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Trending stocks make for profitable trades. "The Trend is Your Friend" is an often heard investing mantra. Welles Wilder's concept of directional movement to identify stocks that are entering a new trend or are already in an established trending pattern is the basis for this investing thesis. Directional movement attempts to infer the "true" movement of a stock based on its price changes from one day to the next. For example, a stock's price could close up one day compared to the day before but directional movement indicators may reveal that the stock's actual movement is downward. The DM for a stock on a given day is one of up, +DM, down, -DM or zero.

Visually, it is fairly simple to determine the DM value for a stock. It is based on comparing the day's high and low with yesterday's high and low. For an in-depth understanding about Directional Movement, refer directly to Welles Wilder's book "New Concepts in Technical Trading Systems." In this book you will find all the formulas, accumulation techniques and sample worksheets required to get a working, hands-on understanding of this technique in stock price analysis.

Nevertheless, savvy investors know this is only one piece of the investing puzzle. You must couple this information with a fundamental analysis of the company to determine if the company is fairly valued at current levels. I have selected five stocks that meet the requirements for being in a defined uptrend to consider below.

GlaxoSmithKline (GSK)

GSK is producing strong value with $43 billion in revenue, a 73.5% gross margin and operating cash flow of $12 billion. Nonetheless, with the added efficiencies gained by a world class partnership secured with McLaren, I expect the bottom line to increase substantially. Additionally, several recent legal disputes have been settled clearing the way for profits.

Chart (Click to enlarge)

Fundamental Analysis

The company currently has 4.96B shares out and its stock trades around $45.02, giving it a market cap of roughly $222.9B. The stock's average daily trading volume is 2.4M. Shares of GlaxoSmithKline are trading about 1.5% below their 52-week high of $46.50. Institutional ownership stands at about 9% and, as of 02/15/12, the total short interest was 6.39M shares. Its forward P/E is 12.49.

GSK has a PEG ratio of 1.15 and an RSI of 57.23. A PEG ratio of 1 is considered to be undervalued and a RSI of 70 or greater indicates a stock is overbought. GSK's PEG of 1.15 indicates the company is currently undervalued. This fact coupled with a RSI of 57, which indicates the company is neither oversold nor overbought, makes GSK a buy at current levels.

Consensus analyst 12 month price target: $48.50

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Ralph Lauren Corporation (RL)

Ralph Lauren was recently upgraded after beating earnings estimates and raising guidance on February 8th. Third quarter revenues grew 17% to $1.8 billion and comparable store sales rose 12%. Operating income rose 10% to $270 million in the third quarter. Third quarter diluted EPS was $1.78. The company also raised Its fiscal 2012 sales and profit outlook. Moreover, cotton prices have declined 37% from their spring 2011 high, according to Credit Suisse analyst Christian Buss. Inflation in cotton costs last year had hurt Ralph Lauren.

Chart (Click to enlarge)

Fundamental Analysis

The company currently has 90.97M shares out and its stock trades around $173.94, giving it a market cap of roughly $15.81B. The stock's average daily trading volume is 1.02M. Shares of Ralph Lauren are trading about 2.6% below their 52-week high of $178.47. Institutional ownership stands at about 99% and, as of 02/15/12, the total short interest was 2.59M shares. Its forward P/E is 20.94.

Ralph Lauren recently beat earnings estimates and has gapped up significantly. RL has a PEG ratio of 1.74 and a RSI 79 which indicates it is currently overvalued and overbought. I would wait for a pullback of 5-10% before starting a position.

Consensus analyst 12 month price target: $192

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Ross Stores, Inc. (ROST)

Ross Stores is a recognizable name at a prime price point. It has a bulletproof balance sheet and is highly profitable. Combine this with an excellent track record and prospects for future increases in dividends, and you have a winning recipe for profits.

Chart (Click to enlarge)

Fundamental Analysis

The company currently has 228.6M shares out and its stock trades around $51.55, giving it a market cap of roughly $11.78B. The stock's average daily trading volume is 2.06M. Shares of Ross Stores are trading about 2% below their 52-week high of $52.71. Institutional ownership stands at about 83% and, as of 02/15/12, the total short interest was 4.01M shares. Its forward P/E is 15.71.

Ross Stores has a PEG ratio of 1.54 and an RSI of 57.94. The PEG ratio indicates the stock is slightly overvalued, but the RSI indicates it is not currently overbought. Ross Stores is a Buy at current levels. Investors are willing to pay a premium for the stock due to its outstanding past performance. Additionally, the stock is trading near the bottom on the current ascending triangle trend channel, which means it could be due for a breakout to the upside.

Consensus analyst 12 month price target: $53

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Visa Inc. (V)

Visa recently won the latest battle with the banks regarding debit card fees. Additionally, as more and more people use their smart phones and computers to purchase goods and services online, Visa is well positioned for continued growth.

Chart (Click to enlarge)

Fundamental Analysis

The company currently has 673M shares out and its stock trades around $114.09, giving it a market cap of roughly $76.77B. The stock's average daily trading volume is 3.99M. Shares of Visa are trading about 2.57% below their 52-week high of $117.15. Institutional ownership stands at about 83% and, as of 02/15/12, the total short interest was 4.93M shares. Its forward P/E is 16.37.

Visa has a PEG ratio of 1.58 and an RSI of 71.30. Visa recently knocked the ball out of the park in regards to earnings and has gapped up. Visa is currently exhibiting oversold and slightly overvalued conditions. I would wait for the earnings pop to fizzle somewhat and buy it on the dip.

Consensus analyst 12 month price target: $125

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United States Steel Corporation (X)

U.S. Steel is down big based on the recent downturn in the global economy. This is a turnaround play. Recent economic data have been promising and the market has rebounded significantly in recent weeks. U.S. Steel has been a laggard, but, may be the one stock with the most upside once the emerging markets gain traction and recover. (Which they always do.) This is your opportunity to buy low and sell high.

Chart (Click to enlarge)

Fundamental Analysis

The company currently has 144.07M shares out and its stock trades around $28.59, giving it a market cap of roughly $4.11B. The stock's average daily trading volume is 11.35M. Shares of U.S. Steel are trading about 55.16% below their 52-week high of $64.03. Institutional ownership stands at about 74% and, as of 02/15/12, the total short interest was 29.17M shares. Its forward P/E is 7.44.

U.S. Steel is trading at the bottom of its trend channel. Next year's EPS is expected to rise 31.57%. X has a RSI of 48 and is 55% below its 52 week high. This is the beaten down stock of the bunch. Nevertheless, it has the most upside. I like X here and would buy it at current levels layering in a quarter at a time over a month long period to reduce risk.

Consensus analyst 12 month price target: $35

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Source: 5 Stocks In Well Defined Bullish Uptrends To Consider