One of the better ways to pick future winners is to look for sectors that are breaking out and then to pick the top players in those sectors. This is what we did today. We looked for sectors that had experienced at least a gain of 8% or higher in the past 30 days.
The following sectors made the cut:
- The internet service sector which has posted a gain of roughly 11.3% in the past 30 days
- The wire and cables sector which has posted a gain of 10.44% in the past 30 days
- The Major regional banks sector which has posted a gain of 8.32% in the past 30 days
- The Transportation (equipment and lease) sector which as posted a gain of 8.09% in the past 30 days
We then looked for stocks that either sported a quarterly revenue growth rate of 30% or higher; if they failed to meet this requirement, the quarterly earnings growth rate had to be 18% or higher. The idea is to have such a list of stocks handy so when the markets pull back you are ready to jump into the leaders. This strategy generally entails a higher level of risk which also means that it could produce some spectacular wins. Individuals with lower risk thresholds might find the following article to be of interest 7 Dividend Plays With Yields Up To 16%
The key to using this strategy is to wait for the market to mount a fairly strong pull back. The markets have been very volatile for the past 12 months, and this volatility is only set to rise as we go forward. Our charts indicate that the markets are ripe for a relatively strong pull back. The markets are expected to put in an intermediate top around the 18-21st of this month. In general, traders should not hold these stocks forever, decide on the amount of profit you want to lock in. Once you have purchased the shares put in orders to close the position at your predetermined profit target. One should also implement stops to limit one's losses. Generally, a stop should be placed roughly 25% below your entry price. One easy way to hedge your position to some degree is to sell covered calls.
All the stocks covered sport rather high betas, with Fifth Third Bank (FITB) and Greenbrier (GBX) sporting the highest numbers; higher betas usually command significantly higher premiums.
Stock | Dividend Yield | Market Cap | Forward PE | EBITDA | Quarterly Revenue Growth | Beta | Revenue | Operating Cash flow |
BBT | 2.40% | 18.86B | 11.41 | N/A | 12.20% | 1.47 | 6.98B | 4.90B |
BDC | 0.50% | 1.76B | 13.38 | 224.92M | 30.90% | 2.05 | 1.94B | 155.60M |
EXPE | 2.00% | 4.22B | 9.89 | 895.93M | 15.50% | 1.6 | 3.80B | 1.07B |
FITB | 2.00% | 12.72B | 9.74 | N/A | 39.80% | 2.64 | 5.66B | 3.67B |
GBX | 0.00% | 668.03M | 8.67 | 115.57M | 100.20% | 3.9 | 1.44B | 4.20M |
PNC | 1.90% | 32.67B | 9.9 | N/A | 5.40% | 1.56 | 13.17B | 4.96B |
TZOO | 0.00% | 475.64M | 17.95 | 35.79M | 39.60% | 2.35 | 141.65M | 17.38M |
BB&T Corp. (BBT)
Net income the past three year is as follows; in 2008, it reported a net income of $1.5 billion, in 2009 it dropped to $853 million and in 2010, it dropped again to $ 816 million. For 2011, net income so far is roughly $898 million, and if it maintains this pace, then net income for 2011 could come in as high as $1.2 billion. It has a very strong quarterly earnings growth rate of 74%
Key Ratios
• Price to sale 16.9
• Price to tangible book 0
• Price to cash flow 2.4
• Price to free cash flow 4.3
• 5 year sales growth N.A.
• Inventory turnover 0
• Asset turnover 0
• ROE 6.69%
• Return on assets 0.71%
• 200 day moving average 23.31
• Total debt 27.67B
• Book value 25.07
• Dividend yield 5 year Average 4.50%
• Dividend rate $ 0.64 %
• Payout ratio 41.00%
• Dividend growth rate 5 year -12.72%
• Consecutive dividend increases 40 years
• Paying dividends since 1934
• Total return last 3 years 25.56%
• Total return last 5 years -24.15%
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Belden Inc Common Stock (BDC)
Net income the past three year is as follows; in 2008, it reported a net income of -$361 million, in 2009 it while still negative it rose to -$24.9 million and in 2010, it sky rocketed to $108.4 million. For 2011, net income so far is roughly $90 million; total net income could top the $120 million mark.
It has a levered free cash flow rate of $92.4 million and quarterly earnings growth rate of 54%
Key Ratios
• Price to sale 0.93
• Price to tangible book 8.77
• Price to cash flow 9
• Price to free cash flow -27.7
• 5 year sales growth 0.74
• Inventory turnover 7.2
• Asset turnover 1.1
• ROE 15.31%
• Return on assets 6.31%
• 200 day moving average 31.87
• Total debt 550.96M
• Book value 15.24
• Dividend yield 5 year Average 0.70%
• Dividend rate $ 0.20 %
• Payout ratio 9.00%
• Dividend growth rate 5 year 0.00%
• Consecutive dividend increases 0 years
• Paying dividends since 2004
• Total return last 3 years 89.20%
• Total return last 5 years -1.50%
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Expedia Inc (EXPE)
Net income the past three year is as follows; in 2008, it reported a net income of -$2.5 billion, in 2009 net incomes surged to $299.5 million and in 2010, it jumped to $421.5 million. For 2011, net income so far is roughly $400 million; total net income could top the $600 million mark.
It has a levered free cash flow rate of $730.8 million and quarterly earning's growth rate of 18.7%. The short percentage of float is a huge 20.7% which makes it a prime candidate for a short squeeze. EXPE also boasts a fairly high beta so traders who want to hedge their positions could consider selling covered calls.
Key Ratios
• Price to sale 1.14
• Price to tangible book -2.81
• Price to cash flow 6.6
• Price to free cash flow 5.8
• 5 year sales growth 9.74
• Inventory turnover N.A.
• Asset turnover 0.5
• ROE 16.35%
• Return on assets 6.65%
• 200 day moving average 53.93
• Total debt 1.65B
• Book value 19.67
• Dividend yield 5 year Average 0.00%
• Dividend rate $ 0.28 %
• Payout ratio 33.00%
• Dividend growth rate 5 0.00%
• Consecutive dividend increases 0 years
• Paying dividends since 2010
• Total return last 3 years 246.73%
• Total return last 5 years 48.67%
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Fifth Third Bancorp Cincinnat (FITB)
Net income the past three year is as follows; in 2008, it reported a net income of -$2.11 billion, in 2009 net income skyrocketed to $737 million and in 2010, it jumped to $753 million. For 2011, net income so far is roughly $1 billion; total net income could top the $1.3 billion mark. It has a quarterly earnings growth rate of 60% and a quarterly revenue growth rate of 39%.
Key Ratios
• Price to sale 1.85
• Price to tangible book 1.33
• Price to cash flow 11.9
• Price to free cash flow 3.9
• 5 year sales growth -2.85
• Inventory turnover N.A.
• Asset turnover 0.1
• ROE 9.77%
• Return on assets 1.16%
• 200 day moving average 11.54
• Total debt 16.63B
• Book value 13.73
• Dividend yield 5 year Average 3.90%
• Dividend rate $ 0.32 %
• Payout ratio 23.00%
• Dividend growth rate 5 91.41%
• Consecutive dividend increases 1 years
• Paying dividends since 1952
• Total return last 3 years 88.38%
• Total return last 5 years -58.53%
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Greenbrier Companies Inc (GBX)
Net income the past three year is as follows; in 2008, it reported a net income of -$ 56.3 million, in 2009 net income jumped to $4.2 million and in 2010, it jumped to $6.4 million. For 2011, net income so far is roughly $24 million; total net income could top the $35 million mark. It has a quarterly revenue growth rate of 100%
Key Ratios
• Price to sale 0.48
• Price to tangible book 4.73
• Price to cash flow 11.2
• Price to free cash flow -53.4
• 5 year sales growth -0.62
• Inventory turnover 4.3
• Asset turnover 1.2
• ROE 7.00%
• Return on assets 3.98%
• 200 day moving average 18.7
• Total debt 511.86M
• Book value 13.82
• Dividend yield 5 year Average 0.00%
• Dividend rate $ 0.16 %
• Payout ratio 0.00%
• Dividend growth rate 5 0.00%
• Consecutive dividend increases 0 years
• Paying dividends since 1994
• Total return last 3 years 290.61%
• Total return last 5 years -2.65%
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PNC Financial Services Group (PNC)
Net income the past three year is as follows; in 2008, it reported a net income of -$2.11 billion, in 2009 net income surged to $737 million and in 2010, it jumped to $753 million. For 2011, net income so far is roughly $2.57 billion; total net income could top the $3.4 billion mark.
Key Ratios
• Price to sale 1.91
• Price to tangible book 1.31
• Price to cash flow 9.4
• Price to free cash flow 7.1
• 5 year sales growth 12.85
• Inventory turnover N.A.
• Asset turnover 0.1
• ROE 9.72%
• Return on assets 1.28%
• 200 day moving average 52.77
• Total debt 35.30B
• Book value 61.95
• Dividend yield 5 year Average 2.70%
• Dividend rate $ 1.40 %
• Payout ratio 18.00%
• Dividend growth rate 5 16.81%
• Consecutive dividend increases 1 years
• Paying dividends since 1865
• Total return last 3 years 34.85%
• Total return last 5 years -7.96%
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TravelZoo Inc (TZOO)
Net income the past three year is as follows; in 2008, it reported a net income of -$4 million, in 2009 net income surged to $5.18 million and in 2010, it more than doubled to $13.15 million. For 2011, net income has turned negative and stands at -$7 million. It has a levered free cash flow rate of $35.6 million quarterly earnings growth rate of 62.4% and a quarterly revenue growth rate of 39.6%
Point of interest: Yahoo Finance claims that the shares short as % float is 90%; if this were true, it would be a mind-boggling figure and would be a guaranteed candidate for a short squeeze. I checked a few other sources, and the number appears to be in the 19%-21% ranges which probably are more accurate. While lower than what Yahoo posts it's still significantly higher than normal, and so it does make TZOO a potentially good candidate for a short squeeze.
Warning: Net income for 2011 has dropped dramatically and has turned negative. This stock should only be approached by individuals willing to take on extra risk. Having said it appears that the worst news is already priced in as it is attempting to put in a bottom. A weekly close above 30 will turn the picture from bearish to neutral. However, to turn the outlook bullish it will need to close above 40 on a weekly basis.
Key Ratios
• Price to sale 3.36
• Price to tangible book 17.32
• Price to cash flow 34.7
• Price to free cash flow 31
• 5 year sales growth 13.68
• Inventory turnover N.A.
• Asset turnover 2.3
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• ROE 1.93%
• Return on assets 34.71%
• 200 day moving average 37.49
• Total debt 0
• Book value 1.77
• Dividend yield 5 year Average 0.00%
• Dividend rate $ 0.00 %
• Payout ratio 0.00%
• Dividend growth rate 5 0.00%
• Consecutive dividend increases 0 years
• Paying dividends since None
• Total return last 3 years 524.48%
• Total return last 5 years -3.40%
Conclusion
The markets are expected to pull back; we have been advocating this for the past 2 weeks in the conclusion section of many of our recently published articles. The initial phase of the pullback might already be underway. However, we feel that the pullback will start to gather steam towards the 18-21st of this month. Traders can then use that pullback to open up positions in the above stated plays. Our two favourites on this list are GBX and BBT.
All earning estimates data was sourced from finance.yahoo.com and the dividend charts were sourced from dividata.com
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is very important that you check the finer details in each of the mentioned plays before investing any capital in them. Some investors are happy with taking enormous amounts of risks, while others are bothered by the slightest degree risk; it is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.
