Wednesday, February 6, 2013

STRT: A bullish whipsaw

Strattec Security Corp. (STRT) broke above its 20-day price channel on Tuesday, culminating a three day run that carried the price up 20%. The breakout beyond the $29.96 channel boundary was confirmed today as the price moved still higher, to $31.51.

STRT has been in an uptrend since last September. This week's rise is the "saw" side of a seven-day bullish whipsaw that began Jan. 25 after the company exceeded earnings estimates by 18%. The stock immediately tanked. Go figure!

The entire move, both the collapse and the subsequent recovery, was accompanied  by higher than normal volume.

This is STRT's 11th breakout to the upside since January 2009, when my database begins. Its bullish breakouts have been profitable three times out of five, with an average gain of 22.3%.

Adjusting the 60% success rate by the average yield produces a score of 13.4%, which is quite high.

The last three upside breakouts, all in 2012, were successful, with returns of 1.6%, 3.9% and a whopping 22.2%.

Strattec, headquartered in Milwaukee, Wisconsin, makes locks and keys for automobiles and other applications. It sells not only in North America but also Europe, East Asia and South America.

The company has been in business for more than a century, either independently or as a division of Briggs & Stratton (BGG).

Strattec reports return on equity of 12%, a respectable level, with no long-term debt to speak of. Year-over-year quarterly earnings have consistently shown higher levels, especially the 2nd quarter (STRT's fiscal 4th quarter), when earnings are at their highest each year.

Earnings have surprised to the upside in seven of the last 12 quarters, and to the downside in five. All of the quarters were profitable.

Institutions own 74% of shares and the price is quite cheap in comparison with sales. It takes only 35 cents in shares to control a dollar in sales.

STRT is a thinly traded stock, with average volume running about 17,000 shares a day. Unsurprisingly, given the low liquidity, there are no options offered.

On average, the daily trading range runs about 3% of the share price.

The fair-price zone on today's 30-minute chart runs from $31.03 to $31.39, encompassing 68.2% of transactions surrounding the most-traded prie, $31.24. With 4-1/2 hours left in the trading day, STRT has mainly been floating slightly above the most-traded price and has stayed within a fairly narrow range.

Strattec next publishes earnings on April 25. The stock goes ex-dividend in March for a quarterly payout yielding 1.28% annualized at the today's prices.

Decision for my account: I've opened a bull position on STRT, structuring it as long shares. The breakout pushed the price decisively above near-term resistance, to a higher high. Also, the financials look good and the company is stable -- it has been around for awhile and lacks the failure risk common in young start-ups.


My trading rules can be read here.  A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.

And the classic Turtle Trading rules on which my rules are based can be read here.

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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