One Cheap Growth Stock
We have an interesting situation playing out in the growth market. On the one hand, the market is as choppy as I can ever remember, and little money is being made unless you're buying and selling every day or two (and even then it’s difficult).
On the other hand, I'm still seeing a decent amount of stocks setting up in multi-month basing structures (many have been basing since March 2014). While the market looks dicey here, I know that if earnings season goes well some powerful new growth leadership could emerge.
For my part, I think the right move now is mainly to wait and watch for new, powerful breakouts, building a watch list of potential winners that can lift off if (and only if) the bulls step up to the plate.
One solid idea that falls a bit outside the growth stock spectrum is Outerwall (OUTR). The company used to be known as Coinstar, but has now morphed itself into an incredible cash cow. Here's what I wrote about it in last week's Cabot Market Letter:
“Outerwall made its name with the green Coinstar coin-counting machines in supermarkets, then followed up with the Redbox kiosks that rent movie and game DVDs on a daily basis. Its ecoATM machines take old cell phones in exchange for cash. Management has said that it's standing pat with its network of 44,000 Redboxes and over 20,000 Coinstars, has hiked prices, and is concentrating on converting its substantial free cash flow into shareholder value. A share repurchase plan snapped up 5% of the company's stock in the latest quarter alone and the share count is down 31% from the prior year. With a bargain-basement 13 P/E ratio, and a stock that's zoomed from 51 in mid-October to 73 in recent trading, OUTR has much more upside potential."
Due mostly to cost controls and share buybacks, earnings are expected to rise to a whopping $8 per share this year, up about 30%, and management has indicated it continues to see share repurchases as a good investment given the bargain valuation. With shares in a solid uptrend (they've barely pulled back at all recently, a great sign), I think a small position in the mid-70s can work, but a protective stop around 68 makes sense in case the market takes a turn for the worse. Earnings for OUTR are due out February 5.
For more updates on Outerwall and to find out about additional stocks on my watch list, consider taking a risk-free trial subscription to Cabot Market Letter.
1800 114th Avenue SE
Bellevue, WA 98004
United States - Map
Index Membership: N/A
Industry: Specialty Retail, Other
Full Time Employees: 2,900