Markets

Even At New Highs, This 'Boring' Stock Still Looks Cheap

One of the predominant strategies traders use is to simply find stocks in rising trends and hop on until they stop. I like to temper that a bit with a condition that the stock's sector should also be strong.

Although the basic materials sector contains the damaged gold mining group, it has still been able to outpace the S&P 500 as the latter moved into record high territory. That means components within the sector are taking up the slack of the miners, and one of them -- chemicals -- is doing the lion's share.

The S&P Chemicals Index (CEX) is trading at its own all-time highs and beating the S&P 500, as well.

Within the group, Celanese (NYSE: CE ) is now breaking out through resistance to new highs. And even a technical analyst like me can appreciate a 12-month trailing price/earnings (P/E) ratio of 8.6 and a forward P/E of less than 12. Most of its peers sport P/E ratios closer to 16, while the S&P 500 itself is trading at 19 times earnings.

Looking at the charts, we can see that long-term trends from both major lows in 2009 and 2012 remain unbroken to the upside. And the trend from early February is also in very good shape.

Long-term charts show that the breakout last month through the twin 2011 and 2014 highs was successfully tested with the mid-May dip. In other words, investors who missed their first chance to buy the breakout got a second chance to do so, which they did in droves. Volume on the test was elevated to indicate a good shakeout of weak hands and influx of new buyers.

Technical indicators measuring volume and momentum do not show any red flags at this time, so there is little reason to worry aside from normal risks we must take in the stock market.

CE isn't the most exciting stock, and it doesn't operate in the most exciting industry -- so we shouldn't expect momentum stock-sized moves. But when there is turmoil in the markets, slow and steady isn't such a bad thing.

Action to Take -->

-- Buy CE at the market price

-- Set stop-loss at $59.50

-- Set initial price target at $69 for a potential 10% gain in eight weeks

This article was originally published at ProfitableTrading.com:

This Boring Stock Still Looks Cheap at New Highs

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2016 StreetAuthority, LLC. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

Street Authority

Founded in 2001 by industry veterans, StreetAuthority is a financial research and publishing division of Investing Daily. Our mission is to help individual investors earn above-average profits by providing a source of independent, unbiased — and most of all, profitable — investing ideas. Unlike traditional publishers, StreetAuthority doesn’t simply regurgitate the latest stock market news. Instead, we provide in-depth research, plus specific investment ideas and immediate action to take based on the latest market events.

Learn More