Back towards the end of December I wrote an article and looked at two stocks priced at $1.40, and made a prediction that both would cross $2.00. Now, after three months, one stock is at $1.85 and the other is still stuck around $1.40. Therefore, I am reassessing the positions to determine if either can or will make it to $2.00.
Rite Aid Corporation (NYSE:RAD)
The big winner of the two is Rite Aid Corporation (NYSE:RAD), after touching $1.90 last week; it has found support around $1.85. Back in December, I looked at the stock following its first quarterly profit in several years, therefore showing that its restructuring efforts had been effective. Since that point, the stock has consistently trended higher and has shown no signs of slowing down.
After a three month return of 80% I believe that shares of Rite Aid Corporation (NYSE:RAD) are just warming up. The company is still deeply undervalued compared to its competitors Walgreen and CVS Caremark. Rite Aid Corporation (NYSE:RAD) continues to close ineffective stores, remodel other stores, and restructure the operations of its entire business. With generic presence continuing to rise, a price/sales of just 0.06, and eight consecutive quarters of increased adjusted EBITDA, this is a stock with a great opportunity to trade higher.
While I do anticipate a stock that trends far above $2.00 and ultimately higher until reaching $6.85 by the end of 2015 (click here to read), I do think it could encounter some short-term resistance. If we look back over the last four years, Rite Aid Corporation (NYSE:RAD) has reached $2 on two different occasions, and both times it quickly reversed back to $1.00. Therefore, because of these past trends there will be some fear and uncertainty as this psychological point-of-resistance is approached.
The difference is that now the company is seeing the signs of recovery, rather than being in a recovery. It just reported its first profit of the last four years, and if analysts are correct, then the company’s strides for improvement will ultimately result in full-year profitability, next year. In my opinion, a price over $2.00 is inevitable, with the stock being so cheap, but the question is when will it occur?
Alcatel Lucent SA (ADR) (NYSE:ALU)
Alcatel Lucent SA (ADR) (NYSE:ALU) is a stock that will drive you crazy with its volatility, but one that continues to remain promising. Back in December, the stock had just popped after announcing a restructuring program, funded with $2 billion from Goldman Sachs. However, the stock has since traded volatile, and back down to near-even.
The difference between Alcatel Lucent SA (ADR) (NYSE:ALU) and Rite Aid is that Alcatel’s news was speculative while Rite Aid’s was fundamental, and fundamental related news always has a longer impact. However, Alcatel’s stock driving news has since turned into fundamentals, as the company looks to downsize its business by divesting and selling unprofitable segments.