Roof Leaker To Watch: St Jude Medical (STJ)

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 St Jude Medical ( STJ) 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 St Jude Medical as such a stock due to the following factors:

  • STJ has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $98.1 million.
  • STJ has traded 1.2 million shares today.
  • STJ is trading at 1.76 times the normal volume for the stock at this time of day.
  • STJ 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 STJ:

St. Jude Medical, Inc. develops, manufactures and distributes medical devices for cardiac rhythm management, cardiovascular, and atrial fibrillation therapy areas worldwide. It operates in two divisions, Implantable Electronic Systems, and Cardiovascular and Ablation Technologies. The stock currently has a dividend yield of 1.6%. STJ has a PE ratio of 15.0. Currently there are 16 analysts that rate St Jude Medical a buy, 1 analyst rates it a sell, and 7 rate it a hold.

The average volume for St Jude Medical has been 1.6 million shares per day over the past 30 days. St Jude Medical has a market cap of $18.7 billion and is part of the health care sector and health services industry. The stock has a beta of 1.52 and a short float of 1.2% with 2.29 days to cover. Shares are up 4.8% year-to-date as of the close of trading on Wednesday.

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

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates St Jude Medical 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 notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • ST JUDE MEDICAL INC reported significant earnings per share improvement 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 year. We feel that this trend should continue. During the past fiscal year, ST JUDE MEDICAL INC increased its bottom line by earning $2.50 versus $2.40 in the prior year. This year, the market expects an improvement in earnings ($4.00 versus $2.50).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income increased by 134.8% when compared to the same quarter one year prior, rising from $115.00 million to $270.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.8%. Since the same quarter one year prior, revenues slightly increased by 3.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Health Care Equipment & Supplies industry and the overall market, ST JUDE MEDICAL INC's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.

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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