The stock market is still very volatile, following the October fourth lows. It does appear the stock market wants to break out and trend higher, via the price action. However, volume is indicating that there are still plenty of sellers out there ready to hit higher prices.
If this market can break out to new short-term highs, it could launch a very nice year-end rally. If we get that breakout, the best stocks to purchase will be those with strong technical patterns and huge top and bottom-line growth. 130 years of stock market history proves that the best stocks in any market cycle show huge growth in EPS and sales.
The stocks below are explosive growth companies with incredible future prospects. If the market can break out to new short-term highs, I definitely want to get long every single one of these companies.
Let’s take a look at these four stocks and their key fundamental stats that make them so strong. Following the fundamental analysis, I will take a look at the technicals. Fundamentals tell me what stocks to purchase. Technicals tell me where to purchase.
The growth in the EPS and sales numbers below are for the past eight quarters compared with the year before results.
SolarWinds (SWI) is an Austin, TX developer of network management software used by companies to identify and solve network performance issues.
SolarWinds EPS has grown 73%, 33%, 21%, 17%, 26%, 31%, 29%, and 48% the past eight quarters. Sales growth during that time has exploded 32%, 43%, 31%, 27%, 26%, 25%, 29%, and 31%. These numbers are not expected to slow down any time soon as 2011 and 2012 annual EPS estimates are for gains of 29% and 14% respectively.
SolarWinds carries a debt-to-shareholder equity of 0%, a return on equity of 43%, a cash flow of $0.87, and spends 10.3% of revenue on R&D.
Management only owns 7% of the shares outstanding. More interesting is mutual fund ownership, which has grown from 281 funds eight quarters ago to 409 funds today.
Spreadtrum Communications (SPRD) is a Chinese designer of baseband and RF processors and chips used in wireless handsets.
EPS growth the past eight quarters has been insane with gains of 118%, 194%, 313%, 617%, 917%, 224%, 91%, and 93%. Sales growth has been just as unreal with gains of 313%, 534%, 341%, 151%, 199%, 163%, 124%, and 92% the past eight quarters. The growth isn’t over yet with 2011 and 2012 annual EPS estimates for gains of 49% and 10% respectively.
The company has a debt-to-shareholder equity of 23%, a return on equity of 52%, a cash flow of $1.91, and spends 16.9% of its revenue on R&D. The current P/E ratio of 10 is in the low end of its 5-year range between 4-54.
Mutual fund ownership has been growing rapidly the past eight quarters, jumping from 19 to 118 funds. This is an incredible increase in fund ownership during an eight quarter period.
TIBCO Software (TIBX) is a Palo Alto, CA., provider of business application and database integration, process automation, management, and optimization software.
EPS growth has jumped 0%, 33%, 36%, 31%, 35%, 33%, 40%, and 35% the past eight quarters. Sales growth has increased 5%, 17%, 21%, 23%, 23%, 20%, 25%, and 24% the past eight quarters. Growth is expected to continue into 2011 and 2012 with annual EPS estimates for gains of 24% and 18% respectively.
TIBCO Software has a debt-to-shareholder equity of 5%, a return on equity of 16%, a cash flow of $0.87, and spends 16.5% of its revenue on R&D. The P/E ratio is a bit high for value investors, coming in at 32. This is near the top of the 5-year range of 7-36.
Despite the company being quite established, management still owns 10% of the shares outstanding. They are not the only individuals invested in the company’s future. Mutual fund ownership has grown from 581 to 706 funds during the past eight quarters.
Finally, my personal favorite based on the share price, VMWare (VMW). VMWare is a Palo Alto, CA., provider of virtualization software that enables organizations to run multiple operating systems on a single computer.
EPS growth the past eight quarters has been an impressive -14%, 28%, 70%, 63%, 48%, 50%, 62%, and 36%. During this time, sales growth has increased 18%, 35%, 48%, 46%, 37%, 33%, 37%, and 32%. 2011 and 2012 annual EPS estimates are for gains of 42% and 17% respectively.
VMWare sports a debt-to-shareholder equity of 12%, a return on equity of 20%, a cash flow of $2.08, and spends 22.9% of revenue on R&D. The P/E ratio is actually at the low end of its historical range of 16-155, currently coming in at 50.
Management only owns 2% of the shares outstanding. Making up for this are mutual funds. Mutual fund ownership has increased from 654 to 823 funds the past eight quarters.
All of the stocks above should be in everyone’s portfolio. However, savvy investors know you simply cannot blindly buy a stock based on its fundamentals alone. Savvy investors know that you must use technical analysis to better time your entries and exits in a volatile stock market.
SolarWinds is now in a solid uptrend, breaking out to a new 52-week high on huge volume in October. If Solarwinds can pullback on low volume to the 50-day moving average, the next bounce off this critical support area would trigger a buy signal for me. Another area I would look to purchase Solarwinds is with a heavy volume bounce off the 10-day moving average. This is a pocket pivot area that could be used by short-term traders.
Spreadtrum Communications is also in new 52-week high ground. However, its breakout was not on strong volume. This increases the odds that the gains might not hold. If stock can pullback on lower volume, I would initiate a long position with the next bounce off the 50-day moving average.
TIBCO Software is currently building the right side of a deep cup base. Volume characteristics from the right and left side of the base are not extremely bullish. But if Tibco Software can breakout to a new 52-week high on very strong volume that would trigger a long signal.
The same holds true for VMWare. VMWare is currently building the right side of its cup base as it nears a breakout to a new 52-week high. If Vmware can break out to new highs on strong volume, I would initiate a long position.
Other areas to purchase TIBCO Software and VMWare include low volume pullbacks to the 50-day moving average that is followed by a heavy volume bounce. Also a very heavy volume bounce off the 10-day moving average is a strong area to add to if your time frame is shorter term.