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Are you a stock market bigot? Does a company’s name, industry group or past reputation make you reject the stock without giving it a fair chance?
Some years ago, I was chatting with Bill O’Neil, publisher of Investor’s Business Daily, about the use of technical analysis in picking stocks. I made the remark, and he agreed, that “When looking at a stock’s chart, it might be a good idea to cover up the name and not know who it is.”
Sometimes, I am amazed when I see a chart and the technical pattern looks so good, so perfect -- and, then, the company is one that I know and I say: Oh, no! Not that one!
For example, a company is the largest firm in its industry. The stock has climbed from 20 at the beginning of 2004 to the low 80s and is now in a well-formed, 11-week flat base and ready to break out to a new high. The chart pattern is perfect.
Earnings for 2005 will soar 114 percent to $2.99 a share from the prior year’s $1.40 a share. For 2006, profits should climb 46 percent to $4.38 a share. Earnings are getting a big boost from higher prices for their products. The stock sells for a mere 18 price-earnings (P / E) ratio, based on 2006 projected net.
Question: Who is this good-looking stock?
Answer: Peabody Energy Corp. (BTU)
Yes, it is a grungy old coal company. Peabody operates 30 coal mines in the U.S. Major utilities account for 90 percent of sales. The extremely cold winter this year should continue to help the company’s earnings through early 2006.
A second stock chart -- name temporarily withheld -- is a classic bull market winner still in play. The stock has advanced from 17 at the start of the bull market in March 2003 to the 50 area. It is now in a seven-week, cup-and-handle-type basing pattern and ready to break out.
The firm’s earnings will surge 58 percent for 2005 to $2.35 a share from $1.48 a year ago. For 2006, analysts predict a strong 48 percent gain in profits to $3.47 a share. The stock sells with a P / E ratio of 14. That is low and makes it a good value play for growth-oriented investors. That’s because earnings growth on a percentage basis is well over twice the P / E ratio.
This good-looking stock is Manitowoc Co. (MTW).
You never heard of it? It is a diversified firm that makes commercial ice machines, beverage dispensers, as well as cranes and construction equipment. Manitowoc’s climbing profits can be traced to increased sales of cranes and food service equipment and a restructuring that reduced costs.
eSignal subscribers should also be on the lookout for good chart patterns with stocks that were recent IPOs with unfamiliar or whimsical names. These new kids on the block could do very well, especially in the current bull market.
One very interesting example has the catchy name, WebSideStory Inc. (WSSI). Of course, that name seems to be a play on West Side Story, the famous musical. WSSI is trading at $19.50. The stock came public in early October and traded around 10. It moved up to 18 and recently broke out from a 10-week flat base. It is acting strong.
The San Diego firm provides tracking services that measure and analyze website activity of Internet-based businesses. WSSI's HBX sensors, which are inserted into web pages, collect data that is used to improve marketing, e-commerce and customer support.
The company also uses the data it gathers to produce industry white papers and reports on Internet trends. It has approximately 700 clients, including Walt Disney Internet Group, AutoZone and Federal Express.
WSSI posted a big 72 percent increase in revenues for the first nine months this year. The gain reflected increased subscriptions from new customers. Profits for the first nine months soared to $4.1 million from $319,000.
For the fourth quarter, WSSI's profits should jump 131 percent to 14 cents a share from 6 cents a share a year ago. That should lift net for this year to 44 cents a share, a 110 percent gain from the 21 cents a year ago. For 2006, WSSI's profits are expected to leap 40 percent to 62 cents a share.
eSignal users can get a line on some of these leading stocks by using eSignal's screening service and looking for stocks that have made recent 20-day highs. The key is to look for firms in strong intermediate up trends supported by good earnings growth.
Remember: Consider every stock and don’t be biased in any way. Let the numbers do the talking.
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