February 20, 2015
This 215% Gainer Still has
Double-Digit Upside Potential
By Melvin Pasternak
The S&P 500 hit a new all-time high this week just above psychologically important resistance at 2,100. So far this month, the index has advanced more than 5%. If it can hold onto these gains for another week, it will mark the biggest percentage increase in the month of February in 17 years.
However, with Greece's tense negotiations with the EU and the mixed blessing of cratering oil prices, it pays to exercise discretion with new purchases.
I'm seeking stocks that are both technically and fundamentally strong. Any new buys must:
1. Be outperforming the broader market; and
2. Have positive quarterly and full-year revenue and earnings growth projections.
Popular fast-food chain Jack in the Box (NASDAQ: JACK) passes these two tests with flying colors.
Shares are up 20% year to date versus 2% for the broader market. Even more impressive, they are up 215% in the past two years.
On Tuesday, the company reported impressive fiscal first-quarter results. Revenue for the period increased 4.1% to $468.62 million, above the $459.8 million expected by analysts.
Growth was spurred by the company's wholly-owned subsidiary, Qdoba Mexican Grill. Same-store sales at the chain jumped 14% year over year, which management attributed in part to the simplified menu pricing structure.
At the same time, the company's namesake hamburger chain, Jack in the Box, achieved better-than-expected 4.4% same-store sales growth.
For the quarter, consolidated earnings increased 25.3% to $0.94 per share from $0.75 in the comparable year-earlier period, with the company seeing strong breakfast and late-night sales.
At present, there are about 2,200 Jack in the Box restaurants in 21 U.S. states. Qdoba Mexican Grill has over 600 restaurants across 47 states, D.C. and Canada. In the coming year, management plans to open at least 10 to 15 new Jack in the Box locations. It's also eyeing 50 to 60 new Qdoba outlets.
This expansion, along with strong sales at existing locations, should help drive revenue and earnings.
For its upcoming fiscal second quarter, management anticipates same-store sales will rise between 5% and 7% year over year at Jack in the Box and between 7% and 9% at Qdoba.
Since the company announced its first-quarter results, analysts have upped their revenue and EPS estimates. They now expect sales to increase 2.7% in the second quarter to $350.1 million and for earnings to soar 25.5% to $0.64 per share.
For the full year, the consensus estimate is for 3.4% revenue growth to $1.53 billion and for earnings to jump 18.4% to $2.90 per share.
On the chart, we see shares have been in a strong uptrend for the past two years.
At the beginning of 2013, shares traded near $30, and in just over a year, the stock had doubled.
JACK peaked near $62 in March 2014. It consolidated between this high and support marked by the major uptrend line. Shares traded sideways for the next several months in a narrow range.
In September, JACK broke through resistance near $62. This level now marks a shelf of support.
Shares are currently in an accelerated uptrend, well above the major uptrend line. This week, the stock surged to a new all-time high of $96.75 as investors rushed to buy following the strong quarterly results.
Analysts have been increasing their targets as well, with a high estimate of $120. With no overhead resistance in sight, I expect JACK to run at least another 15% to $110.
Recommended Trade Setup:
-- Buy JACK at the market price
-- Set stop-loss at $84.90
-- Set price target at $109.99 for a potential 15% gain by late 2015
Note: Perhaps the only downside to JACK is that the company only offers a small quarterly dividend of $0.20 for a yield of 0.8%. But for those of you who wish to generate more, you can hold the shares in a high-income brokerage account.
A regular brokerage account doesn't allow you to do anything more than simply buy and sell stocks. But if you hold your stocks in a high-income brokerage account, you can collect income each month -- $1,200 or more in some cases. Most investors can easily convert their existing brokerage account with no hassles at all.
If you want to learn more about how to open a high-income brokerage account and start collecting monthly income now, check out this free report.
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