U.S. stock markets continued their strong start into September, with the Dow Jones up 3.04% and the S&P 500 rising 1.98%. Global markets also found their mojo with the MCSI Emerging Markets Index up 2.95%.
Big gainers in your Bull Market Alert portfolio included Gentherm (THRM), soaring 9.21%, and last week’s recommendation, AutoNation (AN), up 7.67%. Wellpoint (WLP) rose 2.06% and biotech bet Celgene (CELG) ended the week 1.71% higher.
Last week’s option recommendation in Gentherm was particularly well-timed, as the December $17.50 call option soared 44% in a single week.
This week’s Bull Market Alert recommendation revisits an old investor favorite, and what just might be 2013’s top turnaround play.
Despite its distinctly non-tech flavor, Krispy Kreme Doughnuts (KKD) was a child of the dotcom boom, rising five-fold from $10 to $49 in just three years. The buzz was that it was the next Starbucks (SBUX).
That chapter of the Krispy Kreme story had an unhappy ending as the company expanded too quickly and took on too much debt. Coming dangerously close to bankruptcy during its darkest period in the spring of 2009, Krispy Kreme shares traded as low as $1.15. Four years later, Krispy Kreme boasts record margins and earnings in a turnaround worthy of Steve Job’s return to Apple (AAPL).
Krispy Kreme’s strategy under its new management was two-fold.
First, it refocused the company from wholesale to retail where selling prices are higher and costs are lower.
Second, Krispy Kreme is taking on the world. The company plans to almost double its global store count to 1,300 in the next four years. Its first store in Scotland sold close to 5 million doughnuts in its first six months. Next month, Krispy Kreme is opening its first store in Asia with a flagship store in Singapore. Despite its wide name recognition in the United States, Krispy Kreme is still a small company with relatively few stores. By way of comparison, Starbucks has 70,000 locations.
Krispy Kreme shares recently fell a whopping 17% in a single day as it missed earnings slightly. This was the kind of overreaction that short-term traders love. After all, the CEO called it an outstanding quarter as the company beat revenue expectations and increased its same-store sales by 10%. That marked 19 consecutive quarters of same-store sales growth. The company also reaffirmed earnings guidance of between 59 cents and 63 cents for the year. Overall, analysts remain bullish on Krispy Kreme’s expansion strategy, calling for earnings growth of 35% in fiscal 2014 and annual earnings growth of 30% in the next five years.
With the stock already beginning to recover, buy Krispy Kreme Doughnuts (KKD) at market today and place your stop at $16.00.
If you want to play the options, I recommend the February 2014 $20 calls (KKD140222C00020000).
Bank of Ireland (IRE) fell 7.15% last week after reaching a new 52-week high. Societe Generale initiated coverage on IRE early last week with a “Sell” recommendation. This news pushed back on IRE’s stock price. However, with a mere 0.32% short interest in the stock as of Aug. 15, not everybody seems to agree. This news is likely a short-term lower buy point for IRE shares. IRE remains a BUY.
WellPoint, Inc. (WLP) continued gains last week, adding another 2.06%. Bank of America upgraded WLP last Friday and moved its price target to $98.00 — 10% above Friday’s close. An analyst at Bank of America cited increased visibility into the details surrounding operation of the exchanges, stating that the new environment will be less disruptive than previously believed. WLP will likely challenge its $90 high, and resistance level, this week. WLP is a BUY.
Celgene Corporation (CELG) added 1.71%. Celgene’s chart is a textbook example of bullishness, with enough shine to make any technical analyst giddy with delight. CELG completed a near-perfect round-trip from support, to resistance, back to solid support (and a rising past its 50-day moving average), and finally back to weakened resistance once again. Spending last week consolidating, history shows that the odds are good that Celgene moves higher on conviction from here. CELG is a BUY.
Gentherm (THRM) gained 9.21% over the past five trading days. Investors “took the gloves off” last week after finally seeing the light in THRM and buying on strong volume. In fact, investors reversed THRM’s recent five-week pullback in only one week — even managing to push THRM above its 50-day moving average and back to a BUY.
Google Inc. (GOOG) rose 1.08% last week and moved above its 50-day moving average. Although Google is a business with many open fronts to success, competitor Microsoft’s successful big initiatives only amount to its Windows operating system, Microsoft Exchange/Office product, and Xbox gaming platform. However, with products like “Google Apps,” “Google Drive” and “Google Mail” gaining mind and market share, this puts the enormous share of Microsoft’s Exchange/Office product squarely in Google’s sights as another product space to dominate. By providing both enterprises and individuals comparable functionality, and for many at the extremely low price of “free,” Google is well positioned to dominate yet another vast canvas of market share and advertising space that users view on a daily basis. GOOG is a BUY.
Priceline.com Incorporated (PCLN) added 0.80% last week. Taking a play straight out of Google’s successful advertising revenue-generation playbook, Priceline announced a new initiative last week named “Priceline Sponsored Listings.” This service allows hotels to launch paid real-time advertising campaigns directly to Priceline consumers. With Priceline’s massive pool of consumers available for targeting, this new effort should prove to be a successful contribution to Priceline’s bottom line. PCLN is a BUY.
AutoNation (AN) gained 7.67% for its first week in your portfolio. Although AN took a slight breather late last week, the rally may continue on Sunday’s news regarding the withdrawal of former Treasury Secretary Lawrence Summers for consideration to the Federal Reserve post currently held by Fed Chairman Ben Bernanke. The news that a potential Fed chairman, who would likely move aggressively to wind down stimulus efforts, is voluntarily leaving the race for the eventual opening has given investors a new reason to buy equities. AN is a BUY.
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