The Daily Kill Sheet Picking Off Profits One Stock At A Time!

Take a look at Westport Innovations (WPRT, $34.50 premarket) for a trade. Although the shares are trading up about 5% in the premarket, the stock is poised for a run given the combination of positive news and strong technicals. The company has announced that it has entered into an additional agreement with General Motors for a second advanced technology program. The first agreement, signed in June of last year was for technology to improve both emissions and fuel efficiency in natural gas engines for light-duty trucks. Today’s agreement will further that effort by bringing a second approach to the table.

At this juncture, WPRT has a number of collaborative efforts and licensing agreements signed with a number of the worlds key truck and heavy construction manufacturing companies. While Westport isn’t profitable yet, the groundwork is laid for strong earnings as the fledgling natural gas transportation fuel market takes off.

On a technical basis, Westport shares were sitting just below their 200-day moving average ($33.07). This morning’s pre-market strength has driven the stock price through this level and their is little resistance til the $37.50 area. My near-term target is $37.50, implying about a 8.7% return to my target assuming an entry point of $34.50. Meanwhile, the TRIX indicator is also signaling a bullish crossover, which also points to a near-term run in the shares.

Take a look at Green Mountain Coffee Roasters Inc. (GMCR, $20.70) for a dead-cat bounce. The stock has been absolutely killed over the past few months dropping from a high of $115.98 in late September to a recent low of $19.45 on June 15th. The 83% nosedive in the stock price was triggered by fears that the company’s revenues and margins would come under severe pressure after its patents on K-cups expired this year.


While the company reported a strong first quarter, revenues failed to meet analyst’s expectations in the second quarter and earnings guidance was lowered for the full year. Indeed, the company said it expects third-quarter earnings of $0.48 to $0.53 a share on revenue of $861.0 million to $897.0 million. The consensus earnings estimate was $0.72 a share on revenue of $1.05 billion. The company also said it expected 2012 earnings of $2.40 to $2.50 a share on revenue of $3.80 billion to $4.00 billion. The company’s previous guidance was earnings of $2.55 to $2.65 a share and the consensus earnings estimate stood at $2.66 a share on revenue of $4.28 billion. The current consensus estimate stands at $2.38 a share, $0.02 below the low end of the company’s guided range.


The most recent sell-off in the shares was triggered last week when Kroger’s said it was planning to launch store-branded single-serve coffee cups for Keurig machines that would compete with Green Mountain-branded cups. GMCR shares nosedived 10% after the announcement. While the news is in no way rosy for this beleaguered brewer, the recent drop did not see a marked increase in trading volume, indicating the potential for seller exhaustion here. Moreover, while it is inevitable that the company will see some market share erosion now that its main product has come off patent, it’s not likely that its market share will drop to zero. To some extent each coffee brand has its own distinct flavor and I’ve yet to find a coffee drinker that didn’t have his own personal favorite. 


Another positive for the company is that coffee futures have dropped about 15% over the past month, driven by the expectation for a record harvest in Brazil. After two years of rising prices, the raw material price relief should help to soften the blow to margins from the market share loss starting next year.


On a technical basis, GMCR shares look washed out here. The Williams %R indicator is sitting near -75, an area that typically signals that a stock is near-term oversold. Meanwhile, the TRIX indicator for the stock has started to turn up, a move that also usually precedes a relief rally. At this point, I wouldn’t marry the stock here, although I would try to be patient with it absent any new disturbing news. After a 9-month 83% drop in share price, most of the bad news should already be in the stock price here. A strong market rally could easily lift the oversold stock higher than the general market. The company’s next earnings call is in early August giving more than a month for the stock’s share price to rally. At this point, I would use a near-term price target6 of $25, implying a 20% return to my target.

Take a look at Brunswick Corp. (BC, $20.07) on the short side. The stock broke through and closed below its 200-day moving average yesterday. The 200-day moving average should now work as resistance for the shares, while its next clear area of support is in the $18 area…about 9% – 10% below the current quote.

The shares have been weak since late April, when the company reported first-quarter earnings. Although the company beat consensus by $0.04, and reported an EPS jump of 43% on a year over year basis, earnings quality just wasn’t there. Indeed, operating earnings were only up 1% on a year over year basis and most of the EPS gain was driven by a 1150 basis point drop in the tax rate (about $0.06 a share) and a 36% drop in interest expense (about $0.04 a share).

Sales dropped 1.1% year over year. The marine engine segment saw a 2% drop in total sales driven by a 7% decline in international sales. While US sales were positive, a slowing in the US economy could make full-year sales projections hard to achieve for this segment. Management stated that they produced fewer stern drive units during the quarter due to operating constraints due to ramp-up issues after a recent plant consolidation.

The company’s other operating segments also had mixed results. The boat unit saw increased sales in the U.S., but negative growth internationally. Meanwhile, fitness segment sales were flattish, seeing strong results in the U.S. held in check due to a 13% drop in international sales. Bowling & Billiards also saw a decline in international sales (5%).

Looking ahead, management increased the low end of their previous guidance from $1.20 – $1.50 to $1.30 – $1.50. The consensus had been $1.45 at the time of the release, but has since risen to $1.50. Given the murky outlook for both the European and U.S. economies and management’s call for a number of the factors that hurt sales and earnings in the first quarter to continue into the second, I am finding it hard to see the sense in the consensus estimate increase. While management admits that its guidance is back-end loaded, I see little incentive to expecting the high end of their guidance range in front of a weakening economy.

All said, my near-term target is $18, implying a 11.5% return to my target. Given the stock is so close to its 200-day moving average here, I am going to use a hard stop at $21 in case the stock can break back above the 200-day in a market bounce.