(By Rich Bieglmeier) In today's sector performance analysis
, iStock mentioned technology and industrial engineering as our preferred sectors from the 19 that made our emerging buy list. As we do every Tuesday, we took the constituents from our favorites, though we narrowed tech down to the Tech Hardware category, and piled them into our technical and fundamental screeners.
In the first pass, 16 companies exhibited technical characteristics that indicate they are ready to move, now, but that's too many to write about at once. Besides, everybody wants the "best idea", anyway.
After fundamental valuation check one, half the candidates remain. That's still too many. So, then we doubled back to the charts to see which of the eight offers the most immediate upside, and here comes the (BOOM), Dynamic Materials Corporation, iStock's #1 sector pick for this week.
Today, for the first time since April, the industrial goods company's stock price pierced the trend line connecting pivot tops.. The upper guardrail has served as resistance for the last three and a half months, and repelled shares lower every time it's been challenged, until today. If the price can hang on to gains, it's a major technical analysis buy signal, and the next technical target would be $19.50ish.
Additionally, BOOM's short-term averages are crossing in a bullish fashion and closing in on passing the important 50-day benchmark. Meanwhile, the MACD line has ventured into positive territory, and relative strength is trending higher with plenty of headroom. From a technical standpoint, Dynamic Materials lives up to its first name.
While roughly half the investment world is satisfied with what the stock chart foretells, the other half scoffs and asks, "what about the fundamentals?" iStock's got that covered, too.
One of, if not our favorite measuring sticks is comparing a company's projected earnings growth to its forward P/E. If possible, we want to own stocks where eps are forecasted to expand at a faster pace than future the price-to-earnings ratio. Wall Street believes the metal fabricator will increase its bottom line by 40% in 2013 and sales by 11.10%. Meanwhile, shares are valued at 12.65 times the 2013 consensus estimates, a beautiful fit by our standard.
The street's estimate for the rest of 2012 and 2013 could prove to be low as BOOM's explosive metalworking segment backlog increased to $56,625 from $44,564 – 27% - in the past six months. As a rule of thumb, a growing book of booked business is a healthy sign. The backlog buildup comes on the heels of sales that dipped by 11.2% in the past half year for the division which accounts for roughly 46% of revenues.
If metalworking is back, it will join the growing oilfield products segment as income and profit drivers for the back half of 2012 and beyond. Oilfield made up for the metalworking losses by growing 21.7% in the first six months of the year. The two divisions account for 92.6% of Dynamic Materials top line.
In the short-term, Dynamic Materials Corporation's (BOOM) sector and stock chart indicate that its stock price should get a boost. Longer-term, its fundamentals could improve while the company trades at a discount to its projected growth rate. This mix of ingredients is usually a sweet-tasting recipe for investors.