Unusually, many growth stocks have been acting more like laggards than leaders during recent rally attempts, both undermining the rally and making stock-picking more difficult for growth investors. Last week, some leaders finally stepped up to the plate, soaring on earnings and then, importantly, building on those gains, as Michael Cintolo wrote in yesterday’s Cabot Top Ten Trader. Today’s new recommendation is one of his picks from yesterday’s letter.
“NetSuite, Inc. (N), which is making its fifth appearance in today’s Cabot Top Ten Trader, is in the now-familiar business of moving functions like marketing, customer relationship management (CRM) and financial management onto the Web. The ‘suite’ in the company’s name is the key, as the company’s software can provide any one of these services to start, then link in the others as customers see the benefit of having all of their data available on the Cloud. Integrating e-commerce, CRM and financials gives small- and mid-sized companies (and divisions of larger companies) real control over their data, and once they sign on to NetSuite’s software-as-a-service program, they tend to stay signed on.
“The company reported Q2 results last Friday, and the response from investors to the 200% leap in earnings on a 29% gain in revenues gave the stock a whopping 18% boost. Coupled with last quarter’s 100% jump in earnings and a history of three years of strengthening revenue, NetSuite is a picture of both strength and momentum.
Technical Analysis
“N has been in an uptrend since late 2008, although a shakeout from 17 to 12 in the first half of 2010 makes August 2010 a better starting point. The stock’s great run was put on hold by a three-month correction during the July-September 2011 market meltdown, and the stock took a smaller dip starting in April. But the response to the new company’s great Q2 report last Friday kicked the stock out to new highs on huge volume. N is selling at a daunting 225 P/E ratio, but cash flow is much larger than earnings and the stock has a multi-year history of strong performance. Try to buy on a pullback of at least a point as the stock digests its big gains. Suggested Buy Range: 54.5-56.5 (valid for two weeks).”
- Michael Cintolo, Cabot Top Ten Trader, July 30, 2012