Technology stocks have been well-represented among the leaders of the autumn market advance. The latest Dick Davis Investment Digest featured many of the fresh faces in the group, including the company below, recommended by Mike Turner, editor of Mastering the Markets:
Blue Coat Systems, Inc. (BCSI, Nasdaq) is a $1 billion Internet-monitoring equipment maker. Blue Coat ranks near the top of my list of the more than 6,000 stocks and ETFs that I follow. My composite score for BCSI is 165 out of 200 points. On the fundamental side of the equation, BCSI rates a score of 70 out of 100. Key factors includethe following:
The growth rate in sales during the past five years for BCSI is +38.8%, compared with +23.4% for its industry (computer networks) and +10.0% for the S&P 500. The growth rate in earnings for the most recent quarter versus the same quarter a year ago is running at +228.1%. The growth rate for that same time period for its industry is +53.5%. Forthe S&P 500, the growth rate is +69.7%. The growth rate in earnings during the past five years is +38.9%, compared with +26.2% forthe industry and +7.2% for the S&P 500. BCSI’s price-to-earnings ratio (P/E) of 21.6 makes it a bit overvalued when compared with its peers.
My technical score for BCSI is 95 out of 100. ... The average daily volume has been erratic for several months, but has been recently trending higher on increasing share price, which is a good sign that momentum is building in this stock. Institutional ownership is quite a bit higher than I like, which does add risk to this trade. At this writing, 97% of the outstanding shares were owned by large institutions. Both the industry and the sector (technology) are in bull-mode. This means the average price of every stock in BCSI’s industry and sector is above the trend-line and looking to trend higher. This also means that more money is likely flowing in to this industry and sector than is flowing out, which could be putting pressure on BCSI to move higher. ...
Based on the analysis above, here’s how I would trade BCSI: Buy BCSI with a limit order at $24.20. ... Set an initial stop loss at $22.94. Target price = $36.00.
Mike Turner, Mastering the Markets
