Following the above average volume rally in the SP 500 and the Nasdaq on Thursday and Friday, it appears the market is gaining momentum to move higher.
The stock market has been having a tough time all year long trending in any direction. Lately it has gone nowhere, with the Nasdaq up a whopping 0.06% from May 4th to last Friday.
Despite this, stocks with strong earnings and sales growth have been able to trend higher, albeit in a very choppy manner. With the market possibly turning into an uptrend, there are plenty of leading stocks out there nearing breakouts to all-time highs. Today, I want to review four of my personal favorite leading stocks that are ready to breakout from strong consolidation patterns.
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.
All information below is provided by my premium market data analysis provider MarketSmith.
First up, we have Polaris Industries Inc. (PII). Polaris Industries Inc. is a Medina, MN manufacturer of all-terrain recreational and utility vehicles, snowmobiles, replacement parts and related accessories.
Polaris Industries Inc.'s EPS growth has been stellar, growing 47%, 18%, 123%, 79%, 38%, 15%, 27%, and 44% the past eight quarters. Sales growth is just as impressive, growing 33%, 31%, 49%, 41%, 26%, 26%, 25%, and 24% during the same period. This growth is expected to continue, with 2012 and 2013 annual EPS estimates looking for gains of 29% and 18% respectively.
Polaris Industries Inc. has 21% debt to shareholder equity, a return on equity of 52%, a cash flow of $4.30 per share, an annual EPS growth rate of 19%, a dividend yield of 1.9%, and spends 4% of its sales on R&D. Some very impressive numbers.
The P/E ratio is currently 20 which is in the high end of its 5-year range of 4-23. However, savvy investors understand that a high P/E ratio is not necessarily bad, when it comes to a powerful growth stock.
Mutual funds agree with the above statement. Mutual fund ownership has increased from 412 to 528 funds the past eight quarters, despite the constant high P/E ratio. Management also has a vested interest in the company, owning 3% of the shares outstanding.
Next, we have Fleetcor Technologies, Inc. (FLT). Fleetcor Technolgies, Inc. is a Norcross, GA global provider of specialized payment products and services to commercial fleets, oil companies and petroleum marketers.
Fleetcor Technologies, Inc.'s EPS has grown 62%, 27%, 74%, 21%, 36%, 19%, 4%, and 28% the past eight quarters. During the same period, sales have grown 26%, 11%, 9%, 7%, 20%, 20%, 32%, and 32%. This growth is expected to continue with annual EPS estimates for 2012 and 2013 expecting gains of 19% and 13% respectively.
Fleetcor Technologies, Inc. has 34% debt to shareholder equity, a return on equity of 25%, a cash flow of $2.36 per share, and an annual EPS growth rate of 31%. The current P/E ratio of 16 is in the mid-point of its 5-year range of 11-19.
Mutual fund ownership has grown every quarter for the past eight quarters, growing from 94 to 208 funds. Management clearly expects the stock to appreciate much higher as they own a whopping 38% of the shares outstanding. That is an extremely high number and bodes well for shareholders.
Next up is The Fresh Market (TFM). The Fresh Market is a Greensboro, NC operator of 113 small format supermarkets in 21 states, primarily in the Southeast, Midwest, and mid-Atlantic.
The Fresh Market's EPS has grown 15%, 57%, 19%, 27%, and 33% the past five quarters. Sales have grown 25%, 10%, 14%, 12%, 16%, and 22% the past six quarters. This recent surge in growth is expected to continue into 2013 and 2014 as annual EPS estimates are for expected gains of 27% and 24% respectively.
The Fresh Market has 50% debt to shareholder equity, a return on equity of 53%, a cash flow of $1.86 per share, and an annual EPS growth rate of 31%. The current P/E ratio is in the upper end of its historical range of 31-52, at a current 46. However, as was stated before this is not unusual for growth stocks.
Mutual fund managers don't mind the high P/E ratio as fund ownership has grown from 205 to 292 funds the past seven quarters. Management doesn't mind either as it owns a very large 22% of the shares outstanding.
Last and definitely not least, we have a familiar name to everyone and a stock I have profiled before. Lululemon Athletica Inc. (LULU). Lululemon Athletica Inc. is a Vancouver, BC operator/franchiser of 174 athletic apparel stores in North America, Australia, and New Zealand.
Lululemon Athletica Inc.'s EPS growth is beyond explosive, growing 114%, 80%, 60%, 50%, 73%, 50%, 59%, and 52% the past eight quarters. Sales growth is just as explosive, growing 56%, 56%, 53%, 35%, 39%, 31%, 51%, and 53%, during the same period. 2013 and 2014 annual EPS estimates are for gains of 30% and 27% respectively.
Lululemon Athletica Inc. has 0% debt to shareholder equity, a return on equity of 37%, a cash flow of $1.47 per share, and an annual EPS growth rate of 65%. The current P/E ratio of 44 is in the lower end of its historical range of 7-190.
Mutual fund ownership has increased every quarter for the past eight quarters, growing from 207 to 547 funds. Management still owns 9% of the shares outstanding.
All of the stocks analyzed above make wonderful long-term investments for investors, as long as the growth continues. As soon as these stocks above have back to back quarters of slower earnings and sales growth, investors might want to re-analyze their position and see if it is still appropriate for them.
I am personally a trend following investor and only want to be long these stocks as they trend higher.
I will be looking to purchase all of these stocks as soon as they trade at new 52-week/all-time highs. I will then add to my positions as these stocks make subsequent pocket pivot point buy signals off the 10 day moving average.
The only stock that I will purchase before a new high is made is Lululemon Athletica Inc. As soon as Lululemon Athletica Inc. trades above the 50 and 200 day moving averages, I will begin accumulating shares as it produces pocket pivot point buy signals off the 10 day moving average.
It should be noted that if I purchase any of these stocks and they do not move higher immediately I will cut my losses and wait for another entry signal. If you do not cut your losses in the stock market, in time you will take the ultimate loss.