With volatility increasing in March — and starting April off with more of the same — I’ve been focusing lately on stocks in position to provide solid, double-digit returns in a short of amount of time.
Things can change quickly, and by using the market’s up-and-down movements to our advantages, we can buy the dips and take profits in strength to maximize returns.
We recently bought Cbiz, Inc. (NYSE:CBZ) on a dip in my Breakout Stocks Under $10 service. CBZ stock held up well through the January volatility and picked up momentum in March, bouncing 7.5% off its March low of $8.68 to finish the month at $9.33. After a solid move like that, the question was whether to hold on for more upside or lock in our gains. Here’s my analysis.
As you may know, Cbiz is one of the country’s leading suppliers of accounting, business valuation, insurance and employee benefit services. For example, if you have a medical flexible spending account (FSA), CBZ may well administer it. Cbiz operates out of over 100 offices in the U.S. and Canada, employs more than 4,000 associates and caters to over 90,000 clients, including 50,000 business clients.
Cbiz stock had given us an incredible 47% return in 2013, and we got another good opportunity in CBZ when it fell back below our previous sell price and became a bargain. CBZ was selling at a very reasonable multiple of 10 times projected 2014 cash earnings, and I was confident that it was poised for another move higher.
CBZ currently operates three practice groups: Financial Services, Employee Services and National Practices. The businesses underlying these groups are very simple companies that generate a lot of free cash flow, and CBZ has been able to augment its low single-digit growth through an aggressive acquisition program.
Cbiz’s most recent earnings report (Feb. 9) was an interesting one. Revenues were about $3 million below expectations, but the Street seemed pleased that the bottom line is moving faster toward profitability than most had expected.
If Cbiz had reported two weeks earlier, the environment was such that CBZ stock would have been butchered for missing the revenue mark, but the timing was good, and the chart looked to be back in rally position with newfound support around $8.50.
Trading the day of the earnings release saw a wild swing between $8.20 and $9.05 that opened up an even more substantial breakout move in the very near future. Taking that day as a sort of technical flagpole, the following consolidation pattern (the waving triangular banner in the above chart) played out very quickly, and CBZ stock was at a point where it would only take a small 1% move for price action to break either the top or bottom trend.
With the relative strength index (RSI) on the bullish side of 50 and support right beneath, the odds looked good that the bulls would be the ones to get the upper hand and regain the territory opened up in the leap above $9.
Ever since, Cbiz’s chart was a simple bull story. Management had continued to execute the growth plan for CBZ — most recently acquiring employee benefits provider Model Consulting in early March — and I was confident that the shares would continue to trade steadily above $9. At that point, I was simply waiting for the next near-term bump to push the sell button.
The market gave us that pop Monday when all three of the major indexes climbed more than 1%. Cbiz increased right along with them, and the surge pushed it above the highest levels CBZ briefly hit last October. So, Cbiz stock may be due for a rest soon after this latest cycle.
Given the fact that the upcoming earnings season looks very uncertain — and is now less than a week away — the smart move was to cash out.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10 and High Octane Trader.
