Why American Apparel, Glu Mobile, and Achillion Pharmaceuticals Are Today's 3 Best Stocks

We haven't been able to say this often recently, but the broad-based S&P 500 limped into Friday's close with a modest gain, but still finished the week lower by nearly 1%.

As is typical with most Fridays, economic data was fairly light. The big report that investors were able to wrap their hands around today was the release of the monthly Treasury budget report. According to the figures, the Treasury ran a welcomed but expected surplus of $70.5 billion in June, up nicely from the $130 billion deficit reported in May. While budgetary issues rarely affect the day-to-day activities of the market, the long-term health of the U.S. economy is dependent on running in the black more than the red, especially with $17.6 trillion in national debt.

The other factor which had the S&P 500 bouncing around near the flatline was the official kick-off of second-quarter earnings reports this week. Generally speaking, it takes a week or two before earnings reports ramp up and flood the market, but investors are clearly eager to see if corporate growth is truly slowing down, or if the polar vortex in the first quarter was a one-time event.


By day's end, the S&P 500 trudged its way higher by 2.89 points (0.15%), to close at 1,967.57. Despite the tame move in the S&P 500, the following three stocks motored decisively higher.

Leading the charge to the upside was embattled apparel retailer American Apparel , which gained 14.6% after completing a deal with hedge fund Standard General that secured the company $25 million in financing. As part of Standard General's lifeline, American Apparel will be required to overhaul its board of directors, and will lean on recently ousted CEO Dov Charney as a strategic advisor going forward.


Source: Philip, Flickr.

I have to say that the situation at American Apparel has been nothing short of odd. I highlighted Charney as a questionable CEO in Jan. 2013, and challenged his merits as CEO and the company's chances of success back then. Since that time, it appears that things have gone from bad to worse. Being thrown a lifeline by Standard General may buy the company some time, but it does nothing to fix its endemically weak sales trends. American Apparel is giving off all of the danger warnings, and investors should heed those red flags and stay far away.

Mobile app developer Glu Mobile surged by 11.7% after its CEO Niccolo de Masi noted in an interview with Bloomberg that its Kardashian game "might be our biggest game of the year." Glu Mobile's games are free to play, but the company makes money by luring users into making optional in-app purchases that can give them perks during their game play. Furthermore, research firm Cowen & Co. estimates that Kardashian could have annual revenue-generating potential of $200 million, which would be a game changer for Glu, which is only marginally profitable and expected to bring in just $161 million in revenue this year.

On one hand, Glu is an intriguing company with plenty of growth potential. It's clear that, by honing in on public figures and current events, Glu has been able to pull at users' heartstrings, and get them to play its mobile apps. Yet, the mobile app development space can be very hit or miss. This isn't to say that Glu won't succeed; but it does mean that paying a high multiple for an app developer often isn't wise because poor-performing games are bound to arise. I'd certainly suggest adding Glu Mobile to your watchlist; but, as an investor on the outside looking in, I'd rather wait for a sizable pullback before considering this as a viable investment opportunity.

Lastly, clinical-stage hepatitis C drug developer Achillion Pharmaceuticals rose 8.7% after receiving positive commentary from Wells Fargo analyst Brian Abrahams. According to a note released earlier today, Abrahams believes Achillion's phase 1b study involving ACHN-3422, its nucleotide NS5B polymerase inhibitor, is proceeding as planned, and doesn't anticipate any safety or cardiovascular issues with the study.


Source: Saint Louis University, Madrid Campus, Flickr.

This note actually carries weight, because Merck recently agreed to purchase Idenix Pharmaceuticals for $3.85 billion, a hefty premium to its previous closing price, despite it having a wholly clinical-stage hepatitis C pipeline. Many investors suspect that Achillion could be the next buyout target. I, for one, don't buy that chatter, and wouldn't suggest you invest in Achillion with the expectation of a buyout. Until Achillion can manage to get an investigational drug out of midstage studies, it remains nothing more than a watchlist candidate, at best.

Achillion's hepatitis C pipeline may offer plenty of potential, but compared to this revolutionary product, Achillion is likely to be eating dust! 
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The article Why American Apparel, Glu Mobile, and Achillion Pharmaceuticals Are Today's 3 Best Stocks originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of, and recommends Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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