Revenge of the Cult Stocks (SIRI, MCP, REE, AVL, LVLT, SLV, ZSL, YRCW, BIDU, LOCM, REDF, SIFY)

Investing

Published: May 3, 2011 2:14 pm

Last Updated: May 4, 2011 5:22 am

There is a common belief of the skeptics that the market is designed to cause the most financial pain possible, and the moves in cult stocks can be more painful than most investors can withstand. There have been some very surprising moves in the world of cult stocks today. The most surprising move today has been seen in SIRIUS XM Radio Inc. (NASDAQ: SIRI), which feels like true revenge after having grown cautious at $2.00. The rare earth bubble continues with big surprising moves in the cult stocks of Molycorp, Inc. (NYSE: MCP), Rare Element Resources Ltd. (AMEX: REE), and Avalon Rare Metals Inc. (AMEX: AVL). Level 3 Communications, Inc. (NASDAQ: LVLT) is another surprising move. Silver is living up to the Devil’s Metal all over again as silver via iShares Silver Trust (NYSE: SLV) and the inverse by the ProShares UltraShort Silver (NYSE: ZSL) is making and breaking some speculators.

YRC Worldwide, Inc. (NASDAQ: YRCW) is living up to a death sentence and Baidu Inc. (NASDAQ: BIDU) is showing how fast the Chindia growth trade can die. Lastly, we are seeing these death trades in Groupon-like shares of Local.com Corporation (NASDAQ: LOCM), Rediff.com India Limited (NASDAQ: REDF), and in Sify Technologies Limited (NASDAQ: SIFY).

SIRUS XM Radio Inc. (NASDAQ: SIRI) is now up 8% at $2.075 today and shares hit a new 52-week high of $2.09. We have even seen about 175 million shares trade with more than two and a half hours until the close. We noted some slowing growth headwinds, but Gabelli maintaining its BUY stance may be the culprit for today’s rally. We had been very bullish after this one was battered into a penny stock and then we remained bullish as the fundamentals got better and better. Our view changed, however, as the stock approached $2.00 and frankly, today’s move seems baffling. We have said a new breed of shareholders would be needed to run this higher, and it seems that is what is happening despite caution from us and others about its value.

The ‘rare-earths’ is another sector we have been watching in bubble-land. That call was holding true as the stocks started petering out in mid-March. As we cautioned, no one knows how much bubbles can inflate… Now we have Molycorp, Inc. (NYSE: MCP) up yet another 8.4% at $77.59. We heard that Dahlman Rose gave a BUY rating with a $125 target. Rare Element Resources Ltd. (AMEX: REE) is up 1.2% at $14.02 and Avalon Rare Metals Inc. (AMEX: AVL) is up 2.8% at $9.08, and both of these rare-earth outfits were started with BUY ratings at Dahlman Rose. Be advised, some extra volatility may be coming Wednesday as CNBC is going to highlight the best companies in the rare-earth sector.

Level 3 Communications, Inc. (NASDAQ: LVLT) is one that seems like a sleeper considering that its revenue rose and that its loss was narrower than expected. This has a whole new host of shareholders to accommodate now that it is acquiring Global Crossing Ltd. (NASDAQ: GLBC). Level 3 shares were at $1.44 before the deal was announced, then they jumped to $1.70. The high print was $1.84 and the high close since has been $1.73. Shares today are up about 1.2% at $1.66 and volume is 27 million shares.

The Devil’s Metal is living up to its name… iShares Silver Trust (NYSE: SLV) was not supposed to be a cult stock but the speculative trading volume has been so massive in this ETF that it has become the biggest trading vehicle on Wall Street. The Silver ETF is down by another 4.6% at $40.86 after the margin requirements have been changed. This was above $48 just late last week. To show how shocking the move has been, the ProShares UltraShort Silver (NYSE: ZSL) is up 9.2% at $17.38 versus $13.64 just on Friday.

YRC Worldwide, Inc. (NASDAQ: YRCW) continues to be the re-implosion, all over again. This is on continued news that the restructuring is only going to leave common holders with about 2.5% of the company after the company restructures with creditors, the Teamsters, and debtholders this summer. But wait, there’s more… YRC also noted further dilution is possible. Shares are down over 13% at $1.31 and the trading pattern went as follows: $2.06 on Thursday, $1.98 on Friday, and then $1.51 on Monday… to the $1.31 today.

Baidu, Inc. (NASDAQ: BIDU) is taking it on the chin from “The Chindia Slowdown” trade. This ADR is down almost 5% at $140.26 after having just hit a high of $156.04 on last Thursday. There are two “Groupon Alternatives getting whacked today. Local.com Corporation (NASDAQ: LOCM) is down 16% at $3.74 on more than 2.7 million shares (about 4-times normal volume) after earnings were treated as a disappointment. Rediff.com India Limited (NASDAQ: REDF) is another one touted as the ‘Groupon of India.’ It is getting crushed after Sify Technologies Limited (NASDAQ: SIFY) earnings have SIFY shares down 14% at $5.82. Rediff shares are down 10% at $12.79 on about 2.2 million shares. Rediff was almost challenging $18 just a week ago.

JON C. OGG

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