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Technical Analysis And Fundamentals Go Together

|Includes:Acme Packet, Inc. (APKT), NFLX, TRS

As an investor who relies heavily on technical analysis, I’m constantly on the lookout for stocks that are showing better price strength than the general market. But I don't ignore fundamentals.

People sometimes ask why I’m tracking stocks that have already been heavily bought. In my experience, that kind of solid track record of institutional buying shows that even if the stock corrects at some point, it has a good chance of regrouping and climbing higher still.

And spotting institutional favorites usually means checking elements such as P/E ratios, sales growth, earnings growth and return on equity.

Generally, the institutions return to a company with excellent fundamental strength, so that’s another element to screen for, even if you use technical analysis. Current stocks on our watch list include three that have that potentially winning combination.

The first is a well-known consumer brand, Netflix (NFLX), which notched profit growth of 52% in the most recent quarter, on a sales increase of 27%. Like many growth stocks, it has a P/E ratio that may seem high to some investors. At 55, that may scare off a few buyers, but many growth winners historically have shown higher-than-average P/Es.

Netflix’s streaming video service has been a growth driver, and it hasn’t hurt the stock that the company is continually the subject of acquisition rumors. There’s been plenty of good support from investors lately, so I’m keeping an eye out for the next buy point on a consolidation.

Trimas (TRS) is an old-school-style conglomerate that makes packaging and dispensing products for consumer goods, and gear used in the energy and aerospace industries.

This company, too, sports some outstanding fundamentals, in the form of triple-digit earnings growth recently, albeit against some easy comparisons. Sales growth has been accelerating lately. The company has a return on equity of 25%, showing good operational efficiency. Analysts have good profit estimates for the next two years, 142% and 21%, respectively.

Trimas is on the smaller side, with a market cap of $487 million, and moving about 209,000 shares a day. It’s been trending higher after rebounding from its 10-week line. As with Netflix, Trimas is a fundamentally strong stock that bears watching, to see if it offers an alternate buy point going forward.

Finally, we’re tracking Acme Packet (APKT), which makes communications equipment used by cable, wireless and telecom customers. The company has an outstanding history of profit growth since 2008, and sales increases to match. This is another growth stock whose P/E ratio, 67, may be offputting to some. But as noted earlier, we’ve often found growth stocks continue to notch hefty price gains even with an above-average P/E.

After jumping off its 10-week line the week ended September 3, Acme Packet pulled back slightly last week, in lighter volume. Like the other stocks mentioned, this is one we’ll keep following.


 


Disclosure: "No positions"
Stocks: APKT, TRS, NFLX