Three companies that have been the darling of the momentum trade are Monster Beverage (MNST), lululemon (LULU) and Starbucks (SBUX). The reasons for these three companies being aggressively bought on each pull back is different but all three presents a great growth opportunity.
Monster Beverage is more than an energy drink company. Besides the action sport drinks that it produces it also has a powerful 35-year old Southern California Natural Drink juggernaut in Hansen Natural Juices. There are two stories with Monster Beverage. First, Monster has been the talk of a possible takeover target. Second, and the reason a larger company would want to take it over is the potential of overwhelming growth in expanding its brands.
Fundamentally, Monster is a profitable company. With a 53% Gross Profit Margin Monster can bring a great deal of free cash flow to a larger company's balance sheet. The current EPS is .72 cents per share but is expected to swell next fiscal year to $3.71 per share. Monster's growth rate is expected to continue to be 20%. Monster represents a momentum play with the possibility good share appreciation.
Technically, Monster's uptrend peaked in mid June. Since then Monster has been experiencing a much needed consolidation period around the 50 DMA. The trend currently is sideways to down. Near term support for Monster is currently at 70. Taking a look at the weekly time frame of Monster the uptrend is still intact and Monster is taking a much needed consolidation break.
Clearly a close below 70 would indicate a further downtrend would be in the making. When trading Monster a stop loss would be prudent at around the 67 range and a break out above 75 would indicate that the uptrend might be beginning again. Until then in the near term you should monitor the weekly chart and watch these levels.
The basic case for LULU is that it produces a high quality, high profit product that many women want. It has only started expansion into the retail market, which means that as more retail stores come on line sales will exponentially grow. Luluemon's start-up was in 1998 in Vancouver British Columbia. Lululemon has vaulted into the hearts of many women who are willing to spend over a hundred dollars per workout pant. Fundamentally LULU is sporting a 56% Gross Profit margin.
Earnings per share is currently at .30 cents and expected to grow to $2.07 by fiscal 2013. With growth on the upside and the reality that sales are going to exponentially grow due to expansion LULU is a solid story.
Technically, the LULU uptrend peaked in early May. Since then LULU has been experiencing a severe downtrend. Currently there is no near term support for LULU. Taking a look at the weekly time frame for LULU the downtrend is confirmed since the mid June time frame.
Clearly taking a position in LULU currently is a risky venture. The stock is in a down trend and the daily or weekly chart is not suggesting any support levels and resistance would be all the way to the 75 level. Until LULU finds a stable base you should just be watching the weekly time frame and taking no action.
If the saying holds true "you can't teach an old dog new tricks," Starbucks is about to prove this wrong. Starbucks a few short years ago was in utter confusion, not only was the founder Howard Schultz not at the helm, Starbucks was about to experience the great recession too. In early 2008 Howard Schultz took back the leadership of Starbucks to help restore financial health. Downsizing was in store for the once-darling growth company. Fast forward to current times and Starbucks is now in a position to once again be the darling of growth. Sales are strong once again at Starbucks locations. Now it is planning to add value added products and services inside the locations and branch out selling Starbucks consumer packaged goods in other locations. By doing this it plans on doubling the Starbucks revenue steam. Its biggest plan is to sell single serve coffee machines under the Starbucks brand. With the recent developments within Green Mountain Coffee GMCR Starbucks may be taking candy from a baby.
Starbucks is now operating from a great position of financial health. Fundamentally, Starbucks' gross Profit Margin is 58% and this fiscal year it plans to earn $1.86 per share and next Fiscal year estimates are for $2.31. Starbucks is expected to grow at an average 25% growth rate over the next few years.
Technically, Starbucks uptrend peaked in mid April. After a much needed consolidation period Starbucks is currently trying to find a base. The trend currently is sideways. Near term support for Starbucks is currently just above the 50 level at around 51. Taking a look at the weekly time frame for Starbucks the sideways consolidation and basing is clearly defined as just under 52 with a breakout level above 55.
Clearly a close below 51 would indicate a continuation of the downtrend would be in the making. When trading Starbucks a stop loss would be prudent at around the 51 range and a break out above 55 would indicate that the uptrend might be beginning again. Until then in the near term you should monitor the weekly chart and watch these levels.
Three growth companies, three different ways they will grow but all will be the darlings of the momentum trade for some time to come due to great growth strategies - just watch the charts for indications that the uptrend will continue.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.