Pacific Ethanol Inc (NASDAQ:PEIX)‘s stock has been on a steady decline since mid-May losing about 37.2% of its value. However, the stock was gaining traction today ahead of the release of its financial results on Wednesday, and had risen by almost 10% by midday and then retracted to around 3%. The company is expected to deliver an EPS of $0.09 and revenues of $265.22 million for the second quarter.
Considering that Pacific Ethanol Inc (NASDAQ:PEIX) is trading just 8.9% above its 52 week low, concerns that the stock might be oversold could be one of the reasons why the stock is trending higher today. In fact, from the perspective of technical analysis this hypothesis is confirmed by the Relative Strength Index (RSI), which stands at 28.68 for Pacific Ethanol Inc (NASDAQ:PEIX) signaling an oversold range. Whether this is just a dead cat bounce or the beginning of a prolonged upward trend for the $308.10 million leading producer and marketer of low-carbon renewable fuels in Western U.S. will be more clear after Wednesday.
As far as the moves of professional money managers are during the first quarter are concerned, Pacific Ethanol Inc (NASDAQ:PEIX)’s prospects look promising. Among the hedge funds that we track a total of 20 funds had an aggregate investment of $64.48 million in the company at the end of March, up from 17 firms with $58.75 million at the end of the previous quarter. The stock was trading nearly sideways during these three months.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 144% over the ensuing 32 months, outperforming the S&P 500 Index by nearly 85 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
Insider trading is another useful indicator that reflects the management’s take on the company’s future prospects. However, unfortunately no such activity has been detected in Pacific Ethanol Inc (NASDAQ:PEIX) so far this year.