Mazor Robotics: Market Leader Breaking Out
Summary
- Mazor Robotics has spent the past four months in a basing pattern between $50.00 and $69.00 after a parabolic move for the first three quarters of 2017.
- The company has seen triple-digit sales growth for two of the past four quarters, with the other quarters showing sales growth of 36% and 84%.
- The company has developed innovative devices to aid in spinal and brain surgeries through its products Mazor-X and Renaissance.
- The technology aims to make spinal surgeries and brain surgeries more precise as Mazor's technology helps to guide the surgeon during operations.
Research has shown us that some of the largest winning stocks of the past century have been companies that have been public for less than 10 years. Based on this, I am always monitoring new IPOs over the past 5-10 years as some of these stocks are extremely innovative, are under the radar, and have the potential to deliver superior returns compared to some of the largest cap names which have already seen 1000%+ returns off their lows. Mazor Robotics (NASDAQ:MZOR) is one the companies that fits this bill, as it went public less than 5 years ago and is clearly an innovator. The company develops surgical guidance systems to aid in both spinal and brain surgeries to make these operations more precise, less invasive, which in turn makes the surgeries less painful and risky. After a monumental run in 2017, the stock has spent the less four months basing and is beginning to emerge out of the top of this basing pattern. I have entered a new long position in the stock at $65.70 based on the company's strong technicals and improving fundamentals.
(Source: Mazor Robotics Website)
(Source: Mazor Robotics Website)
There seems to be a common misconception that investors and traders should buy stocks that are on sale during corrections, but I do not completely agree with this concept. When the market begins to correct from its highs and sees a nice sized pullback of 10-15%, I want to be looking for stocks that have corrected the least, and ideally less than two times the amount of the market. This may seem silly as I am getting a more expensive stock, but I would much rather own an expensive stock than a cheap one. Expensive stocks are expensive things tend to get more expensive as they are under demand. Assets that are cheaper tend to get cheaper as no one is in a rush to buy them and there's minimal demand to bid them higher. While the S&P-500 (SPY) corrected 12% from its January highs, Mazor Robotics only corrected 1.5x the market. This was a sign of underlying strength in the stock, as despite advancing over 200% during 2017, sellers were not even able to push the stock 20% off its highs before buyers came in immediately.
(Source: TC2000.com)
In addition to this, while the market corrected down to its 200-day moving average before finding support and flushed through its 100-day moving average, Mazor double bottomed at its 100-day moving average. While the market briefly under-cut its October swing lows, Mazor didn't even come near approaching its December swing lows. While this is not enough reason to buy a stock, it is enough to put the stock on my radar to see how it acts going forward.
(Source: TC2000.com)
Zooming in a little more on the daily chart, we can see that the stock has spent the last 5 months building a base, and is now challenging the top of the base area yet again. The initial breakout from the top of the base was met with selling as the market was running out of gas short-term, but this breakout is occurring without the market's help. While the market has only retraced half of its decline from its January highs, Mazor is sitting only 2% from all-time highs and came within pennies of a new high today. This is further confirmation that the stock is a new leader, and may be providing a buying opportunity ahead of the next daily uptrend in the stock.
(Source: TC2000.com)
Applying Mazor Robotics to O'Neil's principles, the stock checks almost all the necessary boxes. The stock is very clearly a leader as it is within 2% of all-time highs and spent no time at its 100-day moving average, while the Robotics ETF is still hanging out near its 100-day moving average. The stock clearly checks off the "New" category in O'Neil's CANSLIM criteria which often refers to new products, a new development or new management. There is no question that Mazor Robotics is certainly a new development and product with its surgical guidance systems and the company is clearly in the upper echelon of innovative companies on the US Market. Moving to the shares outstanding category, the company has a very tight float of less than 25 million shares. The majority of the strongest winning stocks from the 1950's to the 1980's had share counts of less than 20 million shares before their largest advances. A low share count can be extremely beneficial if the stock is heading in the right direction as it does not require much demand to move a stock.
(Source: TC2000.com)
The only area where Mazor Robotics does not meet O'Neil's criteria is in the earnings category. The company has not yet been able to string together consecutive years of annual positive earnings growth yet, but sales are clearly showing up in a big way and it seems to only be a matter of time before earnings are on the table.
Based on the favorable chart pattern for Mazor Robotics, I am willing to overlook the lack of earnings as estimates for 2019 are already projecting positive earnings. The market is forward-looking and is finally waking up to this story it seems as we clearly saw through the stock's 2017 annual return of over 130%.
Despite the S&P-500 being off more than 2% last week, Mazor managed to finish the week in the green, and at its highest weekly close ever. The stock came out through the top of the base this morning and I initiated a new position in the stock at $65.70. The stock checks of all my boxes as it's very strong technically, it is above its 40-week moving average and is a clear leader vs. the general market [135% return in 2017 vs. 19% for S&P-500 (SPY)].
(Source: TC2000.com)
(Source: TC2000.com)
There is no question the stock is in a bull market as it continues to make higher lows and higher highs and is in a clear daily uptrend. While it's possible the stock may stall out here a little as weak hands leave the stock from the previous highs near $69.00, ultimately the stock looks like it wants higher at this point.
So what if I'm wrong in my assessment?
If I am wrong and this is a failed breakout for Mazor Robotics, I have a stop in place to make sure my risk is limited. A move more than 10% below my entry price would tell me the stock may need more time to digest its powerful move in 2017, and I would exit the stock for a loss. I have taken a lot of criticism for mentioning that I use stop losses, but I think it's silly to highlight potential long ideas without at a minimum mentioning the point at which the trade may be invalidated. Anyone can point out a stock that is going to go higher and head to new highs, but it means nothing in my opinion if the stock drops 20% - 30% before this advance occurs. That is going to lead to lost time, lost money in most cases from nervous investors, and at the end of the day, opportunity cost.
I point this out because while I believe Mazor Robotics is a high-reward and low-risk play, it is a high-risk play if one is not willing to use stops. Stops limit the risk on a position and protect the portfolio in the case that things do not work out. As a famous Market Wizard once stated: "Trading without stops is like driving without a seatbelt". I believe the quote to be completely true and would personally not even consider putting on a trade if I was not willing to place stops.
(Source: TC2000.com)
I believe Mazor to be an excellent long opportunity here, and this is why I've taken a position in the stock at $65.70. The stock has the potential to close above its weekly base while the market still tries to find its footing, and the company has taken innovation to a new level with its surgical guidance systems. As long as Mazor does not trade much below the $60.00 level, I plan to stay with the position. A close more than $1.50 below the $60.00 level would take me out of the position and trigger my stop.
Based on Mazor's trend strength, strong fundamentals, and market leadership, a move to the $80.00 level or higher would not surprise me in the slightest. Ideally, I would like to see the stock finish the week above the $66.10 level as this would signal a new weekly close above key resistance. As mentioned, the $69.00 level may provide minor resistance, but I expect it to get chewed through sooner rather than later.
This article was written by
Analyst’s Disclosure: I am/we are long MZOR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (63)
- Stops show the other banks your "hand"
- Stops serve no purpose other than if you feel like giving away your shares at a loss
- Stops only make sense if the story changesa) Great companies have dropped 70-80% after they finally topped and took years to recover this amount.b) I'm well aware of this. The point of my stop is that if banks and funds are really in this stock, they should be supporting it above where I purposely place my stop at a level that I believe the trend is weakened. If they are not accumulating where I expect them to, I want out.c) Small losses are a good thing, especially if your system can still make money at a 35% win rate, and excels at a 60% win rate. My strategy is profitable because I'm willing to take small losses and not tie up capital.d) Often the technicals weakening is the first sign of the story changing as I believe technical weakness often shows up in the charts before fundamental weakness in many cases. At end of day, stops are there for protection. Many instances where I've been stopped out prematurely and I simply buy the stock back, nothing wrong with getting shaken out and jumping back in on an adjacent setup.
