A Stock Pick for a Good Week
09/12/2012 11:15 am EST
All the technical and fundamental indicators look cautiously positive, and one stock could really barrel forward if the market's wishes are granted this week, writes Rich Bieglmeier of iStockAnalyst.com.
This will be a big week on both sides of the Atlantic Ocean. While the Federal Reserve's decision on Wednesday is going to be huge news, it could be overshadowed by Germany's highest court.
The red-robed lawmen will decide just how far Frau Merkel can go with the financial rescue fund. If the eight German judges say "nicht," it will throw world markets into turmoil, circumventing anything Ben Bernanke does.
iStock suspects the judges know the weight of the their decision, and will try to walk a fine line between autonomy and caving to the European Central Bank. No matter what, the vote will be market-moving.
Right now, US stocks are headed in the right direction. The S&P 500 has dashed to a new 52-week high. Meanwhile, the Nasdaq and Dow are this close to busting loose, too.
As we mentioned four paragraphs back, the FOMC meeting will answer the QE3 question on Wednesday afternoon. Many on Wall Street feel that last Friday's Employment Situation will prompt Bernanke to make it rain digital Benjamins.
iStock just hopes it is not a case of buy the hype and sell the news. September has been the worst performing month historically; although, most associate the notorious acknowledgement with October thanks to a few high profile crashes. If the indexes can't make it three-for-three, confidently breaking new ground, it will be the third failed attempt—not good.
Obviously, we hope that stocks move forward and initiate an unmistakable, technical buy signal—the three major indexes simultaneously setting new highs.
This week's pick is, in fact, purely technical. Endurance Specialty Holdings (ENH) hit our coiled spring alert. We only see a handful of these per year; they are a little less rare than a truth-telling politician. The nice thing about the coiled spring buy signals is that the stock usually takes off immediately or just kind of sits there.
While we are relying on the stock chart this week, Endurance offers some compelling valuations. Shares trade for 8.64 times forward earnings, which is well below analysts' growth forecasts of 31% for EPS in 2013. We also like the insurance company trading for less—a lot less—than its book value of $63.06.
Additionally, a couple of insiders picked up $261,810 worth of ENH in the last couple of weeks of August. The largest purchase was on the 16th at $37.51—so, investors can tag along at nearly the same price.
As for downside, the coiled spring comes with an easy stop-loss strategy: limit losses to $1 less than your purchase price.