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Wednesday, April 30, 2014 - 13:30
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Wednesday, April 30, 2014 - 13:30

A 'Boring' Momentum Stock With Solid Fundamentals

Wednesday, April 30, 2014 - 1:30pm

When it comes to trading, there are two strategies I like to use.

The first is to buy a quality company after it has fallen from grace and then wait patiently while the rest of Wall Street comes to its senses and sees the ugly duckling for the beautiful swan it really is.

The other strategy I like to use is to buy a winning stock that keeps making new highs on strong fundamentals.

The latter is my strategy when it comes to Ryder System (NYSE: R). I think traders will be able to ride shares of this transportation and supply chain management firm higher over the next several months.

In February, my colleague Serge Berger analyzed the performance of Ryder shares over the past several years. He pointed out that the stock had "built a good layer of support and a solid base from which it can now potentially attack and overcome the 2008 highs."

Those highs were around $75, and by late February, R had eclipsed that mark. It ran all the way to $84.40 on April 23, and now is about 4% below that peak.

Part of the reason behind the move higher in February was a fourth-quarter earnings release that saw the company beat convincingly earnings estimates. And though the firm failed to meet expectations on the revenue front, it did demonstrate year-over-year top-line growth.

Last week, Ryder made it a case of deja vu, as the company came in with first-quarter numbers that beat expectations on the earnings front, but sales once again fell a bit short despite the year-over-year growth.

During the first quarter, Ryder said it earned an adjusted $0.92 per share versus the $0.87 Wall Street was anticipating. Revenue came in 3% higher at $1.6 billion, but was just shy of estimates.

What I found encouraging in the report was the growth in both the fleet management solutions division and the supply chain management business. The company also confirmed its earnings outlook for the coming quarter and the full year, so expect more of the same strong results from Ryder in the months to come.

For traders, I think the stock represents a momentum play that's also backed by solid fundamentals. Adding exposure here, just shy of the all-time high, will likely net you another 10% or so by the time the second-quarter results are released in approximately three months.

Action to Take -->
-- Buy R at the market price
-- Set stop-loss 8% below entry price
-- Set initial price target at $89.35 for a potential 10% gain in three months

This article was originally published at
Transportation Star's Momentum Could Result in Double-Digit Rally

P.S. Ryder pays a decent 1.7% dividend yield, but my colleague Michael Vodicka has developed a method of turbocharging the income from the world's most reliable dividend payers -- without buying a single stock. And you don't have to be a sophisticated trade to use his strategy. Click here to learn more.

Jim Woods does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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