This weekend I went through all my watch lists and ran all ten of my custom screens at
dailygraphs.com. I came up with a rather extensive list about 100 stocks long. I then narrowed this list down to 14 charts worth posting in a blog. There are numerous other charts I like, but these 14 are the easiest to draw. I also include a little bit about the fundamentals of each company, which can further narrow the decision when the time comes to pick which one to buy. I am going to post these in alphabetical order, so there is no ranking per se, but if I had to pick one overall best set up between fundamentals and technicals, I am looking at WWIN.
Disclaimer: Neither I nor my clients own any of these, but may perhaps buy one of them at any given time.
Charts courtesy of stockcharts.com
Clicking on the company's name will take you to the company's website.
Note the charts have been removed to make way for charts on later posts. Stockcharts will only allow 25 charts for free.
China Wind Systems Inc. (CHWY.ob)
China Wind Systems has been gaining momentum fundamentally. Trailing 12 months comprehensive earnings per share, which include gains on the translation of currency, amount to $0.43, on about 15 million shares. In this number the gains on foreign currency are not too dramatic, amounting to a few pennies a share. In previous years, the number was much larger, distorting comparable earnings. Suffice it to say, the company is growing both the top and bottom line on the income statement. At $0.43 per share, the company's PE is 12. So we have a growing company, with a relatively low PE, which is in the wind sector, and in China. There are many things right with this company fundamentally. The balance sheet shows negligible long term debt and a current ratio near 2. Early this next year the company intends to open a new manufacturing facility, for which it has already sold some product contractually.
The chart is fairly impressive as well. On December 9th the company announced the aforementioned deal to sell product and the stock gained both volume and price movement as a result. Since, the stock has made a handle of sorts and close $0.07 out of the handle on Christmas Eve, with large and increased volume despite the shortened session. There is still time to buy unless it becomes a Monday gapper.
China Sun Group High Tech Co. (CSGH.ob)
China Sun Group is not a solar company, despite the name. The company is actually into lithium ion batteries, specifically the excitement is centered around lithium ion batteries for electric vehicles. The company has signed multiple agreements to produce and sell batteries and has the second largest production facility of its type in China. Historically the company has grown sales from $8.3 to $25.3 to $37.0 million for fiscal years ended May 31 2007-2009. Profits were $0.01, $0.13, $0.16 on 53.4 million shares. The real growth phase of the company is yet to come and should manifest itself this coming year.
The chart features a nice basing period over the last three months and a handle which has developed over the last 7 days. A breakout above $1.90 on good volume would make this one hard not to buy.
Commtouch Software is an Israeli company making messsaging, anti-spam, and anti-virus software for businesses. The company first became profitable in fiscal year 2006 and has grown earnings from $0.03 to $0.11 to $0.14 in fiscal 2008. Earnings are currently accelerating as are sales. Sales read 6% 4% 4% and 8% over the last four quarters while earnings accelerate from -25% to 0% 0% +25%. The balance sheet is clean with negligible debt and the company has been buying back shares, reducing share count by 3.4% year over year as of the most recent quarterly report. There are about 25.3 million shares fully diluted.
The chart for Commtouch is a nice looking cup with handle. The actual pivot may be anywhere between $3.85 and $4.00, since there are often asks stacked at even dollar amounts. A large volume up move from here would pretty much signal the breakout.
Dynex Capital is a REIT investing in residential mortgages. The current yield is 10.4%. I am not going to delve into the balance sheet and income statement of Dynex, rather I will simply say the company appears to be solid, but who really knows in the mortgage market?
The chart, however, is a very nice, tight flag. The exceptionally large volume in the flag can either become support or resistance in the future, depending on if the the chart breaks out or fails. The trade up at $9.30 is likely an errant trade as the stock did not trade up to $9.33 and back down. Disregard the tick. If the stock trades into the upper $8.90's and approaches $9 it becomes very interesting.
Duoyuan is a recent IPO which makes off-set printing equipment. Trailing earnings give DYP a PE of 8 and I'm sure the balance sheet is in good shape after the recent IPO. The company has managed to grow earnings in each of the last 4 years. Solid fundamentals at first glance, but usually IPOs have a lot of pro forma issues and etc.. to fully sort out the earnings picture. Something I have not done yet.
Technically speaking, DYP has made a new issue base. The pivot point is $8.80. I have removed the IPO day on this chart in order to better see the volume.
From the iGATE website: "iGATE provides IT consulting; application development and maintenance; data warehousing; business intelligence solutions; ERP/ enterprise solutions; BPO/business service provisioning; infrastructure management; independent verification and validation; KPO and contact center services." In other words, they provide outsourced services. The company has grown earnings each of the last three years and is currently two quarters away from the bottom in earnings and sales, with 7% earnings growth in the most recent quarter and sequential sales growth in the previous two quarters after three quarters of declines. On the balance sheet there are plenty of current assets to cover current liabilities and negligible long term debt, nothing to worry about there.
The chart features consolidating closes for the last 7 days as volume has dried up in a sort of high handle to a rough looking W pattern. The overall pattern is pretty rough, but the handle is very nice indeed, especially with the volume drying up.
Jinpan is the second wind company and the fourth Chinese company on this list. China is seeing excellent growth, even with the struggling United States and Europe trying to hinder growth. China is also stimulating the wind and solar industry to a much larger degree than in the developed world. Jinpan has been one of my favorites for many years, though it is not solely a wind company. The company makes transistors for medium to high voltage transmission situations. In the most recent quarter 18.5% of net sales came from out of China, versus only 13% a year earlier, with sales to the wind industry representing 18% of the total versus 14% a year earlier. The balance sheet is healthy and the company is on pace to add over $25 million in cash during the year. Shares total around 8.1 million with 4.75 million float.
The chart features a typical flag which may be formed after a big run, with the price holding above the 20 day moving average. If the stock breaks above $46 on volume it has some room to run, though there is a roughly drawn upper up trend line which roughly parallels the lower up trend line. This stock tends to make large moves on earnings reports. The moves in May, August, and November were all due to earnings reports. This week will be interesting watching to see if it breaks below the 20 day moving average, or breaks out of this flag and moves on to new all time highs.
Liquidity Services is operates an online auction services directed towards wholesale and liquidation of salvaged and surplus assets, catering to professional buyers and sellers. The company does not consistently grow earnings every single year, but is on a steady pace upwards. Starting in fiscal 2003 earnings were $0.10, $0.19, $0.15, $0.32, $0.43, $0.51, and $0.31 in fiscal 2009. Sales bottomed in the quarter ended December 2008 and have since rebounded off the lows, but are still not growing year over year. In a current earnings basis, LQDT is a below par. However, the company's business has done well over time and there is over $2.00 per share of cash and short term investments on the balance sheet, with only deferred tax liabilities for long term liabilities. A small uptick in business can go a long way when a company has a clean balance sheet.
Although the fundamentals are not exactly top notch, given the previous year's down turn during the recession, the chart is excellent. The stock powered itself off of recent lows, creating the right side of the base. The last 12 days have featured consolidating closes with the high volume day in the handle being the Russell 2000 rebalance volume day. The pivot point lies somewhere in the $12.50 to $12.67 area. Any move with volume over $12.50 would be a break out. One can clearly see there is a handle formed at previous resistance which also holds above the base building area off the bottom.
Libbey makes items for the dinner table, such as ceramic, glass, metal, and plastic dishes. This is by far the weakest company from a fundamentals perspective in this blog entry. There is farm more debt than I would like to see on a company's balance sheet. The company has negative shareholder equity and has over $1.00 per share in quarterly interest expense. One slip and this company goes under.
However, the chart has been great for a long time. First, the company made a very nice base in August, September, and October, holding the 20 day moving average throughout the long handle. The company began moving out of the base three days before their latest earnings report and gapped up on earnings. The company is again consolidating on the 20 day moving average with a move higher on good volume being a buy indication.
Newtek is another company with a balance sheet and fundamentals which are not impressive. However, the company does have some potential with some recent deals in place and a quarter of profitability, though the company's guidance for next year is still for a loss. I would not buy this company based on fundamentals.
Again, though, the chart is something to mention. NEWT has made a high tight flag with a very clear $0.98 pivot point. A break of $0.98 and then the psychological resistance at $1.00 would be worth a buy, but not a large buy and not a buy I would hold through too many closes.
Pennant is a business development company, required to pay out the vast majority of profits in dividends. The current yield is 11.3%. For the purposes of this post I will not delve into the fundamentals of the company, but will not that they have grown earnings in each of the last 8 quarters.
The chart is a little tricky given some chart services include last week's ex dividend adjustment and some do not. The chart I have here is one which does include the ex dividend adjustment to previous day's trading. This chart shows a clear base breakout and since the stock has sat right on top of the base. A chart without the adjustment would show the stock still in the handle. Either way, the company is in a nice consolidating pattern which may get some room to run if it can trade up in the $9's on heavy volume. To add to the confusion on the chart, the largest volume day in the handle/consolidation was the Russell rebalancing day.
Radware is the second Israeli company in this post, providing integrated application delivery services to nearly 10,000 enterprises and carriers. The company has accelerating earnings after two years of losses and reported record quarterly revenues in the most recent quarter, up 24% year over year. The company has more cash and short term investments than total debt, with over $3.00 per share in liquid assets and over $7.50 per share in equity. Overall the company looks to be on solid ground with good potential going forward. There are roughly 15.5 million shares float.
The chart is another one greatly altered by the Russell 2000 rebalance. The rebalance caused the stock to break out of a consolidation or another step in an overall stair step pattern. The next two days crashed the stock down to the 50 day moving average area, but the stock bounced and closed up on the second day. I'd like to read this chart as able to break out at any time, but I have no idea what to put as a pivot. There is a clear uptrend and the stock likes to hold the 50 day moving average area, leading me to believe it should go higher from here.
Teltronics makes equipment and software to improve communications networks. It would be difficult to tease out a trailing 12 months earnings and sales picture so I'll give the nine months. The trailing nine months picture has the company producing $0.48 per share in earnings versus a loss in the previous year of ($0.26). Sales grew 36%. The balance sheet is not pretty, with current assets less than current liabilities and a negative shareholders equity. The company needs a few solid years of growth to fully dig the balance sheet out of the hole, but with a PE of around 3 on trailing 9 months earnings, it is well on its way.
TELT has built a high tight flag on the chart. Volume has dried up in the flag nicely, present a clear idea of what a break out would look like. Any movement out of the flag on good volume could be considered the start of a breakout. This flag could very easily go on for weeks or months, but I would not be surprised if the stock broke out this week or the first week of the year as the small cap rally continues onwards.
Lastly, I present what is my favorite set up of this blog post. Winner Medical develops dressings and disposables for medical care, wound care, and home care. The company does so in China, marking the fifth of fourteen Chinese companies in this post. Their main product is a 100% cotton dressings, which appears to be gaining momentum. The previous four quarters earnings grew 40%, 133%, 75%, and 86% with sales growth in each quarter. The company has been profitable in each of the last six years, but not until recently have earnings really taken off. The company has a current ratio over 2, negligible long-term debt, and over $3.50 per share in equity. The last statistic of note is a meager 4 million shares in the float.
Winner Medical Group's stock has made a nice cup with handle base. One might try a
bigcharts.com chart to see a more complete history, as the company moved from the bulletin board to the NYSE Amex exchange in early October. Since then, the company has formed a very nice cup with handle base, featuring volume drying up in the handle, after increasing on the right side of the base. The pivot for this company is around $6.60 and for sure at $6.75. I would expect another day or two of handle development, preferably on increased volume, before a breakout late in the week or early in the new year. However, this does not rule out a break down in pattern, or a large one day break out at any point.
Conclusion
The Russell 2000 small cap index led the market over the previous few weeks, plowing strongly into new highs. The Santa Claus rally was on and soon the New Year's rally should continue to push small caps higher. In my search through likely 1500 charts this weekend, I encountered an overwhelming sense small caps are going to go higher very soon. Lost of stocks are bouncing off of support or major moving averages, while many others have developed nice bases during the last three months and are either about to break out or have broken out recently. Looks to be a good trading environment in the near future. Good luck and happy New Year everyone.
feraldo
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