The bull market that started in March 2009 has yielded several big winners. Be careful, though, because many growth names are forming late-stage bases after massive price gains. Names like Mastercard (MA) and Ulta Beauty (ULTA) come to mind
Why are late-stage bases riskier than early-stage bases? After a stock breaks out from a series of bases, or consolidation areas, its growth story is already known. In many cases, it's too late to buy. Late-stage bases should generally be avoided because in most cases, the big money has already been made.
Some growth names currently might look like late-stage bases but they're not because they reset their base counts. What does a base reset look like? It's not hard to recognize. It happens when sellers come into a stock spades. The stock pulls back sharply, and the ultimate low of the pullback undercuts the low of a prior base. The thinking is that when enough sellers get shaken out of a stock, it paves the way for a new uptrend.
Since the start of the bull market, shares of Netsuite (N) have gained nearly 500%, but it reset its base count in October 2011. Shares hit an intraday low of $25.32, undercutting the low of a prior base that formed earlier in the year. The new base that formed yielded a fresh, first-stage breakout in December. A second-stage breakout followed earlier this year in July. The stock is currently working on the right side of a third-stage base. Headed into today, it had climbed to within 4% of a 52-week high. Last week was bullish accumulation week for the stock. Shares popped 8.2% on volume of 3.4 million shares. In a normal week,
Netsuite trades about 2.3 million shares.
Netsuite is a provider of on-demand customer relationship management (CRM) and enterprise resource planning (ERP) software. It shows consistent bottom-line and top-line growth in recent quarters and strong growth is expected to continue as demand remains strong for the company's products and services. Full-year profit is seen rising 60% this year to $0.24 a share and 33% in 2013 to $0.32 a share.
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About the Author
Ken Shreve got his start in the financial markets with Investor’s Business Daily (IBD). He spent over 10 years as an editor and columnist for IBD and its Web site Investors.com. He also acted as the Investors.com "Market Wrap" anchor and presented IBD investing workshops and seminars nationwide. Shreve continues to provide market commentary on national radio and has appeared on CNBC.
He now writes Ultimate Growth Stocks, a weekly newsletter at TFNN and hosts Breakout Investing, Monday through Friday from 3-4 PT. Learn more at www.kenshreve.com.
Ken has also contributed to TheStreet, Realmoney.com and Realmoneypro.com and has been a regular contributor to Jim Cramer’s “Off the Charts” segment on Mad Money.
For more information about his growth stock newsletter and model portfolio, e-mail him at ken.shreve@yahoo.com
KenShreve
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