Regular readers will know that my usual methods of finding trades -- selecting the most bullish chart among new additions to the Zacks top-buy list -- has been failing me of late.
Perhaps it is my own tilt in favor of liquidity. Perhaps the analyst community, upon which Zacks relies, has turned its attention more to mid- and small-cap stocks. Perhaps it is a phase of the moon or the positions of the planets in the Zodiac.
No matter. When Plan A doesn't work, there is always a Plan B, and a Plan C, if needed.
Following are the most bullish charts of 51 stocks ranked as buy or top buy by analyst consensus.
I selected using my usual bracket method -- see the "Methodology" section at the end of this posting for a more detailed description -- breaking the mass of symbols into four smaller brackets. The four stocks analyzed here were the winners of those brackets. In another posting this weekend, I'll take up the losing semi-finalists.
Tyco International Ltd. (TYC)
is one of the massive "we do everything within our area of expertise" global conglomerates. The Schaffenhausen, Switzerland based company on security systems -- against both fire and theft -- as well as sensing and flow control, which can be seen as being related to the fire protection segment.
They also make electrical and metal products that can be seen a essential for carrying stuff to put out fires and signals that all is well or ill from one place to another.
"Specialty" for companies like Tyco is defined very broadly indeed.
TYC's most recent leg up began in September 2011 at $38.51 and rose to a swing high of $58.66 on March 28.
From that point it corrected sharply down to $53.02, and then resumed its rise for the past eight trading days, reaching a high Friday of $55.88.
The caution trader will wait until the swing high of $58.66 is broken. The all-time high of $63.21, set in January 2001, provides potentially major resistance, if you believe that resistance levels hold sway for years. I'm not entirely sure that such is the case, but my opinion isn't universally shared.
Tyco has return of equity of 10% -- a steady pace but hardly the stuff growth stocks are made of -- and long-term debt worth 30% of equity. My preference is for debt of 10% of equity or less, but for short-term trades the debt level tends to be irrelevant.
Institutions own 87% of Tyco's shares, yet the price remains low relative to sales. It takes $1.48 in shares to control a dollar in sales.
Earnings have remained fairly stable for the last three quarters, rising gradually prior to that with a tendency to form plateaus.
On average TYC trades 3 million shares, enough to give a fair selection of options with good open interest and a fairly narrow bid/ask spread.
Implied volatility stands at 23%, slightly above six-month lows, and has been declining since April 11. Options are pricing in a 68.2% chance that TYC will close between $51.56 and $59.02 a month from now, a 6.8% gain or loss.
TYC next publishes earnings on April 26. The stock goes ex-dividend on April 25 for a quarterly payout yielding 1.81% annualized.
Decision for my account: I'll consider opening a bull position on TYC after earnings are announced. The question is whether to go for a net debit or net credit position. Implied volatility is low, suggesting a net credit, but is falling, suggesting a net debit. I'll decide which when (and if) I trade.
The TJX Companies Inc. (TJX)
is clothes shopping for the budget conscious. And who isn't budget conscious these days? Think T.J. Maxx and Marshalls in the United States, Canada and Europe.
Being a retail outlet, TJX is extraordinarily sensitive to changes in the public mood. My take is that the public is so disgruntled and moody that it can't get much worse without everyone taking to the barricades in a replay of Les Miserables.
So I'm optimistic about retail and other mid-sensitive plays.
TJX began its most recent leg up in September 2011 at $25.55, hitting an all-time peak of $41.58 on April 18. The rise was punctuated in early April by a three-day correction.
TJX Companies has return on equity of an extraordinary 47% with rather low debt amounting to 25% of equity.
Institutions own 96% of shares, yet the stock is cheap, just like Marshall's clothing, costing but $1.33 in shares to control a dollar in sales. Earnings have accelerated sharply the last three quarters.
TJX on average trades 5.2 million shares, with good open interest and a fairly narrow bid/ask spread but with a mediocre options selection.
Implied volatility stands at 27%, which is near the six-month low. It can be counted as either falling gently or undulating aimlessly, depending upon one's frame of mind.
Options are pricing in a 68.2% chance that the stock will close between $37.78 and $44.26 a month from now, a 7.9% gain or loss.
Given the low and meandering nature of the implied volatility, I would play TJX as a net credit position, buying volatility low in the hope of selling it high.
TJX Companies next publishes earnings on May 15. The stock goes ex-dividend on May 8 for a quarterly payout yielding 1.12% annualized.
Decision for my account: I intend to open a bull position on TJX if the present uptrend holds into next week. Most likely I'll structure it as a bull call spread expiring in August. I may also look at it as a diagonal spread.
UnitedHealth Group Inc. (UNH)
is one of the massive health-insurance companies that dominates the American system of medicine.
The Minnetonka, Minnesota company controls a commanding position in the industry. It is also under regulatory stress as health-care reform in the United States seeks to control the cost of becoming and staying well.
UNH completed its most recent correction in November 2011 and on Nov. 25 began another rise from $43.55 up to Friday's high of $59.71. That leg up was punctuated by three minor corrections.
The price is at its pre-recession high of $59.46 set in December 2007 and is near its all-time high of $64.61, set in December 2005. I don't totally discount the possibility that UNH is in a range of heavy, though aged, like a fine wine or Roquefort cheese resistance.
UnitedHealth Group's return on equity is 19%, just below growth-stock territory, but with slightly elevated long-term debt amounting to 45% of equity.
Institutions own 87% of shares, but the price is at a steep discounts. It takes only 60 cents in shares to control a dollar in sales.
I attribute that in part to massive uncertainty about what regulatory environment lies ahead for UNH. It depends upon the outcome of the American election, both for president and two houses of Congress. Ultimately, Dear Reads, if you are a citizen of the United States, it depends upon you.
Earnings remained at a plateau during 2011 but jumped sharply the first quarter of 2012.
UNH on average trades 6.5 million shares, enough to provide an adequate selection of options with high open interest and fairly narrow bid/ask spreads.
Implied volatility stands at 26% and on Friday rose slightly from its six-month lowest low. Options are pricing in a 68.2% chance that the price will close between $55.07 and $63.95 a year from now, a gain or loss of 7.5%
UnitedHealth Group next publishes earnings on July 19. The stock goes ex-dividend, most likely in September, for a quarterly payout yielding 1.09% annualized.
Decision for my account: I intend to open a net credit position on UNH. I shall most likely structure it as a bull call spread, although I'll also look at it as a possible diagonal spread.
The Gap Inc. (GPS)
is clothing, accessories and personal care poducts with a touch of the cool. Its holdings including the Gap stores, Old Navy and Banana Republic. The San Francisco, California company has outlets in the United States, Canada, Europe, the Middle East, Africa and East Asia.
The company began a rapid rise on Feb. 2 with, appropriately, an opening gap that carried the price from a prior-day close of $19.45 to an opening of $21.48.
The most recent leg up, following a nine-day correction, began April 12 at $25.62 and has carried the price to Friday's high of $27.95. That level brings the price above its pre-recession levels, although the all-time high, $53.75, was set in 2000.
GPS is most decidedly not a blue-sky stock.
The Gap has return on equity of 24% -- growth stock territory -- but with a higher level of long-term debt than I like to see, amounting to 60% of equity.
Institutional ownership is rather low, just 57% of shares, and the price is also on the low side; it takes 94 cents in stock to control a dollar in sales.
Earnings are seasonal, peaking like most retail in the 4th quarter. This year's Q4 earnings were down sharply from the year-ago figure.
GPS on average trades 7 million shares, sufficient liquidity to provide an excellent selection of options with high open interest and narrow bid/ask spreads.
Implied volatility stands at 37%, well off the six-month low of 31%. It has been declining since April 17. Stock traders are pricing in a 68.2% chance that the stock will close between $24.89 and $30.81 a month from now, a 10.6% gain or loss.
Gap next publishes earnings on May 17. The stock goes ex-dividend sometime in July for a quarterly payout yielding 1.8% annualized
Decision for my account: I intend to open a bull position on GPS. I'm uncertain about whether to for a net credit or net debit playing. My choice will depend upon what implied volatility is doing the day open the position.
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.