Volume Surges Spark Turnarounds for These 3 Stocks

Aug 9, 2022 at 1:00 AM
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    Volume Surges Spark Turnarounds for These 3 Stocks
    • Teva Pharmaceutical Industries Limited gapped up 28% on July 27th
    • Chipotle Mexican Grill, Inc. jumped 15% on July 27th
    • On August 2nd, Pinterestmstock gapped up 12%
    When the volume gets raised at a summer music festival, concertgoers’ ears perk up. The same goes for stock trading volume.

    Volume, the number of shares that exchange hands in a given time period, signals how much interest a stock is generating. It is often caused by a major news headline, a big institutional transaction, or heavy retail trading interest.

    When investors see a big volume spike on a chart, curiosity swells. They want to know what’s behind it—and what lies ahead. If it's not a one-time fluke, this can lead to an extended uptrend or downtrend because more people follow the stock. 

    There are countless historical chart examples of high-volume moves that mark the beginning of sustained rallies or slumps. In recent days, there have been a bunch of interesting high volume up days that have reinvigorated weakened stocks. Let’s tune into a few examples.

    Why is Teva Pharmaceutical Stock Going Up? 

    Teva Pharmaceutical Industries Limited (NYSE: TEVA) gapped up 28% on July 27th in the wake of its second quarter update. Volume was nearly 70 million on the day, almost seven-times normal and the highest single-day trading activity since 2019. Yet it wasn’t stellar financial results that were primarily responsible for the move (although the company did handily top Wall Street earnings estimates).

    The Israeli pharmaceutical giant reported a proposed $4.35 billion settlement with U.S. state and local governments on opioid lawsuits. If approved, Teva would make up to $3.7 billion in cash payments over a 13 year period, put $1.2 billion towards opioid reversal drug naloxone, and pay around $100 million to Native American tribes. The nationwide settlement could put an end to the thousands of lawsuits over the company’s alleged role in the nation’s opioid epidemic.

    From an investment standpoint, a resolution would lift an ominous cloud of uncertainty that has been hanging over the stock since 2016. Based on the momentum in Teva since the news, the market thinks there’s a good chance that the proposal will be accepted. Last week the stock climbed to a 52-week high of $10.69 with daily volume remaining well above average.

    Why Did Chipotle’s Trading Volume Spike?

    Chipotle Mexican Grill, Inc. (NYSE: CMG) jumped 15% on July 27th in more than five-times its 90-day average volume. The 1.4 million shares traded that day matched what we saw in July 2021 when the company delivered a big second quarter earnings beat. That move ultimately propelled the stock to an all-time high near $2,000 before it dipped below $1,200 earlier this summer.

    It was déjà vu for the quick service burrito chain operator. Second quarter adjusted earnings per share rose 25% and beat the consensus forecast by a wide margin. Although sales fell short of forecast, an improved operating margin that reflected higher menu prices and lower delivery fees led to the outperformance. Chipotle saw an uptick in digital orders in the quarter as more consumers turned to third party delivery apps like Grubhub and UberEats to satisfy their southwestern food cravings.

    The high volume move has helped the stock recoup much of its recent losses. Last week it closed above $1,600 for the first time since April 2022 as buyers mimicked the recent traffic flow at Chipotle’s more than 3,100 locations. After a lukewarm Q1, profitability appears to be sizzling again with loyal customers showing a willingness to pay more. Based on this inelastic demand and mobile ordering trends, the Street is projecting a third quarter earnings growth acceleration to 30%, which could keep investors interested in the stock for at least the next few months.

    Is Pinterest Stock in an Uptrend?

    The market is finally showing interest in Pinterest, Inc. (NYSE: PINS) again after a prolonged downturn erased its enormous pandemic-driven gains. On August 2nd, the stock gapped up 12% in strong volume after the crafty social media platform posted mixed second-quarter performance metrics. Revenue and monthly average users (MAU) exceeded consensus estimates but earnings fell well short.

    What has overshadowed the recent results and soft Q3 guidance, however, is activist investor Elliott Management’s big stake in the company. Despite the weak current advertising market, Elliott has recently expressed great “conviction” in Pinterest saying that “value-creation” opportunities lie ahead. As the company’s biggest investor with a nearly 10% stake, Elliott has helped breathe new life into a stock generating unlikely interest from institutional and retail investors alike.

    Pinterest has its work cut out for it, but with a prominent activist involved and former Google executive Bill Ready as the new CEO, signs of a potential turnaround are forming. 

    But while traders are more excited, Wall Street has thus far taken a cautiously optimistic stance. With most analysts expressing a need to see proof of execution, Pinterest still has a firm ‘hold’ consensus rating. The stock brought an eight-day, high volume winning streak into this week, so it’ll be interesting to see how long the newfound interest in Pinterest lasts.

     

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