Betting on a Cloud Computer Company Leader

Last week was a negative one for global stock markets, with Dow Jones down 0.56%, the S&P 500 falling 0.96% and the NASDAQ tumbling 1.48%. The MSCI Emerging Markets Index also pulled back 2.15%.

There was, however, some better news in your Bull Market Alert portfolio. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) jumped 5.35%, Avista Corporation (AVA) added 1.43% and Littelfuse (LFUS) rose 1.27%. Masimo Corporation (MASI) also hit a new 52-week high and B&G Foods Inc. (BGS) rose back above its 50-day moving average and changed to a BUY.

Several positions did move to a Hold. These include the iShares MSCI Emerging Markets (EEM), Healthcare Services Group, Inc. (HCSG), ABM Industries Incorporated (ABM), Masimo Corporation (MASI), Take-Two Interactive Software (TTWO) and Cantel Medical Corp. (CMN).
This week’s Bull Market Alert recommendation is LogMeIn, Inc. (LOGM), a computer “cloud” company that develops and markets a suite of remote access, remote support and collaboration solutions in the United States, the United Kingdom and internationally. You may know it as a service that allows you to log into your desktop from a remote location.

LogMeIn vs. the S&P 500 over six months

LogMeIn’s stock has been on a tear over the past few years. Here’s why I expect that run to continue between now and the end of the year.

First, LogMeIn (LOGM) is in the midst of a merger with the GoToMeeting business of Citrix (CTXS). The deal was agreed to in July and is expected to close in early 2017.

Both companies are in similar businesses of providing technology applications for the workplace, including remote login, help desk remote control and collaboration software. The combined operations of the merged company are expected to generate pro forma revenue of more than $1 billion and pro forma EBITDA (earnings before interest, taxes, depreciation and amortization) of $350 million in 2017. The merger is expected to save the companies $65 million in cash within the first 12 months after the merger, and up to $100 million two years out.

Second, LogMeIn will report Q3 2016 financial results following the market’s close on Thursday, October 27, 2016. The good news is that LogMeIn has a history of exceeding expectations. For Q2, the company reported revenues of $83.27 million, beating the $81.82 million consensus forecast of the nine analysts covering the company. This also represented a gain of 28.43% above the prior year’s Q2 results. Also, earnings per share of $0.49 exceeded the $0.46 consensus of the 10 analysts covering the company. This also exceeded last year’s Q2 results by 40%.

Finally, LogMeIn is now owned by 10 separate top-performing small-cap-growth investment strategies, with that number climbing steadily in recent weeks. Wall Street is betting big that the merger is set to be a huge success.

Analysts at Needham recently raised the price target on LogMeIn from $98 to $114, citing significant cost synergies in its upcoming merger. With the stock closing at $89.61, this represents a solid 27.2% gain in the stock.

So buy LogMeIn (LOGM) at market today, and place your stop at $78.00.

If you want to play the options, I recommend the LOGM December $89.50 calls (LOGM161216C00089500), which last traded at $5.90 and expire on Dec. 16. However, keep in mind that the bid-ask spreads on these options are wider than normal, so the stock will have to make a big move for these to be profitable.

Portfolio Update

Healthcare Services Group, Inc. (HCSG) fell 5.21% after reporting earnings last Tuesday. Net income was $0.27 earnings per share (EPS), matching the consensus estimates and beating the $0.24 EPS figure of one year ago. Revenue was up 9% to $392.7 million and missed the consensus of $394.1 million. HCSG also reported that it would pay a $0.185 per-share dividend on Dec. 23 to investors of record by Nov. 18. HCSG fell below the 50-day moving average (MA) to become a HOLD.

Avista Corporation (AVA) added 1.43%. AVA has been holding its ground and trading sideways along its 200-day MA for the past two weeks. Avista will report earnings on Nov. 1 before markets open. Analysts’ expectations are calling for $0.20 EPS. AVA is a HOLD.

Allete, Inc. (ALE) moved 0.91% higher. ALE will report earnings on Nov. 4 before markets open. Analysts’ consensus estimates are $0.98 EPS with revenue estimates at $442 million. ALE is a HOLD.

B&G Foods Inc. (BGS) dipped 0.10% last week. As earnings season rolls on, BGS will report on Oct. 27 after markets close. Analysts’ estimates are calling for $0.52 EPS on $36.75 million in revenue. Recent analysts’ actions include Credit Suisse maintaining a “Hold” rating with a $55 price target, as well as RBC Capital maintaining its “Outperform” rating and raising its price target to $57. Although BGS was down slightly for the week, the falling 50-day MA pushes BGS a few pennies above the 50-day MA to become a BUY.

Cirrus Logic, Inc. (CRUS) lost 1.35% over the past five trading days. CRUS reports its earnings figures on Oct. 27 after markets close. Consensus estimates are calling for $0.94 EPS with revenue at $396.24 million. Stifel Nicolaus posted a last-minute change last week, reiterating its “Buy” rating, but boosting its price target to $62. CRUS is a BUY.

iPath S&P 500 VIX Short-Term Futures ETN (VXX) jumped 5.35%. As the highly contentious presidential race draws to a close and with the breakdown in small-cap stocks a possible canary in the gold mine, VXX could soar at any moment. Continue to monitor this position for a quick exit. VXX is a BUY.

Take-Two Interactive Software (TTWO) fell 4.48%. TTWO is yet another position in your portfolio readying for its earnings report. Consensus analysts’ estimates stand at $0.29 EPS, with revenue estimates at $362.32 million. TTWO will report earnings on Nov. 2 after markets close. TTWO moved to a HOLD.

Cantel Medical Corp. (CMN) fell 3.89%. Cantel Medical increased its annual dividend from $0.12 to $0.14 per share – its seventh consecutive annual increase. Cantel Medical Corp. also announced it would change its stock symbol from “CMN” to “CMD,” effective Dec. 5. CMN moved to a HOLD.

Sincerely,

Nicholas A. Vardy