by Sam Collins | July 1, 2013 1:22 pm
All but one of the major indices closed the month below its respective 50-day moving average. This is the current benchmark and, in a final attempt to rebound through it, each failed. Thus, the second quarter of 2013 ended with the near-term and intermediate trends down, while the long-term bull market is still in force.
Even though there appears to be a move to a “risk-off” posture, it is the small-cap Russell 2000 index that has bucked the trend and consistently outperformed the other indices. Specialized buyers focused on small-cap stocks appear to be running the group higher despite caution in other areas. Therefore, this month I’ve attempted to gather a group of small-cap and midcap stocks that have positive fundamental and technical characteristics that could propel them to higher prices.
Here are your top stocks to buy for July:
8×8 Inc. (EGHT) is a telecommunications company that develops services for Internet protocol (IP), telephony and video applications. It also offers Web-based conferencing and cloud-based computing services.
I first recommended EGHT on Nov. 17, 2011, at $3.85, and then as one of the Top Stocks to Buy for March under $6.25 for a trade to $8 or “as a key cloud computing holding.”
The company announced full-year fiscal 2013 earnings on May 22 of $0.20, up 42% from the prior year, and total revenue of $107.6 million, the first time annual revenue has exceeded $100 million. The next quarterly earnings announcement is scheduled for July 24.
Traders who bought in March may want to nail down a profit. However, the stock is trading in a well-defined bull channel and our new target is $12. The chart is extremely bullish, and while I’d prefer to buy the stock under $8, it may be bought at the market.
Core Laboratories NV (CLB) is a provider of products that enable oil and gas clients to improve reservoir performance and increase oil and gas recovery from their producing fields. It employs 1,300 senior scientists who perform tests to determine how to get oil out of its natural reservoirs in the most cost-effective way.
The company reported fiscal 2012 earnings per share (EPS) of $4.52. Analysts forecast $5.23 for 2013, $5.99 for 2014, and $7.33 for 2015.
In April, the stock broke from a huge double cup-and-handle formation and established a bull channel with a current bottom at about $138 and a top at $160. Buy CLB under its 50-day moving average line at $145 as a long-term position in the energy equipment and services industry.
India-based Dr. Reddy’s Laboratories (RDY) manufactures and sells generic pharmaceuticals and ingredients. S&P highlights RDY as “one of the stronger growth stories in the global generics space.” It has 65 new generic FDA filings including a new version of Singular, Lipitor, Arista and Propecia. It has extended its reach into Russia and other emerging markets, and it has also increased its U.S. sales.
Earnings for fiscal year 2013, ended in March, were $1.80. Consensus EPS estimates for fiscal 2014 are $1.99, and $2.35 for fiscal 2015.
The stock is completing a huge 18-month saucer with the strong possibility of a breakout at $39-$40. Buy on the actual breakout with a target of $48. Long-term investors should hold RDY for participation in its expansion into emerging market countries.
Mueller Water Products (MWA) is a manufacturer and marketer of almost anything that has to do with the transmission, purification, measurement and distribution of water. Its growth is directly related to new housing starts, which are sharply increasing.
The company was recently listed in the top four small-cap stocks in the industrial equipment and components industry with the highest cash. BB&T Capital Markets notes MWA’s discount to the housing group and targets the stock at $8.50 over the next 12 months.
On May 1, MWA broke from a five-month consolidation on a breakaway gap that vaulted the stock from $6 to $7.75 in one month. It retraced the breakout and substantially closed the open gap previously created. Then, following a buy signal from our proprietary indicator, the Collins-Bollinger Reversal (CBR), jumped almost a dollar to $7 and its 50-day moving average.
Note the strong MACD signal. Buy MWA under $7 for a move above $8.25. This stock is an excellent long-term hold for participation in the growth of the water industry.
SBA Communications (SBAC), a leading operator of wireless communications towers in North and Central America, leases antenna space. It owns 17,539 towers, as of March 31. Its major customers are Sprint (S), AT&T (T), Verizon Wireless (VZ) and T-Mobile.
S&P has a 12-month target of $92, based on a multiple of 19 times the average of 2014 and 2015 free cash flow. Barclays’ analysts cited SBAC as a tower company that will benefit from the global and domestic scale of expansion in this sector.
Following a run from $70 in February to $82 in May, the stock revisited the advance and appears to have established a bottom at its 200-day moving average at about $71. Note the strong recent buy signal from its MACD.
Buy SBAC on a break through its bearish resistance line at over $74 for a trade to $80. Investors may want to hold this quality stock as a core holding in the telecommunications services sector.
Waste Connections (WCN) is an integrated municipal solid-waste company that provides collection, transfer, disposal and recycling in the U.S. S&P upgraded its shares to a “buy” recommendation on May 30 with a target of $45 based on its expansion into oil fields, its excellent balance sheet and cash position. Consensus EPS estimates are for $1.78 in 2013 and $2.02 in 2014.
The stock appears to be under relatively heavy accumulation and received a recent buy signal from its stochastic indicator. The fundamentalists appear to be too cautious on this stock, as it has accelerated above its well-established bull channel. The technical target is $50 and WCN should be bought at the current market price.
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