Monday, April 23, 2012

NCR: Not just cash registers anymore

NCR Corp. (NCR) got its start in the 1880s as National Cash Register. These days the old mechanical cash register, with its happy ka-ching!, has been reinvented as the point-of-sale solution, and NCR makes those still.

But the Dayton, Georgia company also produces ATMs, airline self-check-in machines, self-checkout lanes for grocery stores, software to help run retail outlets, hospitals, travel companies and marketing operations, e-commerce systems. Oh, and they'll also sell you two-sided paper for thermal printing.

NCR had the most bullish chart of 14 stocks added over the weekend to the Zacks top-buy list. I found it amusing that wunderkind AAPL, which was added back to the list after dropping off, has ca chart that didn't even make it past the first round of competition.

NCR is in the eighth trading day of an upward push that began April 12 at $20.43. The peak so far came Friday at $23.55 after earnings hit analysts' estimates spot-on.

Friday's move was a decisive break-out from a plateau that has held sway since early February. The question, as always with decisive breakouts, is whether they were really decisive at all.

("Decisive" is one of those slippery adjectives defined by unknowable future events, which, come to think of it, is a fairly good definition of a "meaningless".)

But back to the main point. The breakout level was around $22.50. If the price remains above that level, then it was a decisive breakout. If it falls back, then it was a head-fake.

The chart shows pre-recession resistance at the $28 level.

NCR has return on equity of 8% with a high level of long-term debt, amounting to 98% of equity. If I were a long-term player, then I would turn away immediately at those numbers.

Happily for NCR's market cap, institutions don't share my opinion. They own 81% of shares. Even with that high rate of institutional ownership, the shares are available for cheap. It takes only 66 cents to control a dollar in sales.

NCR'S business is seasonal, peaking in the 4th quarter. And that quarter has shown high earnings over the year-ago quarter for two years running.

NCR trades 2.1 million shares on average, sufficient to provide a good selection of options with open interest running to 3- and 4-figures. The bid/ask spread is wider than I like, amounting to 20% for the at-the-money May calls.

Implied volatility stands at 31%, near the top of its three-month range. It has risen sharply since mid-April from a six-month low of 12%.

Options traders are pricing in a 68.2% chance that the price will close between $20.90 and $24.98 a month from now, for an 8.9% gain or loss.

Decision for my account: I like the chart, especially the fact that it is early in the price rise. I dislike the bid/ask spread. I won't enter today because of the broadly down market. I'll consider entering on Tuesday if the day shows a net rise within or above Friday's trading range.


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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