A "Power" Stock
03/10/2006 12:00 am EST
Bernie Schaeffer and his team offer prolific daily commentary for even the most active traders. But for those seeking a simpler strategy, Power Stocks service hones in on just two stocks a month, offering detailed guidelines. Here’s a sample of his latest.
"Buy Bucyrus International (BUCY NASDAQ) at a maximum entry price of $66 or less. The target price for this position is $79.80. Our stop loss price for this recommendation is $58.45. Here is our fundamental, technical, and sentiment-based outlook on the stock.
"According to Hoover’s, Bucyrus International provides replacement parts and services (more than 70% of sales) to the surface mining industry. Bucyrus International also makes large excavation machinery used for surface mining. Its products, which include walking draglines, electric mining shovels, and blast-hole drills, are used for mining coal, gold, iron ore, and other minerals. Bucyrus International’s customers are primarily large companies and quasi- governmental agencies operating in South America and Australia, Canada, China, India, South Africa, and the United States.
"On February 17, the company reported a fourth-quarter profit of 65 cents per share, excluding non-recurring items. Although this was not above the consensus expectation, it was more than double the earnings in last year’s fourth quarter. Bucyrus International also reaffirmed its 2006 full-year revenue guidance. Finally, the company said it is raising its production capacity for 23-25 shovels per year, which is "up markedly" from prior guidance to analysts. The stock rose more than three percent on the news, suggesting the market favored the information in the report and subsequent conference call.
"Technically, Bucyrus has risen more than 60% since its early November low near 40. This advance has been largely supported by the stock’s ten-day and 20-day moving averages. These trendlines reside near 63.50 and 61 and should provide support for the stock. Furthermore, the stock’s ten-week moving average currently rests below near 58.50 and appears ready to provide support if needed. This trendline should soon be nearer to the 60 level, providing support above the stop-loss price of 59.45.
"Option players are quite pessimistic toward Bucyrus International. The Schaeffer’s put/call open interest ratio (SOIR) is 1.37. This means that for all Bucyrus International options with less than three months to expiration, there are 37% more open put contracts than open call contracts. This is higher than 97% of all daily SOIR readings over the past year. Short sellers are also quite high. The nearly 1.6 million shares short amounts to almost 8% of the stock’s float. The short-interest ratio is now more than six days to cover. These factors increase the possibility of a short-covering rally on any continued strength in the stock.
"Analyst rankings may be able to provide a bit of a boost for Bucyrus International. According to Zacks, all five of the analysts covering the stock rate it a cautious ‘hold.’ Should any more good news hit the stock, analysts may move into the ranks of buyers. These factors combine to give the equity a bullish Schaeffer’s Gold Equity Scorecard rating of 8.0 out of 10.0. Finally, a major investment daily newspaper has Bucyrus International ranked as its number-one stock in the Machinery-Construction/Mining group. This group is one of this publication’s strongest."