When it comes to stock trading, it’s all about risk versus reward. Every trade you enter, you should know what your maximum downside risk will be and what your profit potential is. The higher the beta, or risk relative to the S&P 500, the more volatile a stock usually is. As markets sell off, they present us with unique opportunities we can take advantage of. The higher beta stocks tend to get hit harder. For those who are riding it out, it can be gut-wrenching. But if you’re on the sidelines with dry powder, waiting to pounce, it can be a great opportunity.
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Among my favorite stocks over the last couple of years here at Zacks has been NeoPhotonics (NPTN – Snapshot Report). According to their Investor Overview “NeoPhotonics is a leading designer and manufacturer of photonic integrated circuit, or PIC, based modules and subsystems for bandwidth-intensive, high-speed communications networks. NeoPhotonics’ products simplify optical network implementation by delivering high levels of integration through PIC solutions, which combine multiple discrete elements, in some cases over one hundred, on a single chip. NeoPhotonics’ PIC-based approach enables it to deliver the increased performance, reliability and power efficiency in modules and subsystems necessary for 100Gbps, while also reducing cost and physical size to allow complex ROADM modules.”
That’s a very fancy way of saying the company makes cost-effective components that handle massive amounts of data at very high speeds. You don’t need to know the intricacies of the chip-making business to understand what makes this stock attractive. Analysts
The company has had an excellent track record of beating earnings. The company has only missed consensus once in the last six quarters and that miss was only by a penny. Last quarter they came in at 9 cents versus our Zacks Consensus Estimate at 1 cent. Perhaps that’s why analysts have increased their estimates for the current quarter, next quarter and next year ahead of the upcoming earnings report in early March.
Shares have come down from over $10.50 earlier last week to $9 in late trading yesterday. The commodity channel index has retreated from above 250 to 42, indicating the stock isn’t too overbought right now. The retreat here to the 21-day moving average could be a great opportunity to get back in ahead of earnings.
Be sure to click FOLLOW THE AUTHOR above to stay on top of all the hot momentum stocks at Zacks.com. David Bartosiak is the Momentum Stock Strategist with Zacks, editor of the Momentum Trader and Home Run Investor, and host of “Trending Stocks”
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