NGVC Sees Organice Growth: Breaks Out

Quite literally at that. NGVC, which is called National Grocers by Vitamin Cottage (for real), is yet another, let’s say, uniquely, named stock.

Maybe there weren’t any PR people involved with the early beginnings of this company, but Shakespeare taught us there is nothing substantial in but a name; the company is doing well and you should consider it.

I know I am. I might even buy some, but not sure yet.

Let’s look at its technical action. It went public July 25 and formed a square box base (four weeks in length, we don’t count that first up week) which it broke out of today (yesterday, I’m writing this post at 4am) on what appears to be nice volume (it’s too young to have a 50 day average volume to compare it to). The buy point, where the green arrow points to, is $20.58.

I’ve often missed such early break outs, which I admit is part of the enchantment of this rocky-mountain/mid-western stock.

The positives are up first, because that’s how I like to start. It is a young company, having only gone public this July 25, and it’s exceptionally young in the potential life of a retail chain. It has only 55 locations with hopes to grow some day to 1,100.

If that kind of growth happened in a short time frame, bocu-bucks could be yours. I don’t know how to spell that but it’s fun to say.

It’s in a hot group that includes the 800 pound organic gorilla, Whole Foods. It also includes a stock that broke out recently (and is still in a buy zone), The Fresh Market (TFM). Organic foods and the like are trendy right now, and it’s more than a fad. There seems to be serious money out there all over the country for such products.

Here is a quick description of NGVC (I don’t know what I like less, the company name or the ticker symbol) as provided by E-trade: “The Company operates within the natural products retail industry. The Company offers products and brands, including a selection of natural and organic food, dietary supplements, body care products, pet care products and books.”

The “and books” part is weird, but maybe it draws foot traffic, I don’t know. The rest of it is certainly in demand.

NGVC has a 97 EPS rating, an “A” SMR rating and a 95 Composite rating. These, as usual, are all IBD proprietary ratings you can find in their daily paper. And these are most excellent ratings at that. It even sports an 89 relative strength rating.

The past three quarters sport from 100% to 167% earnings growth and 23% to 28% sales growth. The quarters prior to this growth were negative to zero and I have yet to understand why.

What’s more important is where this company appears to be headed. This year the stock is expected to have 119% earnings growth and next year’s earnings growth is projected to be 34%. These are all very nice numbers, yes indeedy.

Return on equity is a healthy 28%, although it also carries a 119% debt load, putting a slight damper on that ROE number.

It’s unclear how many funds own the stock at this point but management owns 65% of the stock, a terrific number to see. It means those who run the show stand to gain the better the stock performs.

Also, according to E-trade’s research, it looks like management took on some additional shares recently. The company’s CFO, Sandra Buffa, un persona mui importante, (Spanish lingo for very important officer of the company), bought 4,000 shares at $15 per share, as reported July 16 (she bought this before it hit the stock exchange shelves). What is that – that’s $60,000, not huge cash, but not chump change either.

Also one Anthony Andueza picked up $9,700 worth of stock. OK, I admit, that one’s a little anemic, and I honestly don’t know who this guy is or what he does for the company, but at least he’s adding to his already hefty amount of shares, still worth taking notice of.

And now some of the negatives. There aren’t that many from my perspective. The ones that matter to me are that I don’t know how many funds own the company, as mentioned above. And tributary to that thought is that NGVC (hate typing that) has a market capitalization of under $500 million, which is too small for a number of mutual funds and institutional buyers to consider. This will change if the price appreciates and the company grows.

Also, information is slightly hard to come by on this small and new issue, not unusual, but pesky. Facebook and other similar companies get all the attention. It could work for you as the company becomes more known and people pile on, but in the meanwhile it makes research challenging.

If you check Yahoo’s estimates, you’ll see none, and CNBC and E-trade both suggest a big earnings growth quarter ahead but looks like a flat quarter after that. However, my experience with young and little followed companies is that sometimes these estimates aren’t reliable. It’s worth digging deeper on.

It is also apparently too young a stock (I’m guessing here) to have an IBD accumulation/distribution rating which measures buying or selling in a stock. But the up/down volume on the stock is an eye-popping 7.2, but something tells me this number is highly inflated by the first day of trading, which provides more challenges to gauging a stock’s worthiness.

And to reiterate, it has 113% debt.

All in all, the worst part about this stock is the lack of information on it. That and its not very artful name.

Jim Cramer Is Right

He makes trading fun with his entertaining style on CNBC. He’s not only funny, he’s enlightening, and he’s dead right about trading: you can beat the markets all by yourself.

Don’t be afraid to trust in your own ideas. Thankfully, we have numerous resources at our disposal to do our own research and make our own decisions. And technology helps us be more efficient, and more informed. This leads to more money.

Stocks I’m watching this week include: WAB, NSR, REGN and LNKD. This is a bit of a catch-up post since I missed writing on Friday, so I appologize about the length. Not often I have to say that.

First is WAB. WAB makes components for trains, particularly breaking and safety components. It’s not only an economic rebound play, it’s also a secular growth story, which is what I like to look for the most in a stock.

Partly because of the horrendous train accident that occurred in Chatsworth (a suburb in the city of Los Angeles), our government cracked down on the industry and has increased safety standards for trains.

I’m quite grateful for these new standards, largely because I take the train into downtown LA for Clippers games often, but also because it’s pumping up the long-term bottom line for WAB.

WAB stands to gain from these new rules and has quite a back-log of business. It features most of the solid fundamentals a winning stock should like high EPS ratings, ROE, five quarters in a row of EPS growth of over 40% with sales growth over 25% and EPS growth estimates of 39% for the year.

The industry group’s a bit in the toilet, which is a downer, yet WAB’s stock chart is sitting in a nice looking cup with handle pattern, the buy point of which is indicated by the green arrow ($82.16). I’m waiting to see if it breaks out above this price on volume that is 50% higher than average.

NSR is also from a mediocre industry group (in terms of price performance), but it sports terrific EPS growth and top-notch fundamentals. It has a 96 EPS rating according to IBD and a 99 composite rating, the best possible.

NSR provides database infrastructure services and network management for telecom and enterprise markets. I haven’t completed my full research on it but it’s worth paying attention to and studying given its numbers and action.

NSR’s base is a bit tricky to read. The current cup pattern formed after what could be interpreted as a first stage base as it undercut a previous cup with handle base that went nowhere (to the left on the chart). Or perhaps it’s just a lopsided double bottom base? I prefer to see it as a new base forming. There is substantial buying going on as indicated (not shown in this chart) by the buying seen on a weekly chart. As many as 6 weeks of accumulation vs one down week shows strength, as does the 2.0 up down ratio. Both of these indications are secondary indicators, but are helpful to see. The 50 day line (the red line) is under the 200 day line (the white line), which I don’t usually like to see, and the relative strength line, while a strong 83 (I usually don’t consider a stock unless it’s 80 or higher) is below previous highs. I’d prefer seeing the RS line approaching new highs or in new high territory before a break out.

Additionally, the stock may be interpreted as having broken out of a handle already. The break out happened on low volume, but volume did come in later. The arrow to the right indicates the possible handle buy point. The green arrow in the middle suggests an alternate buy point, which is the left side high of the current pattern. Please pardon the brief and slightly lacking description of the stock and chart, I admit I’m rushing this a bit (I’d like to go to sleep – how the heck does Cramer function on like no sleep!).

REGN is a biomed stock that already broke out last Thursday, but it’s still within the 5% rule – so it’s in buy range. It broke out on volume that was 74% higher than average, just what you like to see. REGN is quite the interesting stock. It’s taken off the past year, having risen from its previous breakout level of $80 to today’s $145.09 since January.

More significantly, the company hasn’t produced a profit in years, but it’s finally turning things around. The past two quarters’ EPS growth has been over 200%, with sales just over 100% and nearly 200%. Growth looks to continue. It seems the smart money knew this ahead of time, which speaks to the dramatic rise in the stock price prior to registering the recent superb growth. Fund ownership has grown from 358 funds owning the stock to 536 in the most recent quarter.

I’m behind on my full research of this stock, but my cursory analysis has kept my interest.

This post’s final entry is my attempt to make amends with the social marketing space that I have so maligned through my Facebook bashing. If you like Facebook, skip it for now and consider LNKD. Now this is a solid company.

While its stock chart is a bit choppy of late, it still qualifies as a cup with handle pattern with a potential buy point of $113.10, which is the high of the current handle. The handle has formed in bone-dry volume, a great sign.

LNKD has fantastic fundamentals, really the kind I like to see. Two of the past three quarters, LNKD has delivered EPS growth over 100%, with next quarter’s EPS growth estimated to be 133% and next quarter’s sales growth estimated to be 74%. This year’s growth is estimated to be 80% while next year’s EPS growth is estimated to be 108%. When in doubt, go with the stock that shows the highest growth.

 I will point out that LNKD’s growth has been ever so slightly choppy, with a 0% growth quarter four quarters ago, and two quarters from now it is estimated to be about 42%, a drop-off from next quarter’s 133%.

While it is a secondary indicator, fund support is superior. This is perhaps my favorite of the secondary indicators. The number of funds owning the stock has risen from 185 a year ago to 543 the most quarter reported. LNKD’s group is also fairly hot, with an 88 relative strength rating. Group mates include BCOR, ACOM and IACI, each worthwhile stocks in their own right.

LNKD seems to be succeeding precisely where FB is failing. LNKD certainly makes money from advertising on its website, as FB does, but it has diversified its business far better, in my estimation, than FB has. Most of LNKD’s revenue is derived from fees, not just advertising.

 LNKD is primarily a business networking site of sorts, with employers seeking quality talent and job seekers searching for potential new jobs. Companies actually pay fat money to LNKD to find solid recruits on its website.

And grow it has. LNKD had over 100% growth in its hiring solutions segment, despite a fairly terrible hiring environment in this economy, especially in Europe. This is the definition of secular growth. Imagine what happens when the economy actually picks up.

TDG Making a Push

For all you Cleveland people out there still smarting from that LeBron James trade (and their championship – don’t worry, my Lakers will avenge you), have I got a good one for you.

Straight from the state that has give our Republic more presidents than any other, I present Transdigm Group Inc. (TDG), which makes components for the aerospace industry.

The Cleveland based TDG, despite having a less than a poetic sounding name, presents a chart that is a work of art. Alright, maybe no Picasso, but perhaps a Remington?

Just as important, TDG has some pretty solid fundamentals. It has delivered three quarters in a row of EPS growth over 50% and sales growth of 39% or more. Funds have stepped up their support, with the number of funds owning shares in the stock rising from 414 to 451 in the most recent quarter, according to Investor’s Business Daily.

The stock has a top notch EPS rating, Composite Rating (one of IBD’s proprietary measurements) and SMR rating (a combination of factors to help determine the return on equity and margins among other factors) and analysts estimate 50% earnings growth this year.

Now the technicals. The stock chart shows that TDG had a long run up, breaking out of a later stage base recently but on volume less than the 50% higher volume you’d like to see. The base failed, leading to the current base. More importantly, the current base undercut the previous, making this base a first stage base, which offers a higher chance of success.

TDG broke out of the current (recent rather) base ($136.44 buy point) last Friday on 83% higher volume and currently sits just below that, but it is showing tight action, a positive sign. The arrows on the chart show the break out day and the corresponding volume.

As always do your homework. I haven’t bought this mostly because I have already taken positions in two other stocks I like.

If this market goes higher, I would be surprised if TDG does not participate in a nice way.

If You Had $500 Million in Facebook...

Facebook, the stock people love to follow. But don’t do it, don’t succumb to the temptation. For those bottom fishers out there who think it’s time to buy a stock because “it’s been sold enough”, and I know you’re out there, resist the urge to buy Facebook (FB).

If the terrible slide since its hyped IPO weren’t enough, a member of Facebook’s board of directors, Peter Thiel, just punted on 20 million shares. That is, he sold those suckers as soon as he could. Well, he waited at least a few days after the lock up period expired.

OK, I don’t know how many, if any, of those shares were restricted until the lock up period expired, but the point is a key member of the Facebook team just gave you his opinion of the company.

Apparently Peter Thiel is a billionaire, with a “B”, investor, which means he’s good at making money. If I was his financial advisor, other than being on an island in the South Pacific, I’d have told him to sell.

If I was Facebook’s public relations guru, I’d have gotten down on my knees and begged him to at least trickle his shares out over time and call it “portfolio diversification” like all other company leaders who sit on a gold mine in stock.

Ultimately price and volume action, along with key fundamental data, should guide your buying and selling. But a secondary indicator is insider buying or selling. People who believe in their company usually at least hang on to most of their shares. Put yourself in their shoes and you’d be tempted to cash out also – unless you knew your company was going to beat earnings and raise guidance in the long haul, multiplying your wealth many times over.

So when insiders bail in a big and meaningful way, like Thiel did, you should pay attention.

I have below here the stock chart of Facebook. There is technical action enough to indicate trouble for the stock long before Thiel sold the vast majority of his shares.

First, look at the green arrow. That’s bad price action after the stock had rallied in price. The blue bands you see are a modified Keltner Channel. The stock rallies to the middle of the bands, the mean, after the said terrible price action but doesn’t punch through it.

The orange arrow shows a break down from an upside-down cup with handle pattern which I documented in an earlier post. The break down comes on the highest volume in a month at that time, which was a lot relative to its recent action. This came the day before earnings, an ominous sign.

The red arrow shows Facebook rallying again to the mean but can’t push through. This is a stock stuck in a downtrend. I’d quote famed stock trader and commentator Gerald Loeb from his book “The Battle For Investment Survival” here, but his book is buried in a box at the moment.

Wait, I have it on my iPad Kindle app: ““Trend”, therefore, is overwhelmingly the most important element in appraising whether you can make profit from buying a given issue or not.” Well, that wasn’t the exact quote I was hoping to find, but it works. This guy, Loeb, was good – they even named a prestigious financial journalism award after him.

According to Investor’s Business Daily (the inspiration for this blog), Facebook has a relative strength rating of 2. That means 98% of all other stocks in the stock market are outperforming Facebook in price.

So if you are Thiel, you do what you have to do and make money. Who knows when Facebook will come back in price, if it ever does. From that perspective, why let $400,000,000 (four hundred million!) loaf? That’s about what Thiel’s shares were worth.

I’ve never ever felt sorry for a billionaire, but think about how much Thiel’s shares were worth only days before the lock up period. Ouch! Now he has a mere $95 Million or so in Facebook stock left. Give me a ring, Pete, we’ll do lunch – no worries, it’s on me.

Market Rally for Real This Time?

Oh hey, look, it's another market rally in the works, yawn.... except this one’s lasted more than a week this time. I haven’t posted here in a while mostly because I’ve been busy with my business (it’s good when busy is a part of business), but also because this market has been bi-polar.

IBD has called a rally a few times at least now in the past couple of months but they haven’t worked out. This market has been choppy and hesitant as it has grinded its way higher.

Yet the market seems to have taken on a better tone lately with a number of high quality stocks breaking out. It's wise to continue being cautious as we approach highs in the market, however, but it's also worth perhaps dipping your toe in to see if this rally really works out.

Previously, stocks would break out but fewer than you’d like would succeed. There have been only a handful of top rated break-out winners like SSYS, MLNX (but only after triggering the 8% stop loss rule and then climbing higher) and SWI. Each has been tricky to purchase, further complicating the picture. 

I’ve been stopped out four times in a row on break outs going back two months on stocks, including AAPL. Yet last week produced some nice break outs. Let’s take a look at a few.
KORS, one of my favorite stocks, broke out last week after blowing earnings expectations out of the water. This stock seems to have it all – top notch fundamentals, including triple digit EPS in the most recent two quarters, fund support, a hot product, and, while the company has been around for a while, the stock is relatively new. I favor young stocks because history smiles on the youth in the stock market, with big runs tending to happen inside the first 8 years or so of a stock’s existence.

KORS consolidated in a double bottom pattern with the blue arrows indicating the two bottoms. The red arrows indicate the two potential buy points (midpoint and left side high). The green arrows indicate possible entries. The other arrow shows that the break out happened on huge volume, the key confirmation telling us it’s ready to purchase as it passes the buy points.

FLT is a solid company that broke out last week also. It has delivered solid earnings and sales growth and has a product that is experiencing secular growth, exactly the kind of situation you want in a stock. Add to that a good industry group, all around fantastic fundamentals, stability and it also is a young stock.

FRAN is similar to KORS in that it is in the retail space. Where it differs from KORS is that FRAN focuses on finding the best product and marketing it in short supply, driving up demand. It uses smart management rather than only delivering creative genius (KORS has both), to sell product. It has a high margin, utilizing its retail space in an exceedingly efficient manner. This is a well-managed stock with room to grow, focusing on younger women who are price and fashion-conscious.

Be careful with FRAN at the moment, notice today's (or yesterday's by the time I'm posting this) downside reversal action (these are all daily charts - the red price action bar on the far right of the chart below is what I'm refering to); it indicates some hesitancy and selling. I expect that to continue into tomorrow/today. Watch how it behaves if it falls back to the handle buy point, indicated by the red arrow. If buyers like FRAN, they will step in and support the stock. Really great stocks generally do not revisit their original buy points before their big runs, but plenty of good ones do.

The common theme between all stocks? Aside from all meeting the main criteria of superb earnings and sales growth, ROE and other such factors, each stock is young with room to appreciate both in price and market share. Growth is what you want in a stock.