Stock With 400% Growth May Be Gearing Up For New Breakout

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When building your watch list, keep an eye out for stocks with explosive earnings growth that are showing strong institutional demand and near a potential buy zone. Machinery sector stock Kennametal ( KMT ) currently fits that bill.

[ibd-display-video id=2368044 width=50 float=left autostart=true] The Pittsburgh-based company manufactures tooling, engineered components and advanced materials used in production processes across the aerospace, energy, transportation and other industries.

While Kennametal did not make the list of new buys by top funds , several other machinery sector stocks did, including Dover ( DOV ), Illinois Tool Works ( ITW ), Parker-Hannifin ( PH ) and Graco ( GGG ), which was featured earlier this week in the IBD Stock Analysis .

But Kennametal's B+ Accumulation/Distribution Rating points to institutional demand for shares.

Graco, which provides coating and painting equipment used in the manufacturing processing and construction industries, jumped into a new buy zone Friday, clearing a 134.21 entry in a second-stage flat base. The stock remains within buy range.

400% Earnings Growth

Kennametal posted a 400% spike in EPS growth in Q3, bringing its average earnings gain over the last three quarters to 163%. Analysts expect earnings-per-share to rise 125% in the fourth quarter and 67% for the full year.

While revenue growth has been less explosive, it has been accelerating over the last six quarters, from a decline of 18% in Q2 2016 to a 14% increase last quarter.

RS Line Near New High

After initially clearing a 43.19 buy point on Oct. 24, Kennametal bolted over 9% higher on Nov. 2 in volume 281% above average on its strong Q3 earnings report.

While the stock immediately began retreating, note how it found support at the prior buy point as it began to form its current pattern, a flat base as part of a first-stage base-on-base.

Volume has been picking up as Kennametal tries to close in on the 48.99 entry. The stock has been finding support along its 10-day moving average and its relative strength line is within striking distance of new high ground.

Look for the stock to break out in volume at least 40% higher than normal.


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

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

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