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Small-Cap Standout: InvenSense Inc (INVN), MannKind Corporation (MNKD), and Overstock.com, Inc.

INVN, MNKD, and OSTK are three outperformers surrounded by skepticism

by 10/11/2013 12:45:05 PM
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Small-cap stocks have been a pocket of strength, as evidenced by the 27% the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) has added this year. These low-valued securities can often offer up profitable opportunities, based on their volatile nature. Three equities that recently piqued our contrarian interest among small-caps are microchip maker InvenSense Inc (NYSE:INVN), biopharmaceutical concern MannKind Corporation (NASDAQ:MNKD), and online retailer Overstock.com, Inc. (NASDAQ:OSTK). At Thursday's close, the market capitalization for these three companies stood at $1.71 billion, $1.48 billion, and $683.20 million, respectively.

InvenSense Inc has had a standout year, as evidenced by the 84.7% the stock has tacked on in 2013. In fact, the equity rose to a fresh 52-week peak of $20.56 today, extending its lead over the round-number $20 mark. At last check, the security was hovering around $20.53. On a relative-strength basis, the equity has put in a solid performance against the S&P 500 Index (SPX), and has outpaced the broad-market barometer by close to 28 percentage points over the past 60 sessions.

Options players have taken a rather doom-and-gloom approach to the stock of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), INVN's 50-day put/call volume ratio of 0.54 ranks in the 97th percentile of its annual range. In other words, puts have been bought to open (relative to calls) with more rapidity just 3% of the time within the previous 12 months. Should InvenSense Inc (NYSE:INVN) continue to make waves in the microchip community -- and extend its upward price trajectory as a result -- an unwinding of these bearish bets could add fuel to the equity's fire.

MannKind Corporation is another small-cap security that's had an impressive showing on the charts in 2013. In addition to adding 121.2% this calendar year to trade at $5.09, the stock has bested the SPX by more than 102 percentage points during that same time frame. After tagging a two-year high of $8.70 in mid-August, the equity pared some of its earlier gains, but ultimately found a technical support in the form of its 50-week moving average.

Not everyone on the Street is convinced the security will resume its uptrend, however. Only four analysts currently cover the stock, and three of them maintain dreary "hold" or "sell" suggestions. Meanwhile, short interest accounts for 31% of MannKind Corporation's (NASDAQ:MNKD) available float, which translates into 51.28 million shares -- a record high of shorted shares. From a contrarian perspective, such low expectations surrounding an outperforming stock may have bullish implications. If MNKD continues to build on its year-to-date gains, a round of upgrades and/or positive initiations could spark a short-covering rally, bringing a wave of buying power to the equity.

Finally, Overstock.com, Inc. has more than doubled in value this year, thanks in no small part to a handful of well-received earnings reports. In fact, after unveiling its quarterly results in April and July, the stock surged 37% and 22.4% in the subsequent session, respectively. What's more, the latter resulted in OSTK rallying to a five-year high of $35.60.

You wouldn't know the security has had such a stellar year when looking at its sentiment backdrop. For starters, the consensus 12-month price target of $21 not only stands at a discount to OSTK's current price at $28.98, but also resides in territory not seen by the equity since early May. Meanwhile, around 11% of the stock's float is sold short, representing more than seven sessions' worth of pent-up buying demand. The company is tentatively slated to take its next turn in the earnings confessional at the end of this month. Another upbeat report could prompt some of these bears to hit the exits, resulting in a contrarian boon for Overstock.com, Inc. (NASDAQ:OSTK).

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