On the Rebound
Stocks have continued to show some impressive resilience over the last week, staying near multi-year highs despite the new leg of geopolitical turmoil that has surfaced in the Middle East.
The market reacted positively to the Federal Reserve’s announcement today and Chair Janet Yellen’s press conference, pushing the S&P to yet another new high. As expected, the Fed continued to taper its quantitative easing (QE) program by another $10 billion, from $45 billion to $35 billion in asset purchases a month. In her speech, Yellen reiterated that the taper will remain a slow one as the economy rebounds.
With nothing surprising from the Fed, the market moved higher and added to what’s already been a strong month for the Street. All three major indexes have done well, with the S&P 500 up 1.7%, the Dow up 1.1%, and NASDAQ up 2.8%. Our GameChangers stocks have performed even better in the last month, rising 6.7% in June. Going further back to the early spring volatility of May, our Buy List is up 6.35%.
Many of our harder hit stocks during that time have posted strong turnarounds from their May lows, including InterMune (ITMN, +49%), Cree (CREE, +12.7%), Renewable Energy Group (REGI, +11.4%), Quality Systems (QSII, +13.7%), and Akamai (AKAM, +18.5%). And while we did have stop losses in place for CREE, QSII, AKAM and Polycom (PLCM, +6.6%), we haven’t needed to implement that strategy for a single one. I remain confident in the companies we’re invested in, and believe we’ll continue to see them recover.
While the overall market momentum has certainly benefited our positions, their company-specific catalysts also helped propel them higher, especially in the case of ITMN. Let’s take a look at my latest outlook on the stock now, and then I’ll update you on a few other news items.
Prepare to Sell ITMN
InterMune (ITMN) hit a new 52-week high today as it continues to soar in the wake of positive Esbriet data reported on May 1, as well as the long awaited news that the company will re-submit its application to gain permission to sell the drug in the United States.
ITMN has turned around significantly for us as this catalyst has played up, and we are now up 40%. Much of the good news is now out of the way, so there is no real near-term catalyst up ahead to keep the rally going. Given the market environment and our strategy of protecting profits, I want you to be ready to sell ITMN and take some gains off the table. However, I’d like to see how this momentum plays out and see how much upside potential is left before we make any moves. For now, I am maintaining our $49 target and recommend that you hold ITMN. As always, I will be in touch via e-mail when it is time to take action, and I will continue to follow ITMN for possible opportunities in the future as the company’s story plays out.
NUAN Up on Takeover Rumors
Nuance Communications (NUAN) popped over 13% on Monday due to rumors that the company is in talks to be acquired via private equity or Samsung, which would be looking to beef up its software in its ongoing tech war against Apple (AAPL). Other analysts and articles have suggested that AAPL, which uses NUAN’s technology to power its digital assistant Siri, may be in the running to acquire NUAN as well.
For now these are just rumors, and NUAN has benefited from these kinds of takeout headlines before. However, rumors can become reality quickly, so I’ll continue to keep a close eye on the news and let you know if we need to make a move. Continue to hold NUAN for our $23 target.
FTNT Hits the Road
According to MarketWire, Fortinet (FTNT) is taking enterprise network security on the road. Today, management revealed the FortiExpress, a highly sophisticated, 18-wheeled mobile showcase that exhibits FTNT’s enterprise high performance, integrated network security platform. Management compared the technology to that of popular Transformer’s character Optimus Prime, a robot that starts as a truck and transforms to reveal some serious technology. The FortiExpress is set to travel nationwide as part of Fortinet’s “Fast and Secure Tour.”
The company continues to generate positive buzz, with Oppenheimer noting last week that FTNT’s business is tracking ahead of expectations, which implies a strong second-quarter earnings report due out in about a month and makes it an even more attractive takeover target.
Fortinet has rebounded over 18% off its May lows, and as its all-in-one solution continues to gain traction, I expect the stock to move closer to our $30 target. Hold FTNT.
SWI Makes Acquisition
SolarWinds (SWI) announced this morning that it is acquiring Pingdom for an undisclosed price, pushing further into “off premise” IT management and the cloud. I like this strategy since the overall industry is moving toward Internet-based applications and controls. SWI is up 3% this month, and I expect it to continue to move higher given its strong product pipeline and cross-selling abilities to a dedicated customer base. SWI remains a buy up to $41.
GameChangers News & Notes: AKAM, NRG
Akamai (AKAM) made news last Wednesday when Investor’s Business Daily said that the company should see a boost from the online frenzy surrounding the World Cup, which has created a global buzz. Citing an Oppenheimer report, IBD noted that very strong traffic – and hence, use of the company’s content delivery services – will drive a solid second quarter.
AKAM has done well for us as a June Top Buy, rising 11% this month on e-commerce and social media traffic, and will benefit from Microsoft’s Xbox title refresh. The shares are now trading just above our buy limit, so buy AKAM only on dips below $60.
NRG Energy (NRG) is teaming up with Boeing (BA) to complete and run a 6 megawatt (MW) solar plant in southern California, indicating a continued effort in renewables. The two companies are also collaborating on a 26 MW solar farm in Guam, which would be enough energy to power 10,000 homes.
The company is poised to continue benefiting from strong energy pricing and its recent acquisition of North America’s largest wind farm, the Alta Wind facility. With shares above our buy limit, hold NRG and look to buy on dips below $37.
Sincerely,
Hilary Kramer
Editor, GameChangers