It's certainly not on par with International Business Machines Corp. (NYSE:IBM) and Oracle Corporation (NYSE:ORCL), at least in terms of size. But, shares of CA, Inc. (NASDAQ:CA) do offer something that ORCL and IBM shares may not offer at this point... a lot of upside opportunity. In fact, if history is any indication, CA may be on the cusp of 40% pop, and maybe even more.
Investors who have never heard of CA, Inc. need not worry about it - most people probably haven't. It's dwarfed by bigger players in the IT infrastructure and hardware business like Oracle and the iconic International Business Machines. For perspective, IBM is a $190 billion organization, while ORCL as a $182 billion company. Meanwhile, CA boasts a market cap of only $13.1 billion.
So what makes CA so great here and now? Value, and the fact that shares are starting to make a move that's proven fruitful many times before.
As of right now, CA Inc. shares are valued at a trailing P/E of 14.8. That's not bad. A closer look at the company's recent results, however, reveals the top line has been slumping for some time (since 2012), and earnings started to contract last fiscal year as well. As they say though, that was then and this is now. While sales and earnings aren't apt to skyrocket from here, they are expected to begin growing again. Revenue should inch forward by 1.0% next fiscal year (mostly calendar 2015). Per-share profits are projected to grow 4.4%, from $2.50 to $2.61. No, it's not much, but all the market needs here is a glimmer of hope and plausibility. The forward-looking P/E of 11.25 will take care of the rest.
While the fundamental snapshot is compelling, what really makes CA compelling right now is the shape of the chart and the context for the budding bullishness. As is evident on the weekly chart below, CA is at the beginning of a U-shaped rally we've seen three times since 2009; this is the fourth such effort.
The upside potential is fairly clear, even of a precise target isn't. The reversals and subsequent rallies in 2010 and 2011 were both on the order of 40% before CA Inc. rolled over. The reversal in 2013, however, was good for more than a 50% advance.
Whatever the case, zooming into a daily chart shows how much of the turnaround has already been put into place. We're seeing higher lows, and as of today, we're on the verge of higher highs; the ceiling at $29.37 will need to be cleared first. Once we do get past that level though, odds are good we could see another "off to the races" situation.
Looking for something a little bigger? take a look at the SmallCap Network Elite Opportunity service. It trades large cap companies, in addition to providing you daily market insight and close looks at major market trends. You can even get a free two week trial. Just click here to learn more.
No comments:
Post a Comment