Five quick trades to make you big bucks this summer

 

Nothing is ever certain in the world of stock trading, but there are patterns that repeat themselves. They don’t repeat automatically, just frequently. Today I’ll be identifying stocks that appear set for breakout upside moves over the next two or three months. I don’t look at charts to find patterns, because that 100% does not work. Rather, I look at the spending and investing patterns that truly drive stock prices up or down.

The largest and most pressing question is simply this: is global wealth currently flowing into or out of stocks? In that, the answer is clearly “into.” Compared to earnings, stocks are, on average, not higher or lower than they have been for the past three years, but as earnings are (generally) increasing strongly across most industries, there is no worry there. Economic concerns in Asia and concerns over Brexit in Europe mean money is moving into US stocks from other parts of the world, and finally, money continues to move out of the bond market and into stocks, as made clear by steadily rising rates. Under the circumstances, it makes a great deal of sense to try some momentum plays, or even try buying some near-the-money naked call options, if your risk tolerance is extremely high. Four out of five of today’s picks will be just that. The fifth, which you might be able to guess, is just straight-up opportunism.

Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Axon Enterprises (AAXN)

Axon Enterprises has been growing exponentially, and shares of AAXN are up 174% YTD. This incredible rise has been due to the company’s rapid expansion in the body camera business, and it has been able to expand as rapidly as it has by offering a law enforcement agencies an offer too good to refuse: take the cameras now, let us store what you record, and pay us only when you need the data you are storing. The more law enforcement agencies jump on the bandwagon, the more are going to feel pressure to do so. Body cameras protect the police against false claims and can provide evidence of crimes, but at the same time, their use is greatly approved of organizations that seek to curtail wrongdoing by the police. The truth, after all, benefits all good people.

Chart courtesy of www.stockcharts.com

Facebook (FB)

By now you’ve heard the big news that Facebook missed estimates in its second quarter in both revenue and user growth. While many have offered their opinions, I hold with those who believe Facebook has wisely curtailed its unwise practices, thus creating short term pain while making it less likely that the company will be subject to future regulation. Indeed, it has never been Facebook’s core functionality that caused any trouble, nor despite a few early defections after the Cambridge Analytica debacle, is there any reason to believe that advertisers are abandoning the platform. The only reason I’m not adding to my own position in FB is that it is already one of my largest positions. (Disclosure: I own stock in Facebook.)

Chart courtesy of www.stockcharts.com

Xilinx (XLNX)

Xilinx is a chip company that specializes in a kind of chip called a programmable logic device or PLD. These chips sound futuristic but have actually been around since 1969. Essentially, a PLD is a combination logic device/memory device, where the memory device holds the configuration of the logic device in place once it has been programmed. Xilinx went public in 1989 and reached a huge value in 2000 that it has not yet come close to regaining. Still, things are looking up. Even as most tech stocks fell on Thursday, dragged down by Facebook’s disappointing earnings report, shares of XLNX were up 10%, pushed higher by a first quarter that shocked the market. If this company is regaining its mojo, it’s a fantastic buying opportunity.  

Chart courtesy of www.stockcharts.com

Wix (WIX)

Wix offers free websites, free tools to build them, and premium tools with which to monetize them. As such, it’s biggest current competitor is Shopify, though between the two, I’m currently leaning toward Wix as the better buy, as for multiple reasons, SHOP shares appear to be puffed-up beyond what is reasonable at present. Both companies are likely to report their first profits this year, but Wix’s forecast P/E is somewhat high 80, while Shopify’s is an extremely high 288. Also, because it offers free websites to businessmen who are just starting out, i.e., not yet ready to monetize, it means that many, when they are ready to monetize, will already have Wix websites and thus be more likely to stay with Wix than switch to Shopify or some other service.

Chart courtesy of www.stockcharts.com

Square (SQ)

For pure momentum, it is hard to beat Square, which is up 98% ytd. Square continues to serve small businesses with its mobile credit card reader, but recent reports indicate that it is scaling up, not only in the number of sellers using its product, but in their size. It is also expanding rapidly with a new platform that caters to restaurants. Despite very high valuations, (f P/E: 90), Square is doing everything right, with both innovation and rapid growth. Put another way, there are usually signs of trouble before a stock goes off the rails, and with Square, there has yet to be any such sign. (Disclosure: I own stock in Square.)

Chart courtesy of www.stockcharts.com

Symbols: AAXN FB SQ WIX XLNX
Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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