Stock #7 HNH - Handy & Harman Ltd. - 1-year gain = 545% (2/11/2011)

Stock #7 – HNH – Handy & Harman Ltd. (fka WHX Corp) – 1 year gain = 545% (as of 2/11/2011)

Metal Processing and Fabrication

The company changed its name and symbol recently and some sites don’t recognize the old symbol or don’t have any old news linked to the new symbol. So if anyone knows more news detail than I could find, please feel free to comment.

1. HNH (formerly WXCO) is a supplier of metals and tubing to the auto and home-building industry, among others. Needless to say, those were two of the hardest hit groups in the “great recession” and the stock price reflected it. The stock declined from about $120 in 2005 to a low of $1.10 by the second half of 2009. Technical neglect has been consistent pattern on each of these stocks making 500% moves.

2. The stock had no analyst coverage or earnings estimates available (neglect).

3. The Group RS rating was 93. Other stocks in the group that did well included NNBR, LDSH, and TKR.

4. The company had 300% or so eps growth for 2 straight quarters (6/2010, 9/2010) after stock had already bottomed earlier in the year. Sales growth during the move was between 14% and 32%.

5. IBD ratings are 97 Comp, 80 EPS, and 99 RS.

6. Fund ownership was up 24% from March to June (note the initial breakout was in April 2010). The stock only had 21 funds owning it. Fund ownership slipped back near March 2010 levels by December. 53% of the company is owned by management.

7. The float was 5.7 million. The company had a 1:10 reverse split in late 2008.

8. Fundamentals were not great – company was losing money most quarters and had no return on equity. But the last two quarters they were profitable and had good sales growth. PE was about 34, the high end of its 5 year range.

Weekly chart:


The Breakouts:

1. At the end of its descent from $120, the stock formed a double bottom in 2009 and then built an 8-month base along the pivot point before breaking out in April 2010. After a high-volume successful test of its 50-day average, the stock bounced and broke out of the 8-month base in early April (1st-2nd). The stock was up 9% on the day of the breakout and rallied for 11 days for a total move of 48% from the $2.61 breakout point. The Company updated its Q1 earnings guidance about a week after the breakout on April 12th, and the stock continued its rally after earnings.


2. After the April 2010 move, the stock formed a 17-week base and broke out in mid-August 2010. The volume dropped off drastically during the second half of the base before the breakout. The Company announced its June 2010 eps results which showed 296% and 14% growth in eps and sales, respectively. The stock was up 19% on the breakout day, and it continued its rally for another 7 days. The move carried the stock 94% past the $5 breakout price. After this strong move the stock consolidated for about 6-7 weeks.


3. After a 6-7 week base, the stock broke out on October 1st on high volume and $$ volume. The company released its earnings results, showing 325% eps and 22% sales growth. The stock was up 18% on the breakout day and ended up making a move of 21% from the $9.68 breakout price in 8-9 days. The stock then attempted another breakout in November 2010 that failed, and the stock got into a trading range that it is still in today.


So why did HNH go up 500% in a year?

Neglect + Turnaround earnings growth (300%+) + news catalyst + sector RS. This stock had turnaround earnings growth in triple digits that caused a large percentage gain from a low price area. Since there were two earnings related breakouts, it does appear that news catalyst was important to get the stock to get back into its uptrend. Most of these stocks that are up 500% started from $1 or less in 2009 and formed long bottoms and bases in preparing for its recovery move. HNH was no different.

The Inches We Need Are All Around Us

You'll come to realize after a while that I am a sports fanatic - I am particularly a big fan of coaches. Coaches have to be able to motivate - they have to be able to draw out the best in each player. But funny thing is that many times these same ideas can be applied to individuals. I always say sports and trading are very similar in many different ways.

This is one of my all-time favorite sports movie clips - from Any Given Sunday. I pay close attention to what he says - the inches in life make the difference, and they make the difference in trading as well.

Stock #6 SHZ – China Shen Zhou Mining & Resources Inc. – 1-year gain = 562% (as of 2/4/2011)

Stock #6 SHZ – China Shen Zhou Mining & Resources Inc. – 1-year gain = 562% (as of 2/4/2011)

Mining – Metal Ores

Although not listed in the States very long, this stock has made quite a move in a short period of time. The stock was around $8 in early 2008 before collapsing to a penny stock by the March 2009 bear market bottom. The stock would breakout in mid-2009 on high volume to get above a dollar a share, then formed a base for about 15 months going into the fall of 2010. From that point on, it was all about 3 words: China Rare Earth.



A stock bottoming under $1 and forming a long base after the initial break out of a bottoming pattern is similar to the other stocks studied thus far. The long 15-month base on SHZ yielded 4 tradable breakouts between October and December 2010 before the stock retreated to its 50-day line in January 2011.

The breakouts:

1. 10/8/2010 – The stock broke out of a month long base within the larger 15-month base on very high volume. The stock was up 12% on the day on $325k dollar volume. The stock rallied for 4 days for a total move of 50% from the breakout point. The stock was at $1.65 at the peak, then had a quick 3-day pullback that yielded the next breakout.



2. 10/19/10 – The stock spiked up on no news I could find…stock was up 65% on the day on big jump in dollar volume to $3.5M. The stock gapped up big the next day on even bigger volume for a total two-day move of 178% from the breakout point. This was too much too fast and the stock pulled back about 50% and formed a double-bottom base along its 50-day average into early December 2010. The company announced earnings during the pullback but it did not breakout.

3. 12/3/2010 – The company raised sales guidance for 2010 and 2011, showing 245% and 162% growth respectively. The stock was up 25% that day on $16.7M dollar volume. The stock drifted upward over the next 7 days for a total move of 87% from the breakout price. It then drifted downward for about 7-8 days on low volume, forming a handle-like pattern near the high of the double bottom base.



4. 12/27/2010 – The stock started to move on China supply concerns along with the other stocks in its sector. The stock was up 10% on $10M dollar volume that day and added a 21% day the following day on $53M dollar volume. After the third day the stock had made a 125% move in 3 days from the breakout price. It slowly rolled over the next few days and again retreated for a test of its 50-day average. As of today the stock has bounced weakly off the 50-day and it is yet to be seen if it can hold it.



Here’s some tidbits on the stock:

1. The stock had neglect going into the rally with no estimates and no analyst coverage.

2. The company had good earnings and sales growth in the September 2010 quarter announced in November, and then raised earnings guidance in early December. The company was not consistently profitable in prior years, but that appeared to be changing as sales were rising at a triple digit clip in June and September 2010.

3. Sector RS was 99, so SHZ’s sector was likely a factor – any company both in China and in rare earth group did well ending 2010. Other strong stocks in the group (with low eps ratings) were REE, MCP, NAK, MSB.

4. The stock’s float was 5 million. Average daily volume is 4.1M.

5. The stock has a P/E of 19 and no debt. ROE is 25% and p/b is 10.

6. IBD Ratings: EPS 66, RS 99, Composite 98.

7. Fund trend is flat – one single fund owning stock since at least March 2010.

8. The stock’s trend intensity was at 111, 151, 135, and 163 at the breakouts, respectively.

So why did SHZ go up 500% plus in a year?

SHZ had several factors – neglect, low price/float, sector catalyst, good earnings guidance. Other than the institutional and technical neglect preceding the move, the strongest factor appears to be a combination of positive earnings guidance and the strong sector, especially in late 2010. Its fundamentals were okay except the company was still losing money for the most part until September 2010 quarter. Sales were growing at a triple-digit rate and the company was just above break-even, so it appears that the sales numbers were driving some speculation in the stock in hopes of longer term profitability around the corner. This stock, as the others studied, really took off in price and volume once it got to the $4 range and broke out. The move from there was about 145% within 7-8 days. The breakouts were very good setups for the most part, moving in bursts of 2-3 days and pulling back in an orderly fashion to set up the next breakout.

Strategically Held Information Technology

I will be posting more this week, already have a stock ready just need to paste images and put it on the blog.

I have just upgraded my laptop to Windows 7 so I was without it all weekend...will post SHZ tonight and continue on with the study.

One other note on the study. Due to scheduling and simple practicality, I am going to focus the study on stocks up 500% in a year going forward. My plan is to update the list daily and research stocks as they get added. There are plenty of stocks that are in this category and should be enough sample size over a period of time.

Finally I am through the family sickness and IT issues so will be able to give more time to this. SHZ will be posted this evening.

Happy Trading :)