Our Profit Catalyst Trifecta

We launch our Profit Catalyst Alert service with three stocks that have recently hit all our marks: SolarEdge (NSDQ: SEDG), Photronics (NSDQ: PLAB) and Vera Bradley (NSDQ: VRA).

As you’ll see, these companies have had fundamental shifts in their businesses that have been recognized—but not fully appreciated—by the market.

In this, our first weekly edition of Profit Catalyst Bulletin, we’ll give you the basics on these companies, which are ripe to buy right now. On Tuesday, January 19 we’ll follow up with full reports in our first full monthly issue. In that issue we’ll also discuss our strategy to an even greater depth, and have updates on company performance.

First up may be a surprise to those who follow the renewable energy industry and know that it recently took another one of its periodic beatings. Benchmark Guggenheim Global Solar ETF was down 11% in 2015 and has cooled a numbing 40% since its 52-week high in June.

The carnage has been broad, with solar system operators and equipment suppliers alike hit hard. But solar installations continue growing rapidly worldwide; many solar operators still expect growth of 40% to 60% for the next few years and are positioned to make a lot of money in the sector.

SolarEdge is one of them.

SolarEdge makes inverters and optimizers for solar panels. These high-tech boxes are the brains behind solar panels, allowing them to convert and maximize energy collected from sunlight. Consider:

  • SolarEdge revenue skyrocketed 144% in fiscal 2015 and was up 72% in the first quarter of this year.
  • Profits are expected to grow 80% in 2016 and another 30% in 2017.
  • The stock, which is down 54% since its mid-year high, trades at a puny price-to-earnings ratio of 14 times based on 2017 estimates, despite this impressive growth.

Buying stocks simply because they are bumping along 52-week lows can be a dangerous business. Stocks need a catalyst to move higher, and our Launchpad system first uses trading volume to uncover such catalysts. On Nov. 5, SolarEdge traded 3.8 million shares, almost five times its average volume.

That caught our attention, and then we discovered that SolarEdge is making the kind of changes we expect from a Launchpad stock. Around the time of that volume spike, management revealed that its new HD Wave technology would lower the cost of manufacturing dramatically.

This technology both addresses the new, lower-cost mandate driving the solar business and eases investor worries about a competitor that was undercutting SolarEdge’s prices.

Also on Nov. 5, SolarEdge stock closed up 28%, but the market still hasn’t recognized the company’s full potential. Considering its stellar earnings power, there’s plenty of room to run.

Buy SolarEdge up to $32.

SolarEdge is kind of like an arms dealer that sells to all sides and profits no matter which army wins. In the same way Photronics doesn’t take sides in wars waged among chip makers—it supplies many of the best.

Photronics is also on the cutting edge of this fast-moving business:

The smaller computer chips get, the bigger Photronics sales become. And chips continue to shrink to mind-bendingly tiny sizes.

Over the past two years Photronics has been developing tools used to make these increasingly smaller, more powerful chips. Its most recent quarter showed the bounty reaped from this strategy. Revenue from its “photomasks” grew 28%, much faster than overall revenue. These highly profitable masks helped fatten margins and caused net income to quadruple.

Although Photronics had these cutting-edge masks a year ago, big customer orders have just started spilling in. We noticed this when the stock’s trading volume spiked in early December. The stock traded more than five times its average volume and jumped 5%.

This is exactly the type of volume spike that the Launchpad method screens for. It alerted us that a new development could be at work at Photronics. (This was the second quarter in a row that Photronics saw a surge in volume on positive numbers.)

Earnings have more than doubled in the last two quarters, a trend that should continue for the current quarter. Although growth is expected to slow to 28% in fiscal 2016 and 19% in fiscal 2017, the stock trades at a temptingly low valuation—just 13 times 2017 estimates.

Earnings per share are expected to jump 28% this year and another 19% in 2017 to $0.98. Revenue growth is driving some of the earnings improvement, but management’s tenacious hold on operating expenses has magnified the improvement.

And the company has a strong balance sheet. Aided by its net cash balance of $74 million, Photronics has been paying down its $67 million of long-term debt with free cash flow.

Buy Photronics up to $15.

Our final pick isn’t another cutting-edge tech company, but a cutting-edge fashion company. Vera Bradley sells floral-patterned cotton handbags has been luring customers back to its stores with new, sophisticated styles. These sleek monochrome microfiber and leather bags are impressing consumers so much that an unstylish decline in revenue has been reversed and profitability is rebounding.

Although some of the new styles were introduced as far back as August 2014, it has been a long, bumpy road for investors who bought the stock then, hoping for a turnaround. The stock, which traded at $30 in spring 2014, has hit turbulence almost every quarter since, as hopes proved premature. The Launchpad method, which is based on buying a stock only after a volume spike confirms a fundamental change, would have saved investors the misery of watching their investment drop to below $10 last September.  

Vera Bradley has beaten sales and profit estimates for the last two quarters, mainly because of the higher sales of these new bags. The stock jumped 50% since a 28% leap in earnings was reported in December but should continue to race higher as estimates catch up to this striking growth. Fourth-quarter results, which will be reported in early March, will reflect the uber-important holiday season. Current estimates expect only 15% growth in fiscal 2017 (ends January 2017), a conservative rate considering the much higher growth showcased last quarter. If annual growth for the next fiscal year keeps that pace, the stock could rocket to the mid $20s.

Buy Vera Bradley up to $18.

 

Stock Talk

Phil Ash

Phil Ash

Welcome to Profit Catalyst Alert! Please let us know right here if you have any questions or suggestions.

Michael Dunn

Michael Dunn

Phil,
will you be dealing with the blog here or Linda?
Will Linda be in Vegas?

Phil Ash

Phil Ash

Hi Michael,

Linda will be engaged in the conversations here very soon. This is our product launch week, so we’re still getting a few things setup. That’s why, for example, we just posted the short article revealing the three picks. We’re saving the more detailed research for 1/19 once all new members are on board.

Thanks for your patience.

Phil Ash

Phil Ash

And, yes, Linda will be at the Wealth Summit in Vegas on May 12. We hope to see you there: https://www2.investingdaily.com/olp-weso-summit/?campaigncode=WL1034

Jon D.

Jon D.

Linda, Best Wishes on the success of your new Endeavor. I have gotten started this AM with a position in VERA. I hope moolah continues to flow in her Purses [as well as mine] as the Chaikaen Money Flow indicates this AM.
Cheers,
Jon D.

Karl Eser

Karl Eser

Hi Phil – I posted the following question 2 days ago on the Investing Daily site regarding the webinar that was being advertised but no one responded. Was there anything in the webinar that would have been useful to see?

Karl Eser Reply
January 4, 2016 at 5:04 PM EST

Jim – Is the Strategy Week webinar available to Wealth Society members. When I click on the sign up link I get a message that the page is not available.

Guest One

Phil Ash

Hi Karl, sorry you’ve had trouble finding the presentation.

You can find it at this link: https://www2.investingdaily.com/presentation-live/

Karl Eser

Karl Eser

Phil – thanks. I am still getting an error message that the webpage does not exist. I tried on 2 different computers. I’ll try again later.

Phil Ash

Phil Ash

Hi Karl,

Sorry the link isn’t working for you. It works on my computer and phone. The presentation is partially editorial and partially marketing. I’m going to ask my team to created an edited version without the marketing and post it to the site as part of the 1/19 issue perhaps. Stay tuned…

Karl Eser

Karl Eser

Great. Thanks for getting back to me. I will look forward to seeing it when posted.

Michael Dunn

Michael Dunn

Giving it a try…So Far I have:
PLAB @ $11.97
SEDG @ $ 16.00
Limit order working at $28.00 for VRA

Michael Dunn

Michael Dunn

also VRA at 15.16

All down at 1:25PM /central

Michael Dunn

Michael Dunn

Guess we can hope the Bull charges again for these three.

Linda McDonough

Linda McDonough

Thank you Michael. I also hope the market finds its footing. However the philosophy behind the Launchpad method is that these are companies whose success is not entirely reliant on the direction of the overall market. Welcome aboard!

Michael Dunn

Michael Dunn

HI Linda,
Welcome aboard.
Do you have an average time frame that you use for a stock to make the projected jump in price? I assume you will also post an alert as to when to take the profit or hold.
Looking forward to your next posts on the 19th.
Mike D

Michael Dunn

Michael Dunn

I went back and watched the video & got my answers

Linda McDonough

Linda McDonough

Michael,
I will definitely be posting updates to each name not only when it hits my target but also along the way with fundamental news. Although I begin with a specific target for each stock it often shifts over time. I usually expect a stock to move significantly higher over the next 6-12 months. I look forward to sharing ideas with you.

Rick W.

Rick W.

Michael,
Can you tell me where you found the video please? Thank you.
Rick

Michael Dunn

Michael Dunn

Go to the web page for the into vidio

John Vandrasek

John Vandrasek

Last night I was reading your analysis of Vera Bradley when my wife walked in and looked at what I was reading and made the comment “Don’t buy that stock”. I asked why and she said there merchandise is not popular now and there purse design is not attractive plus very expensive. I think she owns one or two purses but does not use them now. I am not saying my wife is an expert on what is going on in the women’s world but she does keep up with is most popular. Do you hae any reports from other women on Vera Bradley and their merchandise?

Linda McDonough

Linda McDonough

John, Thank you for your comment. I am curious if it was one of the floral bags or the new leather single color ones she was looking at. There are certainly many closets full of unused floral bags after the rapid expansion Vera had with those designs. The informal surveys and industry articles that I’ve conducted and read point to quite a bit of excitement over the new bags (they are listed under New Arrivals on their website). The company has worked down their inventory of unpopular bags and makes a higher profit on these new ones. While the company won’t comment on trends during their quiet period (the quarter ends at the end of this month), I’ve been watching to see if there are mark downs on the new bags and to date the new bags are selling at full price. Please keep me up on any new comments you hear regarding the product! On the ground data points are helpful. I’ll keep everyone up to date on any new information I dig up!

MODERATOR: Lisa G

Lisa G

John,

I love Vera Bradley! They are the only purses, wallets, etc. I buy as I am a quilter and love the quilted aspect to them. I think they are very popular with younger people as, and I disagree with your wife here, they are NOT expensive compared to most other designer bags. They also go on sale very frequently for 25% off and at the Vera Bradley outlets they are always at least 40% off. Now if you are looking for a fancy evening purse, Vera Bradley might not be your choice, but for everyday use they are great. Just my two cents.

Lisa

MODERATOR: Lisa G

Lisa G

I also wanted to add that everywhere I go, someone will say to me either they have the same bag or they love my bag. The grocery store, airports, etc. I can’t tell you the number of strangers who comment on the floral bags. So that says a lot to me about their popularity too.

Lisa

Linda McDonough

Linda McDonough

Lisa, Thank you for your comments! I love hearing “feet on the ground” research. Vera Bradley created a whole new category of innovative bags to feed an unmet consumer need. Their newly styled bags are yet another layer of that innovation. You might enjoy the story below describing the incredible journey of one of Vera’s co-founders. Linda

http://fortune.com/2015/09/12/vera-bradley-founder-barbara-bradley-baekgaard/

MODERATOR: Lisa G

Lisa G

Linda,

Thank you for that link! It was a great story. When I have given gifts to my various different pet sitters, all who tend to be young women in their 20s, I give them Vera Bradley items. They are always a big hit and I never go wrong with them! I have also given Vera Bradley items to various women in my quilt group, and they range from their 50s to 80. And everyone in my quilt group loves them too! So she is sure right in that her items have a multi-generational appeal!

Lisa

randy

randy

So far so good!!!!! Joined TWO days ago and have ONLY lost 10% of my investment in SEDG!!!!!!!!!!!
$950.00 fee is a lot of money to pay to immediately loose over 400.00!!!! I know patience, patience!
I will be patient for about 45 days.

Linda McDonough

Linda McDonough

Randy- Thank you for becoming a subscriber! I agree that it is incredibly frustrating to watch a new buy decline. Solaredge has been hit particularly hard as some over leveraged solar grid operators like Sunedison (SUNE) have been refinancing debt at less favorable terms. Solaredge’s fundamentals should not be influenced by this and I expect the stock to rebound. I dig pretty deep into the numbers and industries of the stocks that I recommend and my expectation is that they will go up over the next 6-12 months. I’ll keep you up an anything new on Solaredge and appreciate your membership. Linda

Linda C

Linda C

Linda,

Why do you feel/think CRL dropped $2 a share today. I was going to place a trade but luckily saw that and didn’t.. While a LOT of stocks have plunged these past weeks, a lot haven’t or have even increased in share price so investing in a service recommending a stock and then seeing that kind of a drop is worrisome.

Linda (as well)

Linda McDonough

Linda McDonough

Linda- Thank you for being a subscriber! There was no news on CRL yesterday. The intra-day chart shows it dropping in tandem with the market’s severe rout in the afternoon. I appreciate that my service is a serious investment. I spend an enormous amount of time analyzing the prospects for each of the stocks that I recommend and my expectation is that they will make you money over the next 6-9 months. I personally buy one half to one quarter of my potential position in a stock at one time and then average in as it is impossible to find the exact bottom in a stock. Welcome aboard and please do keep sending any questions or comments. Linda

Rick W.

Rick W.

Hi Linda,
I have not been able to find out anything regarding stops on your selections. Do you use a mental stop on them and then issue an alert if needed?
Rick

Linda McDonough

Linda McDonough

Hi Rick,
I have found that stops often whip you around in a position. When a stock is moving in the wrong direction, I spend more time researching the circumstances and decide if anything has fundamentally worsened for that company. If so, I make a judgement on the value and perhaps sell the stock. This is also why I prefer to average into a position, it allows me to buy more stock at a lower price if it declines after my first purchase. In the case that I revisit the fundamentals of a stock and change my recommendation, you will see it here right away! I am in tune every day working through the news of the stocks that I’ve recommended and their industries and have not seen anything that would impact any of them negatively. As always thank you for the post and I’ll keep you up to date! Linda

Michael Dunn

Michael Dunn

Hi Linda,
Looks like the bosses did not pick the best time to introduce your service. I an down about 8.6% on the original 3. Holding on for the long haul. Hope the market gets over the blip soon. Looking forward to next week. Maybe the Mkt. will stay down until then and you can find a bargain for us.
Mike D.

Linda McDonough

Linda McDonough

Hi Mike,
Thank you for the post. Yes, the timing of our launch was not perfect but as you point out hopefully we’ll find some diamonds in the rough. I’m working through heaps of stocks right now and will post as soon as I find one that passes my hurdles. I appreciate your support.
Linda

Rick W.

Rick W.

Hi Linda,
Nice job with the newsletter!
I am wondering about how many open positions there would be over a typical 12 month period. What is your feel for that?
Right now seems to be a particularly nervous time with the stock market and to be honest I am finding it difficult to pull the trigger on your picks because of that. The SPY 50 day average has crossed below the 200, China is a problem, oil is a problem, the Fed is a problem. If a “rising tide raises all boats”, isn’t the opposite true as well? Believe me, I very much want this to work but we seem to be at an inflection point that could turn the tide either way right about now. In your 25 years you have been here before, how do you manage your way through it?
I look forward to hearing from you. Thank you!
Rick

Linda McDonough

Linda McDonough

Rick,
Thank you for the note. I agree the market is in pretty rough waters. However, the situation feels much different to me than the 2008-2009 melt down where the banks’ housing liabilities swamped their assets. The slowdown in China and overproduction of oil are problematic but should not shutdown the domestic economy. The Fed has made a small move but will likely remain on the sidelines for a bit. My experience is that it is nearly impossible to spot the bottom in the market. I am finding many names with strong balance sheets and attractive prospects based on a unique situation. I am purposely looking for stocks that are trading with PEs well below their growth rates which should help them weather the storm. Personally I average into positions over a month, one quarter at a time. The names I am recommending have already experienced a catalyst, so you should not have to wait around for six months to see the trend reinforced. Regarding total positions, I don’t have a formal target but am typically finding two or three good buys a month. I don’t expect the names to continually pile up as I will prune them as they hopefully hit my target or if there is a change in their fundamental trends.

KennyO

KennyO

What % of my assists should I allocate for each trade?

Linda McDonough

Linda McDonough

Kenny,
As an editor, I am prohibited from giving specific investment advice. Each subscriber manages their portfolio to suit their investment time horizon and risk tolerance.

Do note, that options can be extremely risky. The options trades that I recommend carry less risk than perhaps selling a call or put naked (without an underlying stock position). Those trades carry unlimited risk. However, options can (and sometimes do) expire worthless.

I do my very best to avoid this situation but you can see in the closed trade section that it does happen sometimes when an option falls to zero if it does not hit the strike price before expiration.
Best,
Linda

Ron Graham

Ron Graham

Linda,
I’m new to the Profit Catalyst Alert Program. Do you foresee any upcoming IPO opportunities in the near future or growth stocks that peak your interest?

Linda McDonough

Linda McDonough

Ron,
Great question! Weeding through the recent new issues and proposed IPOs is on my to-do list this week. I’ll send out an alert with any ideas I come up with.
Best,
Linda

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