I mentioned inverse exchange-traded funds earlier this week as a viable route for long investors to capitalize on recent market downside. While I'm trading some of these instruments (always prepared to exit quickly to keep gains, particularly if the market turns higher), I continue to run my screens for stocks that could be setting up for price runs in the next market uptrend.
I regularly run scans for recent initial offerings. By recent, I often mean stocks that went public in the past decade or so.
Despite recent widespread schadenfreude over Facebook's (FB) IPO debacle, companies that went public in the past 10 years are often among the market's best performers. As an example, look at a small-cap I've written about before, Liquidity Services (LQDT), which is trading well above its 50-day average, below its May 10 high of $66.57. Liquidity Services went public in 2006, putting it right in that potential winning zone for new companies.
However, I often narrow some of my scans down even more, looking at companies that made their trading debuts in the past two or three years. Earlier this week, I wrote about Nationstar Mortgage Holdings (NSM), which went public in March and has advanced 43% since then. This is an excellent example of a young small-cap that could be poised to make further upside moves in the next confirmed market uptrend.
Another name that I've been tracking for several weeks is Seattle-based regional bank HomeStreet (HMST). The company was on the brink of being shut down by regulators a few years ago due to bad loans. However, a new management team came in and decided to recapitalize by selling off some operations and going public.
It made its Nasdaq debut in February at $44, and then underwent a 2-for-1 split March 9. The stock was trading at around $32.55 Tuesday, a split-adjusted gain of about 48% since its IPO. It was getting support right at its 10-week average, showing that institutional investors are, for the most part, holding shares, rather than bailing out.
Regional banks are often sold along with the larger financials, which ignores the solid fundamental potential in many of these smaller banks. It's risky to make new buys in a market downturn, but moving average support is a good indication of continued strength that could bode well when the market turns higher again.
For a third example of a small, young, financial-sector stock that's showing good technical strength, look to FX Alliance (FX), a forex-trading platform for institutional users. The company operates under the moniker FXall. It went public at $12 in February, and was trading at around $16.60 toward the end of Tuesday's session, a gain of 38% since its debut. It, too, was showing some buying above its 10-week line.
These companies are outpacing the market in a downturn and they are good ones to continue watching in coming weeks. There are plenty of examples of stocks that get swept away in a new tsunami of selling, so moving-average support can be broken.
The upshot? Recent IPOs showing good moving average support are worth tracking, but new buys in this poor market environment could be at risk of breaking down.