Rocco L Russo III

Discussion Stocks For Your Portfolio

2011-12-01T07:47:00.001-08:00

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The following commentary and opinion is provided by Dr. Declan Fallon, an independent market researcher. If you have a particular interest in any of the stocks mentioned here please don't hesitate to contact Rocco and discuss whether they are suitable for your portfolio.

The eight stocks featured in this article were drawn from a screen employing the following fundamental criteria.

Percentage Change in EPS from current Quarter to corresponding Quarter the previous year of 25% or more
Percentage Change in EPS from Year-To-Date (YTD) to last YTD of 25% or more
Percentage Change in Revenue from Year-To-Date (YTD) to last YTD of 25% or more
Return on Average Equity of 17% or more
Five year Revenue Growth Rate of 15% or more
Market Captialization of $50m or greater
Net Profit Margin of 18% or more.
Recent close of $12 or higher
Average 10-day trading volume of at least 250,000 shares.

Of the 34 stocks returned, the top 8 in descending order of Market Capitalization were:

Apple (AAPL), Rio Tinto (RIO), Barrick Gold (ABX), Baidu (BIDU), Las Vegas Sands (LVS), Priceline (PCLN), HDFC Bank (HDB), and Anglogold Ashanti (AU).

Apple (AAPL) has been leading from the front with little in the way of respite. However, long term trend followers would have been happy to see a touch of the 200-day moving average on November 25th at $363, a potential buying area for investors. The stock is currently trading between its 50-day and 200-day Moving Average, a 'Dead Zone' where establishing a new trend becomes more difficult. To get out of this zone, prices would have to drop below $355 or above $410.

AAPL has few peers, but with a P/E of 13.88 it is trading below its lowest P/E from February 2009. If it was to catch a value bid it would be doing so here. As USAStockValuation neatly summarized:

Few other companies, if any, have achieved the business performance that Apple has achieved over the past 10 years. It has grown EPS from $0.09 to $27.66 representing a compounded annual growth rate of 77%. Over the last 10 years it has created total net earnings of over $60B and total Free Cash Flow of over $76B. It currently has no debt and almost $10B in the bank.

Rio Tinto (RIO) has been in decline since April 2011. Based on its current rate of decline it will be trading around $40 by the end of Q1 in 2012. For buyers to regain the momentum it's going to take a heavy volume break of $58. And by "heavy volume" you are looking for 10 million or more shares traded on the day $58 is broken.

The stock is currently trading around $51 which gives it a P/E ratio of 4.8. This is very competitive when compared to competitors BHP Billiton (BHP) at 12.8 and Vale S.A. (VALE) at 7.1; falling into the low $40s would only add to its value.

An interesting take on RIO was its exposure to coal mining.

Barrick Gold (ABX) keeps with the commodity theme. Barrick is like a greyhound caught in its starter gate; it keeps knocking itself against $55 but when the price breaks it could go on quite the run. Buyers are happy to defend $45, which drops its P/E to around 13.50, which fares favourable against competitors, Newmont Mining (NEM) at 14.5 (current) and AngloGold Ashanti (AU) at 99.5 (current).

Barrick Gold is featured in Aletheia Research's Conservative Q3 Stock Picks.

Baidu (BIDU) is struggling to regain the mojo it enjoyed in its 15-fold rally from March 2009 lows to July 2011 highs. While it has the fundamentals (and the Market Capitalization) to qualify it for this list, it doesn't have the price behaviour to make it an attrative buy in the near term. In October the 50-day moving average crossed below the 200-day moving; this is termed a 'Death Cross' and signifies the start of a new downward trend. In addition, the stock undercut both moving averages and is engaged in a move towards psychological support of $100, last tested in late September.

The earlier balance between buyer and seller has broken, but while this may mean lower prices in the weeks (and perhaps months) ahead it doesn't mean gains for the stock are over. In this scenario, the rate of ascent often slows while the swings within the ascent grow larger. The easy money has been made, but patience can still be rewarded.

Las Vegas Sands (LVS) is an example of what may happen with BIDU and occupies the next spot on the list. It exhibits a trading pattern similar to Barrick Gold in its range bound behaviour. Over the course of 2011 buyers have exceeded sellers when the stock has traded around $36, the relationship reversing when it trades around $50. if buyers can exceed sellers at $50 it will be in a great position to launch a new rally.

LVS enjoyed fantastic gains when it rallied from a low of $1.38 in March 2009 to $55.47 in November 2010; a gain of 3900%! Although one would have to have held their nose in riding this wave; even when the stock was trading around $25 in early 2010 the stock had a P/E around 300. With a current P/E of 31.0 it is comparable to Wynn Resorts (WYNN) 27.7 although above the industry standard of 18.3.

The company's debt offering was recently upgraded by Moody's to Ba2.

Priceline (PCLN) is suffering a case of 'buyers remorse'. Since April 2011 the stock has traded in a mild declining channel. This took the price from around $550 down to $425. Early November saw buyers flood in to push the price above $525 in what looked to be a new upward rally driven by strong earnings. Instead, sellers took their profits and when no new buyers emerged from the sidelines $525 support was lost. This created a 'bull trap' when buyers on earnings were holding an underwater position in the stock. This fueled selling in a weakening market, driving prices lower. The selling was enough to trigger a 'Death Cross' between the 50-day and 200-day MA, adding to the momentum of the fall as technical selling weighed in. The stock is on course to test $425 support but even here it might be hard for it to find buyers.

PCLN's P/E ratio is at 25 which is close to the 20s of the June-July 2010 swing low. So while the stock may be in trouble in the near term it may yet attract buyers in the low $400s / high $300s. Optimists need only look here.

HDFC Bank (HDB) is in decline since peaking in early July. Initial attempts to defend the swing low of February 2011 were finally defeated when the stock fell below $28. This past week the stock has managed to rally from $25 to $29, but with the trend favouring lower prices it might be best to sit and wait this out. A break above $32 would hand the momentum back to buyers, but to do this it will have to climb above the all important 200-day (long term) moving average.

The bank has a P/E of 27.7 which is well above the Industry standard of 7.7. However, falling prices will help bring its P/E down; although a 40% decline would be needed to bring the P/E down to its competitor bank, ICICI!

A good article on the prospects for India (with a mention of HDB) can be found here.

Anglogold Ashanti (AU) is the third commodity stock in the top-8 list of stocks. The stock trades in a broad, downward channel, and appears on course to reach $39 and maybe $35 in the latter part of 2012. Potential buyers may wish to start around $39 and build up slowly. A strong push above $51 will be required to get the stock out of what has been a very scrappy consolidation with neither buyer or seller in control. However, this lack of interest on the part of traders may be it strongest ticket, because if it gets above $51 there are going to be very few sellers willing to let this go on the cheap.

Historically, it's P/E ratio is a rollercoaster (and high), so little help here. Whether it has merits over the aformentioned Barrick Gold (ABX) is another question to ask too. It may yet see itself dropped from the result as recent quarterly revenue was up just 11%.

**** INFORMATION PROVIDED IN THIS ARTICLE IS NOT OFFERED AS RECOMMENDED INVESTMENT ADVICE. YOU SHOULD CONSULT A PROFESSIONAL FINANCIAL ADVISOR FOR ASSISTANCE MAKING INVESTMENT DECISIONS ****

**** DISCLOSURE: NO POSITIONS HELD BY DR. DECLAN FALLON ****

**** CONTACT: ROCCO AT (202) 321-5579 TO DISCUSS WHETHER THESE STOCKS ARE APPROPIATE FOR YOU ****

Strong EPS and Revenue Growers

2011-11-04T10:09:00.000-07:00

Percentage Change in EPS from current Quarter to corresponding Quarter the previous year of 25% or more
Percentage Change in EPS from Year-To-Date (YTD) to last YTD of 25% or more
Percentage Change in Revenue from Year-To-Date (YTD) to last YTD of 25% or more
Return on Average Equity of 17% or more
Five year Revenue Growth Rate of 15% or more
Market Captialization of $50m or greater
Net Profit Margin of 18% or more.
Recent close of $12 or higher
Average 10-day trading volume of at least 250,000 shares.

Of the 31 stocks returned, the top 8 in descending order of Market Capitalization were:

Apple (AAPL), Rio Tinto (RIO), Cnooc Ltd. (CEO), Barrick Gold (ABX), Baidu (BIDU), Priceline (PCLN), HDFC Bank (HDB), and Yanzhou Coal (YZC).

Apple (AAPL): The stock holds top-dog spot and is trading well inside a rising channel bound by $375 support and $433 resistance. Apple also enjoys support of its 50-day MA at $393 which has kept pace with rising prices. Over the course of the past 12 months modest breaks of this moving average have failed to dampen buying enthusiasm. A falling tide will sink all ships but for now this stock continues to enjoy strong buying interest.

The first of a group of commodity based stocks, Rio Tinto (RIO), has faced the opposite predicament to Apple. It has spent the bulk of the past couple of months below its 50-day MA as the stock traded steadily downward. However, last week it was able to push above its 50-day MA, currently at $53, for the first time since June. Sellers are likely to be found in numbers at $62.50 but this is some distance from current prices at $54s. The long term trend measure, the 200-day MA (currently at $64.29), will also attract sellers and perhaps shorts too. The 200-day MA is a key trend metric and has been trending down since August. Despite the rally from October lows of $40.50 the stock has plenty of work to do to build the confidence of long term buyers.

In third spot is Cnooc Ltd (CEO). The highs of $270 in April of this year are now a distant memory although the stock has done well to climb off lows of $145 in October. The April-October decline formed a well defined channel which was breached briefly last week on the back of this recovery rally as demand buyers outgunned supply sellers. The stock has recently seen the important 50-day MA tick higher in line with an improving bullish trend. The battle line between buyers and sellers is around $200, but if buyers can create the necesssary demand to break through this price with confidence (that is, with over 500,000 shares trading hands on a $200 or more closing price) it will mean anyone who bought this stock from August through to the start of November will be holding a profitable position and (should be) somewhat reluctant to sell. Beyond $200 the next area to break will be the 200-day MA which currently sits at $217, but that is another day's problem.

In fourth spot is Barrick Gold (ABX). Since the end of 2010 the stock has been trading between $43 support and $55 resistance. This steady meandering has kept the stock out of the limelight, which in the current climate is no mean feat. A push above $55 should attract more money from the sidelines and drive higher prices. At the moment, traders are buying and selling in equal measure, maintaining the status quo.

Fifth on the list is Baidu (BIDU). The stock has been one of the star performers from the start of 2010 through to September 2011. But in September, the stock was driven below its 200-day MA, an event not seen in BIDU since the market meltdown in 2008. The drop was brief as buyers stepped in to take the stock back above the 200-day MA, maintaining the long term bull trend, but a precedent was set by the loss. The stock sits at an interesting juncture with short-term, intermediate-term and long-term moving averages all within a $1 of each other (at $133). There appears to be good demand from buyers around $100 and $120-125. But another break of the 200-day MA would likely see buyers adopt a once-bitten-twice-shy approach to this stock. The stock has a current P/E ratio of 54 trading at $143 (vs P/E of 20 for Google or 14 for Sohu).

In sixth spot is Priceline (PCLN). The stock has look to have hit a bit of a psychological barrier having moved from $175 in July 2010 to a peak of $550 in May 2011. Since the May high it has traded in a channel bound by $450 support and $550 resistance. The has flattened the 6-month trend and even slowed the long term trend as measured by the 200-day MA. With the short-term, intermediate-term and long-term trends converging the stock sits at a potential inflection point. The problem for potential buyers is the push from $175 may have come too far too fast; the stock trades at a P/E of 36 compared to 17 for Expedia. In value terms, this suggests a fair price closer to $250 than the $500 it trades currently.

In seventh spot is HDFC Bank (HDB). "Who?". HDFC is an Indian bank with a Market Cap approaching $25Bn. Unlike the aforementioned stocks it hasn't caught the public attention which has allowed it to trade steadily without fanfare. But this is a stock which rallied from a low of $8.91 in late 2008 to a high of $38 in 2010 - not something which can be said for many financial stocks. For the past 18 months it has traded in a range bound by $28 support and the $38 high (resistance). While it looks to be priming itself for its next move higher it does trade at significantly higher multiple (P/E of 27) than competitor ICICI (P/E of 16).

In eighth spot is Yanzhou Coal (YZC). While the stock qualifies on fundamental terms it's one experiencing the hangover of a powerful price rise. The stock enjoyed a 10-fold increase in price over the space of 2 1/2 years to a peak of $41.89 in May 2011. But what followed was a 4 month whirlwind of selling, knocking off over half of its value, leaving it gasping at $17.49 in October 2011. Since the October low the stock managed to muster a recovery to $25.83. The stock is attempting to rebuild the pieces and is about to enjoy a mini-"Golden Cross", where the faster 20-day moving average crosses above the 50-day moving average, denoting a new intermediate term bull trend. More importantly, both 20-day and 50-day moving averages are ticking higher which means buyers have taken control of the stock. However, the long term 200-day moving average is slowly turning down; so while buyers have the edge there is likely to be more up/down sequences of trading (i.e. no new bull trend) before all the sellers have sold out, leaving just the buyers to drive prices higher.

**** INFORMATION PROVIDED IN THIS ARTICLE IS NOT OFFERED AS RECOMMENDED INVESTMENT ADVICE. YOU SHOULD CONSULT A PROFESSIONAL FINANCIAL ADVISOR FOR ASSISTANCE MAKING INVESTMENT DECISIONS ****

**** DISCLOSURE: NO POSITIONS HELD BY DR. DECLAN FALLON ****

**** CONTACT: ROCCO AT (202) 321-5579 TO DISCUSS WHETHER THESE STOCKS ARE APPROPIATE FOR YOU ****

Test Page

2010-02-09T08:00:00.001-08:00

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Thank you,
Declan