Companies of Interest
The companies with the strongest fusion ranking (combination of fundamental and technical analysis factors) this week are: Aerovironment (AVAV) and United Healthcare (UNH).
Aerovironment has been under fire in recent weeks and the stock price has sagged while growth, profitability and valuation characteristics have slightly deteriorated. After accounting for the reduced expectations, AVAV still ranks among the best opportunities among our covered companies. We have the projected annual return (PAR) at 15% with a quality ranking of 89 (11th highest percentile) after this week’s refresh. Morningstar has a fair value for AVAV at $34.
Materially Stronger: United Therapeutics (UTHR), Quality Systems (QSII), Davita (DVA), Biomarin Pharma (BMRN), AllState (ALL)
Materially Weaker: Select Medical (SEM), Posco (PKX), Amedisys (AMED), AK Steel (AKS)
Market Barometers
The average Value Line low total return forecast is 6.9%, down from 7.2% last week.
The Value Line Arithmetic Average reached an all-time high last week, joining the Dow Jones Industrial Average at the party — but much more quietly. All-time highs are nothing new for this all-of-the-above average of the types of stocks that we routinely pursue, study and own. In fact, this composite made it “back to even” 2-3 years ago and we celebrated and noted that our Tin Cup model portfolio recovered equally quickly at the time.
On this 20-year chart, we’re reminded of the swoons that followed (1) 1998 and Long-Term Capital Management, (2) the 2001-2003 correction and (3) the 2007-2009 Great Recession. We’re also reminded that peaks in relative strength index (RSI) are not the sole piece of the puzzle … as there are periods when successive peaks accompany a continuously advancing bull market. That said, any time the RSI has been “north” of 70 and retreats to 70, we’d urge high-alert status because the vulnerability of significant price corrections is elevated. (A big picture version of “Look Out Below”)
Expecting Alpha 