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I consider myself a “hybrid” trader-investor. I like to hold a mix of longs and shorts. I trade around core positions in my investments, and some of my best investments began as short-term trades. I do both top-down and bottom-up fundamental analysis. And I mix fundamentals with technicals to find the best entry and exit points. In short, I like to have all my financial bases covered.
One of my favorite hybrid approaches to the markets is to start with a screen that filters out stocks trading over $7 per share, over 500,000 shares per day, and that show strong bottom-line growth and top-line value. Oh, and they also need to be profitable, and trading at a steep discount to forward earnings multiples. Running this scan typically gives me about ten stocks to focus on. From there I do trend analysis, momentum analysis, and plot out price patterns and projections. This usually helps me whittle the list down to just a few stocks worthy of trading and/or investing in.
This week my hybrid approach turned up three companies for your consideration. If you want to trade any of these suggestions, I strongly recommend doing your own analysis and setting a reasonable stop-loss on each position to protect against any unforeseen change in investor sentiment. See my analysis below.
This heavy equipment maker trades in the same industry sector as much larger rivals, Caterpillar and Deere & Company. But fundamentally, it stands in much better position. Shares currently rank first in the industry for the lowest forward multiple and the lowest price-to-free cash flow ratio, third in price-to-sales ratio. The company grew eps 27% over the past year and 21% in each of the past five years. From the chart below, you can see that a possible inverted Head & Shoulders pattern is emerging, or possibly a Cup & Handle, each which signal the best entry on the breakout at about 27.40. Both patterns would put a future price target on the measured move at 32.00 for a gain of around 17%.
This ethanol maker has been hit in recent months with declining prices for its product but this hasn’t slowed down the company’s ability to grow both sales and profits. Shares currently trade at a hugely undervalued 0.35 p/s ratio while growing eps at a whopping rate of 247% this year. The company recently announced plans to spin off its ethanol supply chain unit which should improve those numbers even further. Shares have been trading up on the news within a new, sustainable uptrend. Trend analysis shows that momentum is increasing and should bring the move up to a price target near 35.00 for a potential gain of 18%.
This maker of solar panels and the semiconductor modules – and my favorite player in the industry – that drive them was the #1 stock for all of 2013. It has since fallen on harder times with new growth-inhibiting government regulations in place and with lower prices driving down profits. However, the company and the stock are now in full rebound mode. Despite the headwinds, Canadian Solar is still growing earnings at a 3-digit annual rate, trades at a comfortably low p/s ratio, and has the best forward earnings projection of any stock on my list. Sales and earnings were both way, way up this past quarter, and all estimates are for more of the same this quarter. As you’ll see from the chart, shares have bounced cleanly off its January lows and are now in a strong uptrend with a modest pullback to the 20sma support line. Trend analysis shows a price target of 40 for this move, for a potential return of over 18%.