VMware (VMW): Surged 12% after its earnings reportBy Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 4/28/11 Sign up for free Cabot Wealth Advisory e-newsletter
I had totally taken VMware (VMW) off my watch list many months ago. It was a good winner during much of the bull market, but after a mega-run, the stock basically topped out last fall (relative to the market) and has been consolidating ever since.
The story has always been solid—server virtualization, which is hugely cost-effective because it allows each server to be used for many different applications. It doesn't hurt that this so-called "cloud computing" has become all the rage. But, while growth was good, it wasn't anything extraordinary (never triple-digit growth or something like that), and eventually, the stock's valuation got too big for its britches. Hence the long period of lagging action, even as the overall market ramped last fall and so far this year.
However, earnings season has a way of transforming the landscape for certain stocks, and for VMware, it appears to have done just that--sales rose 33%, earnings jumped 50% and the firm raised 2011 guidance significantly. Analysts are now looking for the bottom line to jump 30% this year, and knowing how VMware regularly beats expectations, that figure could prove conservative.
All those numbers are nice, but what caught my eye was the stock's reaction—VMW surged 12% the day after its earnings report, and more importantly, volume that day totaled 13.6 million shares. That was more than five times normal and the stock's largest one-day total since July 2008!
Interestingly, the stock surged right back to its old price highs, and has since backed off a few points, as many leading stocks consolidate their recent gains. I think it's possible to buy a small position (maybe half of the amount you'd normally buy) around here, and look to average up on a strong breakout above 99. After a multi-month rest--before the earnings move, shares had gone nowhere for six and a half months—it looks as if VMW might be ready for another upleg.
Editor's Note: Mike Cintolo is VP of Investments for Cabot, as well as editor of Cabot Market Letter, a Model Portfolio-based newsletter of the best leading growth stocks in the market. It's been over four years since Mike took over the Market Letter, and during that time he's beaten the market by 14% annually (up a total of 65% since then, compared to a loss of 6% for the S&P 500) thanks to top-notch stock picking and market timing. If you want to own the top leaders in every market cycle, be sure to give Cabot Market Letter a try.
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Trader
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
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