Still Rolling Along
The most bullish thing a market can do is go up, and that’s what this market continues to do, with the Dow and most other major indexes at (or close to) all-time highs. Now, we saw the usual trumpeting of the new high in the Dow last week by the media, and that often coincides with some choppiness in the market; then again, there’s a distinct lack of greed, with most investors still seeking safety and avoiding risk. Bottom line, we’re keeping our Market Monitor bullish, and while a pullback is always possible, you should be looking to buy as opportunities arise.
This week’s list has a few newer names (to us) from a variety of industries, including REITs, autos, housing and media. But our favorite of the week is Workday (WDAY) a recent IPO that just broke out of a beautiful base, has rapid sales growth and is operating in a huge market.
Stock Name | Price | ||
---|---|---|---|
Workday (WDAY) | 194.88 | ||
Uni-Pixel (UNXL) | 0.00 | ||
Time Warner (TWX) | 0.00 | ||
PBF Energy (PBF) | 38.93 | ||
Medical Properties Trust (MPW) | 0.00 | ||
The GEO Group (GEO) | 0.00 | ||
Fortune Brands Home & Security (FBHS) | 81.02 | ||
Delphi Automotive (DLPH) | 0.00 | ||
Discovery, Inc. (DISCA) | 0.00 | ||
AOL, Inc. (AOL) | 0.00 |
Workday (WDAY)
Why the Strength
Workday is a fast-growing competitor in the enterprise-level software industry, with products that work in the Cloud, through data centers located in Virginia, Georgia, Oregon, Dublin and Amsterdam. Its two main offerings are Human Capital Management and Financial Management, and its main competitors, therefore, are PeopleSoft (now owned by Oracle), Ceridian, SAP and ADP. It’s a competitive group, to be sure, but Workday has advantages, including the fact that its software was designed from the ground up to operate in the Cloud. Revenues have grown every year since the company launched its human resources product in 2008, and while the rate of growth is tapering off a bit, that’s typical for a company that’s growing without acquisitions. Existing customers include Ancestry.com, Chiquita Brands, Flextronics, Life Time Fitness, Mohawk Industries, TripAdvisor, Symantec and Yahoo! And in the fourth quarter, the company’s new customers included Del Monte, Nissan, Primark, SunTrust Banks and Travelex. Interestingly, the company has not yet turned a profit (and none is projected in the next two years) but that’s in large part due to fact the company operates on the subscription model. The company has no debt.
Technical Analysis
The biggest attraction of WDAY is the stock’s recent breakout; after futzing around in the 50s for most of the time since its October IPO, the stock zoomed above 60 last Monday, on four times average volume, for no obvious reason (which is good). Since then, the company has reported a very good fourth quarter, beating estimates on both revenues and loss, and the stock has begun to settle down. It’s still lightly traded, and that can contribute to volatility, but growing sponsorship should bring more stability in time. We think you can buy it here.
WDAY Weekly Chart
WDAY Daily Chart
Uni-Pixel (UNXL)
Why the Strength
Right up front, we want to emphasize that UNXL is one of the riskiest stocks you’ll find in Cabot Top Ten Trader this year, for two reasons. First, the company hardly has any revenues, though the floodgates may open this year. Second, the stock is already up more than 100% this year, so the potential for a substantial pullback is rather large. But we’re including the stock in this issue because the upside potential may justify the short-term hazards, for risk-tolerant investors. The big story is this: Uni-Pixel has a touch-screen film that’s reputedly cheaper to make and performs better than the industry standard found on phones and tablets today. That standard is indium tin oxide (ITO), which is applied in thin, transparent sheets. But Indium is an expensive metal. Uni-Pixel’s thin film uses copper instead of ITO. Copper is less than one-hundreth the price of indium, and the process for applying it is much simpler. Now, copper is not transparent, but Uni-Pixel’s grid structure of five-micron lines appears as transparent as ITO. Finally, because copper is far more conductive, Uni-Pixel’s film uses less electricity and performs faster! This all sounds great, but the proof is in the pudding, or in this case, in actual revenues. Uni-Pixel signed a manufacturing agreement with an OEM late last year; rumors suggest it was Dell; time will tell. (Note: Uni-Pixel was originally recommended in Cabot Small-Cap Confidential back in August when it was trading at 6.36, and the editor continues to recommend that subscribers buy on dips.)
Technical Analysis
For all of 2011 and most of 2012, UNXL traded between 5 and 8. Volume was light. But that all changed in December when the OEM agreement was announced. Since then we’ve seen big leaps higher on huge volume, followed by sharp corrections as traders take profits. But the stock has mellowed slightly, with buyers becoming a more stable force. The challenge is buying correctly. We’re aiming for a pullback toward the 25-day moving average, now at 20.
UNXL Weekly Chart
UNXL Daily Chart
Time Warner (TWX)
Why the Strength
It’s the end of an era for global media conglomerate Time Warner. In a move designed to push the company forward into the digital era, Time Warner is spinning off its Time Inc. unit as a separate company. In 1922, Time became the foundation for the company, with its publication business helping to grow Time (which became Time Warner in 1989 after the acquisition of Warner Communications) into one of the largest media firms in the world. “A complete spinoff of Time Inc. provides strategic clarity for Time Warner Inc., enabling us to focus entirely on our television networks and film and TV production businesses,” CEO Jeff Bewkes said in a company statement. Bewkes has been the driving force behind streamlining Time Warner’s business model, not only orchestrating the Time spinoff, but also Time Warner Cable and AOL spinoffs in 2009. Bewkes’ leadership has helped propel Time Warner to average earnings growth of 12% during the past four quarters, despite turmoil in advertising and a weak economic environment. For investors, the split offers an interesting opportunity, as Time shares will be spun off to Time Warner shareholders tax free, leaving you with holdings in both Time Warner and the newly listed Time shares. For its part, Time sports a 21.5% market share in the domestic magazine advertising segment.
Technical Analysis
With the exception of a correction in June 2012, TWX shares have been locked in a steady uptrend since September 2011. The stock topped out near 40 in February 2012, and spent the summer forming a base near 35 and the stock’s 50-week moving average. But the shares rebounded from support in mid-June, reclaimed their 10-week trendline, and have gone on to rally more than 60%. Driven by solid success at its HBO unit (Game of Thrones), TWX easily eclipsed the 40 level and powered past 50 to hit a fresh multi-year high north of 55. The upcoming Time spinoff could create some volatility for TWX, though the stock’s initial reaction was a sharp rally. A stop loss near 52 might be prudent.
TWX Weekly Chart
TWX Daily Chart
PBF Energy (PBF)
Why the Strength
PBF Energy is a New Jersey-based oil refiner with three refineries and related facilities located in New Jersey, Ohio and Delaware. Altogether these facilities have a capacity to refine 540,000 barrels per day, turning out gasoline, heating oil, jet fuel, lubricants petrochemicals and asphalt. The company’s products are sold in the Northeast and Midwest, with gasoline and distillates accounting for 88% of revenue, lubricants for 4% and the rest asphalt and residual oil and miscellaneous. With 28% of the refining capacity on the East Coast of the U.S., PBF Energy is in a position to take advantage of the recent reduction in refining capacity caused by the shutdown of several regional competitors (Hess in Port Reading, NJ, and Sunoco in Eagle Point, NJ, and Marcus Hook, PA). The company is also getting a boost from a new program to receive discounted Canadian and North Dakota crude oil by rail. These rail shipments of light crude from the Bakken Western Canada (oil-sands in Alberta) will give PBF a big cost advantage when compared to its usual Brent crude suppliers. Refinery profit margins aren’t huge, but PBF Energy’s supply of cheaper crude and its reduced competition should continue to aid results.
Technical Analysis
PBF came public in December, and spent just a few weeks building a post-IPO base before taking off in late January. The stock moved above 30 on January 28, and reached 42 by the beginning of March. PBF has corrected to its 25-day moving average since then, and may need to spend a little time consolidating at 38, which was resistance in February. With a rock-bottom valuation reflected in a P/E of just 8, PBF looks like a good bargain on an ambitious refiner. Buy PBF on any dip below 38 and put a loose stop in at 34.
PBF Weekly Chart
PBF Daily Chart
Medical Properties Trust (MPW)
www.medicalpropertiestrust.com
Why the Strength
The combination of expanding health care coverage and low real estate prices has lit a fire under medical real estate investment trusts (REITs) in recent months, and Medical Properties Trust is a big beneficiary. Specializing in hospitals, rehab facilities, and urgent care facilities, Medical Properties is playing directly into aging U.S. health care demographics, making the REIT less cyclical than its shopping mall and office property peers. What’s more, due to rapid expansion in the health care market, Medical Properties saw record growth in 2012, expanding its property portfolio by more than $800 million, compared to the company’s average growth of about $300 million. According to CEO Edward Aldag, “The capital and balance sheet planning, the personnel planning and development, the acquisitions groundwork, it all came together to produce a year of spectacular results.” Speaking of results, the company’s bottom line has been impressive, with revenue averaging year-over-year growth of 48% and earnings rising an average of 27% during the past four quarters. More recently, the company has been in the news for its pending quarterly dividend (20 cents per share payable on April 11, with the ex-dividend date arriving on March 12), and its latest public offering of 11 million shares for 14.25 each.
Technical Analysis
MPW spent the first half of 2012 oscillating between support near 9 and resistance at 11. Since July 2012, however, there have been few charts as pretty as MPW’s, with the stock rallying more than 65% along support at its 10-day, 25-day, and 50-day moving averages. In fact, the stock has not closed a session below its 50-day line during this timeframe. Around the turn of 2013, MPW found renewed vigor, with the shares accelerating higher along their 10-day trendline. The stock broke out to multi-year highs in February, eclipsing long-term resistance near 13. Now MPW is consolidating those gains near 15. With a public offering in the works, and an ex-div date just around the corner, buying dips may be your best course of action. A stop loss on a close below 13.50, is prudent as well.
MPW Weekly Chart
MPW Daily Chart
The GEO Group (GEO)
Why the Strength
GEO Group represents an interesting mix of management services on facilities that are outsourced by governments in the U.S., Australia, South Africa, the U.K. and Canada. The largest group of facilities is in the detention and corrections industry, in which the company offers minimum, medium and maximum security prisons, immigration detention centers and community based re-entry facilities. Within its facilities, the company offers security, administrative, rehabilitation, education and food services, most at adult male correctional and detention facilities. The company’s 101 facilities have a total of 73,000 beds. GEO Group grew revenues at 11% per year in 2010 and 2011, but slowed to 5% in 2012. The big draw for investors is the company’s divestiture of its health-care business and conversion to a REIT structure at the beginning of 2013. The company announced last Friday that it would be added as a constituent of the FTSE NAREIT U.S. Real Estate Index Series, which will likely bring some buying from institutions seeking to track that market and from individual investors looking to gain exposure to the real estate sector via the Index. With a forward annual dividend yield of 5.6%, GEO looks like a good bet in what is, unfortunately, a very steady industry.
Technical Analysis
GEO began its current rally in March 2012, but it’s the nice, flat base between 22 and 23 that the stock built from September through November of last year that really set the stage for its recent, even stronger rally. GEO gapped up in early December, then rebased for almost four weeks at 32 from mid-January through mid-February. The stock hasn’t touched its 25-day moving average since late November, but buyers just keep on piling in. GEO is liquid and the new REIT structure promises to continue good payouts to investors. Buy on any weakness of a half point or so.
GEO Weekly Chart
GEO Daily Chart
Fortune Brands Home & Security (FBHS)
Why the Strength
Fortune Brands Home & Security came into being when the company that makes Beam whiskey spun it off in late 2011. The company’s portfolio of brands includes plumbing and cabinetry for kitchens and bathrooms sold under the Moen, Simonton, KitchenCraft, Omega, Master Lock Waterloo and other brand names. The big story here is that the company’s products are in just the right place to benefit from a reviving U.S. housing industry, both from new building and from increased levels of kitchen and bath remodeling. Revenue growth was just 8% last quarter, but the company reported a 44% leap in Q4 earnings, which followed a 45% jump in Q3. As the real estate business continues to improve, analysts predict that Fortune Brands will continue to thrive. The company came public in late 2011, and had just 17 institutional sponsors. But that roster of big owners has risen to 587 now and analysts continue to upgrade the company’s stock. 2013 earnings estimates call for $1.22 per share, up from 89 cents per share in 2012. This is a strong company with good brands that address a rebounding industry.
Technical Analysis
FBHS has been a very consistent performer since it came public at 12 in September 2011, needing 3 ½ months to get past resistance at 24 last summer and pausing under resistance at 30 in November and December. Despite a shakeout in the middle of February that pulled FBHS back to its 25-day moving average, the stock has been a strong performer all year, booking advances from 30 to 36. FBHS has a great story and strong momentum. Look for a dip of a half a point to get started.
FBHS Weekly Chart
FBHS Daily Chart
Delphi Automotive (DLPH)
Why the Strength
Delphi was born at General Motors in 1994, as the electronic specialist of the automotive industry. It absorbed some assets from Hughes, Delco and Lucas. And then it crashed and burned under the weight of an SEC investigation into accounting practices and the declaration of bankruptcy in 2005. After massive restructuring, the new Delphi came public in 2011. It’s headquartered in the U.K., and it gets 45% of its revenues from Europe, Middle East and Africa, 31% from the U.S. and 15% from Asia. Electronics and electric system account for 41% of the business, powertrains for 30%, safety for 18% and thermal systems for 11%. And its shares are being snapped up at an increasing rate by institutional investors who see the progress being made in the fast-recovering automotive industry and recognize “young” Delphi as a great way to play the trend. What impresses us is the after-tax profit margin of 7.6%. Then again, some investors will like the valuation (see the P/E ratios below) and some will like the fact that on February 26, Delphi initiated a dividend, which currently yields 1.6%. In short, there’s a lot to like here.
Technical Analysis
DLPH came public in November 2011, peaked in January, bottomed in June, and has been under accumulation since. The early part of this year brought a loose base-building period, but that ended when the February 26 dividend announcement sparked buying that vaulted the stock up and away from its 50-day moving average. It’s climbed every day but one since! You can buy here, or wait for a pullback, but there’s no knowing when it will come.
DLPH Weekly Chart
DLPH Daily Chart
Discovery, Inc. (DISCA)
Why the Strength
As the world’s #1 non-fiction media company, Discovery Communications provides its viewers with the ability to explore the Savannah, dive to the depths of the ocean, or delve into a bat-infested cave, all from the comfort of their own living rooms. Currently, the company reaches more than 1.8 million subscribers via more than 150 worldwide cable TV networks, including Discovery Channel, Animal Planet, and The Learning Channel (TLC). The company also operates joint ventures The Oprah Winfrey Network (OWN), The Hub, and 3net (the first 24-hour 3D network). Discovery has also branched out from cable, offering educational products and services to schools as well as online content through Discovery.com and AnimalPlanet.com. The company has drawn strength from a few high-profile events recently. At a media conference, CFO Andrew Warren commented on the company’s agreement to purchase SBS Nordic (which includes 12 TV networks in Norway, Sweden, Denmark, and Finland): “We’re not moving away from nonfiction…We are very focused on really three things: driving global revenue growth; expanding our margins; and really significantly increasing our free cash flow per share.” Elsewhere, the company announced a secondary offering of about 7.7 million shares at 64.75 each.
Technical Analysis
Given that the stock has surged more than 500% since the 2009 bottom and is currently trading at an all-time high just shy of 80, a bit of consolidation would be a good thing for DISCA. Zeroing in on the stock’s most recent upleg, DISCA rebounded from support near 55 in November 2012, and has enjoyed solid support from its 10-day and 25-day trendlines ever since. You can take bites here, or open a more substantial position on any pullbacks to 75. Consider a stop loss on a trade below 70, however, as the stock’s 50-day moving average is currently rising through that area.
DISCA Weekly Chart
DISCA Daily Chart
AOL, Inc. (AOL)
Why the Strength
AOL made its name as a provider of Web access for millions with a software suite that gave subscribers an entire Web community to log into. The company merged with Time Warner in 2000, but both the online world and the publishing world were changing quickly, and the combined companies couldn’t make it work. After AOL Inc. became independent again in May 2009, it started to accumulate sources of Web content, building a stable of brands that now includes The Huffington Post, Patch, MapQuest, AOL Yellow Pages, Moviefone, Engadget and Cambio, among others. The company made headlines last April when it announced that it would sell a bundle of 800 of its patents to Microsoft for $1.1 billion. But since that sale, the company has continued to prosper, reminding investors of the old adage from the early days of the Internet that “content is king.” CEO Tim Armstrong makes a case for strong content as the ultimate Web commodity and is looking for more unique sites to add to AOL’s string. The company still gets 36% of revenue from subscriptions for its dial-in Internet access service, but analysts expect that segment to decline as younger Internet users prefer other alternatives. It’s worth noting that short interest in AOL Inc. is a relatively high 7.8 days of volume, which might push big gains if the company’s stock continues to advance.
Technical Analysis
AOL has been rallying since September 2011, with a big gap up in April 2012 on news of its patent sale. The stock ground to a halt in August and September, then spiked higher on November 6 when its earnings report showed that revenues had stopped contracting. But the stock gave back that leap from 32 to 38, returning quickly to its previous levels. The earnings report on February 8 keyed a steep advance to over 39, and the stock is now digesting that spike, trading quietly at around 37. If you like the AOL story, you can buy a little anywhere under 37, with a stop at 33.
AOL Weekly Chart
AOL 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.