Watch Out: Barbarians At The Gate For Weyerhaeuser (WY)

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 Weyerhaeuser ( WY) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Weyerhaeuser as such a stock due to the following factors:

  • WY has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $130.5 million.
  • WY has traded 3.5 million shares today.
  • WY traded in a range 206% of the normal price range with a price range of $0.89.
  • WY traded above its daily resistance level (quality: 18 days, meaning that the stock is crossing a resistance level set by the last 18 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' 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 positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on WY:

Weyerhaeuser Co. is a real estate investment trust. It primarily invests in United States. The firm operates under four business segments, timberlands, wood products, cellulose fibers and real estate. It owns timberlands primarily in the U.S and has long-term licenses in Canada. The stock currently has a dividend yield of 3.6%. WY has a PE ratio of 25. Currently there are 6 analysts that rate Weyerhaeuser a buy, 2 analysts rate it a sell, and 2 rate it a hold.

The average volume for Weyerhaeuser has been 3.8 million shares per day over the past 30 days. Weyerhaeuser has a market cap of $16.6 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.12 and a short float of 1.7% with 2.27 days to cover. Shares are down 10.7% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Weyerhaeuser as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity and increase in stock price during the past year. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, WEYERHAEUSER CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • WY, with its decline in revenue, slightly underperformed the industry average of 8.5%. Since the same quarter one year prior, revenues slightly dropped by 0.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • In its most recent trading session, WY has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
  • WEYERHAEUSER CO's earnings per share declined by 41.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, WEYERHAEUSER CO increased its bottom line by earning $1.38 versus $0.83 in the prior year. For the next year, the market is expecting a contraction of 16.7% in earnings ($1.15 versus $1.38).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 47.9% when compared to the same quarter one year ago, falling from $194.00 million to $101.00 million.

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