TheStreet Breakout Stocks Weekly Summary...from Cramer's site...they own FTNT
TheStreet Breakout Stocks Weekly Summary
Bryan Ashenberg, CFA
11/12/12 - 04:28 PM EST
The markets endured a beating this week. Concerns about the fiscal cliff rushed to the forefront of investors' minds as the markets tried to digest the U.S. presidential election results, decent economic data in the U.S. and China, negative European macroeconomic commentary and the debilitating after-effects of Hurricane Sandy. The tape feels heavy -- and uncertainty surrounding the fiscal cliff, an issue that has been well known for quite some time, continues to cast a pall over the markets.
Turning to the model portfolio, it was another a busy week of earnings reports for our model portfolio holdings. The reports were solid on average, and we were relieved to see the markets reward good news -- or, at least, the lack of bad news.
As for the week's actions in the model portfolio, on Wednesday we sold 125 shares of our position in Echo Global Logistics (ECHO:Nasdaq) and swapped the money into Millennial Media (MM:NYSE), which we believe has greater near-term appreciation potential. On Wednesday and Thursday, we trimmed a combined 150 shares from our position in Cinemark (CNK:NYSE) for an average 94% gain. On Thursday we added 100 shares of EZchip (EZCH:Nasdaq) as the company's management said business has likely bottomed, and that its model is now seen inflecting back toward growth. The flow of model-portfolio earnings reports is nearly over, and we will now focus on uncovering some new opportunities.
Bottomline Technologies (Technology -- EPAY:Nasdaq, $24.70, 600 shares, 4.80%): Bottomline sells electronic-payment invoice and document- automation services to corporations and financial institutions. The shares rocketed 8% higher this week following the company's better-than-expected quarterly results on Wednesday. The company appears to be firing on all cylinders and is realizing the fruits of its significant prior investments. The company's software-as-a- service (SaaS) exposure, identifiable growth catalysts, cash-rich balance sheet and high-revenue visibility make the stock an attractive long-term investment.
Ceva (Technology -- CEVA:Nasdaq, $14.60, 1050 shares, 4.97%): This Israel- based company designs and licenses semiconductor intellectual property for mobile handsets, mobile broadband, portable multimedia and the consumer electronics markets. This week, lost 5% as the stock suffered along with a weak market. Management noted on its recent third-quarter earnings report that its business has bottomed it appears that business should be back on track in 2013. We are looking ahead to low-end 3G smartphone adoption in China and 4G rollouts worldwide, for which Ceva will receive a much higher royalty payment per device. We remain bullish on the stock, and believe the stock should be aggressively accumulated by those who will focus on its compelling long-term growth opportunity.
Crocs (Consumer Goods -- CROX:Nasdaq, $12.41, 1,100 shares, 4.43%): Crocs is a footwear designer, manufacturer, marketer and retailer. The shares continued to sink this week, giving up 5%, as management met with some institutional investors and left investors with the feeling that forward guidance may need to be reduced yet again. The company has executed reasonably well given the macroeconomic challenges, and we note that the stock continues to trade at a modest valuation. However, management's execution has been spotty, and the stock is deservedly in investors' penalty box. The stock has a modest valuation, as it trades at about 8x 2013 earnings (including $3.40 in cash per share), and offers investors an attractive risk-to-reward scenario.
Dunkin' Brands (Consumer Services -- DNKN:Nasdaq, $30.41, 550 shares, 5.42%): Dunkin' Donuts holds the No. 2 market share for quick-serve coffee in America, ranking behind only Starbucks (SBUX:NYSE), and it holds the No. 1 market share in coffee, doughnuts, bagels and muffins. Dunkin' Brands also owns Baskin-Robbins, which is the country's top seller of hard ice cream. All of its stores are franchisee-owned, which takes commodity pressures out of the equation and makes for a high-margin company that generates a high cash flow with low capital expenditures. The shares dropped 4% this week after competitor McDonald's (MCD:NYSE) announced weaker-than-expected same store sales for October. Although the macroeconomic environment is challenging, we remain upbeat about the company's significant expansion opportunities. As a reminder, the stock also offers investors an appealing 1.9% dividend yield.
EZchip Semiconductor (Technology -- EZCH:Nasdaq, $36.30, 425 shares, 5.00%): This fabless semiconductor manufacturer holds a strong position in a niche marketplace of Ethernet network processors (NPUs). Management projects the company's revenue as having the potential to grow by 4x to 5x between 2011 and 2016, with market share set to climb between 50% and 60% over that period. The shares popped 11% this week after its third-quarter earnings call highlighted to investors how its business has bottomed and is now inflecting higher. We maintain that the stock's potential growth and fair valuation, along with the company's stellar balance sheet, offer investors an attractive long-term opportunity.
Fortinet (Technology -- FTNT:Nasdaq, $18.37, 800 shares, 4.76%): Fortinet is the leading player in the unified threat management (UTM) security market. The company derives more than half of its revenue from its high-margin subscription business. The shares also trade on mergers-and-acquisitions (M&A) activity in the security space. The stock slid 6% this week, even though FBR initiated research coverage of Fortinet on Tuesday with an Outperform rating and a $25 price target. We remain bullish on the stock because we believe that as security breaches escalate, security software and hardware solutions will remain a priority area of information-technology areas of the budget.
Healthcare Services Group (Health Care -- HCSG:Nasdaq, $23.38, 800 shares, 6.06%): This leading provider of housekeeping, laundry, linen and food services to the long- term care industry is a high-quality growth play with impressive defensive characteristics. The company boasts a customer-renewal rate of more than 90%, a robust balance sheet and a healthy 3% dividend yield. The shares dropped 3% this week as the market moved lower post the election results. There was some significant action in hospital and health care related companies this week, given President Obama's re-election and the increased odds of the Affordable Care Act being implemented. Regardless of the outcome related to this legislation, we feel Healthcare Services Group stands to benefit as companies look to cut costs and outsource non-core services. The company has an intriguing mix of growth drivers, and its defensive industry and stock components offer stability in a tough tape.
Hologic (Health Care -- HOLX:Nasdaq, $20.39, 425 shares, 2.81%): Hologic develops, manufactures and distributes medical imaging systems, premium diagnostics products and surgical products. The company operates four business segments: breast health, diagnostics, GYN surgical and skeletal health. This week, the shares moved 2% lower heading into the company's fiscal fourth-quarter results, which are scheduled for release after Monday's close. The company has multiple growth catalysts in place, including greater-than-expected synergies from its recent Gen-Probe acquisition, the Selenia Dimensions 3-D System (which is in the early stages of creating a revolutionary change in digital mammography) and Hologic's diagnostics business, which has various promising products in the early stages of its product life cycles.
Millennial Media (Technology -- MM:NYSE, $15.23, 525 shares, 2.59%): Millennial sells a mobile-advertising technology platform for developers and advertisers. Millennial is our way to play mobile advertising which is the emerging area of interest for companies looking to monetize their websites. Millennial boasts more than 350 million global monthly unique users on its network. The company is second only to Google (GOOG:Nasdaq) in mobile advertising network market share, and its name often comes up as a takeover candidate. On Tuesday, we increased our position by 125 shares after the stock reported third-quarter results that bolstered our confidence in the name. For the week, the stock settled 2% higher. Millennial's market leadership, scarcity value and early mover advantage have enticed us to invest in this speculative position. We plan to build this holding up in conjunction with our level of conviction in the company.
Skyworks Solutions (Technology -- SWKS:Nasdaq, $20.81, 975 shares, 6.58%): This handset-and–wireless-infrastructure company has a mobile-platform segment that accounts for 65% to 70% of its revenue. The linear-products segment brings in 30% to 35% of the company's revenue and offers higher-than- average gross margins, longer product cycles and revenue diversification. The selling stabilized this week and the shares finished basically unchanged. In a welcome sign, management announced a $200 million share buyback on Friday morning indicating that a bottom may be in place. We have been adding to our position in Skyworks recently because we believe it is the highest quality company in its sector, and yet it trades at a discount to many of its peers. With several catalysts on the horizon, including the iPhone 5 ramp and the impending introduction of the Samsung Galaxy S4, we feel Skyworks remains a key play on the mobile megatrend.
United Rentals (Industrials -- URI:NYSE, $40.77, 525 shares, 6.94%): As the largest equipment-rental outfit in North America, the company has seen robust growth in its rental rates, utilization of its equipment and increasing used- equipment prices. The shares slid 1% this week along with the overall market decline. On Sunday, KeyBanc posted a research report that quantified Hurricane Sandy's potential business impact on URI. The analyst believes that the company may see a $20 million to $40 million revenue opportunity and $0.06 to $0.12 of earnings impact due to clean up and rebuilding efforts over the next few years. Our thesis that the company will benefit from a slow-growth macroeconomic environment and the secular shift to renting over buying continues to play out, and we remain bullish on the shares.
Verint Systems (Technology -- VRNT:Nasdaq, $26.37, 750 shares, 6.41%): Verint sells it clients analytic software products that capture, distill and analyze complex and unstructured data. The company analyzes voice, video and text sources for enterprise business intelligence, communications interception and digital video solutions. The shares dropped 1% this week but significantly outperformed the model portfolio's benchmark, the Russell 2000. The spin from Comverse Technology (CMVT:Nasdaq) is complete and we expect that overhang to dissipate. We believe the stock's compelling valuation and the company's big data products make it an attractive investment.