When I feel the euphoria of being up big, I know this is may be a signal to sell, manage the position or at least perform a review to ensure it still makes sense to be long. This is how I've been feeling as of late. Bank of America (BAC) is up 21.50% since my last recommendation to buy the stock only one month ago. On the other hand, Corning Inc. (GLW) is up nearly 14% since I stated to avoid the stock in the same article. Apparently I may have gotten something wrong regarding Corning.
Reviewing my positions on a monthly basis is a part of my usual modus operandi. By going back and seeing why you were right or wrong regarding a stock better prepares you to recognize the next opportunity to buy or pitfall to avoid. We can look back and identify what catalyst really produced results, take this information, look for similar scenarios, and attempt to replicate the results. The following is an analysis of five stocks I wrote about one month ago that have had significant moves in recent weeks.
These stocks were originally on my radar because they had a significant increase in insider ownership. There is an old saying about insider buying. There are many reasons insiders sell and only one reason they buy, the stock is going up. Additionally, the five stocks had strong fundamental data and some have actually beat recent earnings estimates. The stocks covered had forward P/E ratios of less than 10.
In the following sections we will perform a review of the fundamental and technical state of each company to determine if we should stay with the position, sell out or simply manage the position by taking profits. The following table depicts summary statistics and Monday's performance for the stocks. The following charts are provided by Finviz.com.
Bank of America Corporation
BAC has spiked 20.51% in the last month. The company is trading 8% below its 52-week high and is trading on par with its consensus mean target price of $9.37 for the company. BAC was trading Monday at $9.30, down almost 3% for the day.
Fundamentally, BAC still has several positives. BAC insider ownership has increased by 66.39% over the past six months. The company has a forward P/E of 10.49. BAC is trading for 7.27 times fee cash flow. BAC has a net profit margin of 11.62% and a PEG ratio of 1.44. BAC is trading for approximately 44% of book value. EPS next year is expected to rise by 66%.
Technically, BAC is exhibiting positive characteristics. The stock just broke out of a descending triangle to the upside at the beginning of August fulfilling the coveted golden cross. This was extremely bullish. Today's pullback can be explained as a simple pause and refresh cycle for the stock.
The stock has continued to rise in the face of macro headwinds. This tells me the bad news has been priced in to the stock. I see this pullback as a buying opportunity. The stock is still trading below 50% of its book value and the fundamental and technical picture is positive. The stock is a buy here. Layer in to the position in 25% tranches periodically to reduce risk.
Citigroup, Inc. (C)
Citigroup is up over 21% in the past month. The company is trading 11% below its 52-week high and has 16% upside potential based on the consensus mean target price of $39.67 for the company. Citigroup was trading Monday for $33.93, down over 2% for the day.
Fundamentally, Citigroup has several positives. The company has a forward P/E of 7.73. Citigroup is trading for approximately half of book value. Citigroup insider ownership has increased by 20.56% over the past six months. The company has a PEG ratio of 1.1 and a net profit margin of 14.19%.
Technically, the stock loves great. It is current in a well-defined uptrend. The 20-day SMA just crossed above the 200-day SMA which is a positive sign. The stock has posted higher highs and higher lows since mid-July. It has been on fire for the last four weeks so a period of back and filling is completely logical.
Just like BAC, Citigroup seems to have shirked off the bad news and headwinds lately. Investors seem to be realizing the value in Citigroup. The eurozone crisis has fallen out of the headlines recently. This could be one big reason the major banks are rallying. The stock is still a buy here.
Ford Motor Co. (F)
Ford is up nearly 11% in the past month. The company is trading 20% below its 52-week high and has 30% upside based on the analysts' consensus mean target price of $13.50 for the company. Ford was trading Monday for $10.35, down almost 2% for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 7.07. Ford is trading for 8.71 times free cash flow and 2.37 times book value. EPS next year is expected to rise by 18%. The company pays a dividend with a yield of 1.90% and has a PEG ratio of 0.32 and a net profit margin of 13.47%. Ford insider ownership has increased by 7.45% over the past six months.
Technically, Ford looks good. The stock is up over 15% since my last recommendation to buy at the $9 low. The stock has posted higher highs and higher lows since the start of August. The stock is trading on par with the June highs. A breech above the $10.50 mark would be extremely bullish for the stock.
Ford has been put through the proverbial ringer by the 2008 great recession. It is the only U.S. car company that did need government assistance. The Ford story reminds me of one of Neitzche's famous quotes, "What doesn't kill you makes you stronger." Ford is a buy here.
Corning is up nearly 11% in the past month. The company is trading 16% below its 52-week high and has 12% upside based on the consensus mean target price of $14.52 for the company. Corning was trading Monday for $12.95, down over 1% for the day.
The company has many fundamental positives. The company has a forward P/E of 9.24. Corning has a net profit margin of 28.58%. Corning trades for slightly under book value. The company pays a dividend with a 2.29% yield. Corning is trading for 27 times free cash flow. Corning insider ownership has increased by 51% over the past six months.
Technically, the stock looks vastly improved over the last month after being in a long-term downtrend for the past year. The stock has just broken through major resistance at the 200-day SMA. The current pullback was much needed technically.
Apparently, the downturn in TV pricing is priced in to the stock. I changed my view on Corning last month and stated to avoid the stock. Now that the technical status has changed I feel comfortable that the stock will outperform the market heading in to a traditionally favorable season for tech stocks. The stock is a buy here.
Xerox Corp. (XRX)
Xerox is up nearly 10% over the past month. The company is trading 12% below its 52-week high and has 8% upside potential based on the consensus mean target price of $8.31 for the company. Xerox was trading Monday for $7.65, down nearly 3% for the day.
Fundamentally, Xerox is solid. The company has a forward P/E of 6.72. The company is trading for 83% of book value. Xerox sells for 9.35 times free cash flow. Xerox's EPS growth rate was over 100% this year, yet next year looks gloomy at a mere 8%. The company pays a dividend with a yield of 2.16%. Xerox insider ownership has increased by 78.53% over the past six months.
Technically, the stock is in a long-term down trend. On the other hand, the stock has made significant progress over the last month posting higher highs and higher lows on its way to piercing the upper level trend channel.
Xerox is trying to transform itself from a printer sales company to a service company where the margins are much higher. The problem is the services business competition is intense. Xerox has a shot due to its extensive list of contacts created by its established relationships with key clients. It is going to take a lot of time and money for Xerox to convert itself into a top quality services firm. I suspect it will be giving some discounts away near term to attract business and paying some higher salaries to draw in talent.
Discontinuing operations is always a messy business as well. I posit Xerox will need a few quarters to tie up the loose ends. Keep it on your watch list, but avoid Xerox for now.
The Bottom Line
These stocks have been on great runs over the past month. Most of them still have strong fundamentals, insider ownership and improving fundamental and technical pictures. I see any pullback as logical and necessary for the stocks. Nothing goes up in a straight line, not even a rocket. Use any pullbacks as a buying opportunity. The only stock I still have reservations about is Xerox. I am in wait and see mode.