To make money in stocks with downward momentum, we must find companies with declining technicals and fundamentals by looking at several indicators. Some of these indicators include stocks that are in a downtrend, negative comments by the company about future growth and declining earnings. Below are three stocks that meet these criteria. (This type of strategy demands controlled decision making, requiring a continual refinement of entry and exit techniques. Read more in Momentum Trading With Discipline.)
Conagra Foods Gives Us Food For Thought
Conagra Foods (NYSE:CAG) continues to perform poorly in this economic environment. The most recent evidence came September 18 when the company announced its quarterly numbers. It lowered guidance for 2009 to $1.50 per share compared with the $1.56 to $1.59 per share previously expected. Technically speaking, the stock continues to head lower in the downtrend established back in May. This tells us that the worst is not over for Conagra. The lowered earnings guidance and the downtrend show that shares could go even lower.
Earnings from continuing operations were 23 cents per share, which was 4.2% below estimates of 24 cents per share, according to First Call and Thompson Financial polls of eight analysts. This was well below the 27 cents per share earned in the same quarter last year. It's important to note that after adding back 4 cents per share for expenses from one-time items such as the impact of mark-to-market on derivatives, 2 cents per share for expense related to restructuring, and taking away the 2 cents per share gain from selling Pemmican Jerky brand, Conagra actually beat the 24 cents per share expectations by 3 cents.
SunPower Cooling Down
The once high-flying SunPower Corp. (Nasdaq:SPWRA) continues to show weakness and looks like it will move lower over the next year. A sharp downtrend has been in place since early September. Also, this solar-power technology company is facing a huge oversupply hangover that could last well into next year.
As Goldman Sachs put it, "The risk of oversupply in the solar market will soon become a reality as considerably less-generous demand subsidies take hold just as a wave of supply and tight financing hit the market. We believe that liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future given fears of their ultimate cost in a bad world economy." More to the point, Goldman Sachs changed its rating October 7 from a "buy" to a "sell". When you combine these two factors, the odds favor shares continuing to slide.
Garmin Continues To Struggle
Hurt by a sharp downtrend and a weak consumer and aviation market, Garmin (Nasdaq:GRMN) continues its downward slide that began in the beginning of 2008. Evidence of the company's continuing weakness came out with RBC Capital Markets' Mark Sue citing "Ongoing concerns regarding the consumer and PND (personal navigation device) market growth." On October 6, RBC Capital cut its rating from a "Sector Perform" to "Underperform". This only underscores how the company continues to struggle in the weak economic environment. It would not be surprising to see a continued downtrend for the time being.
It's clear that to make money on the downside, it's important to not only follow the downtrend but also look at the comments, earnings guidance and other news. By carefully watching these factors, you will have a better idea of stocks with potential downward momentum.
For a more in-depth explanation of momentum trading, check out Introduction To Trading: Momentum Traders and Riding The Momentum Investing Wave.