The market has been a roller-coaster ride since the beginning of the year, and I think we are far from clear sailings yet. Some roll over into defensive plays while others start grabbing at very short-term action such as upgraded stocks. One area I like to consider is stocks that have continued to exhibit strength during the storm.
While some stocks jump up wildly, such as Orsus Xelent Technologies (ORS) to the tune of 362% in one month, or Coffee Holding Co (NASDAQ:JVA), which ran up 88% in one week, I tend to play stocks making more stable climbs over longer periods of time. I particularly like ones nearing their 52 week highs.
Here are a few of the stocks I have my eye on:
(QCOR) – Questcor Pharmaceuticals. I first recommended this stock as a WarrenBuffet play with high ROE back in March. It has since risen more than 70% in little more than three months. The stock is now a good momentum play, although I doubt we'll see the quick profits of the last 90 days. Still, with constant upward revisions in earnings and a very high expected growth rate over the next few years of 29% annually, this has become one hot play. Sales growth is also very high with a three year average of over 32%. The price strength, as it pushes up to 52 week highs during a sizeable market pullback, increases the short-term luster of this holding.
(NYSE:CBZ) – CBIZ is a mixed bag. While sales have gone flat the past year and a half, the share pool has shrunk from 61 million to 49 million outstanding. Thus, the sales per share has continued to rise on a per share basis when looking at it annually. Book value has bounced to new highs the past couple of years. If you look at the expected 16.5% growth over the next few years, the PE of 15.8 is still reasonable. What I like is the price strength and a high short ratio that can give this a boost. With 8.8 million shares short and a daily turnover of 168,031 shares, this could really take off as it grabs for new highs during a market pull-back.
(NASDAQ:SONE) – S1 Corporation. Having recently broken past the $7.25 high from January, S1 Corporation makes a powerful stab at prices it hasn't seen in years. Its rocky relationship with profitability is expected to improve with some triple digit growth for the current and following quarter and for the year. Next year is expected to see earnings climb up 85.7%. The PE ratio should cool with a downward descent as the forward PE is pegged at 29. May and June have seen a huge surge in volume and this coupled with strong prices make this a good pick right now.
(NASDAQ:OFIX) – Orthofix International has a beta close to 1, but six month performance of 42.75% that blows the market away. Operating cash flows and free cash flow is at the top of its game when looking back many quarters of reporting. Volume has risen dramatically during May and June. As it makes a shallow pullback since the beginning of June, I will be eyeing this one carefully for a breakout past $41 … which could happen any day now. This is a strong price performer during these turbulent times.
(NYSE:NVE) – NV Energy has been in a strong upwards trend since at least November of last year. It is trading close to its book value and sales – but being a utility company, this is nothing new. In fact, despite low multiples, they are slightly on the high side of the 3 and 5 year averages. Volume has been exceptionally high the past week and a half and I'd be a short-term buyer if prices can close above $15.80 as it heads for new heights.
(NYSE:SBH) – Sally Beauty Holdings is my last high strength pick. The annual performance for this stock is stellar with a rise of over 85%. It is down for the month, though. This stock is reaping the rewards of decent growth: one year sales growth of 10% and earnings growth over 43.6%. The earnings growth has been made largely on improved margins, so I expect the rate will slow down some as sales growth is not keeping pace. That being said, the price to sales is still under 1, which is low, and the PEG ratio is under 1, giving this a decent value rating when looking at both trailing revenue and expected earnings growth. If share prices can ramp back up and close above $16.80 on above average volume, this would make a good buy.
Stocks Nearing Highs in Market Pullbacks
While relative price strength is one aspect for safety, do not neglect analyzing the underlying fundamentals. Momentum has been shown to carry stocks higher but if the valuations start to greatly exceed the norm, there is increased downside risk. For a short-term flight during unsteady markets, I like strong stocks that buck the trend. However, for holding onto a stock for more than a few weeks, I need to know that it is a solid company worth staying in a portfolio without constant monitoring.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.