By Timothy Lutts
Looking at the stock market, there are so many good-looking charts out there that today I’ve got six quick ones for you, in a format I call high-low.
Netflix (NASDAQ:NFLX) is the high-end source of movies for your home, available through both the U.S. mail and online streaming. Revenues grew 31% in the latest quarter while earnings soared 42 percent. The stock’s forward price/earnings ratio (price divided by consensus expected earnings) is 52.
Coinstar (CSTR) is the low-end source of movies for your home, via its Redbox kiosks that charge just a dollar a night. Revenues grew 42% in the latest quarter while earnings rocketed 74 percent. The stock’s forward price/earnings ratio is 19.
Apple (NASDAQ:AAPL) is the high-end provider of smartphones with its iPhone. Revenues mushroomed 67% in the latest quarter (to $20 billion!) while earnings climbed 68 percent. The stock’s forward price/earnings ratio is 17.
MetroPCS Communications (PCS) is a low-end provider of mobile phone service, particularly adept at serving low-income consumers. Revenues grew 14% in the latest quarter while earnings stepped up 5 percent. (35% earnings growth is expected for 2011). The stock’s forward price/earnings ratio is 13.
Sotheby’s (NYSE:BID) is a high-end auctioneer, selling art, jewelry, antiques and more, all over the world. Revenues jumped 63% in the latest quarter while the loss per share was only 29 cents instead of the 39 cents analysts expected. (The seasonality of the auction business means Sotheby’s loses money every other quarter.) The stock’s forward price/earnings ratio is 16.
Dollar Tree (NASDAQ:DLTR) is a low-end retailer, operating stores where everything costs a dollar. Revenues surged 14% in the latest quarter while earnings climbed 43 percent. The stock’s forward price/earnings ratio is 15.
I include the forward PE ratios to show you something interesting. In every case, the high-end retailers have a higher PE ratio than their comparable low-end retailer.
But PE ratios have no place in my growth-stock selection system. What I care most about is the probability that the aggregate of investors who care about that stock (or will care about that stock) will have a higher perception of the company’s earnings potential in the future than they do now.
Said another way, I want to buy stocks about which investor perceptions are improving and likely to improve further … because that’s what drives prices higher. The best way to do that is to buy stocks that are continually exceeding analysts’ estimates on the upside.
I also like healthy charts, and when all is said and done, I trust a stock’s chart more than I trust my own opinion. So as I look at the charts of these six stocks, you probably want to know which is my favorite.
NFLX has an excellent long-term chart, but is a little out of control, short-term. The stock needs to calm down. CSTR looks great, sitting at support at 63, with no selling pressure evident. But beware the occasional big shake-out. AAPL has a great long-term uptrend, but it’s been treading water somewhat noisily for seven weeks. This could be a top but as long as the bull market is intact, it’s more likely to be a good base.
PCS didn’t turn up until early this year, so it’s less extended than the other stocks here — which is good — and it’s built a nice base over the past month. But I have less long-term confidence in the stock than most of the others. Also, the low price (12) signals higher risk. BID has been very strong since early 2009, with the exception of a big correction mid-2010 that shook out weak hands. It’s recently pulled back to its 50-day moving average to present a textbook buying opportunity. DLTR has been positive all year, and since accelerating its advance in August, it’s been advancing like a robot riding the "up" escalator. The only red flag is that volume has been slowly and steadily decreasing.
So there you go. I don’t have a favorite, and I don’t need one, with a bull market this healthy.