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Looking at the scan results from my bullish scans from Friday, one stock that stood out was JA Solar (JASO). The manufacturer of specialty semiconductors that are geared toward the solar industry is primed for a rally.
Looking at the weekly chart, we see a trendline that connects the lows from the past year. With the stock closing at $10.07 on Friday and the trendline resting at $9.18, the downside risk on the stock stands at 8.8% while the upside is considerably greater. The closest current resistance level is $12.80 and that is 27% above the current price. This gives investors a reward/ratio of three to one.
I also like the fact that the 10-week RSI is nearing the 50 level. Looking at the recent dips, the indicator doesn’t tend to get below the midpoint level by much, or at least it hasn’t in the recent past.
Another source of optimism is the sentiment toward the stock. Over the years I have developed a sentiment composite that weights three different sentiment indicators into one number. What I have taken note of over the past year is that the best performing stocks tend to have a sentiment composite of 11 or higher. JASO’s sentiment composite sits at 13.0.
The biggest contributor to the high sentiment composite is the put/call ratio. The current reading is 1.06 and that is higher than 86% of the readings for the past year and it has been rising for the past three months. This is indicative of increasing pessimism and from a contrarian viewpoint that is a good thing. The reason for this is that when the investors that are pessimistic toward a stock reverse course, they can add additional buying pressure to the stock.
There are only four analysts with ratings on the stock at present, but only one of those has the stock rated as a “buy” while the other three have it rated as a “hold”. There is plenty of room for more analysts to start following JA Solar stock and I see the opportunity for more initiations with “buy” ratings than holds or sells.
JA Solar stock had its first profitable quarter in December by earning a penny a share. The estimate for the current quarter is for earnings of two cents a share and then earning 12 cents per share in the June quarter. The company has grown tremendously over the past five years with a per annum growth rate of 51.3%.
There are a number of ways to play the solar sector and there are a lot of companies that get more attention than JASO, but for my money, JA Solar stock looks like the best opportunity of the bunch.
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