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Swinging for the Fences
06/25/2004 12:00 am EST
"Those who like to court danger for a high potential payoff may want to consider our Reuters Relative Momentum screen," says Marc Gerstein of Reuters.com. "This is definitely not a buy-and-hold strategy, but rather for short-term traders wishing to swing for the fences."
"The strength of this screen is in its capacity as a bull-market idea generator. Among the tests used in this screen are a focus on companies where the year-to-year sales growth is more than 50% above the industry average in the latest reported quarter; the stock has risen in price over the past four weeks and over the past 52 weeks; its share price is more than 50% above its industry average over the four and 52 week periods; and a price-to-earnings growth ratio above 1.00. In other words, these are companies that are clobbering, not just beating—but pummeling— peer averages on a near-term basis. That's what you want when times are good. Here are several noteworthy stocks which are appropriate for those seeking to swing for the fences:
"ANSYS (ANSS NASDAQ) is an interesting play on the theme of cyclical recovery. The firm is a technology leader in computer-aided engineering analysis software. Its products enable users to design products on a computer screen, and then simulate various kinds of tests (i.e. ANSS software can be used to model the impact of temperature, velocity, and so forth on the structure). This is a solid growth story with numerous better-than-industry fundamental data points, not to mention financial strength. The stock’s valuation isn't cheap, but then again, the industry metrics are also high. And at least ANSS is, in key respects, cheaper than industry averages.
"Let's assume an engineer successfully designs a new product. The next step might involve creating an output or presentation of the results—a physical output of the design, or more specifically, a prototype. Traditionally, creation of prototypes has been a slow, done-by-hand, process. Stratasys (SSYS NASDAQ) aims to address that. It makes what it calls 3D printers that can produce prototypes directly from the designs created on computer-aided engineering equipment a heck of a lot faster than would be feasible the traditional way. So like ANSS, SSYS is a cyclical expansion play. And like ANSS, SSYS' fundamental numbers look pretty good. The main difference is valuation, SSYS has higher valuation metrics.
"Netegrity (NETE NASDAQ) is a major supplier of access management software, which is increasingly needed given the complexity of networks (and increasingly creative hackers) and the burden of managing who does or does not get in. This is one of the stocks that got carried to crazy extremes in 1999-2000. But things are different now. The shares remain priced below 10 (in 2000, it topped out just above 80), and the bottom line is on the mend with strong demand having helped get EPS above breakeven. I'm not sure I'd want to lock this stock away in my vault for the long haul, but as a momentum play, it seems fairly legit.
"I've long been perplexed—and unimpressed—by Apple (AAPL NASDAQ). However, the world has changed in a way that let's me like AAPL stock even if I lost interest in debating the merits of its computers. We're now in the e-music era, something that seems to be in an early stage of a major product-growth wave. And here, AAPL has jumped way out in front as a market leader both with the gadgets that play the music (iPod) and a service through which customers can download music (iTunes). Competition is growing, but even in a bad scenario, it will take time for rivals to make an impact. That makes AAPL a legitimate example for the theme of this short-term momentum investing style.
"Ceradyne (CRDN NASDAQ) has long been considered overpriced. Yet its fundamentals are superb. This ceramic products outfit has done a magnificent job taking one application of its core competency—protective body armor—and turning into a big-time driver of the business as demand for this sort of thing has been booming from police forces and even more from the military. There's no doubt the spending levels will come down at some point at which time investors will show their disappointment with the fact that the other businesses probably won't be able to offset the slowdown. But funding trends suggest the slowdown is not yet at hand, meaning CRDN ought to still have enough life to satisfy the momentum crowd.
"Another major theme is the aging of the population ands all the good things that means for companies in the healthcare sector. Zimmer Holdings (ZMH NYSE) is a major producer in an area that seems more comfortably poised to be a major beneficiary of the healthcare boom; orthopedic implants (bone joints and lately, dental). The demographic play is based on the fact that older people, who are growing in numbers, are more likely to need these things. Also, younger people are becoming increasingly willing to undergo these procedures; ZMH is expanding nicely in Europe, and ZMH is gaining ground with its minimally invasive surgical techniques.
"Whole Foods Market (WFMI NASDAQ) serves to remind us that momentum plays don't always have to involve fancy new technologies or gizmos. This company runs a chain of health-food stores. WFMI has great fundamental numbers. The main knock against it is stock valuation, which is very high. Note, though, that this same knock existed against Wal-Mart for a long time. But the company has been charting a successful course for a decade. It's hard to say if it can squeeze out another decade. But momentum investing doesn't look that far ahead. For a here-and-now time frame, WFMI has a better chance of keeping it going."
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