United-Guardian Poised To Set New Highs

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One of my favorite micro-cap growth stocks is United-Guardian, Inc (UG), a research and product development firm from Long Island specializing in personal care and pharmaceutical products. With extremely solid fundamentals, like a P/E of 18, a net profit margin of 16-30%, a 4% dividend, and no debt, UG is an attractive long play on a well-managed company.

In August, the company said sales for the first six months of 2010 exceeded $7.3 million, the highest six-month sales period in United’s history and a 6% increase over the first six months of 2009. For the quarter ended in June, earnings were up 67% on sales growth of 25%. That marked a rebound after declines in the March quarter.

Unlike many other stocks with attractive fundamentals, United-Guardian has not seen triple-digit returns in 2010, instead, only returning about 20% to investors. This is likely one of the key reasons behind a May stock repurchase — executives felt the company was severely undervalued.

Being a micro-cap, it only trades a small number of shares – about 2,800 per day. That can make it a bit more risky than something with more liquidity, because if one or two big investors bail out, an individual investor can get slaughtered. Only eight U.S.-based mutual funds or hedge funds own shares. That’s a small number, but not surprising, given how few shares are available.

The stock made an 11% price jump in August, and has held above its key 10-week moving average since then.

Consistently trending upward since May, it’s been hard to select a buy point for the stock. A recent consolidation has brought the stock closer to my magical $13.50 number, which it closed at yesterday. For this reason, I can strongly recommend a position in a stock with favorable technical and the fundamental indicators.

Kronos’ Stock Chart Reflects Newly Available Shares

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Chemical stocks tend to be disrespected, especially when it comes to media attention. Even when they sport strong stock charts and outstanding fundamentals, chemical companies can seem like boring businesses, whose inner workings aren’t readily apparent.

But Kronos Worldwide (KRO) shows why it’s a mistake to dismiss less sexy industries, and focus solely on more glamorous techs or retailers.

Kronos uses titanium dioxide to make colorings for plastics, paper, food and cosmetics. The stock boasts strong chart action these days. It’s trending steadily higher after retreating to an  August low of 28.66, and getting renewed support at its 10-week moving average, after pulling back last week.

The stock got a boost on Oct. 18, when the company announced it would offer 7.8 million new shares, raising $317.5 million before fees. It gapped 4% higher on the news. That’s somewhat unusual, as stocks often trade lower when new share offers are announced. That’s because investors worry about their share value being diluted, and sometimes sell on the news.

Wall Street sees profit of $1.99 per share this year, with a decline to $1.69 in 2011. Declines don’t necessarily kill a stock’s upward trajectory, though, as long as they’re already baked into the price. Negative surprises, though, are often another story altogether!

Kronos pulled back in the days following that announcement, but professional investors began snapping up shares at the 10-week average, sending the stock higher again. Upside volume has been heavier than normal in the past four sessions, first after the company smashed third quarter earnings views, and investors piled in. Volume soared Thursday as the newly available shares came on the market.

You can see this movement on Kronos’ stock market chart.

Though the stock is performing well, fundamentally and technically, it’s extremely thinly traded, which warrants extra caution. It moves about 28,000 shares per day, making it susceptible to sudden sharp price swings. That works well when it happens to the upside, but it’s very easy for an individual investor to get caught in a downdraft when a thin stock sells off!

Trading On Momentum

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Momentum traders run with the herd. That’s not a bad way to run, because all stocks tend to move in line with the DOW on most days. Another way to look at it: Three quarters of stocks typically move in the same direction as the general market.

Fundamentally, there’s usually no rhyme or reason to these kinds of strong bull markets. After all, how can we assume that some clothing manufacturer from Hong Kong is more valuable as a company simply because Boeing and McDonalds had a good quarter? For this reason, momentum traders get in and out of trades on a short term basis in order to exploit the inefficiencies of this very type of market.

In Part 1, I’d like to look at a few stocks that are in the midst of a strong bullish movement, and in Part 2, I’ll reanalyze these stocks and see if the bullish movement has stopped, indicating that it’s time to sell or even short the symbol.

SSYS – The bullish movement of Stratasys, Inc (NASDAQ: SSYS) is confirmed by a look at the 9-day and 21-day moving averages.

Since its crossover on the 1st of September, the 9-day moving average hasn’t slowed down to match the 21-day moving average. This is a strong charting indicator of a bullish trend.

LVS – Also showing a bullish trend, you can see here where the Las Vegas Sands (NYSE: LVS) stock corrected on the 1st of September as well.

For the simple moving average chart, the indication that a bullish trend has begun is the crossover of the 9-day moving average. If you want to get really accurate, you can also take a look at a 3-day moving average or aHeikin-Ashi candlestick chart (pictured) and look for an even better buy point. The Heikin-Ashi candlestick is an excellent chart for short-term traders, because it helps visualize the best trends earlier than a traditional candlestick.

NFLX, TRS, APKT Stock Charts Worth Watching, Even After Heavy Institutional Buying

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I’m consistently on the lookout for stock charts that are showing better price strength than the general market. People sometimes ask why I’m tracking stocks that have already been heavily bought. In my experience, that kind of solid track record of institutional buying shows that even if the stock corrects at some point, it has a good chance of regrouping and climbing higher still.

Generally, the institutions return to a company with excellent fundamental strength, so that’s another element to screen for. Current stocks on our watch list include three that have that potentially winning combination. I want to take a look at the companies’ fundamentals, as well as their stock charts.

The first is a well-known consumer brand, Netflix (NFLX), which notched profit growth of 52% in the most recent quarter, on a sales increase of 27%. Like many growth stocks, it has a P/E ratio that may seem high to many investors. At 55, that may scare off some buyers, but many growth winners historically have shown higher-than-average P/Es.

Netflix’s streaming video service has been a growth driver, and it hasn’t hurt the stock that the company is continually the subject of acquisition rumors. There’s been plenty of good support from investors lately, so I’m keeping an eye out for the next buy point on a consolidation.

Trimas (TRS) is an old-school-style conglomerate that makes packaging and dispensing products for consumer goods, and gear used in the energy and aerospace industries.

This company, too, sports some outstanding fundamentals, in the form of triple-digit earnings growth recently, albeit against some easy comparisons. Sales growth has been accelerating lately. The company has a return on equity of 25%, showing good operational efficiency. Analysts have good profit estimates for the next two years, 142% and 21%, respectively.

Trimas is on the smaller side, with a market cap of $487 million, and moving about 209,000 shares a day. It’s been trending higher after rebounding from its 10-week line. As with Netflix, Trimas is a fundamentally strong stock that bears watching, to see if it offers an alternate buy point going forward.

Finally, we’re tracking Acme Packet (APKT), which makes communications equipment used by cable, wireless and telecom customers. The company has an outstanding history of profit growth since 2008, and sales increases to match. This is another growth stock whose P/E ratio, 67, may be offputting to some. But as noted earlier, we’ve often found growth stocks continue to notch hefty price gains even with an above-average P/E.

After jumping off its 10-week line the week ended September 3, Acme Packet pulled back slightly last week, in lighter volume. Take a look at its stock chart, which shows the recent support.