Analyst Swings

Discussion in 'Journals' started by mrswing, Apr 16, 2004.

  1. mrswing



    Thank-you for subscribing to Swing Ideas, “The Internet’s #1 Free Swing Ideas Newsletter.”

    My name is Larry Swing and I’m President and Founder of I am pleased to be sending you free “Swing Ideas” with a focus on options trading. I truly believe that there is no better combination than joining the art of swing trading and power of options trading. Learning the art of swing trading can be enjoyable and profitable for all levels and ages of investors.

    There are several type of capital market trading styles of which include: day or intra-day trading, swing trading, short-term trading, and long-term trading. However, the best way to earn BIG PROFITS in today’s volatile capital markets, is to learn the art of swing trading. Swing trading involves buying and selling equities and/or options for a profit in a 1 to 15 day time frame. Swing trading is a perfect trading form especially in today’s volatile stock markets. If you haven’t looked at this style of trading to make money, today is the day to get started.

    Swing Ideas publication is broken down into four articles: Earnings Swings; Analyst Swings; Technical & Fundamental Swings; and Option Alert !. Today’s article is dedicated to Analyst Swings.

    Stocks with increased confidence reflected by consensus increases in earnings revisions and/or upgrades from Wallstreet Analysts, have proven to be superior swing trading opportunities for a number of reasons. Hence, the reason for my research and continued focus on analyst activities and there significant affect on equity stock prices, in the short-term.


    Based on my research of all companies with increased Analyst confidence between April 6th. to the 15th of 2004, I have selected Research In Motion as my top Analyst Swing Play for this week. As a result, I am placing a “Strong Short-Term Buy” recommendation on the Company. And because of the purchasing power of options in the short-term, I recommend that investors pursue an OptionSwing trading strategy by purchasing: Call Options (AMEX:RUPET).

    I am upgrading my rating on RIMM from a Short-term Buy to a Short-term Strong-Buy due to the stocks oversold position and their improving fundamentals.


    Industry: Communications Equipment Sector: Technology
    Employees: 1,950 Market Cap: 8.1 Billion
    Option Information:
    Institution Ownership: 69%

    Option Data:

    Option Symbol: RUPET Type: Call Exchange: Amex
    Strike Month: May 2004 Strike Price: 100.0

    OptionSwing Information:

    Trade Strategy: Bullish Call Option (Long)
    Trade Targets: Common (5 %) / Option (50%+)
    Trade Composition: 45 % Technical / 55 % Fundamental
    Trade Duration: 1 to 15 days
    Potential Risk/s: poor overall market conditions

    Entry Data: Buy Options (RUPET) When Common (RIMM) Trades Above: $ 104.00
    Entry Strategy: Buy Options When Common Breaks Above 1-Day Resistance level (price listed above)
    Exit Data: Sell Options When Common Trades up 4% or Above Target: $ 108.25
    Stop Loss: Place 2 % Mental Stop-Loss Based On Common’s Equivalent Entry Price
    Trade Tip: Always Base Your Option Activity Based On The Movement Of The Common
    More Tips: *see Larry’s “Trading Tips For Success” at bottom

    Primary Trade Catalyst/s:

    1. -impressive recently reported 4th quarter financial results;
    2. -increased future earnings and revenue guidance form the Company;
    2. -increased Analyst confidence (numerous upward earnings revisions and upgrades);
    3. -recent stock split announcement;
    4. -stock is oversold (approaching buy signal) due to short-term profit taking;
    5.-top fundamental and technical ratings compared to industry peers
    6-strong investor sentiment reflected by high call to put volume and open interest;

    Research In Motion reported stronger-than-expected revenue and earnings on April 7, 2004 and hiked forecasts as surging demand for its flagship BlackBerry wireless device more than doubled sales. RIMM reported net income of $41.5 million, or 46 cents a share, for the quarter ended Feb. 28. But excluding a litigation provision of $12.9 million and tax recovery of $4.2 million their adjusted net income was $50.2 million, or 56 cents per share. This compares to analyst consensus estimates of 50 cents a share, on revenues of $207 million in the same period last year.

    Several Wallstreet Analysts upgraded RIMM’s stock in the last week. Of those who reported upgrades, CIBC analyst Dale Pfau raised his 12- to 18 month price target on RIMM from $115 to $150, or about 30 times his earnings per share estimate for fiscal 2006. The broker has a "sector outperformer" rating on the stock. His target multiple of 30x reflects the belief the Company will outperform expectations over the next several quarters.

    Moreover, Research In Motion has had 12 upward earnings revisions by different Analysts in the last 7 days. RIMM also received 13 revenue upgrades in the last 30 days. This is all according to Reuters and First Call Research.

    Company Summary:

    Research In Motion is a world leader in the mobile communications market and has a history of developing breakthrough wireless solutions. RIM's portfolio of award-winning products, services and embedded technologies are used by thousands of organizations around the world and include the BlackBerry wireless platform, the RIM Wireless Handheld product line, software development tools, radio-modems and software/hardware licensing agreements.

    For the fiscal year ended 2/28/04, revenues rose 94% to $594.6 million. Net income totaled $51.8 million vs. a loss of $148.9 million. Revenues reflect higher sales of handheld products and the introduction of new products. Earnings also benefited from improved gross and operating margins, and lower litigation charges.

    Earnings Per Share (EPS) Growth Analysis:

    Here is a breakdown of RIMM’s short and long term earnings per share (EPS) growth rates as estimated by 14 Wallstreet Analysts. RIMM’s earnings are expected to grow by 6,154% in this quarter. RIMM's next earnings report is due on June 22, 2004. Also, the Company’s EPS growth rate for the next quarter is estimated at 560%. The firm is expected to finish off this year with an earnings growth rate of 188%. In addition, RIMM’s EPS growth rate for next year is forecasted to be 30.3%. And finally, the Company’s long-term earnings per share growth rate is estimated at 20% versus an industry average of 14%. In summary, RIMM’s short and long-term earnings per share (EPS) growth rates are expected to exceed industry and sector averages by a minimum of 43%.


    To determine if RIMM’s stock is under or overvalued, I calculated and compared its Swing Value Price (SVP) with its current market price. Moreover, RIMM’s current Swing Value Price (SVP) is $110.55 and its recent closing price is $102.37 . Because RIMM’s current market price is below my SVP, I conclude that this stock is currently undervalued (in the short-term). There is a difference in price of $8.18 or 8%. My valuation analysis indicates there is a 8% margin of safety, of which gives us plenty of room to complete our Call OptionSwing Strategy.

    Note: My Swing Value Price is calculated using my own proprietary methods of valuation analysis. I use a combination of economic profit model analysis, value ratio analysis, earnings analysis, cash flow analysis, and various growth ratio and price analysis.

    Technical Analysis:

    Technically, RIMM has a strong 30-Day bullish chart pattern with good distribution. The stock also has strong 3-day money flow studies within its current consolidation range. Statisically, RIMM’s stock rallies 12.41 points or 12.5% over 60% of the time on average volume. The stock also rallies 16.1 points or 15.8%, occurring 25% of the time, on increased volume studies.

    Looking at the stock’s volume in the last trading session, 5.2 million shares exchanges hands. RIMM’s average daily volume over the last 30 days has been 6.1 million shares. This 30-day average however, will provide sufficient liquidity for executing our Call OptionSwing Strategy. RIMM's current 1-day volume is lower than its 30-Day average volume due to recent overall market weakness. I anticipate that volume, momentum and relative strength studies will increase in tandem after RIMM forms its recent (strong) base and recovers from its current oversold position.

    Based on my technical analysis of RIMM, my research indicates that the stocks 15, 40, and 80 day trends are all bullish and in a solid uptrend. The stock also demonstrates solid distribution and liquidity for traders. The stock’s recent dip below its 50 day moving average provides us with an excellent opportunity to enter our (long) swing positions.

    Technical Levels To Watch:

    Price Support Pivot Point Resistance
    $102.37 $97.92 $102.02 $106.20

    Prudent traders usually buy above a stock’s resistance price level.
    Prudent traders always sell short below a stock’s support price level

    Fundamental Summary: 2003 2002 2001
    Revenue: (mil.): $307 $294 $221
    Earnings Per Share: -1.92 -0.36 -0.08

    *RIMM’s 5 year revenue growth rate is 62%

    Next Earnings Report: June 22, 2004
    Reporting Period: Q1 of 2004
    Mean Earnings Estimate (EPS): 0.63 versus -0.01 in Q1 of 2003

    Average Analyst Target: $ 125.40