A portfolio of 8 stock picks from the edge

“No, there’s no one else, I find,
To undermine or dash a hope
Quite like you.”

-Aimee Mann

Bad news from every direction tortured the stock market 3% lower. The selling was broad based and few stocks were spared. Let’s take a break from the carnage and look at some recent news items for the 8 Stock Portfolio.

Chico’s

Chico’s (CHS) reported a same store sales decline of 10% for August. This double digit decline was apparently better than expected and shares closed up on the day.

This is further evidence that CHS has been beaten down so badly that simply doing “less worse than usual” will cause the stock to rise. Imagine what would happen if they actually put up some good numbers.

VMware

VMware (VMW) has been experiencing some ridiculous ups and downs.

On Tuesday, VMware announced the resignation of their EVP of research and design. Shares declined 4% on the news, erasing about $600 million in market cap. I guess VMW should have offered him a $300 million retention bonus and saved shareholders some money.

On Wednesday, recycled rumors that Cisco would increase their stake in the company sent shares up $2 from the intraday low. This is the same rumor that started in late August and has been passed down the line from one story to the next. Perhaps next week someone else will write an article about the same unsubstantiated two-week-old rumor and generate some fresh excitement.

Today, Red Hat bought a tiny virtualization company Qumranet for $107 million in cash. VMW was down over 8% on fears that Red Hat would become another serious competitor in the virtualization market. Red Hat expects the acquisition to bring $20 million virtulazation revenue in 2010. VMware’s projected 2009 revenue is $2.4 billion. Unless Qumranet is growing at 12,000% per year, they have a ways to go before they catch up to VMware.

The purpose of summarizing these minor events and the exaggerated reactions of the VMW stock price is to point out that VMware (and maybe the entire stock market) is in the midst of an extremely reactive and emotional state. In time, VMware shareholders will stop jumping at every gust of wind and shift their focus to the company’s performance and long term prospects. Until that point, the extreme volatility will be part of the package.  But then again, I guess that’s what you might expect from a ten year old company that was once dubbed “the next Google.”

Titanium Metals

Last week Titanium Metals (TIE) gained 18%. The rise was fueled by bullish options activity and speculation of a buyout.

While a buyout would provide for a quick gain, I hope that none of the 8 Stocks are bought out. In the long term, a recovery of the business and reassumption of a non-firesale valuation will bring many mutliples the return of any quickie buyout.