The stock market has been having a difficult time moving anywhere since January. From February 3rd to July 9th the Nasdaq has moved 0.90%. From May 4th to July 9th the Nasdaq has moved -0.83%. Basically, it isn't doing much.
A lot of stocks are also in the same situation. However, there are leading stocks out there that are bucking the trend. These leading stocks are currently setting up in strong consolidation patterns, as the market goes nowhere. If the stock market can work itself higher, these consolidation patterns will help launch powerful rallies. Think of a coiled spring.
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 leading stocks that are ready to launch higher. All of the numbers below are provided by my premium data provider MarketSmith.
First up, Intuitive Surgical (ISRG). Intuitive Surgical develops an advanced surgical system designed to improve open surgery and minimally invasive surgery.
Intuitive Surgical's EPS growth has been very strong, growing 35%, 30%, 55%, 22%, 33%, 43%, 24%, and 35% the past eight quarters. Sales growth is right on pace, growing 35%, 23%, 21%, 18%, 21%, 30%, 28%, and 28% the past eight quarters. Annual EPS estimates for 2012 and 2013 are for gains of 20% and 18% respectively.
Intuitive Surgical has 0% debt to shareholder equity, a return on equity of 21%, a cash flow of $13.78 per share, an EPS growth rate of 40%, and spends 8.0% of sales on R&D. The current P/E ratio of 42 is in the mid-range of its 5-year range of 18-100.
Mutual fund ownership continues to grow, rising from 997 to 1206 funds the past eight quarters. Management owns 3% of the shares outstanding.
Staying in the Medical sector, next up, we have Salix Pharmaceuticals (SLXP). Salix Pharmaceuticals is a Raleigh, CA developer of branded prescription drugs for treatment of gastrointestinal diseases.
Salix Pharmaceuticals EPS growth is explosive, growing 175%, 193%, 585%, 203%, 125%, 450%, 87%, and 97% the past eight quarters. Sales have grown 80%, 23%, 69%, 140%, 42%, 81%, 31%, and 62% the past eight quarters. Annual EPS estimates for 2012 and 2013 are for a loss of 7% and a gain of 20% respectively.
Salix Pharmaceuticals has 63% debt to shareholder equity, a return on equity of 38%, a cash flow of $3.58 per share, and spends 19.3% of its sales on R&D. The current P/E ratio of 17 is in the low end of its 5-year range of 9-72.
Mutual funds continue to steadily invest in Salix Pharmaceuticals, growing from 448 to 507 funds the past eight quarters. Management owns 4% of the shares outstanding.
Moving away from the Medical theme, we have Echo Global Logistics (ECHO). Echo Global Logistics is a Chicago, IL provider of technology enabled transportation and supply chain management services for all major modes of transportation.
Echo Global Logistics EPS growth has been stellar, growing 200%, 100%, 100%, 67%, 44%, 25%, 33%, and 40% the past eight quarters. Sales growth is just as impressive, growing 82%, 62%, 42%, 45%, 38%, 40%, 43%, and 30% the past eight quarters. Annual EPS estimates for 2012 and 2013 are for gains of 36% and 39% respectively.
Echo Global Logistics has 0% debt to shareholder equity, a return on equity of 11%, a cash flow of $0.92 per share, and an annual EPS growth rate of 87%. The current P/E ratio of 32 is in the low end of its 5-year range of 21-96.
Mutual fund ownership is rapidly expanding, growing from 93 to 138 funds the past eight quarters. Management owns a whopping 32% of the shares outstanding. To say that management has a vested interest in making sure the stock price continues to appreciate is an understatement.
Finally, we have Stratasys (SSYS). Stratasys is an Eden Prairie, MN manufacturer of rapid three-dimensional prototyping systems for automotive, aerospace, industrial, and electronic OEMs.
EPS growth in Stratasys has been steadily strong, growing 140%, 78%, 50%, 50%, 92%, 69%, 48%, and 33% the past eight quarters. Sales have grown 22%, 24%, 30%, 47%, 25%, 31%, 28%, and 30% the past eight quarters. The gains are expected to continue with annual EPS estimates for 2012 and 2013 coming in at 30% and 16% respectively.
Stratasys has 0% debt to shareholder equity, a return on equity of 13%, a cash flow of $1.52 per share, an annual EPS growth rate of 5%, and spends 9.2% of sales on R&D. The current P/E ratio of 48 is at the mid-range of its 5-year range of 12-72.
Mutual fund ownership has grown from 207 to 237 funds the past eight quarters. Management owns 4% of the shares outstanding.
All of the stocks highlighted above make excellent longer-term positions for individual investors accounts, as long as the growth continues. As soon as a few quarters of slower growth start to appear, investors may want to reevaluate the trade to see if it still makes sense for them.
I personally use a trend following system to invest. I want to be in these stocks on the way up and out of them when they are moving lower.
I am looking to purchase Intuitive Surgical with a price breakout above the 567 level. Additional buy points will be made with pocket pivot point buy signals off the 10 day moving average.
Salix Pharmaceuticals recently broke out to a new price high but did so on average volume. I want above average volume. Therefore, I am looking to enter on a successful retest of the 50 day moving average or on the next pocket pivot point buy signal off the 10 day moving average.
Echo Global Logistics is trending higher around new highs. A breakout to a new 52-week high or a successful pocket pivot point buy signal off the 10 day moving average is where I will accumulating shares
Stratasys broke out to a new 52-week high recently but did so on short-term overbought conditions. The stock is now pulling back, relieving these overbought conditions. If it can pullback for another couple of days, the next breakout to new highs is where I will begin accumulating shares.
A quick reminder. As a trend following trader I religiously cut my losses when I am wrong. Therefore, if these stocks do not continue to move higher after my purchase, I will cut my loss and reevaluate the trade. In the stock market you must cut your losses. If you do not cut your losses in the stock market, eventually you will left with the ultimate loss.