Be forewarned, this article isn't for the faint of heart. I'm going to be introducing five stocks that could make huge moves during this earnings season.
But whether those moves are up or down is hard to tell. The reason these stocks are liable to make such moves is because they are heavily shorted. Major news announcements usually have an exaggerated effect on heavily shorted stocks, and earnings announcements definitely qualify as a "major announcement."
I've scoured the markets for the most popular shorted stocks three times before. The first time, my five selections changed price an average of 16% after earnings were announced. The second time, the effect was even more pronounced, with the average stock moving 19%! And in early 2013, the five stocks I chose made an average 13% move.
Here are this quarter's five stocks to look out for:
| Heckmann (NYSE: HEK ) | 36% | May 3-10 | $167 million | ($0.01) |
| 3D Systems (NYSE: DDD ) | 32% | April 30 | $102 million | $0.21 |
| InterOil (NYSE: IOC ) | 34% | May 13-20 | $331 million | ($0.11) |
| Herbalife (NYSE: HLF ) | 31% | April 29 | $1.1 billion | $1.07 |
| Research In Motion (NASDAQ: BBRY ) | 32% | June 24 | $3.3 billion | $0.04 |
Sources: finviz.com, E*TRADE, Thompson Reuters.
Heckmann
This company, which will soon be changing its name to Nuverra Environmental Solutions, is in the business of building out the infrastructure necessary to meet the water needs of energy extracting companies -- especially those using fracking techniques.
In order to do this, the company has had to spend a lot of money up front to cement its niche-leading position. But that kind of spending, combined with the uncertainty of energy commodity prices, leads investors to doubt Heckmann's viability. Personally, I thought last quarter's earnings were great, and I own shares of the company's stock in my own personal holdings.
InterOil
Like Heckmann, InterOil is involved in an industry with a volatile variable at play: energy commodity prices. The Australian company performs all of its oil and gas extraction in the island nation of Papua New Guinea.
One of the key aspects that has investors worried, along with the brief tenure of the company in general, is the fact that it seems to be at odds with Papua New Guinea's energy minister on whether or not an LNG export facility will even be built by InterOil.
In general, I'm also wary of a company going into a country where large sections of the population still enjoy indigenous lifestyles. Tribes hold 97% of the land, and infighting over rights to that land has been bubbling up lately.
Herbalife
If you want to see stock geeks getting all hot and bothered about a stock, you should follow Herbalife. This nutritional supplement company has been in the forefront lately, with Carl Ichan arguing that Herbalife is a solid investment, and William Ackman betting heavily against it.
More waves were recently made when KPMG had to withdraw from its role as the company's auditor when it was revealed one of its employees was giving confidential information to someone who was trading in the stock. Either way, it'll be interesting to see how management handles the situation in its conference call next week.
Research In Motion
The company behind the Blackberry smartphone was really counting on its new Z10 phone and Blackberry 10 operating system to blow people away. Apparently, that hasn't been the case.
The company claims that the reports of mass returns of its new phone aren't true. Although we'll have to wait until late June to find out, my money certainly won't be behind this company.
3D Systems
The key piece of information to understand here is that this company is in the business of making 3-D printers. These printers have mind-boggling potential for the future, and that has helped the company's shares shoot up more than 250% last year.
Since then, however, shares have cooled off a bit as earnings produced a slight disappointment and Citron Research came out with a bearish report on the company. While the company's earnings will effect how the stock reacts, the company's outlook will be just as important. Over the long term, however, I'm still very much a believer in the company, as it's a member of my "World's Greatest Growth Portfolio."
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