My trading strategy is based on buying companies with improving fundamentals at proper technical buy points. I explain this concept in the blog Warren Trades. My best trades have something in common: the stock has a solid fundamental and technical picture before I buy it.
This is the list of companies I am currently observing in order to buy them as soon as they break key resistance levels with above-average volume. In the article I detail the fundamental catalyst that makes me interested in the stock.
Check this improving Forex Broker
The first stock I would like to detail is FXCM (FXCM), a leading online Forex broker that prominent hedge fund manager Michael Price and Paul Tudor Jones recently bought (in this link you can check their purchases). The stock has been moving between $14 and $13 for almost a month but I think that shares are ready to start rising.
FXCM has been showing strong trading volume metrics, the most important measure for these type of companies. The company reported retail customer trading volume of $363 billion in January 2013, 42% higher than December 2012 and 22% higher than January 2012. In addition, average retail customer trading volume per day of $16.5 billion in January 2013, 22% higher than December 2012 and 22% higher than January 2012. This is the second highest retail average daily volume in FXCM history which shows that the business is performing strongly.
The company is also expanding to new markets. FXCM successfully expanded its distribution by adding nearly two dozen white label partners in France, Spain, Turkey, Eastern Europe, Southeast Asia, Hong Kong, U.K. and the U.S., including to enormous potential white labels in E*Trade and Barclays. I like the fact that FXCM diversifies its operations: volume from U.S. clients now represent just 11% of FXCM total for 2012 versus 21% in 2010.
In terms of valuation, shares are not expensive. Analysts estimate FY13 EPS of $0.97 which translates into a Forward P/E of 14x. Considering that the lowest P/E that FXCM has traded since became public was 15x, a forward multiple of just 14x is quite inexpensive. The average earnings multiple for FXCM is 20x, which could translate into a price target of $19.5 (40% higher than current prices).
Online betting is legal: Caesars is the clear winner
Top hedge fund managers John Paulson and George Soros have been buying Caesars Entertainment Corp (CZR) in the past quarters, probably anticipating a change in regulations that is now starting to happen (see their purchases here). As Congress passes online gaming law, Caesars online franchises will prosper.
Caesars Entertainment Corporation is the best set up to capitalize on this regulation change. Caesars´s World Series of Poker brand is the most popular brand, and CZR has a huge loyalty program with over 40 million members. Analysts estimate CZR could add an incremental $300-$400 million of EBITDA with a federally regulated online gambling market considering that the online gambling market in the US would generate $4-10 billion of revenue, with 50% of that coming from poker.
In a recent speech, Caesars Entertainment Chief Executive Gary Loveman said that the company will benefit tremendously from the rise of online gaming. Loveman said:
"We are not aware of another U.S. land based casino company that owns an online gaming business,". In other words, the opportunity for CZR is huge in this new space.
CZR shares has risen strongly in the past months but consolidated in the $14/10.5 range. I think that if the stock breaks the $14 level with powerful trading volume, shares could rise fast. A stock to bet on.
A defensive but rising stock
In the last earnings report, CVS raised its FY13 projections. The company reported Q4 (December) earnings of $1.14 per share, excluding non-recurring items, $0.04 better than the Capital IQ Consensus Estimate of $1.10 while revenues rose a strong 10.9% year/year to $31.39 billion vs the $31.14 billion consensus. CVS projects EPS of $3.86-4.00 from prior guidance of $3.84-3.98 vs. $3.94 Capital IQ Consensus Estimate.
CVS has been trading in a P/E range between 18-12x during the past 5 years. Considering a mid-range FY13 EPS of $3.93, this translates into a forward P/E of just 13x. I consider this extremely cheap. CVS should trade at a reasonable P/E of 15x which could translate into a price target of $59 (13% higher than current prices).
CVS management noted that its Retail segment continued to benefit from the legacy ESRX-WAG dispute as CVS has retained >60% of WAG prescriptions. Management noted that this share gain looks sustainable and the business is extremely solid. Same stores sales keep rising almost every quarter. In the past report, CVS reported that same store sales increased 4.0% over the prior year period, with pharmacy same store sales up 4.0% and front store same store sales up 3.9%.
I also like that CVS is consistently repurchasing shares. CVS went from 1425 million shares outstanding in 2010 to a current 1275 million. This rate of share repurchases great for long term oriented shareholders.
Will Visa break the current range ?
Visa (V) is one of the best stocks in the market. I believe that both Visa and Mastercard (MA) have a superb best risk/reward profiles. I expect both stocks to be relative outperformers, with strong EPS growth driven by relatively resilient spending volume and transaction metrics, high incremental margins, and a greater level of share repurchases.
In the last report, the company showed that the business is performing strongly. Visa realized a solid 1QFY13 results with net revenue growth of 12% year/year and EPS of $1.93. Visa affirmed FY13 guidance which anticipates low double-digit net revenue growth and high-teens EPS growth.
Visa has been trading since January inside the range of $162-$155. If shares break this range with volume, expect a material uptrend. I think that after a huge rise from $120 to $160 in just 5 months, shares are ¨resting¨ and preparing for a continuation in the current long term uptrend.