Bear of the Day: American Capital (ACAS)

I have a momentum screen I use to identify Zacks Rank #1 (Strong Buy) stocks that have recently had positive earnings surprises, positive earnings revisions, have outperformed the market and are trading near 52 week highs. Then I scrub these names individually to come up with a few of them that have the best looking technical picture in the hopes of finding great stock ideas to buy. Now what if I took these criteria and flipped them on their ear? Let’s find Zacks Rank #5 (Strong Sell) stocks with recent earnings disappointments, negative earnings revisions, and have underperformed the market. But I want to leave in stocks near their 52 week highs because maybe we are finding out something before the rest of the market is paying attention. I ran this screen today and came up with today’s Bear of the Day.

American Capital (ACAS) Zacks Rank #5 (Strong Buy) in a specialty finance industry that ranks in the bottom 18% of our Zacks Industry Rank. ACAS is the only private equity fund and the largest alternative asset management company in the S&P 500. Earnings revisions recently have seen current year estimates drop from $1.10 to 92 cents and next year’s numbers down from $1.41 to 92 cents. These downward revisions come on the heels of ACAS disappointing each of the prior four quarters by an average of 64.02%.

The price and consensus chart could be warning of tough times ahead for ACAS. The recent downturn in the earnings trend could be met with the stock giving up more than we have already seen. Currently the 2014 consensus is close to where it was in 2011 when the stock was trading nearly half where it’s trading at today.

The technical picture is beginning to show some chinks in the armor. While the stock has been range bound for a few months now, it continues to make lower highs along the way. In addition, the stock recently broke below its 25 day moving average shifted by 5 days, indicating a downtrend could be on the onset amidst the range. Right now stochastics are slightly oversold, which is what you’d expect for a stock that just broke below a bullish trend line support. The recent failure of price to reestablish itself above $30 is further proof of bearish price action.

Look at the bullish support the stock had along the lows prior to the dip we saw the last few days. Breaking this support is probably the most significant technical even the stock has seen over the last few months. The $25 is now the next level of support as it helped bolster the stock after the fierce sell off we saw to end October. If $25 were to fail I suspect you could see IPO level stock prices in the near future. Investors looking for an alternative in the same industry can look to Zacks Rank #1 (Strong Buy) Safeguard Scientifics ((SFE). Safeguard develops, operates and manages emerging growth information technology companies.

AMER CAP LTD (ACAS): Free Stock Analysis Report
SAFEGUARD SCTFC (SFE): Free Stock Analysis Report


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