- Fundamental buy signals from expert systems.
- Fundamental scan to check them out. Southwest is the best. Ryder is okay. Skip Goodyear.
- Buy discipline: Wait for a pullback from current strong demand for Southwest and Ryder.
- Sell discipline: When they lose their buy signals and fail to recover.
Our expert systems have come up with buy signals for Southwest Airlines (NYSE:LUV), Goodyear Tire & Rubber (NASDAQ:GT) and Ryder System (NYSE:R). Now we are going to check out the fundamentals, set our buy discipline entry price and establish a sell discipline for our exit. Here is the computer generated list of buys that we are working from which includes other favorite stocks like Apple (NASDAQ:AAPL). These stocks also have technical buys. Our universe is limited to the S&P 500 list.
LUV, according to our system, has a stock rating of 94 out of 100. Buyers are active and it is showing Demand 4 out of 9 the highest level. Obviously, we are not going to buy until there is a pullback and supply showing. The system calculates an implied return of 25% based on analyst ranking and 12-month targets. That calculated return is already dropping as price is on a strong move up along with the airlines. SA writer Larry Meyers wrote an insightful article on the airlines and LUV in particular. I especially liked the comment in a more recent SA article by Sagar Joshi, referring to LUV's oil hedging.
A quick check of the fundamentals and they look good. In recent weeks the analysts were moving the targets higher to 45-48 and the mean analyst target is 44. Price could approach 44 before pulling back to test support. The recent high target is 55. And 12 out of 19 analysts are favorable. With the forward PE near 17 and the PEG near 0.7 this is not overvalued and the drop in oil prices, the biggest cost for an airline is yet to be fully calculated into earnings.
I think the analysts will continue to raise their targets on this one. Earnings are projected to grow around 30% next year. I think my expert system may be right. The chart shows support at 40 and I would like that entry on a bad day in the market. My sell discipline is a drop below 10% implied return or a loss of the fundamental buy signal confirmed by my own scan of the fundamentals. I don't think that will happen anytime soon with LUV.
GT has a high rating of 89, high demand at level 7, a fundamental buy signal and an implied return of 19% including dividend according to our expert program. Let's go to the video tape and see what the fundamental metrics confirm. SA's HawkInvest wrote an excellent article on valuation and caught the bottom.
Analysts are still favorable at 7 out of 10 with a mean 12-month target of 30 and a high of 35. Analysts are not moving on this and oil may catch them napping at their earnings models. Earnings are not showing that much growth for next year. According to Yahoo the high estimate is 3.61 and that would make GT very attractive. It has a low forward PE of about 9 and about $6/share in cash. It has had a nice move up from the bottom and you needed to catch that bottom for a stock like this. I'll take a pass on this and look again on any pullback or analyst upgrade. On the chart it looks like support is at 25-26. The buy discipline is very important in a stock like this. Definitely not one to chase.
R has the fundamental buy signal, a high grade of 89, an 18% implied return and strong demand at level 6 showing the buyers are active. Let's see if our check of the fundamentals supports this pick. SA's David Zanoni gave an in-depth look at R and the factors to consider. Analysts are favorable, 12 out of 15. The high target is 120 but the mean is 100 according to Yahoo. Analysts back in July and August were raising their targets to near 115. Earnings growth of about 20% next year and a forward PE of only 15 implies upward price movement. I would like to get it on a pullback to 93. R could probably reach 97 on this run-up but the closer it comes to 100 the closer to a pullback to test support. I will sell if they miss their earnings, lose the fundamental buy signal and implied returns drop below 10%.
Conclusion: I like LUV the best. I think R is okay. But I think I am too late for GT which was a nice call by HawkInvest at the bottom.
Disclaimer: I do not recommend stocks and nothing in this article should be taken as a recommendation. You have to do your own due diligence and consult with a professional investment adviser about my comments if necessary. Analyst ratings and targets can be wrong. Fundamental and technical signals can be wrong. Our system uses these inputs therefore it can be wrong. Always check SA for the latest news on stocks as our data is a week old.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. (More...)
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Source: southwest - Google News http://ift.tt/12lQRHX
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