Potential Trades This Week: Looking For Consolidation

Referencing the weekly homework and stock radar, I am highlighting a few of the charts below for potential trades in undervalued stocks.

We finally saw signs of consolidation this morning, but it was short-lived creating continued frustration for the bears. The trend over the past few months has been that gap-ups tend to drift down towards the rest of the day and gap-downs tend to drift up the rest of the day. Today continued that trend as we drifted back towards even on the day.

I expect this type of action may continue for the week as market players re-position their portfolios after the FOMC decision/data last week. Bonds rose significantly and as I noted Sunday night, we are seeing a time that a large disconnect between bonds and equities can grow. The day these two correlate once again may be a very devastating day as the disconnect grows larger. You can expect it to be more of a whipsaw than a slow drift back towards being correlated, creating a great deal of pain for those not prepared. This will mean we need to stay disciplined and not overextend ourselves without ample cash reserves and proper exit strategies/stop losses. I don't expect to see this type of whipsaw for many weeks though, maybe even a few months away still.

Look for this type of consolidation action to continue for the week with more clarity after jobs data is released on Friday. This will be a very important jobs report that will determine if jobs are truly starting a new growing trend or if last month's data was a one-off report that we can't get behind. The other curve-ball to look out for is Europe/Greece. Many months ago, we were hopeful we'd stop focusing on every European headline in the markets and we finally received that disconnect in December. With Greek default chatter still continuing and concerning some, the point to remember is we are more prepared for this outcome than before. While negative news could provide some weakness, we should have plenty of support from dip-buyers anxious to join in. It is the unexpected news which we do not see coming that is most devastating. A Greek default is seemingly not that type of negative news.

I'm still focusing on charts that are showing overall strength with established trend-line support levels for favorable risk-reward buys. In a truly healthy market, I am more than willing to buy on breakouts expecting momentum traders to follow. In this market, I am finding that many breakouts are fizzling fast due to overall fearful sentiment and fast profit-takers. With that being said, I am more inclined to make moves near trend line support rather than breakouts.

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IRDM)">Iridium Communications (IRDM)

Yahoo Finance Profile:

Iridium Communications Inc. provides mobile voice and data communications services through satellites to businesses, the U.S. and foreign governments, non-governmental organizations, and consumers worldwide. It offers post-paid mobile voice and data satellite communications services; prepaid mobile voice satellite communications services; high-speed data services; machine-to-machine services for sending and receiving data from one location to other; and ancillary services, including inbound connections from the public switched telephone networks, SMS, SIM, activation, customer reactivation, and other peripheral services to commercial customers. The company also offers traditional voice, netted voice, data, messaging, and paging services, as well as maintenance services for the DoD's dedicated gateway; and offers voice and data solutions, including personnel tracking devices; over-the-horizon aircraft communications applications; submarine communications applications; specialized communications solutions for high-value individuals; asset tracking devices for equipment, vehicles, and aircraft; and secure mobile communications and data devices for the military and intelligence community, such as secure satellite handsets to U.S. government customers. In addition, it manufactures and sells satellite handsets, voice and data modems, high-speed data devices, and machine-to-machine data devices. Further, the company offers accessories for its devices, including holsters, earbuds, portable auxiliary antennas, antenna adaptors, USB data cables, and charging units. Additionally, it provides engineering and support services to commercial and government customers. The company sells products and services to commercial end-users through service providers, value-added resellers, and value-added manufacturers. As of March 31, 2011, it had approximately 447,000 billable subscribers. The company was founded in 2000 and is headquartered in McLean, Virginia.

Notes On Yahoo Finance Fundamentals:

IRDM has a modest forward P/E of only 12 with an PEG Ratio of only .81. As of January 13, IRDM has a significant short ratio of over 25 which is about 19% of the float short. This means IRDM is a strong candidate for a short squeeze on further price appreciation. With $125 million in cash and $325 million in debt, it is a concern for some. However, looking at the balance sheet, most of the debt is considered long-term rather than short-term liabilities. It should also be noted that the Book-Value-Per-Share is $9.45, well above the current stock price. Lastly, the median price target for three analysts is $12 meaning we have plenty of room to rise to meet these analysts targets.

Annotated Chart and Trade Details:

DUSA)">DUSA Pharma (DUSA)

Yahoo Finance Profile:

DUSA Pharmaceuticals, Inc., a vertically integrated dermatology company, develops and markets Levulan photodynamic therapy (PDT) and other products for common skin conditions primarily in the United States, Canada, and Korea. Its products include Levulan Kerastick 20% Topical Solution with PDT and the BLU-U brand light source for the treatment of non-hyperkeratotic actinic keratoses of the face or scalp. The company also markets the BLU-U without Levulan for the treatment of moderate inflammatory acne vulgaris and general dermatological conditions; and non-PDT drug products, such as ClindaReach and AVAR products. DUSA Pharmaceuticals, Inc. was founded in 1991 and is based in Wilmington, Massachusetts.

Notes On Yahoo Finance Fundamentals:

DUSA has a forward P/E of only 12 with ample cash-to-debt of $24 million in cash to no debt. As of January 13, DUSA has a short ratio of over 10 which is over 4% of the float short. A 10-day cover is significant, but as volume increases, that will reduce very fast. One analyst has a price target of $6.50, which is 43% higher from the current stock price.

Annotated Chart and Trade Details:

MDCO)">The Medicines Company (MDCO)

Yahoo Finance Profile:

The Medicines Company, a global pharmaceutical company, provides various medicines to hospitals for advancing the treatment of critical care patients primarily in the United States and Europe. It markets Angiomax, an intravenous direct thrombin inhibitor for use as an anticoagulant in combination with aspirin in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty, and for use in patients undergoing percutaneous coronary intervention; and Cleviprex, an intravenous small molecule calcium channel blocker for the reduction of blood pressure. The company's developing products comprise Cangrelor, which is in Phase 3 clinical trial acts as an intravenous small molecule antiplatelet agent to prevent platelet activation and aggregation; Oritavancin that is in Phase 3 clinical trial for the treatment of serious gram-positive bacterial infections, including acute bacterial skin and skin structure infections; and MDCO-2010, a small molecule serine inhibitor, is in Phase 2 clinical trial for the reduction of blood loss during surgery. It also provides MDCO-216 that is in Phase 1 clinical trial for the reversal of atherosclerotic plaque development and reduction of the risk of coronary events in patients with ACS; and Argatroban, which is a NDA filed direct thrombin inhibitor used as anticoagulant for prophylaxis or for the treatment of thrombosis. The company sells its products through its sales representatives. The Medicines Company was founded in 1996 and is based in Parsippany, New Jersey.

Notes On Yahoo Finance Fundamentals:

MDCO has a forward P/E of 17, which is higher than its current P/E of under 7. As of January 13, MDCO has minimal shorts with only a ratio of 4.6. One large benefit for MDCO is the significant cash of $307 million to no debt, providing much flexibility for the organization. Lastly, the median price target for six analysts is $22.25 with a high target of $27.

Annotated Chart and Trade Details:

You can follow my trades alongside the 36,000 plus market players who follow me on SeekingAlpha (Shameless promotion). As always, do your own homework to see if you agree. Good luck out there.

Mike

At the time of publication, Kudrna had no positions in mentioned stocks, but may initiate positions within 72 hours.

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