzix Corporation (web site) is a leading developer and supplier of smart glasses and video eyewear products in the consumer, enterprise and industrial markets. Vuzix has won 20 Consumer Electronics Show Innovations awards (including 4 for CES 2015), with select products being the world’s best-innovation in their category. In January 2015, Vuzix received a $24.8 million investment from Intel Corporation to be used as general working capital to accelerate the introduction of Vuzix next generation fashion-based wearable display products into the consumer market.
We first wrote about on January 4th following a close of $4.21 and interviewed the CEO, Paul Travers, a few weeks later. Following the company’s Nasdaq uplisting, shares traded as high as $7.60 (an 80% gain from January 4th). In the aftermath of the last two months, shares have fallen to $4.59 and are down 17% from an intraday high of just 3 weeks ago and below the $5/share Intel Corporation investment in VUZI.
Yet business is very much alive and well at VUZI as these recent developments indicate:
- Vuzix M100 Smart Glasses Prescription Safety Eyewear Now Available (Jul 27)
- Vuzix Adds Brad Craig to Head New Developer Relations Program (Aug 10)
Note: Brad Craig launched key products for Compaq, AMD, ATI, Future Publishing, Ingram Micro, Electronic Arts, Advanced Gravis, Forte Technologies and Razer
- Vuzix Provides Business Update and Second Quarter 2015 Operating Results (Aug 13)
Note: Management states “The forward outlook is very promising with the fall launches of the iWear Video Headphones and enhanced M100 Smart Glasses. The Company will be heavily focused this fall on development activities for its new waveguide products for introduction in early 2016, as well as new enhanced smart glasses models.“
- Vuzix M100 Smart Glasses Support NTT DATA’s Remote Field Service System (Sep 8)
- Vuzix Brings ONtheGO Platforms’ Gesture Tech, Ari™, to M100 Smart Glasses (Sep 24)
- Vuzix M100 Smart Glasses Enable Ubimax xPick and xAssist Applications for Enterprise (Sep 30)
Chanticleer Holdings (HOTR) @ $1.19
Trading below Book Value of $1.23 in most recent quarter
Chanticleer (web site) owns and operates Hooters branded restaurants in emerging international markets. Hooters is one of the most well-known restaurant brands in the world and has a menu which consists of moderately-priced American bar food and the world-famous Hooters girls. The Company is a franchisee owner of Hooters® restaurants in international markets including Australia, South Africa, and Europe, and two Hooters restaurants in the United States, Oregon and Washington, while evaluating several additional opportunities internationally.
Chanticleer also owns and operates American Burger Co, a Charlotte, NC based chain, BGR the Burger Joint, BT’s Burger Joint and owns a majority interest in Just Fresh Restaurants, a fresh food-focused casual dining establishment based in Charlotte, NC.
HOTR is a stock we first profiled at $2.12 on March 3, Shares traded as high as $4.18 in May, and were hit especially hard in the August-September correction, with a close of just $1.19 on Friday.
With the successful acquisition of Little Big Burger announced Thursday of last week, Chanticleer now has 62 locations worldwide including fifteen Hooters restaurants, five American Burger Co. restaurants, seven Just Fresh locations, twenty-three BGR the Burger Joint locations (including 14 franchise locations), four BT’s Burger Joint locations and eight Little Big Burger locations.
More importantly, Little Big Burger acquisition last week will add over $1 million of annual EBITDA immediately, taking HOTR to EBITDA positive in Q4 2015 and beyond according to Mike Pruitt, CEO of Chanticleer Holdings, Inc.
There is no reason for Chanticleer Holdings to be trading below Book Value, where it closed on Friday.
The median analyst price target for HOTR is $5.00/share.
I added shares of HOTR to my position on Thursday’s acquisition/EBITDA + news and couldn’t be happier about the opportunity which I discuss in more detail here.
InVivo Therapeutics (NVIV) @ $8.64
Invivo Therapeutics (web site), is a research and clinical-stage biomaterials and biotechnology company, focused on developing and commercializing technologies for the treatment of spinal cord injury (SCI). The company is developing a Neuro-Spinal Scaffold, an investigational bioresorbable polymer scaffold for the implantation at the site of injury within a spinal cord contusion; and biocompatible Neuro-Spinal Scaffold Plus Stem Cells to treat chronic SCI.
InVivo was our pick at a split-adjusted $4.28 on 12/17/2014 (see article), and closed Friday at $8.64. Shares dropped over 50% from their highs of two months ago during the biotech rout, and yet the Company has made huge strides in development of the Neuro-Spinal Scaffold.
InVivo’s neuro-spinal scaffold has led to marked improvement in early clinical trials and received a humanitarian use device designation,from the FDA. This means it needs only proof of “probable benefit” to get FDA approval for wider use.
And despite the 50% decline in share price since July, the news out of NVIV has been excellent.
- InVivo Therapeutics Reports Significant Improvement of Second and Third Patients Implanted with Neuro-Spinal Scaffold (Jul 6)
- InVivo Therapeutics Announces Promotions and New Organizational Roles to Further Drive Market Development and Awareness of Spinal Cord Injury Innovation (Aug 6)
- InVivo Therapeutics Announces New Jersey’s Cooper Neurological Institute as New Clinical Site for Neuro-Spinal Scaffold (Aug 12)
- InVivo Therapeutics Announces Enrollment of Fourth Patient in Pilot Spinal Cord Injury Trial (Aug 20)
- InVivo Therapeutics Announces Enrollment of Fifth Patient in Pilot Spinal Cord Injury Study (Sep 8)
- InVivo Therapeutics Announces Mount Sinai Hospital in New York City as New Site for Neuro-Spinal Scaffold™ Clinical Trial (Sep 9)
- InVivo Therapeutics Featured as an Industry Innovator by MassBio (Sep 10)
- Early Promise for a New Paralysis Treatment (Bloomberg, Oct 1)
There was some political grandstanding from both parties in the last two weeks addressing the massive price increase charged or a decades old drug by Turing Pharmaceuticals (see story) that hit biotech shares hard. Cases of price gouging on this level are outliers, and have nothing to do with NVIV and the majority of biotech stocks, yet the entire space was hit hard. While there could be more downside to biotech history suggests the bottom is either in, or will be within the next 3 weeks.
The bottom line
If you like stocks of companies with improving fundamentals and/or explosive positive catalysts, put SLTD, VUZI, HOTR, and NVIV on your watchlist.
Disclosure: I own shares in the stocks mentioned above. I have not been paid by any company or any person for this article.