Game 7's & Stock Picking

Written by GSCR Staff   
Thursday, 20 June 2013 08:29

Tonight’s Game 7 of the NBA finals promises to be an exciting end to a great series, especially if Game 6 is any indication.  Game 7’s are one of the best parts of American sports.  So who is going to win?  I am pulling for San Antonio, but this is just a sentimental pick.  If I were betting on the winner, or money line, I would take Miami all week and twice on Sunday.  In the seventeen times the NBA finals have gone to a Game 7, the home team has won 14.  The home team has also won 5 straight dating back to 1978.  I would guess that the same phenomenon exists in the NHL and MLB.

In Monday’s Goldman Guide we discussed trading volume combined with advance/decline days as a lagging indicator for stock sentiment.  So what does this have to do with the NBA Finals and game 7 tonight?  When picking stocks or betting the winner of a final Game 7, stick with what has been proven to work or in sports gambling terms, the team with the ‘odds’ in their favor. 

 

Picking the winner is definitely not an exact science; otherwise we would all be on the beach somewhere sipping mai tai’s.  I may be wrong about Miami tonight, but I am willing to take the loss because I played the odds.  If there was a method to pick 14 out of every 17 stocks that were winners, I think we would all sign up in a minute.

So what are the ‘odds’ in picking stocks?  Before you go through any checklist you should consider your objectives, risk tolerance, and investment time horizon, etc.  Are you trading or investing?  Here is a simple checklist:

            Is the company in a business that looks like it is growing or new markets may be realized?  This is the macroeconomic market forces examination.

$    Is the company profitable and run well compared to its peer group?  Gross margin and operating or EBITDA margin are great metrics to look at for this.

     Is the stock expected to grow in revenue and earnings per share in the future?  Any site like Yahoo! Or Google finance will offer consensus forecast information on         EPS, revenue, etc.

$    How is the stock compared to its peer group in valuation?  P/E is a common metric here, but be sure to look at forward P/E as well.  P/S and/or P/B (Price/Sales and Price/Book) are common metrics to examine if the stock is negative in EPS.  Additionally, technical analysis could be used here, especially for short term trading ideas.

When reviewing Concurrent Computer Corporation, Inc. (NASDAQ – CCUR - $7.91), a pick we made in the Market Monitor in late January, the conclusion can be drawn that this is still a good stock, or buy.  The inclination might be to take some profit, as the stock is now close to our 30% benchmark and a 52-week high, but every indication is that there is more room to run.  (Note: By all means take profit if that is your style!)  First, the company is an ultra-diversified player in software and hardware solutions from everything from real-time video, data storage, data processing, and simulation.  Secondly, the profit margin and operating margin are in line with similar companies in the same peer group.  Thirdly, CCUR reported EPS expectations for 3QFY13 with $0.11 actual beating estimates.  Growth in revenue and EPS are forecast in future quarters.  Finally, with a trailing 12-month P/E of 32 and a forward 12-month P/E of 23, CCUR remains undervalued in its peer group and sector.  Additionally, technical analysis is very bullish in the short term, and bullish to very bullish intermediate and long term.

We could be wrong about Game 7 and CCUR.  But playing the ‘odds’ will always produce more winners than losers in the long run.

Have a great day.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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