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Ross Watchlist Week of Aug 2nd 2021

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Mimecast Limited

Mimecast Limited (MIME) is another technology company that is mission critical for businesses to be successful companies. It does it by focusing on another must have technology – security.

Hacking is now a daily way of life for everyone, including every single company on the planet. And with more and more companies adopting cloud computing, specialized data security for remote data is now a must have. This is where Mimecast has its specialty. 

Based in the nice, storied town of Watertown, Massachusetts, the company has been getting a lot more business with the recent arms race for data security. 

Sales are up by 17.2% in the last reported quarter with more news for the next quarter slated for tomorrow. This may well be a nice catalyst for the stock to surge on positive news.

Operating margins are a little slim, likely due to the rising expense of hiring top-flight security engineers to get the company’s products up and humming. But it does manage to deliver a reasonable return on shareholder equity that is running at 10.0%.

The company has lots of cash on hand and minimal debt providing for plenty of investment capability for further growth.

And growth is the operating word for the stock. It has returned 406.2% over the trailing five years – trouncing the small-cap Russell 2000 Index for the same time period by over 400%.

Daily Chart of Mimecast Limited (MIME) — Source: TradingView

Here’s how Mimecast scores with SSI

  • Surge Score: 77/100
  • % Above 52-Week Low: 53%
  • MFI Reading: 71
  • Sales Growth: +17%
  • Triple Momentum: YES

As noted, Mimecast has been a well performing stock in the cloud services and risk management services for corporate information for several months, and it’s been running hard since May.

Shares are up 53% inside of the last 12 months.

The stock finally took a breather in July, and we have seen a gradually tightening consolidation pattern forming over the past several weeks.

Additionally, MIME held up very well during the recent market selloff on Monday, July 19.  

This sign of stability in a volatile market session is what I like to see from leading stocks – the ones capable of making large surges.

My entry trigger would be a move into new high ground at $57.25.

Traders can work a tight stop at $53.00 to risk approximately 7.5% on the trade.  

Initial targets for profit taking could be considered at $61.00 and $67.00, respectively.

Fox Factory Holding Corp.

Fox Factory Holding Corp. (FOXF) is a company that graduated from the hyper-successful Compass Diversified Holdings (CODI). 

Compass is a public company set up as an investment holding company that really is like a miniature Berkshire Hathaway (BRK/A). It acquires high cash generating companies with high brand recognition and develops them and in turn sells them off.

That’s exactly what happened for Fox Factory, with the selloff by Compass completed in March 2017.

Fox is well known by off-road and outdoor enthusiasts. It is the go-to company for suspension parts and systems for off-road vehicles from cars and trucks to bikes and a host of other vehicles.

Based in Scotts Valley, California, the company has a locked-in customer following that is both very hard to replicate and hard to crack by competitors.

Sales are spectacular. Over the past five years alone, sales continue to soar quarter after quarter and year after year. In fact, the average is running at 87.1% on a compound annual growth rate basis.

Operating margin is good at 12.8%, and it really works for shareholders with a spectacular return on their equity that’s running at 20.2%.

It has piles of cash and limited debt so that it can easily have access for capital needed for expansion and investment.

The company and its stock have delivered to its former owner Compass and has continued to do so on its own. Over the last five years, it has returned 741.3%, trouncing the general stock market averages by multiple folds.

The one downside is that the stock is a bit expensive as it is valued at 6.7 times trailing sales. But as just noted, sales continue to soar, providing some justification. 

And this Thursday, the company will report, which could provide a catalyst for a surge for us.

Daily Chart of Fox Factory Holding Corp. (FOXF) — Source: TradingView

Here’s how Fox scores with SSI:

  • Surge Score: 84/100
  • % Above 52-Week Low: 136%
  • MFI Reading: 51
  • Sales Growth: +52%
  • Triple Momentum: YES

Fox Factory Holding Corp. traded early on this year through May very strongly. Since May’s high, we have seen the cup style base structure form.

My entry trigger would be a move into new high ground at $167.25.

Traders can work a tight stop at $154.00 to risk approximately 8% on the trade.

An initial target to look for profit taking could be around $195.00

CarMax

CarMax, Inc. (KMX) is becoming one of the better-known used car dealers in the US in an increasingly crowded market. Used cars in the US market have soared in value and plunged in supply.

These have provided opportunities for the company and major challenges. The value soar means that the company’s inventory from earlier this year jumped in value and in turn aided the sales numbers for the most recent quarter reported in June. 

That quarter saw sales absolutely shoot up to the moon by 138.4%.

But used car supply is nearly gone right now. Even during economic lockdowns, many households sought out cars to avoid public transportation. And post lockdowns, demand really, really took off.

But new car production has been severely curtailed due to supply chain challenges as well as labor shortages and other production hiccups. This in turn has led to folks seeking out alternatives for new cars in the used car market. So, used cars went away.

This means that CarMax has to deal with empty lots for a while, but eager customers are ready to buy anything at any price.

Most of the current and historical financial data really doesn’t apply to the company right now given the market and the company condition. What does matter right now is survivability.

It has depended on regular sales to keep cash flowing through its coffers. So, it has traditionally not kept cash on hand. Right now, it has a deficit of cash and near term cash alternatives to its near term liabilities by 80%.

And it has also been a leveraged company with debts to assets running at a whopping 72.7%.

This is a credit challenge right now for the company – just as it might need credit.

In examining its debt structure, it has its next bond issue not due until 2023. This is one part of the good news as it doesn’t have to worry about rollover risk for a while. 

The second is that it has a revolving line of credit with Bank of America that has a lot of the line untapped. And that line runs through to June of 2024.

So, while cash is scarce, the credit line is good for available cash and runs for a while.

The stock has been delivering with a return over the trailing five years of 130.3% that outpaced the return of the general S&P 500 Index.

And here’s a bit more good news. The stock right now is valued at a 10% discount to the value of the trailing sales, with the price to sales (P/S) ratio at 0.9 times.

Daily Chart of CarMax (KMX) — Source: TradingView

Here’s how CarMax scores with SSI

  • Surge Score: 66/100
  • % Above 52-Week Low: 58%
  • MFI Reading: 62
  • Sales Growth: +138%
  • Triple Momentum: YES
Ross Givens
Ross Givens

I bought my first stock when I was 12 years old. It was Microsoft. I’ve been a registered financial advisor. I’ve worked as a stock broker. I ran a managed fund. I was a Vice President at JP Morgan with Series 7, Series 66 and Series 3 securities licenses. I’ve been featured on Fox Business, CNBC, Bloomberg, and a bunch of other networks. The only thing I enjoy more than making money, is helping YOU make money.

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Titilayo Adekanmbi
Titilayo Adekanmbi
2 months ago

Thank you Ross for your impactful contribution to enlighten
those who are just coming up.

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