Wow, the market never ceases to surprise does it. Just yesterday the Nasdaq hit resistance as institutions favored selling once again which led to yet another day of distribution (for the sixth time this month). That momentum continued in the first hour or so of trading. I remember looking at the SelfInvestors Leading Stocks Index over there on the right and seeing decliners outnumbering advancers by 4 to 1 with heavy volume. Looking over there now and you can see it has completely reversed! This kind of move most likely signals that a bottom has been put in (at Nasdaq 2025, Dow 10233, and S&P 1168). However, the indices still face resistance.. and very soon, possibly tomorrow. It will be very interesting to see how the Dow handles 10,500, the Nasdaq 2100 and the S&P 1200. Those are key resistance levels. I would imagine that the indices will retreat from those areas with light selling volume and will need a few tries to finally push back above those levels. Pay close attention to which stocks/industries/sectors lead in the coming days. They will be your leaders should the market stage a year end rally. I’ve got my eye on anything medical related and still feel like we haven’t seen the end of the oil run. Take a look at one of the first oil companies to report this earnings season – Lufking Industries (LUFK). Whether oil is at 70, 60 or 55, they will continue to make huge profits.
All posts by Tate Dwinnell
Notable Earnings: USANA Health (USNA) & Gilead Sciences (GILD)
Some big names reported after the bell today, namely Intel, Yahoo and Motorola, but these earnings posts will focus on some of the more obscure fast growing companies that don’t get the coverage. Again, SelfInvestors.com fundamental rank in brackets.
Gilead Sciences (GILD) [28/30]
The highest rated company reporting after the bell today with a SelfInvestors.com fundamental rank of 28/30 is Gilead Sciences (GILD). This is a company that just consistently keeps posting solid growth every quarter. This time around the company reported earnings of .38/share on revenue of growth of 493.5 million, good for growth of 52% and 51% respectively over the year ago quarter, which beat analyst expectations of .36/share and the "whisper number" of .37/share.
Highlights:
- Sales of its new HIV drug Truvada grew 32%
- Sales of its Hepititus B drug Hepsera grew 58%
- Royalties earned on its antiviral drug Tamiflu, which countries have been stockpiling due to the potential of an avian bird flu outbreak soared to 12.1 mill, from 1.7mill in the year ago period (note: Gilead said Roche had breached the companies’ Tamiflu marketing agreement. The companies were unable to resolve the dispute and are currently in arbitration)
- Company raised its outlook for 2005 sales of its HIV drugs
The stock is down a bit after hours. Technically, it continues to look very strong despite a tough market. It broke out of a base on 9/30 and remains in a buyable range.
USANA Health Sciences (USNA) [27/30]
USANA posted another good quarter but it wasn’t exceptional by any means. The company beat analyst estimates with earnings growth of 31% on revenue growth of 20%, but that marks the 7th straight quarter of declining year over year revenue growth. It appears the high growth days are over. The company said 2006 revenue growth would be in the range of 15 – 20%. A breakout of the stock failed at the end of September and has slipped back into a base, but above the 200 day moving average. It’s trading down a bit after hours.
Top 10: Companies/ News Stories
I came across a couple interesting top 10 lists last night I thought I’d share here. The first is the Forbes Top 10 Small Cap companies.
1. Hansen Natural (HANS): monster energy drink
2. Cognizant Tech (CTSH): Indian outsourcer
3. Travelzoo (TZOO): online travel
4. Remington Oil (REM): oil and gas exploration, Gulf of Mexico
5. USANA Health Sciences (USNA): vitamin MLM company
6. Forward Industries (FORD): carrying cases for Motorolo Razr cell phone
7. Laserscope (LSCP): non invasive cosmetic procedures
8. Ceradyne (CRDN): body armor
9. American Healthways (AMHC): specialty medical services
10. Middleby (MIDD): commercial kitchen equipment, McDonald’s, KFC and Papa John’s
I would have to also add True Religion (TRLG), Infosys (INFY), Quality Systems (QSII), Google (GOOG) and Franklin Resources (BEN)
Here’s another Top 10 list for good measure. It’s the the Street.com’s top 10 stories of last week.
1. Just Ahead: Dow 40,000?
A new breed of mega-bulls sees a monster-sized rally soon — here’s why they’re so optimistic.
2. Sea Change at Nortel
Admiral Bill Owens steps aside for Motorola veteran Mike Zafirovski.
3. Apple’s Next Big Thing
Above all, the expectation of future hot products will drive the company’s stock, say analysts.
4. Buy the Dip, Get Clipped
Traders eager to pounce on Apple-induced weakness quickly find themselves under water.
5. Bottom Drops Out of Nasdaq
Higher volume and a downside break spell more trouble. Plus charts of retail HOLDRs, Federated and more.
6. ‘RealMoney’ Radio Recap: Bottom’s Up?
Market negativity is reaching its peak, says Cramer. Also, strong on Mister Softee.
7. Cramer’s ‘Mad Money Lightning Round’: Don’t Tax H&R Block
Cramer doesn’t understand the ‘opprobrium’ for this stock.
8. Biotech Ready to Deliver
Investors will soon see if their confidence is well-placed.
9. Cramer’s ‘Mad Money’ Recap: Riches in Cheap Threads
Cramer likes TJX, owner of T.J. Maxx and Marshalls discount retailers, when the consumer feels pressured.
10. Top Line Bruises Apple
The company beats earnings estimates, but investors focus on light revenue and iPod shipments.
Notable Earnings: Peabody Energy (BTU), Genzyme (GENZ), Freeport Copper & Gold (FCX)
Today really marks the kick off of the avalanche of earnings, so i’ll be increasing the frequency of earnings posts in the next couple weeks. This morning a few earnings reports that interest me come from Peabody Energy (BTU), Genzyme (GENZ) and Freeport-McMoRan Copper & Gold (FCX). In the last round of earnings reports posts I noted the overall SelfInvestors.com score which included the technical rank of the stock’s base. This time around I’m only going to include the fundamental rank, since the stock may or may not be in the process of basing or just recently breaking out from the base. Fundamental rank will appear in brackets (generally any score of 25 or above is very good).
Starting off with Genzyme (GENZ) [25/50], the company is reporting revenues that are up 24% over the year ago quarter driven by increases in all product areas. The company matched the whisper number and beat estimates by posting earnings of .61/share, good for a 38% increase over the year ago period. Gross margins increases and the company is continuing to expand its manufacturing capacity internationally. The stock is currently in the process of carving out a base.
Peabody Energy (BTU) [24/28], matched analyst estimates of .84/share which amounts to a whopping 161% increase over the year ago quarter on revenue growth of 33%. The company raised guidance for ’05 but said the numbers would be sensitive to transportation issues which have plagued the coal industry this year. The stock is down just a bit this morning but remains technically very strong and bounced off the 50 day moving average with good volume on Friday.
Freeport Copper & Gold (FCX) [24/28] Blow Out Earnings!, reported a very strong quarter riding the wave of higher gold and copper prices. Excluding non recurring costs, the company reported earnings that beat estimates by .16 share. Growth surged 760% over the year ago on revenue growth of 64%. The stock is currently up about 1% and continues its bounce from the 50 day moving average a few days ago.
Stock Screener: Above 50 Day Moving Average, RS Rating Above 70
Today marks the first post where I’ll take a look at a particular screen of the SelfInvestors.com database. A couple times a month I’ll run my custom stock screener and spit out a few stocks that might be worth watching, based on various criteria such as support levels, earnings estimates, relative strength, fundamental rank, technical rank, demand, etc. Today’s screen spits out stocks that are above the 50 day moving average with an RS rating of above 70.
Stocks that have held up during this latest correction are most likely to lead the way when the market turns up, so you’ll want to keep an eye on these gems. The list is sorted by Total Rank by default, but you can sort by any column within Excel. Only a screenshot of the first few are available here, but in order to access the full Excel download of the screen you’ll need create an account with SelfInvestors.com. It’s entirely free and only takes a second.. Anyway, you may see a much larger screenshot of the screen and sign up for the full excel download here if you wish.
I look forward to the day when we all have monitors that are several feet across.. only then can I fit everything I want on one page!
Still No Sign of a Bull
Good news regarding inflation finally rolled in on Friday as core inflation remained in check, leading to a nice little relief rally. There continues to be no reason for the Fed to be concerned about higher oil prices creeping into other good and services and at this point appear to be just trying to match the move in oil. It’s a difficult game to play. Leave the rates alone for now and see where oil settles out. In the meantime take measure NOW to reduce oil demand – greater tax incentives for hybrid car owners and use of HOV lanes. It won’t have an immediate affect, but in two to three years it may make a difference. See my previous post regarding oil and inflation.
With Thursday’s reversal off the lows and Friday’s continuation of the move to close near the high of the day, you’d think that the bottom is near. Not so fast. While the move at the end of last week offers a glimmer of a hope, we still face a significant chance of another leg down (to Dow 10,000, Naz 2000, and S&P 1500). I remain pessimistic based solely on the volume behind the moves on Thursday and Friday. Volume was not impressive at all and indicates that much of the move may have just been a combo of oversold conditions/short covering. Until the trend of high volume selling and low volume buying reverses, there is no reason to believe we have found a bottom. The market will most likely stall out at key resistance levels in the coming days/weeks. When the market pulls back, look for it to do so on lighter volume. Doing so would open the door much wider for bulls to come running through. Until then, I remain very cautious and won’t make large bets either way.
Lets take a look again at key support and resistance levels to get an idea of where we’ve been and where we might be headed.
To me, the Nasdaq looks much weaker than the other indices as tech still looks unwilling to provide any leadership. A potential support area to watch is shaping up around 2050, but if it closes below that level it increases the likelihood of dropping to 2000, so it will be important to hold above this level. Up above, the Nasdaq will face minor resistance at the 50 day moving average at around 2075 with much stronger resistance at 2100. Look for the Nasdaq to have trouble getting above these levels on a relief rally in the coming days. Looking at the volume levels, it’s clear that sellers remain firmly in control.
With last week’s reversal, it appears that 10200 is shaping up as a support level at least in the short term. If it closes below this level, then Dow 10,000 becomes a likely target. It will face significant resistance at 10400 and 10500. Watch how it reacts to these levels in the coming days. The two reversal days (indicated by the orange arrows) are positives as is the close near the high on Friday, but again the volume levels speak for themselves. The bears remain in control.
Key areas to watch for the S&P: support at 1175, resistance at 1200.
CNN/Money Top Financial Blogs
Thank you Carrie Lee and CNN/Money for recognizing the blog here as a Top 10 Financial blog. It’s greatly appreciated.
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3. CANSLIM Investing – Yes it’s a long web address, but also worth bookmarking. This site contains many easy to read pieces on stock suggestions, chart analysis, and market commentary using the CANSLIM approach to investing. (The seven letters each stand for an investing criteria, for example, "L" represents choosing an industry leader over a laggard.)
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Congrats to the other fellow bloggers who were mentioned in the article as well. Here’s a link to the full article:
http://money.cnn.com/2005/10/06/markets/financial_blogs/index.htm
Insider Buying: CapitalSource (CSE)
The insider buy alerts from InsiderCow.com were coming in fast and furious yesterday for CapitalSource (CSE) as 7 different insiders picked up more than 205 million (yes, thats million) worth of its company’s shares immediately following a secondary offering of the stock. Whoop, scratch that. Two more insider buy alerts came in literally just seconds ago – 2 more insiders, each purchasing nearly 4.3 million worth of stock, bringing the total to 9 different insiders for a total of nearly 214 million.
About CapitalSource
CapitalSource Inc. (CSE) is a specialized commercial finance company providing loans to small and medium-sized businesses. Capital Source provides debt financing products that it negotiates and structures on a client-specific basis, through direct interaction with the owners and senior managers of its clients. The Company has three lending businesses: Corporate Finance, Healthcare and Specialty Finance, and Structured Finance. Corporate Finance generally provides senior and mezzanine loans principally to businesses backed by private equity sponsors. Healthcare and Specialty Finance generally provides asset-based revolving lines of credit, first mortgage loans and other senior and mezzanine loans to healthcare businesses and other companies. Structured Finance generally provides asset-based lending to finance companies and commercial real estate owners.
Converting to a REIT
On September 19th, the stock shot up 20% on news that the company would convert to a REIT (real estate investment trust) on Jan 1, 2006.
Fundamentally Outstanding
CapitalSource is a company with outstanding fundamentals. Applying my ranking system, I come up with a score of 27/30, which puts it in the top 100 stocks that I track. Beginning in 2002, the company has posted year over year growth of 500%, 83%, 38% and 29% (est. for ’05). Net margins are double the industry average at 28%, but they have been declining a bit in the past 2 years. Return on equity has been rising every year for the last few years and is very good at 15%.
Technically… A Different Story
Technically, it’s been a different story. The stock has been basing nearly the entire time since the company went public on August 7th, 2003 and the action could be characterized as sloppy. The Relative Strength rating is poor and the stock is currently having trouble staying above the 200 day moving average despite the pop following the news of the REIT conversion.
It’s strange that the stock has basically gone nowhere since its IPO considering the kind of growth it’s posted over the last couple years. With a PE to growth ratio of .73, perhaps its time that the stock price reflect the growth. I’m sure the insiders making large bets feel the same way.
Notable Earnings: Genentech (DNA) & Infosys (INFY)
In terms of fundamentals, companies don’t get much better than Genentech (DNA) and Infosys (INFY). The two companies reported outstanding earnings once again after the bell yesterday and both stocks are up about 5% in premarket trading.
Infosys, the premier Indian outsourcer, reported earnings that were up 42% and revenues that were up 38% over the year ago period. Both revenues and earnings beat analyst estimates and the company raised guidance for 2006. It’s the kind of growth the company has been reporting every quarter with incredibly consistency for the past couple years. Infosys is one of the highest ranked stocks fundamentally in the SelfInvestors.com database with a fundamental score of 29/30. It’s currently in the process of carving out a base that isn’t exactly "pretty". However, the stock should make a run at all time highs today at 78.74.
Genentech (DNA) is an equally impressive company fundamentally (score of 27/30), consistently posting earnings growth of around 50% in the last several quarters on revenue growth of around 40%. So, It should not have come as too much of a surprise when the company reported earnings growth of 56% quarter over quarter (beat by 5 cents) with revenue growth of 46%. Results were driven by the two cancer fighting blockbusters Avastin (colon cancer) and Herceptin (breast cancer), which saw growth of 78% and 70% respectively in the U.S. The company boosted ’05 full year guidance, indicating that it sees growth of 50% over ’04, much higher than the 35% growth it had indicated earlier. The stock is currently in the process of carving out a base.