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Market Stance: BULLISH (since March 5, 2018)
* An average of managed accounts, net after all commissions and fees.
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* Buy prices shown are net after commissions and fees.
Today, Wednesday, March 7, 2018, I bought MED, for both client and my personal accounts.
Here's why I bought this stock:
+ Earnings surprise: Yesterday, Mar 6, after the close, the company announced results for the quarter ended Dec 31. Earnings came in at 60c per diluted share (vs 34c last year and analysts' consensus 48c). Revenue was up 25% to $78.0 million (analysts' consensus $73.4 million).
+ A "true surprise"*: For six weeks prior to the news, the stock price was mostly edging lower. Now, this morning, it is soaring on extremely heavy volume.
* "True surprise" is my term to describe a company news item that ignites heavy buying and that was not preceded by a short-term run-up in the stock price (i.e. not preceded by rumor).
+ Breakout: This morning's price jump represents a breakout from a 3-month range to a new all-time high.
+ Volume spike, mostly on the buy side: As I write this, it is noon on Wall Street, and volume is already 6 times the daily average, and has already set a 12-month record.
+ Three quarters of excellent and accelerating sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: -2%, +6%, +13%, and, most recently, as cited above, +25% to $78.0 million.
+ Recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters:
Mar 17 vs Mar 16: 51c vs 42c Jun 17 vs Jun 16: 63c vs 63c Sep 17 vs Sep 16: 55c vs 51c Dec 17 vs Dec 16: 60c vs 34c
+ Strong and rising earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2018 is $2.75, revised upward from $2.53 90 days ago (and up from 2017 actual earnings of $2.29); and the consensus estimate for 2019 is $3.34.
+ History of earnings surprises: This company has reported earnings-per-share at least 4c above estimates in each of the past four quarters, including the just-reported quarter cited above, which "beat the Street" by 12c.
+ The company's industry group ("Cosmetics / Personal Care") is ranked #94 for relative strength out of 197 industry groups tracked by Investor's Business Daily. This ranking changes daily, and it has been generally rising over recent weeks and months.
+ The stock's 200-day moving average is rising, indicating a long-term uptrend.
I chose to buy the stock in spite of the following negative factor:
- Valuation: At 27 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 15%, the stock is, by my usual metric, a bit over-priced.
-KD, Wednesday, March 7, 2018
* Buy and sell prices shown are net after commissions and fees. This means that the gain/loss shown is also net after transaction expenses.
Today, Wednesday, March 7, 2018, I sold IVV, for both client and my personal accounts.
I sold IVV in order to pay for MED. We remain fully invested.
-KD, Wednesday, March 7, 2018
* Buy prices shown are net after commissions.
** Current prices are at least 20 minutes old.
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