Rebound Candidates: Small Cap Stocks Reporting Next Week

Earnings present an opportunity to cash in on mispriced trades. Of course, the greatest challenge is finding names that will beat expectation. Here we create a list of small cap stocks that may surprise when they report next week:

Starting with a universe of small cap stocks ($300 million- $2 billion) we took the names reporting earnings next week (Oct 22 – 26).

We then looked for signals these stocks may present earnings surprises, or at least rebound from current prices.

To do this we looked for stocks on losing streaks, which we measure as the number of days in which the stock beat the S&P 500 over the last month and the number of days in which it underperformed the S&P 500. We then compared the longest winning streak in days over the last month to the longest losing streak, and found those stocks with the lowest ratios, indicating these stocks have been underperforming the S&P 500.

Next, to signal that the losing streak may be over, we looked for significant short covering activity. Short sellers profit when stocks decrease in price, and lose when they rise. So it’s considered a sign of optimism (or decreased pessimism) when short sellers start to reduce their short positions. We screened for a decrease in short positions month over month.

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As a recap, the following list of stocks meet all these criteria:

- small cap
- short covering
- losing streak
- reporting earnings next week

Here are the stocks that made it though our screen. Clearly short sellers think these names are set for a rebound, do you agree??

Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for the stocks mentioned below:

1. Acme Packet, Inc. (APKT, Earnings, Analysts, Financials): Provides session delivery network solutions that enable the delivery of interactive communications, such as voice, video, and multimedia sessions; and data services across internet protocol (IP) network borders. Market cap at $1.14B, most recent closing price at $16.54. Shares shorted have decreased from 8.91M to 8.21M over the last month, a decrease which represents about 1.19% of the company’s float of 58.65M shares. Days to cover ratio at 3.37 days. The stock’s average daily alpha vs. the S&P500 index stands at -0.84% (measured close to close, over the last month). During this period, the longest losing streak lasted 8 days (i.e. the stock’s daily returns underperformed the S&P 500 for 8 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.25). Earnings date: Oct 25.

2. Clayton Williams Energy Inc. (CWEI, Earnings, Analysts, Financials): Engages in the exploration for and production of oil and natural gas primarily in Texas, Louisiana, and New Mexico. Market cap at $590.25M, most recent closing price at $48.54. Shares shorted have decreased from 694.99K to 452.78K over the last month, a decrease which represents about 4.1% of the company’s float of 5.91M shares. Days to cover ratio at 6.73 days. The stock’s average daily alpha vs. the S&P500 index stands at -1.04% (measured close to close, over the last month). During this period, the longest losing streak lasted 5 days (i.e. the stock’s daily returns underperformed the S&P 500 for 5 consecutive days). The longest winning streak lasted 1 day (i.e. a win streak / losing streak ratio of 0.2). Earnings date: Oct 25.

3. Stillwater Mining Co. (SWC, Earnings, Analysts, Financials): Engages in the development, extraction, processing, refining, and marketing of palladium, platinum, and associated metals in south central Montana, the United States. Market cap at $1.22B, most recent closing price at $10.62. Shares shorted have decreased from 8.28M to 6.57M over the last month, a decrease which represents about 1.5% of the company’s float of 114.01M shares. Days to cover ratio at 2.66 days. The stock’s average daily alpha vs. the S&P500 index stands at -1.33% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock’s daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.5). Earnings date: Oct 22.

4. TriQuint Semiconductor, Inc (TQNT, Earnings, Analysts, Financials): Supplies modules, components, and foundry services to communications companies worldwide. Market cap at $843.26M, most recent closing price at $5.15. Shares shorted have decreased from 18.39M to 16.55M over the last month, a decrease which represents about 1.13% of the company’s float of 162.67M shares. Days to cover ratio at 5.65 days. The stock’s average daily alpha vs. the S&P500 index stands at -0.85% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock’s daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 1 day (i.e. a win streak / losing streak ratio of 0.17). Earnings date: Oct 24.

5. Volterra Semiconductor Corporation (VLTR, Earnings, Analysts, Financials): Engages in the design, development, and marketing of analog and mixed-signal power management semiconductors for the computing, storage, networking, and consumer markets. Market cap at $489.34M, most recent closing price at $19.22. Shares shorted have decreased from 1.46M to 1.17M over the last month, a decrease which represents about 1.17% of the company’s float of 24.86M shares. Days to cover ratio at 3.21 days. The stock’s average daily alpha vs. the S&P500 index stands at -0.85% (measured close to close, over the last month). During this period, the longest losing streak lasted 8 days (i.e. the stock’s daily returns underperformed the S&P 500 for 8 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.25). Earnings date: Oct 22.

Written by Rebecca Lipman

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