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3 Investment Ideas with Strong Charts
11/08/2011 7:00 am EST
Using a combination of fundamentals and technicals, Jim Mitchell says he can identify stocks with investment potential. Today he shares three names that are doing well in a challenging market. He also names sectors where he sees emerging strength.
Kate Stalter: Today I’m speaking with Jim Mitchell. He is an investment consultant with Raymond James.
Jim, give us your take on the market. Obviously, there’s just been a ton of European-driven volatility. It almost seems as if earnings season has been somewhat overlooked this year when it comes to general market action. Tell us what you see.
Jim Mitchell: I think that’s true. Many companies have been reporting pretty good earnings. I think we have reason to be somewhat optimistic. I think we’re seeing a little bit of growth in the economy, but of course, everybody seems to be worried about Greece and what’s going on there.
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Of course, years ago Greece used to devalue its currency all the time and no one seemed to care very much, but I guess the problem is, they’ve issued I think half a trillion dollars worth of bonds, and these bonds are held by European banks. So the concern is not so much Greece, but the effect that might have on the financial system, which is a big concern.
Kate Stalter: Now, when you look at the general indices, you are also a market technician. Tell us what you’re seeing with regard to, say, price and volume action on the indices?
Jim Mitchell: Well, stocks in recent days are looking quite strong. Volume is good, we’re seeing a lot of stocks above their 50-day moving averages, and a lot of sectors like technology, small caps, basic materials, energy, starting to look interesting.
These sectors are all looking pretty strong. In fact, if you look at just the broad averages, the Dow, the S&P, the European averages, the Asian averages, a lot of the current price is moving above, say, the ten-day moving average, the 20-day moving average, getting above in some cases the 200-day moving average. These are all positives.
Kate Stalter: Any particular geographic regions that you believe may be showing some strength at this moment?
Jim Mitchell: Well, right now, I think the US is the best place to be. I don’t always say that. In the past, of course, India looked good, China looked good, but quite honestly US stocks, I think, in terms of potential in the coming 12 months, look the most attractive.
Kate Stalter: Can you say anything, Jim, about maybe particular stocks that you believe are showing some leadership at this juncture?
Jim Mitchell: I can give you three or four of my favorites. One is kind of a low-priced stock. It’s Huntington Bank (HBAN). It closed at about $5.30. The high last year was $7.70, the low $4.46. They’re earning money. The P/E ratio is about ten or 11.
Of course, the financial sector, banks, have been beaten down a lot. So I think this one has a lot of potential. It’s in pretty good financial shape. I’m looking for a target of maybe $8 to $12.
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Another one, familiar name, Micron Technology (MU). It’s also kind of low-priced right now. It’s about $5.84. The highest it’s been is close to $12; the low has been around $4. My target is about $9 to $10 on that one.
My favorite has been Nuance Communications (NUAN). It’s close to its high for the year, but they’re one of the leaders in speech-recognition technology. If you’ve noticed the recent Apple (AAPL) iPhone ads, where people are asking their phone a question and the phone talks back—that’s their technology.
So it’s around $27 a share. It looks good technically—a lot of potential.
Kate Stalter: When you’re looking at stocks, Jim, do you take into consideration fundamentals and technicals? Do you look at both?
Jim Mitchell: I do look at both. I start with the fundamentals. I want stocks that have good fundamentals, but then I will screen them for technical attractiveness. So these I’ve mentioned not only look pretty good fundamentally, but their charts look good too.
Kate Stalter: One last question for you today. A lot of retail investors obviously are feeling very frustrated and challenged by the volatile market conditions. Any final words of wisdom for them?
Jim Mitchell: Well, this has been a very difficult year, with volatility probably the highest I’ve ever seen. You know, we’ve had some days the market was down 4% and then the market was up 4%.
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So you know I use technical analysis because I think it gives you an additional risk management tool. We can look at stocks or sectors and say, “Well this looks good, but there’s a logical place to put a stop and loss. So don’t be afraid of the market. I think we have good reason to be optimistic, but you do need to maybe look at the charts and get some floors where you want to get out, if you need to.
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