It’s been quite a week in the markets, and our stocks have enjoyed a strong bounce the last several days. Today, it’s time for us to cash in a nice winner and take advantage of a new opportunity.
Let’s start with the sell. Our biggest gainer this week has been Aratana Therapeutics (PETX), which is up 30% since Tuesday’s close. Most of that is coming with today’s big pop, and it’s time for us to take our profits of 15% to 20%.
The stock gapped up 21% at the open on great news from the clinic. The company’s canine arthritis therapy had positive results, which may ultimately translate into an entire new universe of veterinary products and revenue for PETX.
For our purposes, this is exactly the kind of news catalyst we were in this stock to capture, and it will take the chart a little time to go back and fill in the huge gap before making convincing additional progress. I think most of the immediate upside is baked in now, so let’s cash in. I am sure we will be back when the next compelling entry point emerges. Sell PETX.
New Conservative Buy: BGC
General Cable (BGC) is a classic case of a company that has suffered the consequences of disappointing Wall Street, but the punishment was too severe to fit the fundamental crime: turning its business around a little more slowly than the analysts hoped. Now that the chart seems to be finding its bearings, traders have a chance to ride the wave back to what we can now consider fair value.
BGC is not what many market commentators consider a “story stock.” The company manufactures electrical and fiber optic cable and wiring components. As such, while some degree of innovation is in play here, the quarterly operational numbers are really more about the construction and manufacturing cycle than the ebb and flow of media attention.
From that perspective, it has been a fairly miserable year for BGC. Revenue came in 6% below Wall Street forecasts in the first quarter, tilting the bottom line to a loss and sending the stock price on a long retreat from its former comfort zone around $24 to $26. The second and third quarters also missed the mark, but by smaller margins as management and the analysts finally found common ground. At this point we have firm consensus on what the current quarter will bring when BGC reports in February.
For our purposes, the good news is that taking guidance at face value, BGC might be a little above $16 per share at the multiples investors were willing to pay for this company over the summer – provided of course that management can hit its targets.
Based on what we are hearing about the U.S. economy this quarter, I suspect that demand for electrical wiring is at least as robust as management was willing to contemplate back in late October, when the market was falling apart. If anything, the outlook may be overly conservative in order to avoid disappointing shareholders yet again.
While the moving parts of this story have been on the table for a few months, the chart indicates that investors have been slow to put everything together. However, the last few days have put BGC on what could be its recovery path at last, which gives me the confidence to put this stock on our Buy List as a conservative choice.
Buy BGC below $14.95. From a technical perspective, these shares now have plenty of support around $13.70 and nothing above them to get in their way. Assuming we are still here when the stock goes ex-dividend on December 24, which is only a few days away, we’ll also lock in an extra $0.18 per share.
I’ll be back in touch later with the fully weekly update.