Timing is often the forgotten variable when buying or selling a stock. Not only do you need to buy a company with the right growth prospects you must also buy it at a point in time when it offers you appropriate value for the risk you are undertaking.
Below are three volatile stocks where picking the right time to buy, hold or sell could provide your portfolio with significant returns or protect your portfolio from considerable losses.
Buy: Paladin Energy Ltd (ASX: PDN)
Uranium remains the only environmentally and commercially viable energy alternative to coal. However nuclear disasters such as Chernobyl and Fukushima have many concerned around the safety of using uranium. However the current use of uranium as a major energy source is often underestimated, uranium is used as a major energy source in many countries including America, France, Russia and China.
The uranium spot price remains below US$40/pound which is a level that simply can’t support the longer term exploration and mining of uranium. The uranium spot price has a volatile history and with a number of nuclear reactors coming on-line and being approved for commissioning, I expect the uranium price to be back to US$80/pound within the next 12 – 24 months, as supply begins to fail meeting demand.
Paladin has somewhat concerning debt levels, however if the uranium price does climb back to US$80/pound and above, then Paladin is in a prime position to benefit. You may need to be patient and have a medium to long-term view but if the supply of uranium does dry up as expected then Paladin should see its share price climb back above $1.
Hold: Ten Network Holdings Limited (ASX: TEN)
Back in October 2013 I wrote an article supporting a speculative buy of Ten. I expected the continued move into sport with the rights to the domestic T20 cricket series and the Winter Olympics to result in significant upswing in the network’s dwindling ratings. As a result, I saw value in the stock particularly considering the company had recently locked in a $200 million debt facility thanks to the support of key shareholders including Lachlan Murdoch.
My assumptions proved to be somewhat correct. The Winter Olympics and domestic T20 cricket series proved popular with the viewers, however Ten did not fully capitalise on these ratings. The share price spiked from approximately $0.27 to a high of $0.37, representing a 37% rise to anyone lucky enough to exit at the top of this price range.
If Ten can continue securing the rights to these key sporting events and continue to work on their struggling news programs I believe the ratings can only go up and the upside remains considerable, however for now, I would recommend placing Ten on your watchlist.
Sell: Vocation Ltd (ASX: VET)
Vocation operates in the Australian education and training market providing amongst other things certificate and diploma based training. Since listing the share price has performed strongly and remains at the top of its trading range. Recent results also indicated strong student enrolment numbers and results at the top end of prospectus guidance.
However, with a market capitalisation of $484 million I see little upside and considerable downside to Vocation. The industry is highly regulated and has a recent history of unexpected fundamental changes that have already resulted in the closure of a number of training organisations. With significant reliance on key government contracts I would consider taking any profits made for those who invested through the IPO.
The volatile nature of the above stocks provides an opportunity for significant gains and losses. Consider adding the above stocks to your watchlist and when the time is right you may choose to add these to your portfolio.
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