Top Stock Picks for February - Premier Investor Network
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PremierInvestorNetwork.com Monthly February 2002 Edition
Stock Investing Section
Copyright © 2001, All rights reserved.
Redistribution in any form is strictly prohibited.
The entire newsletter is best viewed in COURIER 10 for alignment
In this Stock Investing edition:
Non-Tech Monthly Pick by Stock Bottom,
Man's Best Friend.
The combination of strong sales growth, rising margins, and
an investing public that wants to see results today will
keep this train chugging higher.
Tech Stock of the Month by NetBulls,
Another Entry Point for Bulls.
This is one software stock that we don't mind making
a play for despite a lack of leadership in the group.
------------ Next Week --------------
Next week look for our Option Trading
Picks for the month of February.
Non-Tech Monthly Pick for Active Investors
PETsMART, Inc. - PETM - close: 10.32 change: +0.06 stop: 9.49
PETsMART, Inc., is the largest specialty retailer of services and
solutions for the lifetime needs of pets. The Phoenix, AZ-based
company operates more than 550 pet stores in the United States
and Canada, as well as a large pet supply catalog business, and
is the major, controlling investor in the Internet's leading
online provider of pet products and information
(www.petsmart.com). PETsMART provides a broad range of
competitively priced pet food and supplies, and offers complete
pet training, grooming and adoption services. (source: company
Why We Like It:
One glance at the chart of PETM and it is easy to see why
investors might be drawn to the stock. Fortunately, it would
appear that PETM actually has some earnings to back up this
amazing rise in its stock price. For many investors, 2001 was
not a fun year in the stock market. Yet for PETM shareholders
they saw a $2.60 share price near its March 2001 lows rise to the
$10.00 level by the end of December 2001. Management seems to
have good control over some of the challenges of running a 550
store chain while still keeping growth as part of the equation.
PETsMART's latest earnings report, which was for its Q3, came out
back in November but inside there was plenty of information that
investors liked to hear. We've grabbed a quote from their Q3
earnings press release: "Improvements in key areas such as in-
stocks, inventory management and distribution efficiency, coupled
with the continued growth in our pet services business, drove
sales and profitability during the third quarter," said Phil
Francis, chairman, president and chief executive officer of
PETsMART, Inc. "We've gained a good deal of momentum, and are
positioned for a solid fourth quarter and a strong 2002, when
we'll bring our new store format to 200 existing stores, open 25
to 30 new stores, and continue to drive a company-wide culture of
Phil has reason to be positive if the company's numbers keep up
their current pace. The same Q3 report showed that gross margins
had risen to 28.6 percent, up 390 basis points compared with the
third quarter the year before. Total sales for the quarter had
jumped 10.6% to $598.6 million while comparable store sales added
7.6 percent over the Q3 of 2000.
The company recently announced that they had bought the remaining
16.3 percent interest in PETsMART.com that they didn't own for
$9.5 million. In addition to the purchase they would consolidate
the dot.com business and their PETsMART Direct, an equine direct
marketing business, into their overall operations. Part of this
plan would close certain offices in California and move the
operations to their Phoenix, AZ headquarters.
This announcement came out after the bell on Tuesday, January
22nd and investors were unsure how to interpret the news, which
caused some volatility in the stock price the next day. Since
then we've seen some selling in the stock but we feel the pull
back towards the $10 level has merely offered us a better entry
On a positive note, the same announcement revealed that the
company had raised their sales growth outlook for the January
quarter from 6 to 7 percent to about 9 percent. We could not
confirm an actual date but believe PETM will announce its Q4
earnings in late February.
How do we trade the stock from here?
It would be easy to say that on a longer-term basis the stock
could be considered overbought. However, in this current market
environment where investors are asking, "show me the earnings"
PETM should continue to draw investor interest. There aren't
many companies right now with strong sales growth and growing
profit margins. Technically, buyers have been supporting the
stock price every time it dips to the 30-dma during the last
three months (from Nov. 1st). Shares dipped below this level
mid-week but quickly rebounded. At the moment, the 30-dma is
near the $10 mark, which can also double as a strong
psychological support level.
We're going to start the play with a stop loss at $9.49, which is
a few cents below the 50-dma but we're only giving the stock this
extra room because we have a two to three month time frame. More
conservative traders or short-term traders could easily use a
tighter stop loss. One suggestion would be to place a stop under
Wednesday's low of $9.84.
PETM does have some overhead resistance at the $11 level but the
overall bullish trend should be able to conquer it. Our
objective is a $12 price target. This is almost 20% above
current levels. We suspect that America's new tendency to stay
home and spend money on the house and the family will also
translate into more money on the family pet.
Picked on January 25th at $10.32
Gain since picked: +0.00
Earnings Date Feb/02 (not confirmed)
Tech Stock of the Month for Tech Bulls
Cognos Inc. - COGN - close: 25.47 change: +0.48 stop: 23.70
Cognos is the leading global provider of business intelligence
solutions that optimize the performance of the world's largest
and most successful organizations. Founded in 1969, Cognos does
business with more than 19,000 customers in 120 countries around
the world. Cognos business intelligence solutions and services
are also available from more than 3,000 worldwide partners and
resellers. (source: company press release)
Why We Like It:
The software sector has been a jumpy group lately and we're not
seeing a lot of leadership with MSFT trading below its 200-dma.
However, we have noticed a few players in the "business
solutions" group doing okay. One of those is Cognos Inc. Shares
of the stock have done very well the last few months and really
jumped higher in December after their Q3 earnings report. The
stock ran into heavy resistance at the $27 level in early January
but has since consolidated back to the $24 mark with a nice
intraday dip last Wednesday. Volume was pretty strong on Friday
as bulls pushed shares up almost 2% heading into the weekend. In
the news, First Albany Corp. recently upgraded COGN to a "buy"
and gave it a $30 price target. First Albany cited the recent
earnings improvement over the last two quarters and a decent
entry point supporting a decent risk/reward scenario in COGN. We
happen to agree with them on the entry point idea and don't mind
targeting the $30 level either. There is still a wall at $27 but
hopefully this time COGN will be able to trade through it. We
are going to start the play with a stop at $23.70, which is
Wednesday's low. We still recommend keeping an eye on MSFT and
the GSO.X software index to gauge the market atmosphere.
Picked on January 25th at $25.47
Change since picked: +0.00
Earnings Date 04/10/02 (unconfirmed)
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