I like to combine technical and fundamental analysis when trading. The stocks reviewed below are Zacks Rank #1 (Strong Buy) and have favorable technical set ups. These stocks offer an investor the opportunity to marry upward earnings estimate revisions and a favorable looking technical catalyst for profit. Let’s quickly look at three names and their daily bar charts for trading ideas:
Cardtronics (CATM - Free Report) is the world’s largest non-bank ATM operator with a large footprint in the U.S., Canada, Mexico, the U.K., and Germany. The company reported a 12.8% positive earnings surprise on July 31st, posting $0.44/share against a Zacks Consensus Estimate of $0.39/share. The stock is expected to earn $1.71 this year and $2.07 next year. This equates to a 21% growth rate in earnings. Near $37.60, the stock is trading about 18.1x 2014 earnings.
(click to enlarge)
Technically, the stock rallied above the top of a consolidation. The news high seems to argue for a continuation of the rally. At the same time, the MACD is showing the sell off losing momentum and is implying the ground work for a new leg higher. The stock has tended to grind higher over time. It would not be surprising to see this stock in the low $40’s in the coming weeks. A close below $35.50 would be a sign of weakness.
Monarch Casino (MCRI - Free Report) is the operator of the Atlantis Casino and Resort in Nevada and the Riviera Black Hawk Casino in Colorado. The stock posted a strong $0.14/share or 60.8% positive earnings surprise at the end of Q2, but has seen no change in earnings estimate revisions since the release. The stock is expected to earn $1.16/share in the year ending December 2014 and near $19.50 is priced at 16.8 times expected 2014 earnings. On a forward 12 month PE basis, it is trading about line with its 10 year median.
(click to enlarge)
The stock is trading in a downward sloping channel from the August 5th high. The pattern looks like consolidation to extend the uptrend. A rally over the top of the channel would imply a new leg higher. The MACD suggests the sell off/correction is losing momentum. Conservatively, the channel argues for a move to the $23 area. A break below the bottom of the channel would be a bearish sign and negate the friendly set up. There is also an intersection of potential support off the old highs and the bottom of the channel.
Sturm Ruger had been trading in a range since the spring of 2012, but recently broke out higher to new highs. The rally over the sideways pattern seems to imply a new leg higher and could set the stage for a move into the $70 area.
(Click to enlarge)
The company is coming off of a $0.45/share or 38% earnings per share surprise in the quarter ending June. The twist with RGR rests in the expectation for 2014 earnings per share to decelerate from $5.15 to $3.50. Arms sales have been hot, and are expected to slow. The fundamental growth story seems to be uncertain despite the Zacks Rank and strong earnings surprise in the last quarter.
The markets will be trying to navigate the events in Washington in the coming days with the debt ceiling and government funding for the new fiscal year in the spot light. However, stocks with rising earnings estimate revisions and strong technical set ups may provide a way to weather the Washington storm. CATM, MCRI, and RGR offer a way to marry favorable technical and fundamental dynamics.