Volume Points to 2 Best Buys

08/30/2011 12:30 pm EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

When investing in growth stocks, any clues that the big boys are moving in can be immensely profitable, writes Michael Cintolo of Cabot Top Ten Weekly.

I still think it’s a bit too early to really dig in and find those growth names that have either resisted the downturn, or got hit but snapped back with power.

The reason is that nearly every growth stock has some serious damage on its chart, which will take time to repair. Thus, while it’s nice to see some things snap back, even the most resilient names likely need a few weeks to consolidate.

However, one thing I do like to look for is unique, extraordinary volume clues to tell me that, at the very least, some big institutions are swallowing up some shares of a favored growth name.

Two that I noticed recently with such volume clues were MAKO Surgical (MAKO) and Rosetta Resources (ROSE).

MAKO Surgical is a classic growth stock, though it’s very small (just $58 million in revenue during the past year!). But it’s developed a robotic surgical system used for knee and (by the end of the year) hip resurfacing and replacement. The firm isn’t profitable, but it’s been growing revenues at an 80% clip.

The company reported great earnings on August 8, and that resulted in the stock leaping more than 30% on its heaviest volume ever; for the week, shares vaulted 32% on the biggest weekly volume total ever. The chart is very wide and loose, so I can’t say it’s a screaming buy, but it’s certainly one to watch.

Rosetta Resources is a stock I was forced out of recently because we bought it too high, had a loss, and the market was weakening. But interestingly, the stock found support around its 200-day moving average last week, on a weekly volume total of 15.8 million shares—nearly twice as large as any week in the stock’s history!

The story here revolves around the Eagle Ford Shale, where Rosetta is rapidly expanding production. Sales and earnings are just starting to lift off, and earnings estimates are strong—though, of course, they can move around with the price of oil and natural gas.

Again, ROSE doesn’t look like a great buy here—its chart needs some time to calm down and round out. But given the volume clue, it’s worth watching to see how its base-building effort progresses.

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