Stock of the Day
Rochester Medical (ROCM)
Monday’s Closing Price: ROCM – $15.28
Sector: Health Care
Industry: Health Care Supplies
52-week Price: $6.85 – $29.76
The company develops, manufactures and markets a line of latex-free and PVC-free urinary continence and urine drainage care products. Eight of the past eleven quarters have reported higher earnings than the same period from the previous year.
The stock is not covered by many analysts and is thinly owned by institutional investors as you can see below. Add this to a small float and we have a stock that can pop at any time just as it did earlier this year. Based on the trade setup I presented yesterday, I have decided to develop two daily charts that explain the potential price targets in greater detail. The first chart shows a target zone based on the gap-down area from late April and early May. Can the stock trend higher and fill this gap? If so, we have a nice 50% gain on capital invested and a solid cash increase based on risk (potential 7R trade).
The second chart overlays Fibonacci retracements and shows an identical target zone based on the 38.2% and 50% retracement levels. None of this is an exact science but it gives us an educated guess as to where the stock could move if it starts to trend or even pop. The stock is trading between the 50-d and 200-d moving averages and looks to be trading sideways in a suspicious manner. I have no idea what is going on after the huge run-up and breakdown earlier this year but I like the risk-to-reward setup. This is what I wrote yesterday when I first screened the stock:
Late Buy Opportunities:
“Rochester Medical (ROCM) has had one heck of a year as it blasted higher from $7.50 to as high as $29 in six months of time. Since the peak, the stock has corrected by 50% over the past two months and is now trading with a suspicious quietness above the 200-d moving average. Is there some type of news that will be released that will propel this stock higher? I don’t know but the trade setup is ideal so take it. Something may be going on behind the scenes so take the nice risk-to-reward setup.”
Institutional Analysis:
Held by Institutions: 21%
Money Market: 40
Mutual Fund: 15
Other: 1
New Positions: 27
Positions Sold: 2
Shares Held: 2.7 mil
Shares Held Previous Period: 2.1 mil
Shares Bought: 1.5 mil
Shares Sold: 0.9 mil
Value of Shares Bought: $22.7 mil
Value of Shares Sold: 14.1 mil
Top Institutional holders, Shares Held:
Oberweis Asset Management Inc., 413,650 shares
Dimensional Fund Advisors Inc., 281,774 shares
Allianz Global Investors of America L.P., 200,000 shares
The Vanguard Group, Inc., 166,467 shares
Bridgeway Capital Management, Inc., 152,800 shares
Potential Trade Set-up:
Ideal Entry: $15 (currently $15.14)
Risk is set at 1.0% maximum of total portfolio or $1,000 of $100k
Stop Loss is 5% or $14.25
Number of Shares: 1,333
Position Size is $20,000
Risk is $0.75
Target is $21
Risk-to-Reward is 8-to-1
Key Fundamental Numbers:
Market Cap.: $169M
Outstanding Shares: 11.7M
Float: 7.8M
Net Income: $1.96M
Free Cash Flow: $3.20M
ROA (%): 6.7%
ROE (%): 9.03%
P/E (TTM): 5.4
Price to Sales Ratio: 6.36x
Price to Book Ratio: 2.87x
Total Debt/Total Capital: 12.59%
Growth rates:
3-Yr Sales: 13%
3-Yr Net Income: 74%
1-Yr Sales: 36%
1-Yr Net Income: 109%
***Q1 of 2007 reported earnings of $2.59 vs. 0.03 last year***
***Q1 of 207 reported Revenue of $7.51 vs. $4.61 last year***
Earnings:
Yearly (2006): 0.17
Yearly (2005): 0.08
Yearly (2004): 0.07
Yearly (2003): 0.03
Yearly (2002): (0.13)
Revenue (millions):
Yearly (2006): 21.67
Yearly (2005): 15.94
Yearly (2004): 15.01
Yearly (2003): 14.66
Yearly (2002): 11.08
Disclosure: I added shares 7/10/07 (I feel I need to disclose this since I did such an extensive write up and chart analysis)
i like your site, i really do….
however, if you ~really~ dont know why ROCM is behaving like this, that is really scary. 2 minutes of surface level DD would reveal to you what is going on with this stock.
for the record: i got into ROCM at $18 and bailed at $29 2 days before it tanked….for once in my life, my (market) timing was flawless.
Tomas,
Thank you for following the blog.
I know what is going fundamentally with lawsuits, stories, rumors, etc… I am a Nexis-Lexis guy – I have access to stories and databases that most don’t.
However, I was speaking with playful suspicion when referring to the technicals. Understand that you and I DON’T know what will happen. No one does. If you claim you do; place your position!
I placed my position and will play it by the rule book. I don’t care for rumors, tips, help or anyone else’s thoughts about my own positions (I will lose if I listen). It’s just the way it has to be.
We will see what happens!
i fully agree that no one REALLY knows what will happen; however, here is what i predict:
1. ROCM will get a big fat settlement from TYCO in the fall.
2. as a result, ROCM will rocket back into the top of the IBD 100
3. momo traders (not a slight – i am a momo trader) will pile into the stock, just like 2 months ago
4. stock will vault back into the low 20’s (this will be the catalyst to fill that pesky gap)
5. latecomers will pile in, and the stock will go up another $5
6. the crafty ones will sell into this strength
7. said crafty ones will continue to sell into the diminishing strength, and the stock will start to tumble
8. IBD folks will have their 8% stops invoked, sending the stock further down, and we will be right back in the mid-to-upper teens
with all of that said: ROCM is a solid company with amazing growth potential. if a fundametals based trader could stomach all the ups and downs, the current price would be an excellent entry point for a long position. this thing will end up growing substantially over the next 2-3 years, IMO.
if i wasnt so worried we were gonna have a sizable correction sometime soon i would buy some. are we range bound, or is this an intermediate top? its tough being a momo trader that pays attention to the REAL state of the economy.
hey Chris, I always place a bit of importance on symmetry.. that is the the severity of the left side has to be compensated for in the base. Looking at that drop makes me think that this one may have a good shot at testing the area around 10 before it’s all said and done… althought does look tempting off the 200 day here at least for a shorter term trade.
Tomas,
Look at where the price tops in your prediction. I think you and Piranha mirror each other in opinion.
Piranha stated 50% appreciation whereas your prediction states ROCM will top around $27-@28 range (low 20’s plus 5) from current price of $15 base. By what has been written, you’re even more bullish on this stock than Piranha.
With your target sell price, what you’re really saying is that it’s a buy, buy, buy opportunity.
As for the economy, I’ve set up my stop loss tighter for all my holdings hoping some protection from market volatility.
I have the same inclination about this stock as you do and also hope for volatility since I am looking to ride the upcomming wave as much as I can.
Good luck to all. Happy hunting.
P.S.
I’ve been tracking this stock everyday since correction (5/01/07) and have been looking at the volume uptick/downtick specifically via Scottrader. There has been severe volume dry-up once the stock hit the $15 base. During the day – very dry. Every other night, after market purchases matches the volume during regular trading hours. Institutional buyers are definitely returning and quietly buying this stock cheap.
IBD and other charts don’t show the real “dry” volume because it re-calculates the aftermarket purchases into one day column. Funny thing is, when the stock does have a sell day, it’s usually low quantity lots. Probably from all the small time investors unlike me who prematurely gave up on the stock or got shaken out.
Hope this helps.
Hey Guys – excellent analysis and comments. I become interested due to the reason Conrad states: volume dry up near $15 with very little selling pressure on large volume. I could be wrong with my outlook but I will sell. It’s just another trade!
nobody here mentions the gap at 14.19 which needs to get closed before any long term upside…its just another 5% away
Looks like it’s about to fall off a cliff to me.
Piranha
Thanks for sharing your thoughts with us.
I had a good feeling about ROCM and was working in this industry 3y ago – and therefore went in with good luck (tripled the investment with the current rate) however it would have been even more fun to sell back in may at peek.
I still wonder what happened? why this hype followed by a steep downfall – is it strictly due to the uncertainty regarding the Tyco case?
ROCM has a very interesting business potential and opportuniteis to grow further – especially with their own branded products in the UK. With the extreme low USD rate and very strong product portfolio ROCM has a very nice platform for further growth and a competitive edge.
However I suppose that in the short term – we all wait for the Tyco case to settle?
Even though I am a little concerned regarding a general market correction – I will stay in and probably also increase my stock – I believe that there is more to earn than to loose…. 🙂
PS: ROCM is also an interesting acquisition candidate.
So I assume you’re out on your ROCM trade? Stopped at 14.25?
Dave,
No need to assume: I’m out! Follow rules or get hurt in this game! I was out the minute my cell phone started buzzing with my sell alert.
I respect the discipline. There are a lot of emotional longs in this stock. It will be an interesting one to watch for the rest of the month.
Dankkir,
Your entry was the best scenario and would have profited if we waited to take our positions. Earnings are tomorrow and the stock is up 16% from a $14.14 buy.
Nice Job! Let’s see if it hits my target without me holding a position!!!