Roman Candles & Cruise Missiles
Sometimes it can be rewarding to “play with fire” so long as you know when to let go or disembark. Yes, the accompanying image is Slim Pickens in the role of Major T.J. “King” Kong in his rocket-riding glory in the movie Dr. Strangelove.
In this screen, we take a look at some companies with the highest year-over-year percentage changes in earnings, specifically the 3-year period from 2012-2014. So it’s obviously dominated by earnings forecasts. Disclaimer/Disclosure: The fiscal 2014 EPS estimates for a number of companies are still filing in. A few of the companies in the screen are based on 2-out-of-3 reporting periods. In other words, they could change significantly when the analyst consensus estimates for 2014 take shape.
The results were also limited to companies with quality ratings of excellent (greater than 65) and good (55-65) … stopping any company that isn’t in the top two quality quintiles at the door.
Earnings Momentum Leaders
This set of five companies is pretty compelling. Most of them have been part of recent conversations and nudges to explore a little more. That’s cool. In the case of Michael Kors (KORS), the company is a credible threat to Coach (COH) and we’ve talked about relatively empty stores vs. standing-room-only at Coach. This serves as a reminder that your own personal experience is just a small part of a bigger picture. When I see empty KORS outlets, I need to remind myself and deflect the emotions of doubt … or at least, keep all of the information in proper perspective. This flies in the face of Peter Lynch’s famous advice about panty hose and packed parking lots. But do you really think his research stopped there? Really?
Liquidity Services (LQDT) showed up in many of our Groundhog (stock selection contest) entries for 2013 and we can see why. That said, there has been some turbulence of late and a little deeper digging might prove to be prudent.
During our January Round Table, I featured Body Central (BODY) but attendees also heard mention of Francesca’s (FRAN) — a Houston based specialty retailer that merits a closer look.
Tangoe (TNGO) is also compelling. I know very little of the company. TNGO provides communication lifecycle management software and services primarily to large and medium-sized businesses. With all of our attention to the information-based (CTSH) and communication companies (CSCO) and my recently-fried modem, TNGO is also worth a closer look to see if the EPS gold rush of 2012, 2013 and 2014 is a flash in the pan or a compelling opportunity that often accompanies a company/product life cycle emergence.
Attendees from the Orlando MoneyShow came back uttering a single word and it wasn’t Dustin Hoffman’s “plastic.” It was Energy. Energy. Energy. For that reason, a closer look at recent favorite Schlumberger (SLB) and companies like ENSCO (ESV) seems particularly and potentially energizing, too.
We’ll close with our long-held suggestion that an understanding of trailing stop losses for momentum-based companies is generally a good idea. (Think Apple and 2012) Do your best to understand and decide whether to use them. I can think of several roman candles (Peoplesoft) during my investing career whether they either helped or offered salvation. And if you latch on to the next 2012 Netflix, it’s prudent to have an exit strategy while continuing to ride that cruise missile to avoid ending up like Slim at the end of Dr. Strangelove.