10 Breakout Stocks With Rising Inventories

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 |  Includes: BHE, BRLI, CKP, CREE, CYH, GCI, HPY, PODD, VLTR
by: Kapitall

The following is a list of breakout stocks, based on moving average trends. For this article, we tracked down stocks that have recently seen the 50-day simple moving average (SMA50) move above the 200-day moving average (SMA200)--a bullish technical signal called the "Golden Cross".

When these two moving averages cross, it often represents a shift in investor sentiment. But how do you know if you should take the breakout seriously?

For clues, we looked at the most recent quarter's financial statements for about 80 stocks that have recently seen the SMA50 move above the SMA200. We narrowed down the list to only focus on those breakout stocks that have seen inventories grow faster than revenues during the most recent quarter, an accounting trend that deserves closer attention.

When a company's inventories are rising at a faster rate than its sales, it may indicate that the company is having trouble selling its merchandise. In extreme cases, the company might have to mark down the value of its inventory.

But there are often good explanations for a deviation between inventory and sales growth. Companies can decide to increase inventories because they are growing more confident about the economy and seeing demand growth. In other examples, companies might make changes to the way they report inventory positions, or a change in the company's structure might skew the data.

The bottom line: Use this list as a starting point for your own analysis. Check out the 10-Q and read management discussions to see if there's a good explanation for this trend.

Accounting data sourced from Google Finance, short float and performance data sourced from Finviz.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

The list has been sorted by the difference between revenue and inventory growth rates.

1. Cree Inc. (NASDAQ:CREE): Semiconductor Equipment & Materials Industry. Market cap of $5.67B. SMA50 at $63.87 vs. SMA200 at $63.00 (current price at $52.18). MRQ revenue grew by 28.83% on a y/y basis, while inventory grew at 55.94%. Inventory, as a percentage of current assets, increased from 7.91% to 10.01% (comparing the 13 weeks ending 2009-12-27 vs. 13 weeks ending 2010-12-26). Short float at 19.44%, which implies a short ratio of 5.6 days. The stock has lost -11.11% over the last year.

2. Bio-Reference Laboratories Inc. (NASDAQ:BRLI): Medical Laboratories & Research Industry. Market cap of $655.87M. SMA50 at $21.99 vs. SMA200 at $21.73 (current price at $23.74). MRQ revenue grew by 23.74% on a y/y basis, while inventory grew at 49.16%. Inventory, as a percentage of current assets, increased from 2.95% to 3.58% (comparing the 3 months ending 2009-10-31 vs. 3 months ending 2010-10-31). Short float at 21.02%, which implies a short ratio of 22.46 days. The stock has gained 24.54% over the last year.

3. Heartland Payment Systems, Inc. (NYSE:HPY): Business Services Industry. Market cap of $613.05M. SMA50 at $15.88 vs. SMA200 at $15.77 (current price at $16.05). MRQ revenue grew by 12.77% on a y/y basis, while inventory grew at 33.53%. Inventory, as a percentage of current assets, increased from 3.30% to 3.90% (comparing the 3 months ending 2009-09-30 vs. 3 months ending 2010-09-30). Short float at 4.32%, which implies a short ratio of 8.25 days. The stock has gained 12.48% over the last year.

4. Checkpoint Systems Inc. (NYSE:CKP): Security & Protection Services Industry. Market cap of $861.99M. SMA50 at $20.37 vs. SMA200 at $19.94 (current price at $22.32). MRQ revenue grew by 4.76% on a y/y basis, while inventory grew at 15.59%. Inventory, as a percentage of current assets, increased from 22.02% to 22.24% (comparing the 13 weeks ending 2009-09-27 vs. 13 weeks ending 2010-09-26). Short float at 2.87%, which implies a short ratio of 4.81 days. The stock has gained 34.2% over the last year.

5. Volterra Semiconductor Corporation (NASDAQ:VLTR): Semiconductor Circuits Industry. Market cap of $649.72M. SMA50 at $23.41 vs. SMA200 at $22.82 (current price at $24.33). MRQ revenue grew by 39.98% on a y/y basis, while inventory grew at 50.35%. Inventory, as a percentage of current assets, increased from 8.77% to 9.54% (comparing the 3 months ending 2009-09-30 vs. 3 months ending 2010-09-30). Short float at 8.12%, which implies a short ratio of 5.07 days. The stock has gained 14.49% over the last year.

6. Ascena Retail Group, Inc. (NASDAQ:ASNA): Apparel Stores Industry. Market cap of $2.16B. SMA50 at $25.71 vs. SMA200 at $25.16 (current price at $27.60). MRQ revenue grew by 76.52% on a y/y basis, while inventory grew at 86.83%. Inventory, as a percentage of current assets, increased from 30.80% to 43.65% (comparing the 13 weeks ending 2009-10-24 vs. 13 weeks ending 2010-10-30). Short float at 9.41%, which implies a short ratio of 7.12 days. The stock has gained 14.49% over the last year.

7. Gannett Co., Inc. (NYSE:GCI): Newspapers Industry. Market cap of $3.55B. SMA50 at $14.51 vs. SMA200 at $14.20 (current price at $14.98). MRQ revenue grew by 0.02% on a y/y basis, while inventory grew at 9.50%. Inventory, as a percentage of current assets, increased from 6.40% to 6.61% (comparing the 13 weeks ending 2009-09-27 vs. 13 weeks ending 2010-09-26). Short float at 9.92%, which implies a short ratio of 5.97 days. The stock has lost -5.3% over the last year.

8. Benchmark Electronics Inc. (NYSE:BHE): Printed Circuit Boards Industry. Market cap of $1.16B. SMA50 at $17.70 vs. SMA200 at $17.47 (current price at $19.89). MRQ revenue grew by 20.26% on a y/y basis, while inventory grew at 29.67%. Inventory, as a percentage of current assets, increased from 25.36% to 31.53% (comparing the 3 months ending 2009-09-30 vs. 3 months ending 2010-09-30). Short float at 2.46%, which implies a short ratio of 6.19 days. The stock has lost -0.26% over the last year.

9. Insulet Corporation (NASDAQ:PODD): Medical Instruments & Supplies Industry. Market cap of $727.85M. SMA50 at $15.01 vs. SMA200 at $14.87 (current price at $16.94). MRQ revenue grew by 35.88% on a y/y basis, while inventory grew at 40.63%. Inventory, as a percentage of current assets, increased from 9.20% to 9.68% (comparing the 3 months ending 2009-09-30 vs. 3 months ending 2010-09-30). Short float at 12.08%, which implies a short ratio of 16.4 days. The stock has gained 21.65% over the last year.

10. Community Health Systems, Inc. (NYSE:CYH): Hospitals Industry. Market cap of $3.26B. SMA50 at $35.08 vs. SMA200 at $34.08 (current price at $35.89). MRQ revenue grew by 5.35% on a y/y basis, while inventory grew at 8.52%. Inventory, as a percentage of current assets, increased from 10.35% to 10.52% (comparing the 3 months ending 2009-09-30 vs. 3 months ending 2010-09-30). Short float at 3.14%, which implies a short ratio of 1.73 days. The stock has gained 3.89% over the last year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.