Stocks Flat, 2 Leaders Break Out; 3 Reasons Why Microsoft May Double In Price – Investor's Business Daily

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Major stock market indexes traded near break-even levels in afternoon trading Wednesday, masking strong gains in some top-notch industries within the market and big losses in others.

XAutoplay: On | OffWhile gaming software, solar, fiber optic network and computer networking issues jumped 1% or more, non-alcoholic beverage, tobacco, specialty steel alloy, media and mortgage services firms sank fast. (See the changes for the day in IBD’s daily ranking of 197 industry groups and subgroups in Data Tables, part of Stock Lists at Investors.com.)

Meanwhile, Microsoft (MSFT) continues to trade tightly after a superb 6.3% lift in the week ended Oct. 27 following quarterly results. The stock, now near 84, has climbed nearly 48% since it staged a first-stage base-on-base breakout at 56.87 during the week ended July 22, 2016.

The Nasdaq composite edged nearly 0.2% higher and is up almost 26% since Jan. 1. The S&P 500 and Dow Jones industrial average were up around 0.1%; the small cap-dominated Russell 2000 slipped nearly 0.2% lower. Volume is running lower on both main exchanges.

Breadth was negative on both exchanges, more so on the Nasdaq. Losing issues are topping winners by more than a 3-to-2 ratio. On the NYSE, there were fewer than 200 more stocks up in price than stocks down.

At least two high-growth stocks broke out on good quarterly results.

IBD 50 name Coherent (COHR) gapped up and soared more than 12% to 295.85, pushing past stubborn upside resistance near 280 and rising past a 281.10 entry in a cup without handle.

The industrial laser maker reported a 125% leap in fiscal fourth-quarter profit to $3.72 a share, notching a fourth quarter in a row of triple-digit EPS growth. Revenue climbed 97% to $490.3 million, a quarterly best. After-tax margin rose 260 basis points to 18.9%.

No-nonsense gym operator Planet Fitness (PLNT) flexed a 16% gain, rising 4.30 to 29.89 in huge turnover and racing past a 27.32 flat-base entry. The company’s Q3 profit rose 19% to 19 cents a share and net margin improved. Sales rose 12% to $97.5 million. Over the past eight quarters, the average top-line increase is now 13.5%.

Back to Microsoft, Wall Street seems to expect a turnaround in the company’s fundamentals that are not unlike what investors have seen with fellow mega-cap tech play Apple (AAPL).

While Microsoft recently reported a 5% dip in fiscal first-quarter earnings to 84 cents a share, it smashed the Thomson Reuters consensus forecast by nearly 17%. And in the December-ending second quarter, earnings are expected to hop back on the growth track, rising 4% to 86 cents a share.

Earnings have jumped 11%, 26%, 9%, 16% and 42% vs. year-ago levels prior to the modest 5% decline in Q1.

A second reason why shares in the desktop software group member may reach a 100% gain from the entry at 56.87 is the fact that top-line growth has returned.

In Q1, revenue jumped 12% to $24.54 billion, marking a second quarter in a row of low double-digit growth. This is significant, given the size of revenues and the fact that revenue had fallen for five quarters in a row (from fiscal Q4 in 2015 to fiscal Q4 in 2016).

The Street sees fiscal Q2 revenue accelerating 18% to $28.34 billion and up 15% in Q3 to $25.44 billion.

A third reason why Microsoft is emerging as a big cap leader can be seen in its improving IBD proprietary ratings. Microsoft’s Relative Price Strength Rating is now at a healthy 86, and the Composite Rating is a good 93 on a scale of 1 to 99, as seen in IBD Stock Checkup.

Elsewhere in stocks today, Ferrari (RACE) slid 2% to 112.57 in fast trading. The stock is testing support near the 50-day moving average. Concerns that the Ferrari brand took a blow by losing the F1 overall championship to Mercedes Benz are weighing on the stock. Yet for now, the luxury sports car firm continues to grow at a high-octane pace (Q3 profit up 32% to 87 cents a share, sales up 12% to $988.4 million).

The stock has risen more than 150% since clearing an early-stage flat base at 46.65 in the summer of 2016. A further decline below the 50-day line would trigger a key IBD sell signal.


IBD’s TAKE: Scroll through Investor’s Corner archives to beef up your knowledge of the most important sell rules. One of them is a big dive through the 50-day moving average and no recovery. And in some cases, a great stock will punctuate the end of a rally with multiple sell signals, covered frequently in IBD’s Investor’s Corner and daily market columns. Check out this article on how to spot multiple sell signals to lock in profits and raise cash to maximize your portfolio return.


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