Not So Fast...

Written by GSCR Staff   
Thursday, 07 March 2013 10:59

With all the euphoria over new market highs and a total rebound from the cellar of 2007 we thought we would change gears today.  While we think the market is still on the modest upswing from the current tailwind, investors need to be cautious of a ‘Buy Everything’ mentality.  We are going to highlight two stocks two stocks to avoid in our small cap space.

Arch Coal Inc. (NYSE – ACI - $5.23) has been on a downward spiral from the $12.50 range in the spring of 2012 to its current level just above $5.00.  This may seem like a time to buy cheap, but we would not recommend making that move just yet.  After all, despite the fact that coal is a viable and plentiful resource for our energy independence, the current Administration appears to be out for blood against the U.S. coal industry.  Simultaneously, natural gas fracking seems to be gaining favor, though slowly, and is a natural substitute for a lot of the same applications for which coal is used and currently priced at very low levels.  ACI has not diversified its sales well by product or geography, like China, and has a growing amount of debt.  Finally, the charts show no turn around with very bearish signals in EMA and MACD analysis in the short term.

To be fair and balanced we took a look at the alternative energy space for a stock that may seem like a buy, but one to avoid. Hanwha SolarOne Co., Ltd (NASDAQ – HSOL - $1.18) reached a 52-week high back in spring of 2012 of $1.60, dropped steadily all of last year, then spiked to the $1.50 level early this year after a huge ‘stimulus’ from the Chinese government.  Now it is trending downward, trading on very low volume with bearish charts for the short term.  An over supplied market has been a driving force for the drop in the average module unit sale price by 66% over the last two years.  Decrease in demand, especially in China, is more than likely to remain for the entire 2013 calendar.

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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