Simulation Software Maker Ready for Real Gains

Finding a stock idea outside of basic materials and energy stocks has been nothing short of challenging. But far be it from us to back down from a challenge. One area that has us intrigued us as potentially on the verge of improvement is technology.

We can find some isolated names in this space that are acting better and starting to attract some attention. We mentioned IBM (IBM - commentary - Cramer's Take) and its positive characteristics last week, but we are now seeing software, and in some cases elect semiconductor, stocks beginning to join in the strength. We have anticipated an improvement in this area before, only to be disappointed. This has been an underperforming sector for the past few years, and it wouldn't surprise us to see a mostly forgotten sector like this rally.

One such stock that has been making a surge of late is Ansys (ANSS - commentary - Cramer's Take). This company makes what is known as simulation software, a component of computer-aided engineering. It is intended to allow companies to detect operational flaws in an idea before the actual production starts. Design engineers in the aerospace, automotive, manufacturing electronics and defense industries can use this software for a variety of products and systems.

Interestingly, Ansys has a large customer base with no single client accounting for more than 6% of its revenue. As far as market penetration, there is still a large potential audience out there that should help drive potential growth.

In an attempt to gain more loyal users, simulation software has been donated or sold at very low prices to schools enabling students who will one day be potential customers to get familiar with the product.

This is all fine and dandy, but what we want to see is if the market perceives these opportunities for the company as well, based on the price action. It looks like they are, as Ansys is displaying strong technical characteristics as well.

Ansys

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After an aborted breakout in late December, the stock succumbed to the general market weakness, falling back to the long-term uptrend in the $32 level area. This support held and the stock spent the majority of the first quarter building a new base. This price action is suggestive of accumulation, and resulted in a breakout to the upside which completed the bottoming process.

This multimonth base is a strong configuration and indicative of further upside to the $50 area. Key support comes in the $38-$40 level. If this configuration is as productive as we think, this level should not be breached. We would get long Ansys at current levels.

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At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.