There are several risks surrounding Garmin at the present time. The most important risk to consider, in my opinion, is the potential for a weakening 'momentum story' in the stock. As Priya Ganapati outlined for TheStreet.com, weakening margins and slowing revenue growth are two potential risks facing the company. If the company does in fact report either of these circumstances has 'come to fruit,' I expect the stock to get a haircut.
However, there are still many bullish arguments behind the stock. The most rational of these, in my opinion, is the very reasonable multiple currently attached to the stock. As of now, the stock trades for roughly 21x forward analyst earnings. If the company does in fact deliver solid earnings results in coming quarters, I believe the stock is prime to rally.
Considering the fact that there are very valid arguments on both the pro and the con side, I believe investors
should wait until an ideal technical entry point before becoming involved. In my opinion, the lowest risk entry will be following a breakout because trying to buy a momentum stock when momentum is dwindling is very risky.As you can see from the chart on the right, the stock broke its sharp uptrend line in early October. Since this breakdown, the stock has failed to retrace its previous high and momentum has dwindled (as you can see from the downtrend in the RSI (the bottom indicator on the chart marked with a red downtrend line).
Accordingly, I believe buying the stock would make the most sense above $120. Above these levels there would be no 'ceiling' above the stock, momentum will have returned, and a stop could easily be placed (just below the breakout level).
Situations like Garmin can be high-risk when done without technical considerations and stop losses. However, if this stock is bought with new-found momentum and a logical stop loss, I believe investors can play the momentum game in a much less-risky way.
New Facebook share structure hints at IPO
Before the bell: Futures higher ahead of housing, jobless data
Nuclear power is on the comeback trail
