It’s a rare occurrence when a stock falls 80% from a high and then starts to outperform again, showing meaningful signs of accumulation on the way back up.
TWO STOCKS TO WATCH
Two stocks are in that boat now and deserve respect here because their runs may not be over.
Shares of Netflix (NFLX) hit a high of $374 in the summer of 2011, then corrected down to $53 over the next 14 months. What a run it’s been for the stock lately. Late Wednesday, Netflix shocked the market with profit of $0.13 a share, way better than the Thomson Reuters consensus estimate for a loss of $0.13. Sales rose 8% to $945.2 million, also better than expected. Netflix added 2 million video-streaming subscribers in the U.S. in the fourth quarter. Domestic online customers now total 27.2 million.
You probably heard many say Thursday that Netflix’s huge gain Thursday was mostly short covering, but I’m not so sure because short interest wasn’t all that high in the stock ahead of earnings. At the end of October, 17.2 million shares were held short but the number had fallen to 13.2 million by the end of December — not all that high considering that Netflix has an average daily trading volume of 3.7 million shares.
NEAR TERM ACTION WILL BE KEY
Shares of Netflix surged 42% Thursday to $146.86. I’m not a buyer now but will consider buying if Netflix holds its gains and moves sideways from here. That would be a sign of strength and support and could presage even higher prices ahead.
GMCR FIGHTS BACK
Meanwhile, Green Mountain Coffee Roasters (GMCR) was also left for dead not that long ago, but similar to Netflix, it’s regaining investor favor quickly.
Green Mountain was first to market with single-serve coffee in the U.S. with its Keurig machines and coffee pods. Competition is out there, but Green Mountain has responded with new brewer models and a bigger selection of single-serve K-cups.
Increased competition and upcoming patent expirations are two big reasons why the stock corrected 85%, from a high of $116 in Sept. 2011 to a low of $17 in July 2012. But you know what? Green Mountain’s third-quarter earnings report turned a lot of heads, mostly because sales growth accelerated from the second-quarter, rising 33% from a year ago to $946.7 million. In the second quarter, sales rose 20%. To justify its recent price gain, investors will want to see more than just one solid quarter, and there’s a good chance of it happening.
Earnings are due Feb. 6 after the close. Analysts are looking for profit of $0.65 a share, up 8% from a year ago with sales up 15% to $1.3 billion. Green Mountain isn’t out of the woods yet, but one thing the stock has going for it is that shares remain under accumulation.
The stock staged a bullish breakout Thursday, rising 6.6% to $43.78 in strong volume.
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