Despite the broad stock market having made little net gains in 2011, as the saying goes "there's always a bull market somewhere." Let's take a look at some stocks hitting new 52-week highs and see what jumps out.
We screened for outperforming optionable stocks with over $2 billion market cap and over 1 million average daily volume. A tidy list of 13 names came out, see the table below which is sorted by YTD performance:
Liquid Stocks Hitting New Highs
There is definitely some variety to the names on this list, both in terms of their YTD performance and also the sector/growth style. But some themes can be seen — Discount & Retail Stores (DLTR) (TJX) (HD), Utilities (SO) (AEP), Parts Suppliers (FAST) (GPC) and also what I would call slow-growth large cap 'value' names (SFD) (GIS) (LLY). The other names that don't fall in those groups would be a Technology (SWI), Energy (OII) and Telecom (VZ).
You can see that the top half of the list of the biggest gainers includes the names with small (or no) dividend and higher P/E ratios for the most part. The bottom half is mostly companies with lower sales quarter-over-quarter growth and higher dividends.
Looking at the longer-term charts of these names, many have been in steady uptrends since the market bottomed in 2009. A couple of the more interesting situations are analyzed below (most data in this report from finviz and yahoo finance).
Dollar Tree (DLTR) is a name that has been in focus since the financial collapse first began in 20087/2008, as many saw the recession as a time where deep discount retailers would gain market share/sales. The company operates over 4,000 discount stores in the U.S. and Canada.
Taking a quick gander at the key fundamentals (please do your own due diligence research before investing or trading in the names mentioned here), DLTR is trading at a forward price/earnings (PE) ratio of 17.5, while quarterly revenue and earnings growth are both around 12%. The company looks to have decent profit margins for a retailer and what I would term very good return on assets (ROA) and return on equity (ROE) levels for its group. Cash/debt are not significant and the company pays no dividends.
Looking at a multi-year weekly chart of DLTR with exponential moving averages, Bollinger bands, acceleration bands and percent R, we can see below that the stock moved into an acceleration of its uptrend in 2010 that continues through the present day. Such uptrends are powerful and should not be shorted until they significantly break down, but as the uptrend reaches an almost 'parabolic' nature the risk of a large pullback also grows.
Note how consistent weekly percent R has been since early 2009 (remember the market bottomed in March 2009), with all pullbacks contained by mid-levels. Also see that during the uptrend acceleration pullbacks have been contained by the 40 week exponential moving average (roughly equivalent to 200 day exp ma) — this is currently sitting at the 69 level.
A pullback to this area (say the round 70 level/strike price) would look to be a good low-risk entry point for a trader who thinks the uptrend in the shares will resume/continue. How much downside risk is there in DLTR shares? Well a good rule of thumb would be a possible 50% retracement of the acceleration uptrend gains … so with the stock having gained about 50 points during the trend, that would point to about the 57 level.
DLTR Weekly Chart
We see a completely different story and pattern from another well-known name on this list, Eli Lilly (LLY). This pharmaceutical giant has been in business since 1876 and has products including Cialis and Cymbalta. The current and future drug pipeline and patent expiration calendar of companies like this is always important, so once again do your research.
Looking at the company financial data, LLY is trading at both a current and future P/E ratio around 10 — certainly a low-growth pricing. The most recent quarter showed sales growth of nearly 9%, but earnings were down 5%. And projected earnings for next year aren't very strong either, according to the data I looked at.
Profit margins and management effectiveness measures are all fairly strong, in the 13% to 34% range. Debt isn't a major problem as thecompany looks to hold as much cash as debt. And the current future dividend yield of over 5% is a very healthy return. LLY has paid quarterly dividends for a long time (since 1885?), and the rate of 0.49 per share quarterly has been sitting steady at this level since 2009.
Little tip for how you can calculate easily in your head what the dividend yield of the stock roughly is at certain round levels — use $2.00/annual (actual is $1.96), so with a $40 LLY stock price it is 5%, at $50 it's 4%, at $30 it's 6.66%, and at $60 it's 3.33%.
Taking a look at the multi-year weekly LLY chart below, you can see it's been in a fairly tight range since late-2008 (when the market hit its first panic bottom before the March 2009 one). Previously LLY had traded roughly in a 50 to 100 range from 1995 to 2008 — the new range has been roughly 30 to 40.
However, we see a pattern developing (albeit slowly) in this chart that will lead eventually to a breakout in my analysis — and the odds favor the breakout being to the upside. This sideways consolidation pattern is forming a narrowing sideways triangle because the stock is making higher lows. This means that buyers are stepping in at progressively higher prices on pullbacks — as this pattern narrows eventually the sellers around this 40 level are likely to dry up and an upside breakout will occur.
Those looking for what looks like a safe dividend yield (over 4%) could look at buying LLY on pullbacks in the 35 area. For long-term breakout players, we would be looking at the stock penetrating the 40 level with confirmation.
LLY Weekly Chart
There are always uptrends and downtrends going on within the vast worldwide span of stocks, commodities, currencies, volatility, bonds and sectors. With the modern availability of ETFs and options, individual investors can take advantage of shorter-term moves in both directions to outperform.