With earnings due out tomorrow, only those comfortable with potential near-term volatility should consider Mark Fightmaster's recommendation for Under Armour (NYSE: UA). Nevertheless, the analyst with Schaeffer's Investment Research says, "I am a raging bull when it comes to this athletic apparel firm."
He explains, "Under Armour has a lot going for it. UA darn near has the market cornered when it comes to performance apparel. Its marketing is aggressive and catchy, and it was the innovator, not the imitator."
"Walk into your local sporting goods store or look at UA's internet site," he notes, and "check out the ducats you need to shell out for one of the company's shirts."
The advisor continues, "Okay, now let's take a look at UA's technical merits and see if my bullish enthusiasm is warranted. The shares are positioned above potential support at their 50-week moving average. Since its inception, UA has finished just one week below this trendline, which is rapidly ascending into the technical picture to provide support."
As to earnings, he notes, "The firm has posted earnings thrice; matching once, missing once, and beating expectations once. With expectations calling for earnings of 34 cents per share, it is hard to even hazard a guess as to what we will see from UA."
He adds, "One certainty is that positive earnings will more than likely spawn a short-covering rally. Despite a decrease of nearly 10% in short interest during the most recent reporting period, 49% of UA's float is sold short.
"While the percentage of float sold short would be enough on its own, consider that it would take five days to buy back the 6.7 million shorted UA shares at the stock's average daily trading volume. This combination makes the chance for a sustained short-covering rally rather substantial."
He concludes, "The final aspect of UA that I like is the way analysts line up toward the equity. According to Zacks, 66% of the 12 analysts following UA rate it a 'hold.' Should these fence-sitters feel the need to issue upgrades in the wake of positive earnings, we could see the stock advance."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment commentary and favorite stocks of the nation's leading financial newsletter advisors.
