Wednesday, January 11, 2012

TRMB: Navigating a Breakout?

Trimble Navigation Limited (TRMB) is in the business of pinpointing where stuff is on Planet Earth. Not just -- OK, here I am on my hike -- but lots of stuff that can be analyzed statistically, big stuff as in surveying and construction, mobile stuff as in tracking vehicles for trucking firms.

The first thing I like to do with a company is state concisely what it's business is. In TRMB's case, the business is turning location into data.

I selected TRMB using a bracket on a random selection of 16 stocks selected from 24 added today to Zacks top bullish ranking. (See my essay "10,000 Charts" for an explanation of how I use brackets to select and analyze stocks.)

The Final four were POOL in 2nd place, NNBR in 3rd and DVA in 4th.

TRMB's chart recommends it because it is on a near-term roll. A three-day rise that included an upside gap has carried the shares from $40.46 at the Jan. 9 open to $43.24 at today's high so far.

This is within the broader context of a stock trying to recover from a stumble amid a bigger recovery from a decline that carried from $52.53 in late March 2011 down to $31.88 in early October 2011.

But honestly, I look at this chart, which was the pick of the litter, and I'm really ambivalent.

Yes, it has broken out of an area of congestion, but the congestion only lasted two days. I can get more congestion on the Capital Beltway in Washington, D.C.

Yes, this week's rise has carried the price above the beginning of last week's steep fall, but this week's high so far remains below the late October high. The price would have to break above $45.04 to hit a true near-term higher high.

So, I will say right here, to spare the barely interested further reading, that based on the chart alone I'm unlikely to open a bull position on this stock.

What's the upside?

Well, Zacks loves it, and Zacks is to stock analysis what Real Clear Politics is to political polling -- it aggregates opinions from all corners of its universe and distills those opinions into a single piece of guidance.

So when Zacks talks, I listen.

The big money managers are clearly listening. Institutional ownership stands at 91%.

Return on equity is 15% -- not rapid growth territory but respectable. Debt to equity is 0.36, a bit high but not horrid.

Price to sales is 3.46 -- meaning it costs $3.46 in stock to obtain a dollar in sales. That's pricey (or "spendy", as people say in the Pacific Northwest). While that high ratio means the stock is relatively expensive, it also means that big money thinks well enough of it that they've bid up the price.

Never fight big money in the market. Big money always wins.

TRMB is liquid, with an average volume of 595,000 shares. But its options selection is weak, with only 11 strike prices, and the spreads are huge. For example, the close in-the-money bid-ask spread is $1.40. Compare that to SPY, the most liquid exchange-traded fund on the market, where the comparable spread is 4¢.

So if I were to play TRMB, it would be as shares, with a 4¢ spread.

Calendar note: TRMB releases earnings on Feb. 2 after the close.

Decision for my account: I'm passing on TRMB. I won't open a position at this price level. I'll reconsider that decision if the price breaks above the most recent highest high of $45.04.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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