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.

Trade-Ideas LLC identified

Applied Materials

(

AMAT

) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Applied Materials as such a stock due to the following factors:

  • AMAT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $329.4 million.
  • AMAT has traded 17.0 million shares today.
  • AMAT is trading at 1.57 times the normal volume for the stock at this time of day.
  • AMAT crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on AMAT:

Applied Materials, Inc. provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic (PV), and related industries worldwide. The stock currently has a dividend yield of 1.7%. AMAT has a PE ratio of 25.5. Currently there are 10 analysts that rate Applied Materials a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Applied Materials has been 14.1 million shares per day over the past 30 days. Applied has a market cap of $29.5 billion and is part of the technology sector and electronics industry. The stock has a beta of 2.05 and a short float of 6.8% with 5.56 days to cover. Shares are down 4.1% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Applied Materials as a

buy

. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • APPLIED MATERIALS INC has improved earnings per share by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, APPLIED MATERIALS INC increased its bottom line by earning $0.87 versus $0.21 in the prior year. This year, the market expects an improvement in earnings ($1.24 versus $0.87).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Semiconductors & Semiconductor Equipment industry average. The net income increased by 37.5% when compared to the same quarter one year prior, rising from $253.00 million to $348.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.5%. Since the same quarter one year prior, revenues slightly increased by 7.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • AMAT's debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, AMAT has a quick ratio of 1.85, which demonstrates the ability of the company to cover short-term liquidity needs.

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