Lear (LEA) Is Today's Roof Leaker 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 Lear ( LEA) 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 Lear 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 $76.7 million.
  • LEA has traded 1.2 million shares today.
  • LEA is trading at 3.49 times the normal volume for the stock at this time of day.
  • LEA 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 LEA:

Lear Corporation designs, manufactures, assembles, and supplies automotive seating, electrical distribution systems, and related components primarily to automotive original equipment manufacturers worldwide. It operates through two segments, Seating and Electrical. The stock currently has a dividend yield of 0.9%. LEA has a PE ratio of 16.5. Currently there are 5 analysts that rate Lear a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Lear has been 742,800 shares per day over the past 30 days. Lear has a market cap of $7.4 billion and is part of the consumer goods sector and automotive industry. The stock has a beta of 1.12 and a short float of 0.8% with 0.75 days to cover. Shares are up 11.3% year-to-date as of the close of trading on Monday.

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 Lear as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, increase in net income, good cash flow from operations and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • LEA's revenue growth has slightly outpaced the industry average of 9.0%. Since the same quarter one year prior, revenues rose by 11.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 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 27.81% 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.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Auto Components industry average. The net income increased by 8.2% when compared to the same quarter one year prior, going from $137.30 million to $148.50 million.
  • Net operating cash flow has increased to $229.20 million or 13.69% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.50%.
  • LEAR CORP has improved earnings per share by 13.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LEAR CORP reported lower earnings of $4.99 versus $13.00 in the prior year. This year, the market expects an improvement in earnings ($7.99 versus $4.99).

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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