After a 10% selloff from the March highs, the SP 500, Nasdaq, and Dow Jones Industrial Average appear to have found support around their respective 200 day moving averages.
This consolidation, during the past month, has created quite a few nice bases in individual stocks. If the overall market decides to retake its 50 day moving average and begin a new uptrend, there are plenty of stocks that are ready to take the lead.
What is a leading stock? A leading stock has strong EPS growth, strong sales growth, a high profit margins, a high return on equity, low to zero debt to shareholder equity, mutual fund ownership growth, management ownership, high future EPS estimates, a high Relative Strength line to the overall market, and is within 15-20% of its 52-week high.
Let's take a look at four high-quality liquid stocks I want to get long on a move to the upside by the overall market.
The first stock I want to review is Priceline.com (PCLN).
Priceline.com's EPS growth continues to be amazing, growing 53%, 54%, 71%, 56%, 78%, 87%, 58%, and 61% the past eight quarters. Sales growth is right on par, with gains of 27%, 37%, 35%, 38%, 44%, 45%, 35%, and 28% during the same period. This large growth is expected to continue with 2012 and 2013 annual EPS estimates for gains of 35% and 25% respectively.
Priceline.com has 0% debt to shareholder equity, a return on equity of 55%, a whopping cash flow of $24.75 a share, and a historical annual EPS growth rate of 55%. The P/E ratio of 26 is at the high end of its 5-year range of 8-35. However, savvy investors know that a high P/E ratio is normal for large growth stocks.
Mutual fund ownership has grown from 1083 funds eight quarters ago to 1473 as of the most recently reported quarter. Management only owns 1% of the shares outstanding but that is common for a firm that has been public for over 10 years.
Next up we have Chipotle Mexican Grill (CMG).
Chipotle Mexican Grill's EPS has been steady and strong, growing 33%, 41%, 48%, 23%, 12%, 25%, 23%, and 35% the past eight quarters. The sales growth is even more steady, with gains of 20%, 23%, 25%, 24%, 22%, 24%, 24%, and 26% the past eight quarters. It doesn't appear that is going to slow down any time soon, with 2012 and 2013 annual EPS estimates for gains of 31% and 25% respectively.
Chipotle Mexican Grill has 0% debt to shareholder equity, a return on equity of 23%, a cash flow of $9.32 a share, and a historical annual EPS growth rate of 39%. The P/E ratio of 54 is at the high end of the 5-year range of 16-73.
The big boys clearly like the numbers as mutual fund ownership has increased from 468 to 890 funds the past eight quarters. Management only owns 2% of the shares outstanding.
Sticking with the restaurant theme, let's take a look at Buffalo Wild Wings (BWLD).
Buffalo Wild Wings EPS has grown 28%, 24%, 20%, 40%, 16%, 30%, 33%, and 21% the past eight quarters. Sales growth is just as robust, with gains of 12%, 14%, 13%, 20%, 26%, 31%, 34%, and 38% the past eight quarters.
Buffalo Wild Wings has 0% debt to shareholder equity, a return on equity of 18%, a cash flow of $5.46 a share, and a historical EPS growth rate of 23%. The P/E ratio of 29 is in the mid-range of its 5-year range of 11-38.
Mutual funds clearly love the numbers this company is producing, as mutual fund ownership has increased from 250 to 338 funds the past eight quarters. Management only owns 2% of the shares outstanding.
Finally, we will end it off today, with NetSuite (N).
NetSuite's EPS growth has been explosive, growing 200%, 300%, 100%, 50%, -33%, 25%, 25%, and 100% the past eight quarters. Spurring these gains has been sales growth which has grown 17%, 19%, 21%, 21%, 23%, 23%, 23%, and 20%. This explosive growth is expected to continue with 2012 and 2013 annual ESP estimates for gains of 40% and 62% respectively.
NetSuite has 0% debt to shareholder equity, a return on equity of 9%, a cash flow of $0.79 a share, a historical annual EPS growth rate of 111%, and spends 18.4% of sales on R&D. The current P/E ratio of 264 is in the low end of its 5-year range of 110-999+ (My data provider MarketSmith maxes out at 999)
Mutual fund growth has risen every quarter for the past eight quarters, growing from 150 to 268 funds currently. Management owns 9% of the shares outstanding showing that they have a vested interest in making sure the company's profits continue.
These stocks all have the stellar and powerful fundamental growth I require before going long stocks in size in my investment accounts. However, buying blindly is not my style. I am a trend follower and thus want to buy when I know the line of least resistance is in my favor.
On that note, I only want to purchase all of these stocks if they can breakout to new all-time highs on heavy volume. As soon as these stocks trade at new all-time highs my buy orders will trigger. If volume is below the daily average run rate, I will instead look for a secondary area to enter a new long position like a retest and bounce off the 50 day moving average or a pocket pivot point buy signal off the 10 day moving average.
If these stocks begin to move in my favor, I will look to pyramid buy along the way. If these stocks, however, reverse and show me losses after I make my purchases, I will cut my losses immediately and wait for the next signal.
Cutting your losses fast in the stock market is the only way to avoid a major loss. If you do not cut your losses fast in the stock market, you will eventually take the ultimate loss.