Water-Logged And Getting Wetter Stock Of The Day: Lear Corporation (LEA)

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 Lear Corporation ( LEA) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Lear Corporation as such a stock due to the following factors:

  • LEA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $52.3 million.
  • LEA has traded 580,840 shares today.
  • LEA traded in a range 213.8% of the normal price range with a price range of $2.85.
  • LEA traded below its daily resistance level (quality: 37 days, meaning that the stock is crossing a resistance level set by the last 37 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' 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 negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on LEA:

Lear Corporation designs, manufactures, assembles, and supplies automotive seat systems, electrical distribution systems, and related components primarily to automotive original equipment manufacturers. It operates in two segments, Seating and Electrical Power Management Systems (EPMS). The stock currently has a dividend yield of 0.8%. LEA has a PE ratio of 6.4. Currently there are 5 analysts that rate Lear Corporation a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Lear Corporation has been 746,300 shares per day over the past 30 days. Lear has a market cap of $6.7 billion and is part of the consumer goods sector and automotive industry. The stock has a beta of 1.05 and a short float of 3.8% with 5.20 days to cover. Shares are up 73% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Lear Corporation as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, notable return on equity, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 78.55% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, LEA should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 11.4%. Since the same quarter one year prior, revenues rose by 10.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Auto Components industry and the overall market, LEAR CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.93 is somewhat weak and could be cause for future problems.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
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