Thursday, February 23, 2012

CAP: Shipping Containers

CAI International Inc. (CAP) sells, leases and manages shipping containers -- those large metal boxes that carry stuff from here to there on trucks, trains and ships.

It is a business that ties the San Francisco, California company, to the heart beat of the global economy. As the world recovers from the Great Recession, trade picks up and so does CAI International's business. The world slides back into the recession, and CAI International falls on hard times.

CAP had the most bullish chart of nine stocks added today to the Zacks top buy list. ASPS was the runner-up, followed by RAIL.

CAP is showing bullishness at all levels of analysis.

CAP began its most recent leg up from $15.87 on Jan. 11 and has risen to a high on Wednesday of $20.63. The rise was interrupted by a one four-day correction.

The rise is a retracement of a quote deep correction that carried the price down from an April 2011 high of $28.57 to an October 2011 low of $10.64.

So the current price is far from being in blue-sky territory. It is battling resistance from the 2011 fall every step of the way. A 2011 correction came at levels just above a correction in 2010. The current price is within a two-week correction zone set in November 2010.

Do old levels like that matter? They can, if enough money got left behind still in the stock as the price moved on.

On a micro-level, Wednesday's push to a higher high was followed within the same half hour by a retreat that continued for more than five hours, ending at $19.76 when the trading-day ended. The price today has pushed beyond that level to a high of $20.17, so far.

The return on equity is 25% -- growth stock territory -- but with a crushing load of long-term debt, 2.48 times equity. Such debt limits the company's ability to pursue opportunities and to weather economic storms.

Institutions own 57% of the shares -- that is  lower than most stocks that show up on the Zacks buy list -- yet the stock's price is quite high. It takes $3.03 in shares to control a dollar in sales.

CAP on average trades 65,000 shares a day. With that low volume, it is no surprise that the options selection is abysmal -- only five strike prices for the near month, with very low open interest and wide bid/ask spreads.

That means any trade I would care to make in this stock would be as shares, which costs me both flexibility and leverage.

Implied volatility is high in absolute terms at 57%, but that is near historical lows for the past six months. The volatility implies that the stock will close between $16.85 and $23.45 a month from now.

Decision for my account: I lost interest in CAP when I saw the options line up and spreads. The lack of institutional investors is also a large negative. I'm passing on CAP.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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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