With an average volume of only 83,000 shares, LCAV is more pint-sized than the stocks I normally look at. But with the market in confusion (up? down? anywhere?) and the end of the trading week growing nigh, I decided to pull the seeds for today's bracket (see my essay "10,000 Charts") from a broader pool than normal.
And, although not quite a penny stock, LCAV is trading for about $4.40.
I selected from the 185 stocks currently rated "strong buy" by Zacks, with no filter for price or volume. Low price and low volume means greater volatility, generally, and also less "trendiness" -- the charts tend to be little bit flaky compared to the mega-caps that dominate the market.
After LCAV, the bracket's top rankings were 2nd place FLT, 3rd CRMT and 4th VPHM.
LCAV is in the third trading day since opening, on Jan. 4, with a 10.1% gap, followed by an intra-day rise of 28.6%. And it followed that fairly amazing bump with two days that each set higher highs and higher lows.
I always feel a bit astigmatic when I look at charts with gaps and follow-throughs of that degree. My gut feeling is always that everyone will take the money and run to the exits, all at the same time, causing the price to collapse back to its pre-gap levels.
And maybe it will, and maybe it won't. That's the risk a trader takes with any stock.
Case in point: Yesterday (Jan. 5) I opened a bull position on GOOG, which on the third day after a gap was slightly below the high. Rather than dithering a bit, and then again rising, GOOG today (Jan. 6) continued to fall, prompting me to close immediately for a small loss.
GOOG's price is 148 times that of LCAV, and its average volume is 2,600 times greater. So high liquidity and a price sufficient to screen out poorly capitalized amateurs is no guarantee of stability.
The January gap broke a period of congestion that followed a decline from $5.52 on July 6 to $1.86 on Oct. 4.
Once upon a time, in early July 2007, LCAV was selling at an all-time peak of $50.69. But it doesn't take 20/20 vision to see that good eyesight, in the midst of a recession of this depth, is a luxury that people couldn't afford. Business declined, and so did LCAV's price.
Zacks' high ranking for LCAV, clearly, is based on an expectation of much improved performance. The company's return on equity is a 33% loss. The debt/equity ratio, however, is only 0.16, which is well within my comfort zone.
The stock is relatively cheap, with a price/sales ratio is 0.83. Of course, cheap stocks are often cheap for a reason, so that's no guarantee of happy days ahead.
Institutional ownership is at 65%, fairly high for a low-priced, low-volume stock. So either the fund managers have held on for four years reluctant to take a loss, or some have jumped in expecting LCAV to recover along with the broader economy.
Calendar note: LCAV announces earnings on Feb. 14 before the open. The company discontinued paying dividends in 2008.
Decision for my account: Options on LCAV have insufficient open interest to be attractive. I've tucked some shares of LCAV into a dark corner of my portfolio, next to my Fannie Mae shares and other foolish dreams, in the hope that the company might indeed be recovering.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.