If you remember, I wrote a few weeks ago in your Fortune Research Weekly Watchlist about how small-cap stocks were outperforming large caps.
At the time, I said one stock to watch was Avis Budget Group Inc. (NYSE: CAR), because while it may not have all those fun OJ Simpson commercials like Hertz did back in the day, it does have a much better business. It is up darn near 100% in just a month and as travel picks up for the holidays, it’s only going to get stronger.
I followed up by saying CAR is an absolute rocketship (at that time), so don’t chase. Buy a little at a time on down days.
There have been exactly two such days since… Aug. 26 and 27. But had you happened to take a flyer even then, Tuesday’s peak gain would have been around 338%.
The reason for this massive move is being passed off by the media as an EV-related event…
But as per usual, it has nothing to do with that…
Both gross domestic product growth and inflation are rising, which means that:
- Small caps will fare better than large caps.
- High-beta stocks fare better than low beta.
- Stocks with high short interest fare better than those with low short interest.
We can already see this taking shape if we just look at one- and three-month returns.
Source: Fortune Research
Now guess what level of short interest Avis has? Spoiler alert… VERY high.
But we had another small cap report earnings Tuesday, and the results were not-so-bueno.
Moves in Your Fortune Research Weekly Watchlist for Nov. 2
While I expected a solid earnings call, Energy Crisis Watchlist darling Consol Energy Inc. (NYSE: CEIX) missed expectations by a lot and the stock is down around 20%.
I usually say to buy a little bit at a time — a tenth of a position or less — but this was not one of those days.
The company had already contracted 10 million tons of 2022 production in the first half of the year at around $40 per ton.
On this call, management said they had now contracted 20 million total tons for 2022 in “the low $50s”.
That means their average contract price in the third quarter was right around the $60 mark I’ve mentioned a couple times…
And the current average domestic price for the coal spec Consol Energy sells is 50% above that level for 2022.
Source: Argus Media
If they contract even just half of this tonnage at domestic prices now, that would lock in over $300 million in 2022 EBITDA, which would imply a share price of around $45.
So go get more than a little bit — say an eighth or a quarter of any intended position — especially if it’s down Wednesday.
And as a BONUS TRADE, pick up some Arch Resources Inc. (NYSE: ARCH) as well in that same scale because it already told us it is crushing next year on last week’s earnings call, and the stock could honestly double from here through the next earnings call.
We’re also going to put some renewable energy on the Fortune Research Weekly Watchlist this week as solar-related stocks have pulled back following a genuine rip.
The best way to play these is through the Invesco Solar ETF (NYSEArca: TAN) which gets added to the watchlist as we go ahead and sell the SPDR S&P Regional Banking ETF (NYSE: KRE), which is up 4% in just a few days.
Updated watchlist below…
Source: Fortune Research, Bloomberg
This might be a multiple-free trade week, so keep an eye on that inbox…
All the best,
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