Setting The Table – 2-3-13

Generac Holdings Inc

Once again this week most of the stocks we follow are well extended. These five stocks are floating around buy points, however there are flaws with each of them. There are probably good reasons that most growth stocks have taken off in the past few months and these ones haven’t.

Generac Holdings Inc (GNRC)

GNRC has made this list quite a few times recently, but doesn’t seem to want to go anywhere. It is still digesting its big gains from its tremendous run in November. It is currently in a third stage base where the only week of above average volume was also the biggest down week in the base.

A high volume breakout over 40 would be interesting except for the fact that it doesn’t meet our earnings growth requirements. In its most recent quarter, GNRC reported earnings growth of only 4% and sales growth of 26%. It does have a stellar return on equity of 26%. It is scheduled to report fourth quarter earnings on February 14.

 

Michael Kors Ltd (KORS)

KORS tried to break out on Monday, but it immediately retreated and closed below its buy point. It then declined everyday for the rest of the week although Monday and Wednesday were the only days that volume was above average. There have been plenty of past examples of stocks that recover from failed breakouts, but I fear that I am beginning to root for this stock rather than look at it rationally.

The reason I keep looking at KORS is the stellar earnings track record. In its past three quarters, it has posted earnings growth of 133%, 162%, and 96%. It has also logged sales growth of at least 50% in each of the past eight quarters. Combine that with a return on equity of 57%, fund ownership that has increased from 327 to 515 in the past year, and a strengthening industry group and there is a lot to respect about KORS. The company is schedule to report earnings on February 12.

Sturm Ruger & Co Inc (RGR)

RGR is currently in a late stage base with a buy point of 53.12. In addition to being late stage, the base also contains three weeks of distribution and no accumulation.

While RGR doesn’t have an ideal chart, it does have the fundamentals. It has reported four straight quarters of earnings growth over 50% and sales growth over 45%. Annual earnings are projected to be up 60% in 2012, which will be the third straight year of earnings growth. It has a solid return on equity of 32% and is in a fairly strong industry group. RGR is scheduled to report fourth quarter earnings on February 25.

Solarwinds Inc (SWI)

After breaking out of a late stage base on light volume in early January, SWI has done a whole lot of nothing. The base has two weeks of distribution and one week of accumulation. Once again, the leading growth stocks have broken out and are now well extended while the former leaders and pretenders are still floating around buy points.

SWI ran into trouble when it reported that third quarter earnings growth slowed to only 19%. Prior to that, it had reported earnings growth of 43% and 50% in the first and second quarters of 2012. Sales growth remained constantly above 30% all year. It is still rocking a 35% return on equity and is increasing fund ownership, but is suffering from weakness in its industry group. SWI is scheduled to report earnings on Monday.

Catamaran Corp (CTRX)

I was really excited about the base CTRX formed at the end of October, but it closed below the buy point on its breakout day and hasn’t done much of anything since. It went on to form another base and did the exact same thing, so now we have two failed breakouts. It finally peaked its head back above the buy points this week, although it was in lighter than average volume.

The problem with CTRX is that third quarter earnings growth slowed to 14% after posting growth of 53% and 32% in the first two quarters of 2012. One promising number is third quarter sales growth, which was 148%. Annual earnings for 2012 are projected to be up 37%, and then earnings are projected to grow by 64% in 2013. Fund ownership has increased tremendously this year, however return on equity is just average, and the company’s industry group is ranked near the bottom.