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Top Traders Sign up for Verisign
01/14/2005 12:00 am EST
Two leading trading experts see opportunity in Internet firm, Verisign. Bryan Perry sees potential in the firm's recent entry into VoIP, while Jocelynn Drake sees the stock as a contrary bet against the bearish positions taken by analysts and options players.
“It's a stock picker's market and at this juncture there are some stocks that are enjoying very good relative strength in the face of the recent selling," says Bryan Perry, editor of The Tactical Trader. "VeriSign (VRSN NASDAQ) provides products and services that enable enterprises to establish and deliver secure Internet-based services to customers and business partners. The firm also acts as the exclusive registry of domain names in the .com and .net generic top-level domains and certain country code top-level domains. Anyone who has bought something off the Web knows about VeriSign. Its software makes the transaction secure when you purchase something off Amazon, eBay, or other online retailers.
“The firm’s communications group provides Signaling System 7 (SS7) network services, intelligent database and directory services, and billing and payment services to wireline and wireless telecom carriers. It also recently announced it is offering Voice Over Internet Protocol (VoIP) services. The company fits into our theory that buying the ‘arms dealer’ of a hot sector is often the best way to play an emerging trend. According to the company, ‘One of the biggest challenges VoIP carriers face is that they still need to invest in people and equipment to connect to the SS7 network. With this new service, one IP connection to VeriSign now connects them to almost every switched operator in North America.’
”From a technical standpoint, the stock's one-year chart shows the shares trading right on its 50-day moving average with momentum indicators showing an oversold condition. The five-point pullback in the stock seen over the past few weeks was on light volume while money flow remained net positive, meaning institutional fund managers are buying the dip. We suggesting buying the stock here for a move to $40 over the next three months for a projected gain of 31%. The company reports fourth quarter earnings on January 26 after the close and they should be stellar. For options traders, we would suggest the Verisign June 25 Calls at market, currently offered at $7.90 per contract. Our price target for the calls is $15 for a projected gain of 90%."
Adds Jocelynn Drake, analyst with Schaeffer's Investment Research , "It appears that Verisign's recent rally ran out of steam since hitting resistance at the 35 level. The security brokn below its 10-day and 20-day moving averages and breached support at its 10-week trendline. Potential support lies at the 27 level in the form of the equity's 20-week moving average. Meanwhile, a 50% correction of the stock's rally from its August low of 16.21 to its December high of 36.09 lies in the 26 area, which could halt the security's sharp decline. Options players are looking for a continuation of the security's recent decline, as traders have grabbed the stock's February 30 put.
"This recent increase in pessimism pushed the equity's open interest rates to 0.95, which is now higher than all others taken over the past year. Short sellers also loaded up on the bearish bets, as short interest spiked 18% higher in December to a two-year high at 13.7 million shares. Wall Street also has its doubts, with 11 of the 18 analysts following VRSN rating it a ‘hold’ or worse. Looking ahead, the firm is slated to soon step into the earnings confessional and analysts are currently forecasting a profit of 20 cents per share, an 11% improvement over earnings for the same period a year ago. The company has met or surpassed the Street estimate for the past five quarters. A positive earnings report could go a long way to snapping the stock's current losing streak."
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