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Tuesday May 29, 2012
Stealth Stocks: Longs & shorts
by Dennis Slothower, editor Stealth Stocks Given the market is dealing with so much uncertainty, I think the best advice is to go long a few of the strongest companies with superior fundamentals while also dipping our toes in the water with a few shorts, choosing companies whose earnings are breaking down. MModal (MODL) is a leading provider of integrated clinical documentation solutions for the U.S. healthcare industry. In the first quarter it posted record revenues of $117.4 million. The company has an intrinsic value of $16.6 a share and a P/E ratio of 9 times earnings. The healthcare sector is a defensive sector. We recommend going long and setting your stop loss limit at $11 for now. DXP Enterprises (DXPE) is a leading provider of industrial medical and clinical services to industrial clients operating in remote locations and large facilities in Western Canada. Compared to first quarter 2011 earnings of $6.3 million or $0.42 per fully diluted share, first quarter 2012 earnings per share improved 83.3%. We are gong long and setting a stop loss limit order at $40 for now. We are taking a short position in LynondellBasell Industries (LYB). The Netherlands-based firm refines oil and makes chemicals and plastics used in manufacturing and construction looks vulnerable to me this summer. The company earned $600 million, or $1.04 per share, in the January-March quarter. That's down from $663 million. If oil prices drop down to $80 or so the company's earnings will continue to be under pressure. Set your buy stop cover order at $43.50 for now. We are also going short Yelp (YELP), which runs a popular website on which users can post reviews of local businesses. The company faces competition from the likes of Yahoo and IAC/Interactive Corp.'s CityGrid and Local.com. Most of Yelp's revenue is generated by selling advertising on its website to local business and national brands. In my opinion this is a company that was overpriced on its offering and is losing money. The company has an intrinsic value of $2 a share and at near $20 is vulnerable to further selling if the economy weakens further. Set your buy stop cover order at $23.70. Learn more about this financial newsletter at Dennis Slothower's Stealth Stocks. Related articles: 
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