Stock Spotlight, Monday's IBD Screen of the Day, searches for issues with strong fundamentals that may be ready to break out. Egg producer Cal-Maine Foods (CALM) and bank stock Amalgamated Bank (AMAL) meet the stringent criteria for this screen.
XEgg Stock Tests 2015 High
Mississippi-based Cal-Maine is the U.S.' largest egg producer and distributor. Its markets include the Southwestern, Southeastern, Midwestern and mid-Atlantic regions.
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Cal-Maine's stock is in the 5% buy zone of a cup-with-handle base, with a buy point of 57.85. The Relative Strength Line has been on a steep incline since hitting lows in early August.
The egg stock broke out above the 21-day exponential moving average on Sept. 9 in heavy volume. The share price is nearing levels not seen since October 2015.
Market Anticipates Positive Earnings
Cal-Maine reports fiscal Q1 2023 earnings on Sept. 27 after the close. FactSet is forecasting earnings of $2.55 per share on sales of $617 million.
CALM stock beat fiscal Q4 2022 estimates by 22%, and investors may be anticipating another beat this quarter, given the recent rise in share price.
The company has booked dramatic EPS improvement in the last two quarters, lifting from a two-cent loss in the November-ended quarter to earnings of $0.81 per share in February and $2.25 in May.
Analysts expect annual earnings per share to grow to $5.82 in fiscal 2023, from $2.72 in 2022, followed by a huge drop to $1.94 in 2024. Optimistic forecasts for more-subdued meat and egg prices are driving those bearish estimates.
Quarterly sales growth has been accelerating, from 13% in the November-ended quarter to 33% in February and 70% in March.
The egg stock has a 98 Relative Strength Rating, meaning it has outperformed 98% of stocks in the IBD database in the last 12 months. It also holds a modest 79 Earnings Per Share Rating and a perfect 99 Composite Rating. The return on equity, a profitability and efficiency metric, is a less-than-desired 13%, compared with the minimum 17% in the CAN SLIM investing strategy.
Skyrocketing Egg Prices Boost Revenue
Egg prices have skyrocketed over the last year, adding to increased revenue. However, the company warned about higher feed, labor and fuel costs in the last earnings release. Industrywide egg supply has also decreased due to the bird flu outbreak.
"Record quarterly revenue performance was driven by significantly higher average selling prices and record quarterly specialty shell egg sales, supported by solid demand compared with the prior-year quarter," said Dolph Baker, chairman and CEO, in last quarter's earnings release.
The company is No. 1 in the Food-Meat Product group, which is ranked No. 49 out of IBD's 197 groups. The group has moved up quickly, from No. 62 one week ago and No. 83 four weeks ago.
Cal-Maine pays an attractive 4.9% annual dividend yield to shareholders.
Mutual funds own 64% of outstanding shares, with 427 owning the stock in June, up from 378 in March and 349 in December.
Bank Stock Nears Break Out
Amalgamated Bank (AMAL) is building a base-on-base pattern with a 25.13 buy point. This bank stock is finding support at the 50-day moving average and is now trading about 9% off its 52-week high.
AMAL stock is at a new high on the relative strength line, as indicated by the blue dot on the MarketSmith chart. It broke out in heavy volume after the company beat expectations in July's Q2 earnings report.
Shares hold a high-scoring 97 Relative Strength Rating as well as best-possible 99 Composite Rating and high 95 EPS Rating.
Specialized Bank Stock Has Strengthening Fundamentals
The bank, with over $57 billion in assets, specializes in servicing unions, political organizations and activist groups.
Amalgamated Bank holds the top spot in the Banks-Northeast industry group, which is No. 45 out of the 197 IBD groups. The subsector has moved up quickly, lifting from 54th place a week ago and 100th just four weeks ago.
Earnings grew 94% in the most-recent quarter, from 12% and 20% in the prior two quarters. Analysts are forecasting 47% annual EPS growth in 2022 and 14% in 2023.
The company has booked a modest 12% annual growth rate in the last three years. Meanwhile, quarterly sales growth has grown from 7% in the December-ended quarter to 22% in March quarter, and a more respectable 35% in June.
Mutual funds hold 28% of shares, with 237 funds owning the stock in June, up from 145 in March.
The next earnings release is set for the end of October.
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