This Chart Points to a Potential 52% Return for this Stock

#-ad_banner-#When President Obama’s armored limousine got stuck in Ireland this May as it exited the U.S. embassy, it was this towing company’s equipment that freed his vehicle, known affectionately as “The Beast.”

Since receiving the president’s nod, Miller Industries (NYSE: MLR) — the world’s leading towing and equipment recovery firm — has been gaining attention. The Tennessee-based company sells tow trucks, recovery vehicles, auto transporters and more and markets them under a number of reputable brands, including Century, Vulcan and Chevron.

Traders pushed shares to a multi-year high during this past June 13 trading week. The stock now appears to be forming a highly-bullish flag formation, offering an opportunity to potentially make a quick trading profit.

The flag is marked by the “flag post,” in this case a large white engulfing candle, and the downward-sloping “pennant,” which represents trading activity through the remainder of the week.

Flag formations typically resolve bullishly, creating buying interest that generally results in the stock moving higher and higher over time.

As this six-month daily chart shows, the stock is in a steady uptrend. But until recently, it has been capped by resistance around $17.


On Monday, June 13, however, shares shot up nearly $2, forming a very long bullish candle. The next day, the stock continued to rise, peaking at a multi-year high of $17.85.

Although the stock pulled back during the remainder of the week, the technical pattern is that of a highly-bullish flag formation, which typically leads to higher prices.

From a fundamental standpoint, Miller also looks poised to move higher. Shares are being lifted by strong sales. The company  recently reported an increase in government-related contracts as well as strong demand for its products domestically and in Europe.

In early May, the company announced strong first-quarter results. Revenue for the period increased 50.7% to $108.9 million, from $72.3 million in the comparable period a year-ago.

The company is cautiously optimistic about the remainder of the 2011 year but expects second-quarter revenue to increase about 8% to $87.8 million, compared with $81.3 million in 2010.

For the full 2011 year, analysts project revenue will increase 24% to $380.6 million. By 2012, revenue is projected to edge up a further 6.4% to $405 million.
The earnings outlook is similarly strong.

Due to stronger sales volume on manufactured products as well as improved production and successful cost reduction initiatives, first-quarter 2011 earnings per share surged 270.6% to $0.61, compared with $0.17 in the year-earlier period. Analysts expect second-quarter earnings to increase around 19% to $0.31, from $0.26 per share.

With strong growth projected over the full 2011 year, analysts expect full-year earnings to rise more than 60% to $1.54, from $0.96 share.

Miller is also attractively valued based on its low trailing price-to-earnings (P/E) ratio of about 12 and forward P/E about 11. The stock also has a price-to-sales (P/S) ratio of about 0.6.

As a liquid company with $39.1 million in cash and only $33,000 in long-term debt, the company has the financial freedom to take measures to increase shareholder value. As a result, in mid-May, Miller announced the initiation of a $0.12 per quarter dividend. This gives the shares a reasonable yield of almost 3.0%. The company also announced a $20 million share repurchasing program.

Action to Take –> Given that Miller currently appears technically bullish, has a solid fundamental growth outlook and is attractively valued, I plan to go long on the towing equipment company.

To take advantage of the bullish flag formation, I will enter a position at the opening of trading on Monday, June 20. My target is $25.84, the stock’s 2007 high. My stop-loss is near long-term support around the $12.60 mark. The risk/reward ratio is about 2:1.

P.S. — If you’re an income investor, why would you buy a stock yielding 2% when you can find one paying 26% right here? Watch this presentation for more.