The bull market has now reached the ripe age of seven and a half years old. Stocks are valued high, at more than 18 times forward 12-month earnings for the S&P 500, and it is an election year with slow global growth. The Federal Reserve even keeps saying that it wants to raise interest rates. That may sound like a time that investors would show some pause or concern, but those same investors keep proving over and over that they want to buy stocks.
24/7 Wall St. has seen many warnings that the market seems to be overlooking, but pure technicians and chartists do not look at the same thing that fundamental investors care about. Some stocks have continued to surge day in and day out, and now their charts have been so strong that they might garner attention for a closer look.
Does it matter that these stocks are all valued with what might be nose-bleed valuations? Does it matter that these are almost all trading above the consensus analyst price targets from Thomson Reuters? Does it matter that some are currently losing money from operations? Again, fundamentals generally do not matter much (or at all) to pure technicians. P/E ratios, EBITDA growth, debt-to-equity, dividend coverage and other ratios that traditional investors are largely ignored by technicians.
24/7 Wall St. has tracked six key stocks that are all well-known companies and which have just managed to defy gravity. Not all of them are at all-time highs, but they have all seen more than impressive gains.
As a reminder, for a stock to be strong it means that many of the percentage gains have already been seen. That might not continue, and the fundamentals might scare traditional investors. Technicians only follow trends until those trends no longer work, and then they rapidly move on to something else. Another issue to consider is that by the time many charts get written about, the moves may be closer to an end rather than the start of something new.
Avon Products Inc. (NYSE: AVP) was so down and out that many investors forgot about it (or wish they did). That was then, with shares having recovered a whopping 170% from their lows of the last year. After a private equity deal there are hopes that this turnaround will finally have the runway and focus it needs. The issue is that selling its North American operations to Cerberus alleviated the cash worries, and Avon even recently had a $500 million debt offering. Jefferies started Avon as Buy with a $7 target this summer, back when shares were closer to $4.00 each.
Avon shares were up 46% so far in 2016, and 16% of that net gain has been in the past month alone. Some investors might care about the $20 share price as recently as 2013, but that feels like a long time ago and the NewCo Avon is much different from the OldCo Avon.
Avon’s shares were last seen trading at $5.95 on Wednesday, and the new 52-week high is $5.96. Its consensus analyst price target was at $5.39, and its 52-week low is $2.21. Avon’s market cap is $2.6 billion, and it is valued at more than 40 times expected 2016 earnings.
Though it is one of the top players in the energy sector, Chesapeake Energy Corp. (NYSE: CHK) also in the unloved natural gas segment. The company recently increased the aggregate purchase price offered for debt (notes) in a tender offer from $500 million up to $750 million. Chesapeake shares were trading strong at $6.66 last week, but now the shares have hit $6.90.
Chesapeake shares are still up 51% so far in 2015, but that is down 6.5% from this time a year ago. Just keep in mind that 39 of those 51 percentage points were from the past month alone. Chesapeake now loses money, and the consensus estimates from Thomson Reuters expect a loss in 2016 and then see earnings magically recovering to $0.84 per share in 2017.
The consensus price target is $5.37. and Chesapeake has a 52-week trading range of $1.50 to $9.55. Its market cap is $5.24 billion, but keep in mind this stock price is a fraction of its glory day highs under Aubrey McClendon.