Archives

Indexes Suffer Distribution; More Top Stocks Gap Up

Stocks struggled Friday, sliding in sawtooth fashion to end with significant losses. The Nasdaq, IBD 50 and S&P 500 suffered dents of 0.5%, 0.4% and 0.3%, respectively. Volume rose across the board. The action was sufficiently negative to slap a distribution day on the Nasdaq and the S&P 500. It was the first such day for either index in three weeks. Economic news provided the market with …

The Big Picture is a subscriber feature. Take a free trial now to get instant access.

Try the Digital + Weekly Print Combo and enjoy the best of both worlds!
eIBD is available after market close to give you a head start on the next day’s market action. Plus, you get the Weekly Special print edition delivered right to your home or office!

Enter in your information (* Required fields)

Will Rising Cloud Demand Lift SolarWinds Into Buy Zone?

Will Rise Of Cloud Lift SolarWinds Into Buy Zone?

Will Rise Of Cloud Lift SolarWinds Into Buy Zone?

After a stormy ride, the growth in apps and mobile devices is lifting network management software firm SolarWinds towards a potential buy point.

600×450

640 x 480

ISA

444 kb/s

T3M02S

flv

Flash

2015-02-27T10:48:00

solarwinds, network management software, solarwinds buys librato, amazon web services, cloud computing, manage mobile apps

While SolarWinds (NYSE:SWI) may sound like a rival of Tesla Motors’ (NASDAQ:TSLA) founder Elon Musk’s SolarCity (NASDAQ:SCTY) , it actually develops software to help IT departments manage their networks more simply and efficiently.

The explosive growth of cloud-based apps and mobile devices has driven demand for its products, and SolarWinds recently said that it will buy Librato, which provides services to monitor Web apps running on Amazon Web Services.

Key Fundamentals

The company beat Q4 earnings and sales estimates, with EPS growth accelerating for the third straight quarter. For 2015, analysts expect earnings to rise 10%, followed by an 18% gain next year.

SolarWinds has a solid 26% return on equity. Its 96 Composite Rating is tops within the Internet-Network Solutions industry group.

Chart Analysis

After peaking in March 2013, SolarWinds sold off sharply. It struggled to regain its footing until finally jumping on strong Q3 2014 earnings the week ended Oct. 31. Volume was 207% higher than normal, followed by additional up weeks in above-average trading.

When the general market came under pressure last December, SolarWinds also pulled back. It fell below its 10-week line and spent several weeks trading under that key benchmark. The stock flashed signs of support during the week that ended Feb. 6, when it fell but reversed to close at the top of the price range and right around the 10-week line.

SolarWinds is working on a flat base that is part of a first-stage base-on-base formation. The buy point is 53.54, 10 cents above the peak on the left. See if SolarWinds can punch through that price on volume at least 40% higher than normal.

Watch related video at Investors.com/ibdtv.

Will Rise Of Cloud Lift SolarWinds Into Buy Zone?

Will Rise Of Cloud Lift SolarWinds Into Buy Zone?

After a stormy ride, the growth in apps and mobile devices is lifting network management software firm SolarWinds towards a potential buy point.

600×450

640 x 480

ISA

444 kb/s

T3M02S

flv

Flash

2015-02-27T10:48:00

solarwinds, network management software, solarwinds buys librato, amazon web services, cloud computing, manage mobile apps

While SolarWinds (NYSE:SWI) may sound like a rival of Tesla Motors’ (NASDAQ:TSLA) founder Elon Musk’s SolarCity (NASDAQ:SCTY) , it actually develops software to help IT departments manage their networks more simply and efficiently.

The explosive growth of cloud-based apps and mobile devices has driven demand for its products, and SolarWinds recently said that it will buy Librato, which provides services to monitor Web apps running on Amazon Web Services.

Key Fundamentals

The company beat Q4 earnings and sales estimates, with EPS growth accelerating for the third straight quarter. For 2015, analysts expect earnings to rise 10%, followed by an 18% gain next year.

SolarWinds has a solid 26% return on equity. Its 96 Composite Rating is tops within the Internet-Network Solutions industry group.

Chart Analysis

After peaking in March 2013, SolarWinds sold off sharply. It struggled to regain its footing until finally jumping on strong Q3 2014 earnings the week ended Oct. 31. Volume was 207% higher than normal, followed by additional up weeks in above-average trading.

When the general market came under pressure last December, SolarWinds also pulled back. It fell below its 10-week line and spent several weeks trading under that key benchmark. The stock flashed signs of support during the week that ended Feb. 6, when it fell but reversed to close at the top of the price range and right around the 10-week line.

SolarWinds is working on a flat base that is part of a first-stage base-on-base formation. The buy point is 53.54, 10 cents above the peak on the left. See if SolarWinds can punch through that price on volume at least 40% higher than normal.

Watch related video at Investors.com/ibdtv.

Crude Oil Puts End To Monthly Losing Streak

Oil rose, capping the first monthly gain since June as U.S. crude producers curbed new drilling. Drillers in the U.S. cut the number of crude rigs in service to 986 last week, the lowest level since June 2011, according to data from Baker Hughes Inc.

Obama Proposal Would Limit Your Tax Strategies

You may be eligible to convert after-tax dollars in a retirement account to a Roth IRA without owing tax. But President Obama’s proposed budget would limit Roth IRA conversions to pre-tax dollars, starting in 2016.

That proposal would make retirement planning and investing for retirement harder.

How? Because that would reduce the amount of money going into Roth accounts from which tax-free withdrawals can be taken.

Under existing rules, you can make a nondeductible contribution to a traditional IRA. If you have no other traditional IRAs, you can immediately convert this nondeductible IRA to a Roth IRA, without owing tax.

But you can only do that with money from annual IRA contributions, which now can’t top $5,500 a year. If you’re 50 or older, the cap is $6,500. And Roth IRA conversions are partially taxable if you have another traditional IRA. With, say, $20,000 in traditional IRAs that includes $5,000 of nondeductible contributions, all Roth IRA conversions would be 75% taxable.

Two recent IRS rulings enable larger Roth IRA conversions to be tax-free. One, Revenue Ruling 2014-9, issued last April, applies to rollovers to qualified plans such as 401(k)s.

Suppose a hypothetical Jim Hill has $200,000 in a traditional IRA. That includes $50,000 of after-tax contributions.

Say that Hill now works for a company with a 401(k) plan. The plan accepts rollover contributions, but the tax code bars rollovers of after-tax dollars. So Hill can move $150,000 of pre-tax money into the 401(k). There, tax deferral will continue. Then he’ll be left with only the $50,000 of after-tax dollars in his traditional IRA.

Tax-Free Move

Hill can convert that $50,000 traditional IRA to a Roth IRA. As his IRA holds only after-tax dollars, in this example, Hill will owe no tax.

In prior years, many employer retirement plans were reluctant to approve these transactions. “Plan administrators weren’t sure what was required for a valid rollover,” said attorney Natalie Choate, with the Boston law firm Nutter McClennen & Fish.

The April IRS ruling spelled out a safe harbor. So now plans should be more willing to accept pre-tax rollovers from IRAs, Choate says.

To be safe, Hill should have the financial firm holding his traditional IRA issue a $150,000 check payable to the trustee for the 401(k) plan where he works. That’s the amount of pre-tax dollars in Hill’s account.

That check should be provided to Hill. Then he can deliver the check to the plan.

The delivery should include a check stub that identifies “IRA of Jim Hill” as the source of the funds. That title indicates the account is not an inherited IRA.

In addition, Hill must certify in writing that the IRA distribution includes no after-tax amounts and that he will not turn age 70-1/2 by year-end, so that the required minimum distribution rules won’t apply.

If those steps are followed, the company plan can safely accept the pre-tax distribution. And Hill can roll the remaining after-tax dollars to a Roth IRA, tax-free.

The other IRS announcement was Notice 2014-54, issued in September. This makes it easier for people who have made after-tax contributions to an employer plan to roll that money into a Roth IRA when they leave the company.

You may be eligible to convert after-tax dollars in a retirement account to a Roth IRA without owing tax. But President Obama’s proposed budget would limit Roth IRA conversions to pre-tax dollars, starting in 2016.

That proposal would make retirement planning and investing for retirement harder.

How? Because that would reduce the amount of money going into Roth accounts from which tax-free withdrawals can be taken.

Under existing rules, you can make a nondeductible contribution to a traditional IRA. If you have no other traditional IRAs, you can immediately convert this nondeductible IRA to a Roth IRA, without owing tax.

But you can only do that with money from annual IRA contributions, which now can’t top $5,500 a year. If you’re 50 or older, the cap is $6,500. And Roth IRA conversions are partially taxable if you have another traditional IRA. With, say, $20,000 in traditional IRAs that includes $5,000 of nondeductible contributions, all Roth IRA conversions would be 75% taxable.

Two recent IRS rulings enable larger Roth IRA conversions to be tax-free. One, Revenue Ruling 2014-9, issued last April, applies to rollovers to qualified plans such as 401(k)s.

Suppose a hypothetical Jim Hill has $200,000 in a traditional IRA. That includes $50,000 of after-tax contributions.

Say that Hill now works for a company with a 401(k) plan. The plan accepts rollover contributions, but the tax code bars rollovers of after-tax dollars. So Hill can move $150,000 of pre-tax money into the 401(k). There, tax deferral will continue. Then he’ll be left with only the $50,000 of after-tax dollars in his traditional IRA.

Tax-Free Move

Hill can convert that $50,000 traditional IRA to a Roth IRA. As his IRA holds only after-tax dollars, in this example, Hill will owe no tax.

In prior years, many employer retirement plans were reluctant to approve these transactions. “Plan administrators weren’t sure what was required for a valid rollover,” said attorney Natalie Choate, with the Boston law firm Nutter McClennen & Fish.

The April IRS ruling spelled out a safe harbor. So now plans should be more willing to accept pre-tax rollovers from IRAs, Choate says.

To be safe, Hill should have the financial firm holding his traditional IRA issue a $150,000 check payable to the trustee for the 401(k) plan where he works. That’s the amount of pre-tax dollars in Hill’s account.

That check should be provided to Hill. Then he can deliver the check to the plan.

The delivery should include a check stub that identifies “IRA of Jim Hill” as the source of the funds. That title indicates the account is not an inherited IRA.

In addition, Hill must certify in writing that the IRA distribution includes no after-tax amounts and that he will not turn age 70-1/2 by year-end, so that the required minimum distribution rules won’t apply.

If those steps are followed, the company plan can safely accept the pre-tax distribution. And Hill can roll the remaining after-tax dollars to a Roth IRA, tax-free.

The other IRS announcement was Notice 2014-54, issued in September. This makes it easier for people who have made after-tax contributions to an employer plan to roll that money into a Roth IRA when they leave the company.

NorthCoast ETF Portfolios Heat Up In February

NorthCoast Asset Management‘s ETF retirement portfolios caught fire in February. Bullish macro trends and patience from the Federal Reserve in raising interest rates bolstered returns for domestic holdings. International positions also moved up the charts as the European Central Bank prepared for a March launch of its quantitative easing program.

Here are some highlights from the month:

Robust Job Growth

NorthCoast kept large stakes in iShares Core S&P 500 ETF (ARCA:IVV) based on a favorable outlook for the U.S. economy. “The clearest evidence of the improved U.S. economy is in the job market,” said Patrick Jamin, chief investment officer for NorthCoast. “More than 1 million jobs have been created in the past three months, which is more than three times the job growth necessary to absorb the number of workers who enter the labor force in a typical year.”

Shares of IVV surged 6% during the month.

Small-cap and midcap positions participated in the equity rally. IShares Core S&P Small-Cap (ARCA:IJR) and iShares Core S&P Mid-Cap (ARCA:IJH) saw respective gains of 6% and 5% in February.

The continued rise of the U.S. dollar has been a welcomed trend for the holdings. “Although the strength or weakness of the dollar is not a leading indicator of overall performance of the stock market, historical data have proved that a stronger dollar has been a better environment for small-cap stocks than large-cap stocks,” Jamin said. “Small- and midcap companies will also benefit more from the relatively bullish U.S. economy since they are more domestically oriented.”

Major holdings of the Tactical Income retirement portfolio climbed in February. “Our outlook for iShares iBoxx $ High Yield Corporate Bond (ARCA:HYG) is relatively bullish despite recent volatility,” Jamin said. “The U.S. growth and Federal Reserve’s patient approach to raising short-term rates should provide support to high-yield bonds.”

HYG ended the month up 2%.

IShares Select Dividend (ARCA:DVY) rose 1% in February. The ETF’s low correlation with the S&P 500 appeals to the NorthCoast team. “Its holdings only have a 15% overlap with S&P 500 stocks and are more heavily weighted in midcap value stocks,” Jamin said. “Most dividend ETFs have a 75% or more overlap with the large-cap benchmark.”

North Of The Border

Holdings of foreign ETFs checked in with impressive performances of their own in February. Australian stocks hit a seven-year high during the month. The upswing contributed to a 5% gain for iShares MSCI Pacific ex Japan (ARCA:EPP). European equities enjoyed broad gains with ECB bond purchases set to start. IShares Europe (ARCA:IEV) rallied 6% in February.

The NorthCoast team added positions in iShares MSCI Canada (ARCA:EWC) at the beginning of the month. “The buy recommendation is based on our analysis that oil prices will stabilize,” Jamin said. EWC spiked 6% in February.

NorthCoast Asset Management‘s ETF retirement portfolios caught fire in February. Bullish macro trends and patience from the Federal Reserve in raising interest rates bolstered returns for domestic holdings. International positions also moved up the charts as the European Central Bank prepared for a March launch of its quantitative easing program.

Here are some highlights from the month:

Robust Job Growth

NorthCoast kept large stakes in iShares Core S&P 500 ETF (ARCA:IVV) based on a favorable outlook for the U.S. economy. “The clearest evidence of the improved U.S. economy is in the job market,” said Patrick Jamin, chief investment officer for NorthCoast. “More than 1 million jobs have been created in the past three months, which is more than three times the job growth necessary to absorb the number of workers who enter the labor force in a typical year.”

Shares of IVV surged 6% during the month.

Small-cap and midcap positions participated in the equity rally. IShares Core S&P Small-Cap (ARCA:IJR) and iShares Core S&P Mid-Cap (ARCA:IJH) saw respective gains of 6% and 5% in February.

The continued rise of the U.S. dollar has been a welcomed trend for the holdings. “Although the strength or weakness of the dollar is not a leading indicator of overall performance of the stock market, historical data have proved that a stronger dollar has been a better environment for small-cap stocks than large-cap stocks,” Jamin said. “Small- and midcap companies will also benefit more from the relatively bullish U.S. economy since they are more domestically oriented.”

Major holdings of the Tactical Income retirement portfolio climbed in February. “Our outlook for iShares iBoxx $ High Yield Corporate Bond (ARCA:HYG) is relatively bullish despite recent volatility,” Jamin said. “The U.S. growth and Federal Reserve’s patient approach to raising short-term rates should provide support to high-yield bonds.”

HYG ended the month up 2%.

IShares Select Dividend (ARCA:DVY) rose 1% in February. The ETF’s low correlation with the S&P 500 appeals to the NorthCoast team. “Its holdings only have a 15% overlap with S&P 500 stocks and are more heavily weighted in midcap value stocks,” Jamin said. “Most dividend ETFs have a 75% or more overlap with the large-cap benchmark.”

North Of The Border

Holdings of foreign ETFs checked in with impressive performances of their own in February. Australian stocks hit a seven-year high during the month. The upswing contributed to a 5% gain for iShares MSCI Pacific ex Japan (ARCA:EPP). European equities enjoyed broad gains with ECB bond purchases set to start. IShares Europe (ARCA:IEV) rallied 6% in February.

The NorthCoast team added positions in iShares MSCI Canada (ARCA:EWC) at the beginning of the month. “The buy recommendation is based on our analysis that oil prices will stabilize,” Jamin said. EWC spiked 6% in February.

Dialing In A New Age Of Auto Electronics

A car’s control panel is called a dashboard because, in the horse-and-buggy era, it kept mud from being dashed upon riders’ laps. Nowadays, the panels are electronics centers handling guidance, communications, entertainment and other unbuggy-like func…

Biotech Celgene Thrives On Life-Giving Drugs

Celgene is a company built on a premise that would make most corporate executives shudder. The premise: find applicable uses for derivatives of thalidomide, a drug banned by the FDA in 1961 after causing tens of thousands of birth defects. But the rock-solid biotech stuck to its research-and-development guns. The result is a growing portfolio of drugs treating cancer and other diseases.

Almost two thirds of Celgene’s (NASDAQ:CELG) 2014 revenue came from Revlimid, a thalidomide-based blood cancer treatment, sales of which rose 16% for the year. Sales of Abraxane, acquired in the $2.9 billion purchase of Abraxis Bioscience in 2010, rose 31% to 11% of total revenue. Abraxane treats various forms of breast, lung and pancreatic cancer.

A newer blood cancer treatment based on thalidomide, Pomalyst/Imnovid, surged to 9% of total revenue in its first full year of sales.

Management guided 2015 earnings up 26% and sales up 22%, based on the midpoint of its targeted ranges. It projected operating margins of 41.7%. Longer term, management aims for sales of $13 billion to $14 billion by 2017 — up 76% from last year.

Celgene is a company built on a premise that would make most corporate executives shudder. The premise: find applicable uses for derivatives of thalidomide, a drug banned by the FDA in 1961 after causing tens of thousands of birth defects. But the rock-solid biotech stuck to its research-and-development guns. The result is a growing portfolio of drugs treating cancer and other diseases.

Almost two thirds of Celgene’s (NASDAQ:CELG) 2014 revenue came from Revlimid, a thalidomide-based blood cancer treatment, sales of which rose 16% for the year. Sales of Abraxane, acquired in the $2.9 billion purchase of Abraxis Bioscience in 2010, rose 31% to 11% of total revenue. Abraxane treats various forms of breast, lung and pancreatic cancer.

A newer blood cancer treatment based on thalidomide, Pomalyst/Imnovid, surged to 9% of total revenue in its first full year of sales.

Management guided 2015 earnings up 26% and sales up 22%, based on the midpoint of its targeted ranges. It projected operating margins of 41.7%. Longer term, management aims for sales of $13 billion to $14 billion by 2017 — up 76% from last year.

IBD 50 Performance Ramps Up; Several Setups Emerge

IBD 50 Performance Ramps Up; Several Setups Emerge
IBD 50 Performance Ramps Up; Several Setups Emerge
The IBD 50 rose 1.4% for the week, broadly outperforming the S&P 500 which fell 0.3%.
600×450
640 x 480
444 kb/s
T1M37S
flv
Flash
2015-02-27T18…

Earnings Reports Spark New Highs

Earnings reports sparked some of Friday’s new highs, including a few in the rising consumer sector. Ross Stores (NASDAQ:ROST) gapped up after the discount apparel retailer beat expectations with its fourth-quarter results, reported late Thursday. Same…

Four Hot Stocks You’ll Want To Keep On Your Radar

Even if you miss a leading stock when it breaks out from a base, it could go on to set up a three-weeks-tight pattern or another secondary buy opportunity.

Tight trading action often is a sign of strength.Tableau Software (NYSE:DATA), which gapped up and soared 17% Feb. 5, is extended 6% from a conventional flat-base buy point of 90.05. It’s still in buy range of the 98.39 opening price of the gap-up.

It looked like a three-weeks-tight pattern might form, but the stock ended the week far off the prior week’s close. If Tableau keeps trading tightly for another two weeks, a flat base could emerge. The Seattle-based business software maker recently reported Q4 sales and profit that trumped views.

Qualys (NASDAQ:QLYS) also was on track to complete a three-weeks-tight but closed outside of the 1% range. It too could shape a flat base. Qualys stock triggered the eight-week hold rule on Feb. 17. The stock rallied more than 20% in less than three weeks from a 40.84 buy point. Investors who bought then should hold shares for eight weeks — barring any sell signals — and reassess the position when the hold period expires.

Medivation (NASDAQ:MDVN) is back within buying range from a 112.92 cup-with-handle buy point after easing slightly on Friday. The stock initially cleared the entry Feb. 23, but heavy volume didn’t come into play until Thursday, when it surged 5% after topping Q4 earnings and sales forecasts.

Strong sales of Medivation’s Xtandi prostate cancer drug helped the San Francisco-based firm turn its first annual profit of $3.42 a share. Medivation, which belongs to the top-ranked biotech industry group, has a 94 Composite Rating.

Bio-Reference Laboratories (NASDAQ:BRLI) is hovering near striking distance, following a cup-with-handle breakout last month. It hasn’t gained much ground since but has been wedging upward in tight fashion. The stock has closed higher in six of the past seven weeks. Analysts expect the lab testing services provider to report a 191% earnings jump on a 19% sales increase when it reports March 5 before the open.

Even if you miss a leading stock when it breaks out from a base, it could go on to set up a three-weeks-tight pattern or another secondary buy opportunity.

Tight trading action often is a sign of strength.Tableau Software (NYSE:DATA), which gapped up and soared 17% Feb. 5, is extended 6% from a conventional flat-base buy point of 90.05. It’s still in buy range of the 98.39 opening price of the gap-up.

It looked like a three-weeks-tight pattern might form, but the stock ended the week far off the prior week’s close. If Tableau keeps trading tightly for another two weeks, a flat base could emerge. The Seattle-based business software maker recently reported Q4 sales and profit that trumped views.

Qualys (NASDAQ:QLYS) also was on track to complete a three-weeks-tight but closed outside of the 1% range. It too could shape a flat base. Qualys stock triggered the eight-week hold rule on Feb. 17. The stock rallied more than 20% in less than three weeks from a 40.84 buy point. Investors who bought then should hold shares for eight weeks — barring any sell signals — and reassess the position when the hold period expires.

Medivation (NASDAQ:MDVN) is back within buying range from a 112.92 cup-with-handle buy point after easing slightly on Friday. The stock initially cleared the entry Feb. 23, but heavy volume didn’t come into play until Thursday, when it surged 5% after topping Q4 earnings and sales forecasts.

Strong sales of Medivation’s Xtandi prostate cancer drug helped the San Francisco-based firm turn its first annual profit of $3.42 a share. Medivation, which belongs to the top-ranked biotech industry group, has a 94 Composite Rating.

Bio-Reference Laboratories (NASDAQ:BRLI) is hovering near striking distance, following a cup-with-handle breakout last month. It hasn’t gained much ground since but has been wedging upward in tight fashion. The stock has closed higher in six of the past seven weeks. Analysts expect the lab testing services provider to report a 191% earnings jump on a 19% sales increase when it reports March 5 before the open.