Readers of my blog know that I have liked Netflix $NFLX for a long time. I continue to feel it will move higher over the next 6-12 months for the following reasons:
1) Fundamentals – The company has posted triple-digit earnings growth for the past 6 quarters. Their revenues have accelerated to a 25% growth rate and their margins continue to expand. Their subscriber growth still has huge potential, especially when they enter countries such as China and India.
2) Technicals – The chart is showing VERY strong technicals on multiple timeframes, with many key areas of institutional support. Also, it looks like the stock is potentially working on the right side of a new base.
3) High short interest – The stock remains highly shorted, mainly due to valuation concerns. I think they can earn between $8-$10 per share by 2016. Also, historical studies show that P/E ratios are not a relevant factor in determining price movement. I will blog more about P/E in the future, but just remember that you can’t use traditional valuation metrics to value companies that are revolutionizing the way we do things.
The second stock I like is a Mid Cap company called Integrated Device Technology $IDTI
1) Fundamentals – They offer a wide variety of semiconductor solutions, but I am mostly interested in their WIRELESS CHARGING products. Research reports estimate that wireless charging could be a $5-$10 Billion industry. Over the past 3 quarters, the company has grown their earnings +183%, +367% and +143%. They already have a relationship with LG Electronics and I wouldn’t be surprised to hear about future design wins with Apple and/or Samsung.
2) Technicals – The chart is in a strong uptrend. I especially like the high volume week (ending on 8/1/14) where HUGE institutional support came in after the company reported strong earnings that week.
3) Option activity – There has been recent bullish call option activity in the November 2014 $14, $15 and $17 strikes.
In interest of full disclosure, I currently own both these positions for my clients. Of course, if either stock turns against me, I always use stops to protect the downside. If you take a position, I recommend doing the same. I can’t tell you where to put your stop because I don’t know your timeframe. Besides idea generation, the main purpose of this blog post is to show you how I combine AS MANY FACTORS as possible to help increase my probabilities of a trade working out. Good luck!
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