The S&P 500 is in a rising trend. The S&P 500 as traded as SPY is above its 50-day moving average. Late last week the SPY crossed above its 150-day moving average. A trading rule is that when the price is above its own 50-day moving average, the stock is in an intermediate (two to four months) rising trend. Once the stock price crosses above its 150-day and/or 200-day moving average, the stock price is in a long term rising trend. The SPY with Fridays close is above both its 150-day and 200-day moving average. See the chart below.
Trade alert: Piper Jaffray (PJC) $21.23
Financial companies have been out of favor but are now beginning to show positive chart patterns. PJC is an example of companies in the financial services industry.
PJC looks very attractive from a technical perspective. Our two accumulation/distribution indicators CMF and OBV are rising. The stock price has risen above its own 50-day moving average suggesting an intermediate term rally has begun. Our two to four month price target would be the bottom of the 150-day moving average, currently at $26.47. PJC has stock options so one could use a buy stock / sell call strategy.
PJC currently trades at 17.4 times trailing earnings, and 9.56 forward earnings (from Yahoo Finance). PJC is estimated to earn about $1.28 per share in 2011, and $2.22 in 2012.
Book value is stated at $53.07 per share.
Cash is $1.39 billion with debt stated at $712.9 million. This is probably not as simple as it seems as brokers and banks can have leverage (risk) on their books that is not readily seen.
PJC has a market capitalization of $336.8 million, but has an Enterprise Value (EV) of minus $340.4 million. This means PJC trades at $340.4 million lower than its Market Cap + debt. That is a cheap price and an unusual number. PJC also trades at a PEG ratio of -2.64. A number below 1.00 is considered attractive, so a number this far below 1.00 is highly unusual.
Institutional ownership is 17%, which is low for a company of this quality. I suspect the debt crisis of the past few years (and this summer) has driven many institutions away from ownership of brokers as it has of banks. This suggests that as /when the debit crisis subsides, the institutional ownership in PJC shares will increase and thereby driving the share price higher.
Risk Factor: A large percent of Piper’s new business is municipal bond originations. There is uncertainty on the health of this industry with the poor fiscal shape of many municipalities. The Jefferson County bankruptcy in Alabama last week was the largest municipal bankruptcy in history.
Obviously, there is fear of the unknown priced into shares of PJC. Psychologically, we think it is a positive that PJC is rising in price so close after the announcement of the bankruptcy of MF Global. MF Global is a financial services firm with 1060 employees.
Generally, financial institutions trade close to, or around book value. With a book value of $53.00 per share, PJC has significant rebound potential.
Brokerage firms are also one of the fastest recovering industries from a stock market sell off – so if you believe we are emerging from the Euro debt crisis – then this might also be a contributing reason to buy shares of PJC.
Shares outstanding and floating are modest at 15.9 million and 14.6 million. This suggests it will not take much buying to push PJC shares higher.
This idea is based on the technical look of the chart pattern. Keep a stop loss on the trade if you decide to get involved. An eight percent to ten percent trailing stop loss is suggested.
LOTM Under $10 Idea List year to date Performance:
The focus at LOTM is on stocks priced under $10.00 per share. However, we will share short term trading ideas priced at any level if we think there is an opportunity to make money. PJC above is one such idea.
The year to date performance of our LOTM Under $10 Idea list is down 10% for the year after closed out trades and dividends are factored in. We would not be surprised at all to be positive on this account by year-end- but we are optimists. We believe in both the market system and in ourselves.
Making a Million – $5,000 to $1,000,000 Challenge:
After a slow start, we are in the black (or should I say green) with the account value at $5,100. We have not traded the account. We are still holding the original company we started with on July 18.
|Goal: Double every twelve months|
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