A Few Rays of Light
During the past couple of weeks, we’ve seen the major indexes push higher (including new all-time highs from the S&P 500), we’ve seen some growth stocks get off their duffs and we’ve seen a gradual improvement in stocks and sectors hitting new highs. In other words, the evidence has improved, and while we would prefer to see some real buying power (volume has been whisper-quiet for the most part), we’re tilting our Market Monitor a bit toward the bullish side. Bottom line: It’s OK to put some more money to work here, and then see if stocks can build on their recent gains.
This week’s list has a broad array of solid stories from a variety of industries. Our favorite is BitAuto (BITA), a great (and easy to understand) Chinese growth story that is quickly rounding out its launching pad.
| Stock Name | Price | ||
|---|---|---|---|
| Stillwater Mining (SWC) | 0.00 | ||
| Skechers (SKX) | 0.00 | ||
| Live Nation Entertainment, Inc. (LYV) | 0.00 | ||
| Kate Spade & Company (KATE) | 0.00 | ||
| ICICI Bank (IBN) | 0.00 | ||
| Electronic Arts (EA) | 0.00 | ||
| Dillard’s (DDS) | 0.00 | ||
| Ctrip.com International Ltd. (CTRP) | 34.94 | ||
| Bitauto Holdings (BITA) | 0.00 | ||
| American Airlines Group Inc. (AAL) | 0.00 |
Stillwater Mining (SWC)
Why the Strength
Stillwater Mining, a major miner and recycler of platinum group metals (PGM) is the only producer of platinum and palladium in the U.S. The company operates a mine in the J-M Reef in Southern Montana, a formation that contains the only significant source of PGMs outside Russia and South Africa. The company also owns the Marathon PGM-copper deposit in Ontario, Canada, which is now in the permitting stage, and the Altar porphyry copper-gold deposit in Argentina, which is being explored. In addition to its smelting and refining of its mined ores, the company is a major recycler of automotive catalytic converters, which are both a major source and a major consumer of PGMs. Stillwater Mining was featured in Top Ten on April 14 after impressing investors with its 2013 earnings report on March 3. The company’s Q1 report on May 1 had almost no effect on its stock price. But investors took notice on May 16 when the company announced a five-year agreement with Johnson Matthey, a leading manufacturer of auto catalysts and a precious metals refiner, to purchase all of Stillwater’s mined palladium and a significant amount of its mined platinum. Stillwater will use Johnson Matthey’s refining services for both mined production and recycling and will get between $17 million and $22 million in working capital. The prospect of favorable long-term pricing for its metals together with technical know-how is a big plus for Stillwater.
Technical Analysis
SWC began its current rally in December 2013 taking off from a base at 11 and soaring to 16 in March. The stock spent nine weeks re-basing between 15 and 16, showing no movement at all from its earnings report. But the news of the Johnson Matthey deal kicked the stock past 16 on big volume and it has continued to climb, topping 17 last week. It’s still early in the game for SWC, and a buy anywhere under 17 looks like a good risk-reward setup. Use a stop around 15 to control risk.
SWC Weekly Chart
SWC Daily Chart
Skechers (SKX)
Why the Strength
After flying under the radar for months, trendy footwear manufacturer Skechers has quickly become one of the “it” stocks on Wall Street. After posting consecutive quarters with double-digit revenue growth and triple-digit earnings growth, Sketchers thrilled investors when it crushed first-quarter earnings and revenue estimates by 80% and 9%, respectively. In fact, according to Zacks earnings data, Skechers has beaten Wall Street’s estimates by an average of 125% during the past four quarters. It seems analysts are beginning to look past the company’s prior missteps, with current year earnings estimates now forecasting growth of more than 80%. Skechers has also stepped up its game in terms of endorsement deals. The company grabbed major headlines after Meb Keflezighi won the Boston Marathon wearing a pair of Skechers. (Meb was the first American to win the race since 1983.) Skechers then went on to land endorsement deals with legendary NFL quarterbacks Joe Montana and Joe Namath and MLB’s Pete Rose. It’s clear that Skechers has finally hit its stride, with a strong global distribution model and expanded company ownership of retail stores propelling the company forward as the fastest growing footwear company in the world.
Technical Analysis
After spending the first quarter of 2013 basing in the 20 region, SKX shares broke out on strong volume in late July. Bolstered by its 10- and 25-week moving averages, the stock would eventually meet with resistance in the 35 region in January. A rejection there forced SKX to test support at 25 during the next several weeks, before a strong year-end earnings report sent the stock surging back toward the 35 region. SKX spent the next several weeks digesting these gains until another impressive earnings report sent the stock soaring toward multi-year highs north of 40 in late-April. Volume has remained strong for SKX in the ensuing weeks, with shares showing signs of resuming their uptrend. We believe SKX is buyable on dips.
SKX Weekly Chart
SKX Daily Chart
Live Nation Entertainment, Inc. (LYV)
Why the Strength
Live Nation is the leading provider of live entertainment; the company’s website (which is very well done) brags that every 20 minutes there’s a Live Nation event (mainly concerts, but also some theatrics and festivals) in nearly three dozen countries, usually via its 148 venues. Throw in its ownership of Ticketmaster, and the company is clearly the dominant player in its field. That said, concerts and such haven’t been much of a growth industry, but some innovations at Ticketmaster, an increase in live events and some bullish sponsorship (Liberty Media, which already owns 52 million shares (26%!) of the company, is buying another 3.7 million) have kicked the stock higher. First-quarter results were excellent, with concert-related revenue (which makes up 59% of the total) rising 29%, driving the fastest overall revenue growth in three years. Moreover, the CEO said he expects 2014 to show revenue and operating income growth for all of its segments, which pushed analysts to hike their estimates for this year and next. There’s nothing revolutionary here, but the wind is at Live Nation’s back today.
Technical Analysis
LYV topped in mid-2010 at around 17 and ground generally lower through 2012, when it was flat as a pancake in the 8 to 10 area. But it had a great run from there, moving up to 24 in February before beginning a new base. And that base looks great—it found support right at its 40-week moving average, with LYV pushing back toward its February highs on great volume in recent weeks. We don’t advise chasing it here, but a dip of a point or so would set up a good entry point, with a stop under the recent low at 22.
LYV Weekly Chart
LYV Daily Chart
Kate Spade & Company (KATE)
Why the Strength
Less has most certainly meant more for premium retail clothier Kate Spade. Formerly known as Fifth & Pacific, Kate Spade sold off its underperforming Juicy Couture and Lucky brands to consolidate all its efforts behind its new namesake. Management’s move to focus all of its resources into one brand is starting to pay off. While the most recent quarter yielded an earnings loss, Kate Spade posted its best sales growth in years. Overall, same-store sales grew 22% in the first quarter, pushing total Kate Spade brand sales up 54%, and gross margin was a strong 55.3%. Even more impressive is that Kate Spade’s growth came alongside growth from its leading competitor, Michael Kors. In other words, Kate Spade isn’t being held back by competition, and the market for these luxury goods is strong. According to CEO Craig Leavitt, the company has embarked on a strategy of multi-tiered price points, allowing Kate Spade to take full advantage of luxury customers while offering balanced access points for those that want the brand, but can’t spend the $600 to $1,300 average retail price. With higher price-point merchandise seeing incredible growth overseas, and balanced offerings helping to grow the brand’s market presence, Kate Spade’s turnaround is in full swing.
Technical Analysis
Technically speaking, 2014 has been a bumpy year for KATE, but that’s to be expected from a retailer in the midst of a turnaround. After starting out holding support above 30 in January, KATE retreated to an annual low near 27 before finally rebounding back toward former support. The restructuring announcement send KATE soaring in late-February, with the euphoria carrying KATE briefly north of 40. When the excitement wore off, KATE retreated to the low 30s once again, before bouncing back on strong earnings-related volume to establish a base above 35. We recommend taking bites on dips of a point or two as post-earnings activity winds down.
KATE Weekly Chart
KATE Daily Chart
ICICI Bank (IBN)
Why the Strength
ICICI Bank is the second largest bank in India by market capitalization, with a network of nearly 3,400 locations plus over 11,000 ATMs. The company also has the largest rural branch network among Indian private-sector banks, with around 70% of additional branches since 2012 sited in rural and semi-urban areas. The bank is a comprehensive source of banking services, with retail savings, auto, home and consumer loans, credit cards and insurance. And on the commercial side, ICICI Bank has a large portfolio of corporate loans and an international lending program that concentrates on Indian corporate customers globally. The big story behind the recent surge of interest in ICICI Bank is the recent election of Narendra Modi, a politician with a strong pro-business history and agenda. Modi will come to the office of Prime Minister with the luxury of an absolute majority in the lower house of India’s parliament, which may allow him to push through measures to cut the bureaucracy that has hobbled India’s economic development. The prospect of a revived Indian economy has sent investors scrambling for positions in the Indian financial sector and ICICI Bank (and its 1.5% forward annual dividend yield) is a popular choice.
Technical Analysis
IBN spent years trading in a range with support in the mid 20s and resistance in the high 40s. The stock put in a tight base under resistance at 45 from late March through May 9, then surged when Modi’s election became certain. The stock has now soared above 50 and volume is starting to return to normal levels. We think the stock will be sensitive to political news out of India after the new prime minister takes the reins, so buying on a dip of a couple of points is advisable. A stop at the old resistance level makes sense.
IBN Weekly Chart
IBN Daily Chart
Electronic Arts (EA)
Why the Strength
Electronic Arts is one of the big game makers in the industry, with such hits as The Sims, Madden NFL and EA Sports FIFA among many, many others. The firm has made great strides to emphasize digital streams; in the first quarter, nearly half of the company’s revenues came from full game downloads, mobile games, in-game advertising, subscriptions and the like, which are higher margin than the “old” way of putting a game on a disk and selling it. That led to results that were much higher than expected—granted, the year-over-year figures weren’t great, but investors are looking more at the firm’s positioning, which will pay off as gamers shift toward next-generation consoles from Sony and Microsoft and as the industry shifts toward digital downloads. It also didn’t hurt that the firm announced a $750 million share buyback program to be completed during the next two years. Much of the credit for the performance goes to new CEO Andrew Wilson, who took over a few months back and has whipped the company into shape and positioned it for growth as the industry’s next upswing begins.
Technical Analysis
EA’s story and growth aren’t awe-inspiring, but it has one of the best charts in the market right now. Shares hadn’t done much for the better part of three years, but when earnings were released three weeks ago, the result was an explosive upmove (up 21%) on gigantic volume (more than five times average). The tight action since is a very bullish sign that a longer-term uptrend has begun. To get on board, you can nibble here or (preferably) on dips, with a loose stop near 30.
EA Weekly Chart
EA Daily Chart
Dillard’s (DDS)
Why the Strength
Department store chain Dillard’s has carved out a profitable niche in the retail space between upscale Macy’s and discount retailer Kohl’s. The company currently operates about 300 locations, down from 330 in 2005, in roughly 30 states. Dillard’s has made a name for itself selling name-brand clothing at discount prices, allowing the company access to more affluent shoppers, while still retaining its discount branding. It’s a fine line to walk, and while many have tried to compete in this space (think J.C. Penney), few have matched Dillard’s success. The company’s recent strength comes from the company’s latest quarterly report. In the first quarter, Dillard’s saw earnings of $2.56 per share, 10 cents better than the consensus estimate, with same-store sales rising 2% on the quarter. What’s more, the company’s sales are growing in the more competitive areas of men’s apparel and children’s clothing, pointing toward solid execution versus its competitors. Lastly, Dillard’s is churning out considerable free cash flow, most of which the company has funneled back to shareholders via share buybacks, which, as this point, is icing on the cake.
Technical Analysis
DDS kicked off 2014 by retreating from overhead resistance near the century mark, ultimately breaching 90 and hitting an annual low just shy of 80 in late-February. But the stock quickly recovered, and spent the next several months bouncing along support in the 90 region. A strong fiscal 2013 report propelled DDS back toward 100, but was not enough to convince investors to push shares back into triple digits. Still, DDS remained within striking distance, and, propelled by an impressive first-quarter report, the stock surged past 100 to trade just shy of 110. Short-term volatility should be expected, but you can nibble here, or pick up shares on dips of a point or two.
DDS Weekly Chart
DDS Daily Chart
Ctrip.com International Ltd. (CTRP)
Why the Strength
The Internet made it possible for an online company to “consolidate” unused hotel accommodations and airline seats and offer them at a discount. It’s a model that Priceline.com pioneered and Ctrip.com, a Chinese consolidator incorporated in 1999, is following it perfectly. Ctrip has turned itself into the leading Chinese online travel agency in China, with packaged and guided tours and a thriving clientele among the country’s corporate leaders. Revenue growth has increased steadily from 19% in Q3 2012 to 36% in its outstanding earnings report on May 7. The company is also sitting on a huge pile of cash (somewhere near $2 billion) and is reportedly on the lookout for likely takeover or merger targets. The company went through a challenging period in 2011 and 2012, but a new CEO came aboard in March 2013 and turned things around. The company’s stock also came under pressure in late 2013 and early 2014 as Chinese stocks fell out of favor. But strong earnings, excellent prospects for mergers and acquisitions and rebounding perception of Chinese issues have caused a nice bounce. The company has also authorized a share repurchase program of up to $600 million, which should provide strong support for the stock price.
Technical Analysis
CTRP was trading at 19 in March 2013 when the changeover in CEOs occurred. That was a big comedown for a stock that had topped 50 in 2011, but the rebound was powerful, shooting CTRP to 61 in October 2013. A correction to 36 in January 2014 coincided with a strong rotation out of Chinese stocks. But CTRP is a Chinese red-chip stock, and investors piled back in, kicking it to 57 in February. CTRP is now back at 56 after some pre-earnings jitters and has enjoyed four weeks of positive performance. CTRP looks like a good buy on a dip of a point or two with a stop at 49.
CTRP Weekly Chart
CTRP Daily Chart
Bitauto Holdings (BITA)
Why the Strength
U.S. consumers have a huge array of sources for information about cars, including automotive sections of websites and omnibus information consolidators like cars.com. For Chinese automotive consumers, there’s BitAuto, an information-rich site that gives automakers and dealers a place to advertise their wares while giving consumers a source for pricing information, specs, reviews and consumer feedback. Dealers can build their own online showrooms offering information, advertising and a place to manage customer relationships. Another site gives the same services for used cars. Automakers get one-stop digital marketing solutions, including websites, public relations help, marketing campaigns and advertising. Growth has been rapid, with revenue growth of 40% in 2013 and earnings up more than 100% in three out of the last four quarters. BitAuto is still a young issue, with a stock that has been public in the U.S. only since late 2010 and a roster of institutional sponsors that’s still under 100. But the growth of auto ownership in China has been extraordinary, with auto sales up 14% in 2013, topping 20 million (U.S. sales were 15.6 million). Having a car has been a status symbol in China, but it’s now becoming a routine necessity. And the recently announced program of prohibiting older, heavier pollution-producing cars from urban streets will only increase the pressure to buy. BitAuto will gain on all fronts.
Technical Analysis
BITA went through a long, painful correction after coming public at 12 in November 2010. But after hitting a double bottom at 3.5 in January and June 2012, BITA began a monster rally that kicked it over 46 in March 2014. That’s when a major investor rotation out of Chinese stocks began, pulling BITA to below 30 in April. The stock’s recovery from that correction has resulted in a nice cup pattern and it broke back above 40 last week on moderate volume. Today’s action provides a good follow-through on this rally. We think BITA looks like a good buy on any pullback of a point or so, with a stop at 38.
BITA Weekly Chart
BITA Daily Chart
American Airlines Group Inc. (AAL)
Why the Strength
American Airlines was basically bankrupt two years ago, but after coming through that process, and after a blockbuster merger with U.S. Airways (which included U.S. Airways Express and American Eagle) that finally cleared last December, the company is riding the turnaround in the sector as a whole to great profits. American is now cranking out big profits as revenue per seat mile jumps and integration continues, which will cut overhead. Moreover, thanks to the reorganization agreement, the company is reducing its share count by paying cash instead of stock options; just this year, it’s sliced 20 million shares off the count (about 2.6% of the total), with another four million falling off once the company repurchases some U.S. Airways convertible stock. Throw in a relatively aggressive updating program to its planes—the company is retrofitting most of its wide-body aircraft, and taking delivery of 219 new jets during the next three years!—and American looks set to do very well for many quarters. Analysts see the bottom line north of $5 per share this year and $6 next, though that could prove conservative if the restructuring efforts come in ahead of plan. As airline stories go, we like it.
Technical Analysis
AAL was basically re-listed last December, zoomed from the mid-20s all way to 40 by early March, and then began its current base-building phase. AAL has now consolidated for 11 weeks, though it’s been up six weeks in a row since its bottom near 32 (usually a positive intermediate-term sign). The stock’s not quite as strong as some other airlines, but the odds favor the next big move being up. You could nibble here, or just wait for a decisive breakout above 40.
AAL Weekly Chart
AAL Daily Chart
Previously Recommended Stocks
Below you’ll find Cabot Top Ten Trader recommended stocks. Those rated HOLD are stocks that traded within our suggested buy range within two weeks of appearing in the Top Ten and still look good; hold if you own them. Stocks rated WAIT have yet to dip into our suggested buy range … but can be bought if they do so within the next week.
Those stocks rated SELL should be sold if you own them; they will no longer be listed here. Finally, Stocks in the DROPPED category are those that failed to trade within our buy range within two weeks of our recommendation; that’s not a bad thing, we just never got the price we wanted. Please use this list to keep up with our latest thinking, and don’t hesitate to call or email us with any questions you may have. New recommendations each week are in green.
