Roof Leaker To Watch: PACCAR (PCAR)

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 PACCAR ( PCAR) 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 PACCAR as such a stock due to the following factors:

  • PCAR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $87.4 million.
  • PCAR has traded 639,899 shares today.
  • PCAR is trading at 1.53 times the normal volume for the stock at this time of day.
  • PCAR 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 PCAR:

PACCAR Inc, together with its subsidiaries, designs, manufactures, and distributes light, medium, and heavy-duty trucks and related aftermarket parts worldwide. It operates through three segments: Truck, Parts, and Financial Services. The stock currently has a dividend yield of 1.4%. PCAR has a PE ratio of 18.4. Currently there are 5 analysts that rate PACCAR a buy, no analysts rate it a sell, and 9 rate it a hold.

The average volume for PACCAR has been 1.5 million shares per day over the past 30 days. PACCAR has a market cap of $22.7 billion and is part of the consumer goods sector and automotive industry. The stock has a beta of 1.90 and a short float of 2% with 4.87 days to cover. Shares are up 5.2% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates PACCAR as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, growth in earnings per share, reasonable valuation levels and increase in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 6.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
  • PACCAR INC has improved earnings per share by 9.8% 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, PACCAR INC increased its bottom line by earning $3.30 versus $3.12 in the prior year. This year, the market expects an improvement in earnings ($3.63 versus $3.30).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Machinery industry average. The net income increased by 9.5% when compared to the same quarter one year prior, going from $291.60 million to $319.20 million.

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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