My trading strategy is based on buying companies with improving fundamentals at proper technical buy points. I explain this concept in the blog Warren Trades. My best trades have something in common: the stock has a solid fundamental and technical picture before I buy it.
This is the list of companies I am currently observing in order to buy them as soon as they break key resistance levels with above-average volume. In the article I detail the fundamental catalyst that makes me interested in the stock.
First Solar (FSLR)
I think that the whole energy sector will benefit from Obama's policies. Obama has said repeatedly that he supports government investments in clean coal technology and renewable energy and investors could be thinking that First Solar is a good exposure for this beaten-down sector. FSLR recently reported stronger-than-expected 3Q12 earnings but adjusted 2012 full-year guidance based on market conditions. Clearly, FSLR continues to execute its solar project pipeline despite an oversupply in modules. While margins were strong in 3Q12, guidance implies margins will decline in 4Q12. I think that the market already priced all FSLR bad fundamental metrics. FSLR continues to transition its business to the unsubsidized utility market and I think could be an interesting play considering that Obama has been reelected.
I will buy if the stock breaks the $26 level with increased volume.
eBay Marketplaces segment is turning around and I think that potential upside from eBay's Payments segment in 2013 is understated in comparison to forward estimates and the current share price.
PayPal delivered a strong Q3 performance. It ended the quarter with 117.4 million active registered accounts, a 14% increase over the third quarter of 2011. Revenue increased 23% year over year and net total payment volume (TPV) grew 20% year over year to $35.2 billion. The stock is acting strong and I will wait for a consolidation before buying EBAY. I think the stock could create a range between $47 and $51 before resuming its current uptrend.
I will buy EBAY after it created a proper consolidation and I will be looking for a breakout over $50 with above-average volume.
Insmed's loss narrowed to $9.4 million (loss of 38 cents per diluted share) from $34.6 million (loss of $1.39 per share) in the same quarter a year earlier. Analysts are positive about INSM's future prospects. The average estimate for the fourth quarter has moved from a loss of 39 cents a share to a loss of 37 cents over the last 30 days. For the fiscal year, the average estimate has moved from a loss of $1.40 a share to a loss of $1.34 over the last 30 days. This is a stock that is not covered by almost any sell-side broker and trades less than 300k shares a day but its average daily volume increased 300% compared with 1 month ago.
I will buy when INSM breaks the $7 level with strong volume. The stock may need more consolidation between $6.30 and $7 before breaking to new highs.
Panera Bread (PNRA)
Panera continues to impress, bucking the industry trend. 3Q12 results and guidance fit that mold. While i believe valuation fully reflects the long-term growth algorithm, which I believe is slower than high-growth peers, Panera's near-term fundamental strength in an otherwise challenged macro (& peer group) justifies the outperformance. 3Q12 EPS was ahead of expectations, 4Q12 EPS guidance was lifted, and initial 2013 EPS guidance appears prudently conservative. I like the stock and I think investors are not desperate of selling the shares considering that the overall strong relative strength of the shares.
I will wait for more consolidation and buy as soon as I see the stock break the $170 level with above-average daily volume.
This small-cap stock reported a smaller-than-expected Q4 net loss on in-line revenue metrics. The most important thing is the fact that the company guided for positive FY13 net income. In fact, based on the current momentum of the business and the recent debt refinancing, the company expects to achieve positive net income for fiscal year 2013. Management explained:
In the fourth quarter, we made significant progress in returning Zale to profitability. We recorded our seventh consecutive quarter of positive comps, reported a sizeable improvement in operating margin and strengthened our capital structure. In fiscal year 2012, we achieved a 6.9 percent comp, on top of an 8.1 percent increase last year, and reported operating earnings for the first time since 2008. We look forward to building on this momentum in 2013.
BlackRock is focused on delivering strong investment performance and solutions its clients need regardless of market environment. In the third quarter, BLK delivered record earnings per share up 23% from the prior year and margins over 40%. BlackRock achieved these results through robust new business generation across each of the company's channels with particular strength in key growth areas such as retail and iShares. In addition BLK is repurchasing its shares and growing in each category.
I will buy BLK if the stock breaks the $192.50 level with increased volume
3D Systems (DDD)
Top institutional investor AQR Capital management bought the stock in the last quarter. 3D Systems is the leader in the 3D printing category and the company continues to invest and innovate to keep generating solid growth. The Consumer Electronics Association says overall 3-D printer sales will hit $5 billion in five years, a 30% compounded annual rate of growth from the $1.7 billion level it currently sits at. Investor's Business Daily previously pegged the long-term growth rate at 16% through 2020. In fact, the company reported a solid second-quarter growth, increasing revenue 52% over Q2 2011 on 112% printer unit growth and 20% organic growth across all categories. Backlog grew by 28% sequentially to $12.3 million at the end of the quarter on continued strong demand. I like the fact that the company grew its gross profit significantly, increasing 71% on higher revenue and 570 basis points GPM expansion to 51.4% over Q2 2011, driven by significant on-demand parts and printers GPM improvement.
I will wait for more consolidation in DDD shares and buy the stock when it clears the $46 level with strong volume.
Stratasys reported strong revenue growth of 24.5% year/year. The company issued a positive guidance for FY12, forecasting EPS of $1.37-1.40 from prior guidance of $1.31-1.38 vs. $1.35 Capital IQ Consensus Estimate.
SSYS management reported that system and consumable revenue grew by 27% and 23%, respectively, over last year. Also contributing to the strong quarter was the company's RedEye parts service, which grew by 26% over last year. These performances contributed to a record level of revenue, which grew by 24% over last year, and a record level of non-GAAP net income, which grew by 42%. Stratasys is a strong growth stock.
I will buy the shares as soon as the stock clears the current trend line. I think the stock needs more consolidation.
Demand for lulu's product remains strong, with sales metrics accelerating throughout 2Q12 and into Q3. The upside to the company's annual revenue guidance is most likely to be achieved in 4Q12, following several months of preparation and focus on the timing and quality of inventory flows. Above all, I continue to believe that lulu's growth potential remains significant both in the U.S. and abroad, with international expansion efforts remaining on plan and likely to accelerate in 2013 and 2014.
I will wait until LULU clears that trend line with increased volume.
Ulta Salons (ULTA)
ULTA delivered another exceptional quarter last September, with both top and bottom line numbers ahead of expectations. The company will be introducing a number of new Clinique boutiques to go along with its Lancome roll-out. Guidance remains encouraging and I am bullish on ULTA. In a recent report, Oppenheimer detailed a DCF-derived target price of $112 vs. its prior target of $103.
I will buy the shares as soon as ULTA clears the trend line with increased volume.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.