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Trade-Ideas: Encana (ECA) Is Today's "Barbarian At The Gate" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Encana ( ECA) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Encana as such a stock due to the following factors:

  • ECA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $105.0 million.
  • ECA has traded 3.5 million shares today.
  • ECA traded in a range 222.8% of the normal price range with a price range of $0.83.
  • ECA traded above its daily resistance level (quality: 483 days, meaning that the stock is crossing a resistance level set by the last 483 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in ECA with the Ticky from Trade-Ideas. See the FREE profile for ECA NOW at Trade-Ideas

More details on ECA:

Encana Corporation, together with its subsidiaries, is engaged in exploration for, development, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The stock currently has a dividend yield of 1.4%. ECA has a PE ratio of 64.2. Currently there are 7 analysts that rate Encana a buy, no analysts rate it a sell, and 10 rate it a hold.

The average volume for Encana has been 5.4 million shares per day over the past 30 days. Encana has a market cap of $15.8 billion and is part of the basic materials sector and energy industry. Shares are up 18.7% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Encana as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins, notable return on equity and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and generally higher debt management risk.

Highlights from the ratings report include:

  • 43.71% is the gross profit margin for ENCANA CORP which we consider to be strong. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -17.63% is in-line with the industry average.
  • ENCANA CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, ENCANA CORP turned its bottom line around by earning $0.31 versus -$3.79 in the prior year.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 213.8% when compared to the same quarter one year ago, falling from -$80.00 million to -$251.00 million.
  • Net operating cash flow has decreased to $462.00 million or 35.56% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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