PCLN: A Watch Stock, But Watch the News

I focus on one of my watch list stocks today, PCLN. It has been a rock star this year as the chart below shows (IBD's Daily Graphs is a service any serious stock investor must consider subscribing to - I wouldn't invest without it). It was a great stock before the bear market, took a dive like pretty much all the stocks out there, and then regained its old form.

The number of funds owning shares has cruised higher by 22% in six months, an encouraging sign. Weekly accumulation is clear on the chart and it sports a B- in the IBD’s accumulation/distribution rating, which is just fine.

The earnings of this company are fantastic. It’s annual earnings are projected to grow 30% this year and 20% next near, just what you want to see (I like to see at least 20% in the current year). It has shown two quarters of accelerating EPS growth with a third projected for next quarter (50%), and it shows three quarters of accelerating sales with the possibility of a fourth in a row.

Technically, the chart looks nice. It had a great uptrend before forming its current cup pattern. The current consolidation shows two net weeks of accumulation and it’s break out week, last week, shows a volume spike on the weekly chart – just what you want to see. It suggests big money is flowing into the stock. It technically broke out of a cup base Thursday and has backtracked on light volume since. Because the market is in a correction, i.e., it isn’t saying it’s ready to go higher, I didn’t pull the trigger on it. It could go on to form a high handle to the current pattern, and if it does, the buy point would be $235.90.

But what do you do when a negative news story comes out about a stock you are stalking? Tuesday’s IBD has a feature article on Priceline and Expedia possibly facing headwinds in their growth. It basically says even the CEO of Priceline openly acknowledges that comparisons will become tough as we move forward, and economic conditions may not favor such future stupendous growth as we’ve seen in the past.

Investors have become quite familiar with Priceline, so expectations are great – this means it likely needs to beat earnings estimates by a very healthy margin to not continue moving higher.

So what do you do? This is part of the art of investing. I may shine it and take my chances with less uncertain stocks that still show no signs of slowing. We’ll see.