I love finding little stocks that have a strong possibility of
doubling or even tripling in a short period of time.
I uncover them by running technical screens on stocks trading
under $10. My screens search for companies that have been knocked
off their highs then built technical support and rebounded above
their 50-day simple moving averages.
Once the screen has found suitable candidates, I drill down
into fundamentals, economic conditions and potential catalysts
that could power the little stock higher. Many beaten-down stocks
experience a rebound from their lows, only to drop back down to
those lows or even further -- the so-called dead cat bounce. My
fundamental, economic and catalyst screen, which I call Price
Drivers, adds support to the technical picture.
I firmly believe that technical analysis plays a powerful role
in stock analysis, but it cannot stand on its own as a
decision-making tool. Traders need to understand what's behind
the price moves to make profitable decisions. Price alone isn't
adequate for the vast majority of situations.
The latest stock to pass my technical and fundamental Price
Drivers screens is Brazilian telecommunications company
, which trades on the New York Stock Exchange as an American
depository receipt (ADR).
My initial technical screen looked at the weekly chart of
As you can see, a double bottom formed between the start of
July and the end of August. OIBR has since bounced, hitting
resistance around the $2.04 level.
Digging deeper into the technical picture, we move on to the
OIBR is trading above its 50-day simple moving average at
$1.71 but is still solidly below major technical resistance at
the 200-day simple moving average at $2.40. The technical pattern
of this stock is perfect for a potential entry on a breakout
Now let's take a closer look at the economic environment and
fundamental picture of the company.
Oi operates both landlines and cellular services for
residential customers, companies and governmental agencies in
Brazil. It also operates an Internet portal and public
telephones, as well as related services. Founded in 1963 and
headquartered in Rio de Janeiro, Oi boasts a market cap of $3.4
billion and an enterprise value of $18.8 billion.
By the looks of its second-quarter numbers, things are
improving for the company. Net revenue was up by 2.4% year over
year, and analysts expect 2.8% revenue growth for the full year.
The company said it added 2.4 million customers in the second
quarter, bringing its total customer base to almost 75
Most interesting, there is a pending merger with Portugal
Telecom. However, it's important to note that the details still
appear to be up in the air. Unsubstantiated rumors allege that
Portugal Telecom retains the right to call off the transaction at
any time. The merger, should it occur, should lift the share
price of OIBR. If not, there may be another suitor down the
Finally, the economic environment is ripe for this company to
grow. In 2012, Brazil's National Telecommunications Agency
reported there were 116 mobile phones for every 100 citizens, but
the use of smartphones remains relatively low. This is changing
rapidly with the agency projecting that at least half of Brazil's
200 million residents will have a cellular phone with Internet
access by 2015.
sees the potential in Brazil's telecommunication business. He,
along with partners, is planning on investing $218 million in a
startup telecommunication company in the country. I love
OIBR on a breakout close above $2.11.
Action to Take -->
-- Buy OIBR on a daily close above $2.11
-- Set stop-loss at $1.69
-- Set initial price target at $4.25 for a potential 101% gain in
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