Since the March 26th high in the Nasdaq, the stock market has been having a very difficult time finding any momentum to the upside. When it does rally, like it did last week, volume continues to come in below average. In fact, the longer we go without moving higher on increased volume, the higher the odds become of the market entering a prolonged downtrend.
I have recently highlighted, in two articles (here and here), how defensive sectors are taking the lead from exciting growth sectors over the past couple of months. However, there are still some stocks out there with big growth in earnings and sales that are breaking out to new highs.
Today, we are going to review two stocks I want to get long soon and two stocks that I am already long. These four stocks have the fundamental components it takes, based on 130 years of researching the biggest stock market winners, to go on to be winners for investors that are early to the party.
Right now, these stocks are all under $10. With their current growth and future expectations, it is doubtful that these stocks will still be sub-$10 stocks in the near-term future.
First up is Sypris Solutions (SYPR). Sypris Solutions is a Louisville, KY contract manufacturer of commercial vehicle components and aerospace/defense electronics.
Sypris Solutions EPS has grown 433%, 178%, and 133% the past three quarters, after years of losses. This turnaround is a direct byproduct of sales which have grown 17%, 2%, 21%, 35%, 24%, 24%, and 27% the past seven quarters. This growth is expected to continue, with 2012 and 2013 annual EPS estimates for gains of 74% and 7%, respectively.
Sypris Solutions has 17% debt to shareholder equity, a 14% return on equity, a cash flow of $1.13, a dividend yield of 1.3%, and spends 1% of sales on R&D. The current P/E ratio of 11 is in the middle of its 5-year range of 6-17.
Mutual fund ownership is growing, albeit at a slow pace, from 35 funds four quarters ago to 39 currently. The biggest indication of a bright future is the amount of shares outstanding management owns. Management owns 49% of the shares outstanding. This huge vested interest is a clear message that management is going to make sure this stock price appreciates.
Next, we have Innodata Isogen. (INOD). Innodata Isogen is a Hackensack, NJ provider of knowledge process outsourcing and publishing services for media companies and government agencies.
Innodata Isogen's EPS growth is on fire, growing 267%, 117%, 200%, 500%, 80%, and 999% the past six quarters. Sales growth has exploded in the most recent four quarters, growing 6%, 22%, 59%, and 71%. This growth is expected to continue with 2012 and 2013 annual EPS estimates for gains of 106% and 11% respectively.
Innodata Isogen has 7% debt to shareholder equity, a return on equity of 11%, and a cash flow of $0.32. The P/E ratio is at a current 19 which is in the low end of the 5-year range of 7-86.
Innodata Isogen has seen mutual fund ownership grow from 35 funds to 41 funds the past four quarters. Management owns 15% of the shares outstanding. This is a high level of management ownership and it shows they are committed to making sure the stock rallies higher.
Now, let's take a look at the two stocks I am already long. The first company is CalAmp Corp. (CAMP). CalAmp Corp. is an Oxnard, CA manufacturer of wireless data communications systems used in asset tracking and satellite television reception equipment.
CalAmp Corp. EPS growth has been nothing short of explosive, with gains of 100%, 250%, 183%, 999%, 350%, and 200% the past six quarters. Sales growth has been steady with gains of 15%, 23%, -4%, -16%, 31%, 15%, 11%, and 30% the past eight quarters. This growth should continue into the near-term future with 2013 and 2014 annual EPS estimates for gains of 6% and 31%, respectively.
CalAmp Corp. has only 8% debt to shareholder equity, a very strong return on equity of 45%, a cash flow of $0.40 a share, and spends 8.2% of sales on R&D. The current P/E ratio of 17 is in the low end of its 5-year range of 5-44.
Mutual fund growth in CalAmp Corp. has been steady, growing from 35 to 51 funds during the past four quarters. Management is vested in making sure the company continues to produce results, owning 12% of the shares outstanding.
Finally, we have my personal favorite, SciClone Pharmaceuticals (SCLN). SciClone Pharmaceuticals is a Foster City, CA developer of therapies to treat life-threatening diseases such as cancer and infectious diseases.
SciClone Pharmaceuticals EPS has grown 325%, 80%, 11%, 8%, -6%, 122%, and 60% the past seven quarters. More impressive is sales growth, growing 32%, 30%, 21%, 60%, 64%, 75%, and 81% the past seven quarters. The recent high growth shows no indication of slowing down with 2012 and 2013 annual EPS estimates forecasting gains of 30% and 27%, respectively.
SciClone Pharmaceuticals has 0% debt to shareholder equity, a strong return on equity of 30%, a cash flow of $0.60 a share, an EPS growth rate of 67%, and spends 9.2% of sales on R&D. The current P/E ratio of 10 is in the lower end of its 5-year range of 5-36.
Mutual funds' appetite for this stock is increasing by the quarter, growing from 118 funds eight quarters ago to 151 in the most recent quarter. Management owns 12% of the shares outstanding, showing that they have vested interest in making sure the stock continues to rally.
These stocks are all excellent long considerations for investors with a longer term time horizon, as long as the current growth continues. If the growth in these stocks start to slow for a considerable period of time, investors will need to reevaluate the reasons that they are long these equities.
I personally an intermediate term trend following investor and therefore only want to be long these securities as they move higher.
I am currently long CalAmp Corp. and SciClone Pharmaceuticals. I want to add to my current long positions on any move off the 10 day moving average on strong volume. Secondary buy points would be on subsequent price breakouts to new highs and price moves off the 50 day moving average.
Innodata Isogen is currently making a strong move off the 50 day moving average and is near a breakout to a new 52-week high. If Innodata Isogen can close above $6.15, I will initiate a new long position.
Sypris Solutions is in the middle of a very strong short-term move higher. If Sypris Solutions can calm down, create a lower volume consolidation period for at least two weeks (I prefer five), and then break out, I will look to initiate a new long position. A better long position would be generated if the stock can calm down, test the 50 day moving average on low volume, and then rally off the key institutional support line on strong volume.
As a trend following trader, the one rule I always follow is cutting my losses extremely fast when I am wrong. Therefore, if any of these stock begin selling off below key support areas on strong volume, I will have no problem cutting my losses and waiting for a better entry signal that will put the risk/reward odds in my favor. If you do not cut your losses in the stock market, eventually you will take the ultimate loss. It is just a matter of time.
Additional disclosure: I may initiate a long position in INOD over the next 72 hours.