01/27/2006 12:00 am EST
Jocelynn Drake, part of the Schaeffer's Investment Research team, utilizes the firm's tried-and-true approach to combining the best features of technical, fundamental, and sentiment analysis. One of her top picks watches your portfolio; the other watches your time.
"Fossil (FOSL NASDAQ), which designs and distributes fashion watches, is my speculative pick for 2006. After shedding more than 53% from its October 2004 high to its October 2005 low, the trendy retailer has begun to stage what appears to be the start of an impressive uptrend. The pullback was stopped by long-term support at its ascending 80-month moving average. This trendline successfully halted pullbacks in the stock in late 2000 and 2001. A rebound from this moving average has allowed FOSL to reclaim support at its ten-month trendline as well.
"Despite growing technical strength, investors remain determined to call a top to the stock’s rally. During the past several months, short interest has swelled as traders added to their bearish bets. In fact, the number of FOSL shares sold short surged 33% in December to a fresh multi-year high of 6.3 million. This accumulation of bearish bets accounts for more than 12% of the security’s float and results in a short-interest ratio of 13.4 days to cover. An unwinding of these pessimistic positions could add significant fuel to the stock’s uptrend.
"FOSL hasn’t gotten any love from Wall Street either. Six of the seven analysts following the retailer rate it a ‘hold.’ Not only does this configuration leave room for potential upgrades, but coverage is also light when compared to some of its retail brethren, which have 16 to 21 analyst ratings. Any positive initiations by the various brokerage firms as they discover this hidden gem could boost FOSL higher during the next 12 months.
"One overlooked and under-loved equity is Charles Schwab (SCHW NASDAQ), my conservative pick for 2006. The broker/dealer sector has enjoyed a stellar run during the past couple of years. The PHLX Broker/Dealer Index has shot 200% higher from its March 2003 low, and yet pessimism toward the group abounds. Our put/call open interest ratio (which measures sentiment among options players) for the group continues to hover near annual highs as investors load up on bearish put positions.
"Short interest for the broker/dealer sector is also resting near an annual high, representing ample sideline money that could jump in to fuel additional gains. And Charles Schwab, from a fundamental perspective, continues to impress, surpassing the consensus estimate in four of the past five quarters by an average of 9%. In 2005, the stock rallied nearly 23%, far outpacing the S&P 500's return of 3.2%.
"After consolidating along support in the 8.50 area from May 2004 through October 2004, the stock rebounded and reclaimed the support of its ten-week and 20-week moving averages, which have guided the equity higher since May 2005. SCHW’s brethren have shrugged off the security’s growing technical and fundamental strength, as 80% of the 15 analysts following the company rate it a 'hold' or worse. Any upgrades from this dour group could also help to boost the stock higher."