The bull market that started in March 2009 has yielded several
big winners. Be careful, though, because many growth names are
forming late-stage bases after massive price gains. Names like
Mastercard (NYSE:
MA
) and Ulta Beauty (Nasdaq:
ULTA
) come to mind.
Why are late-stage bases riskier than early-stage bases? After
a stock breaks out from a series of bases, or consolidation
areas, its growth story is already known. In many cases, it's too
late to buy. Late-stage bases should generally be avoided because
in most cases, the big money has already been made. After a huge
price run, Apple (Nasdaq:
AAPL
) tried to break out from a late-stage base in August and didn't
get far. Institutional investors have been dumping the stock
since early October.
Some growth names currently might look like late-stage bases,
but they're not because they reset their base counts. What does a
base reset look like? It's not hard to recognize. It happens when
sellers come into a stock in spades. The stock pulls back
sharply, and the ultimate low of the pullback undercuts the low
of a prior base. The thinking is that when enough sellers get
shaken out of a stock, it paves the way for a new uptrend.
Since the start of the bull market, shares of Netsuite (NYSE:
N
) have gained nearly 500 percent, but it reset its base count in
October 2011. Shares hit an intraday low of $25.32, undercutting
the low of a prior base that formed earlier in the year. The new
base that formed yielded a fresh, first-stage breakout in
December. A second-stage breakout followed earlier this year in
July.
The stock is currently working on the right side of a
third-stage base. Headed into Monday, it had climbed to within 4
percent of a 52-week high. Last week was bullish accumulation
week for the stock. Shares popped 8.2 percent on volume of 3.4
million shares. In a normal week, Netsuite trades about 2.3
million shares. It's always good to see institutional buying when
a stock starts to re-test a prior high. Netsuite showed it last
week.
The company is a provider of on-demand customer relationship
management (
CRM
) and enterprise resource planning (ERP) software. It shows
consistent bottom-line and top-line growth in recent quarters and
strong growth is expected to continue as demand remains strong
for the company's products and services. Full-year profit is seen
rising 60 percent this year to $0.24 a share and 33 percent in
2013 to $0.32 a share.
Stock chart:
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