I'm like a kid in a candy story in the early stages of a market uptrend.
Soon after the Nasdaq confirmed a new market uptrend on Dec. 20, rising 3.2% in higher volume, I initiated several new positions in my model growth portfolio because the market was serving up Buy candidates left and right.
But two-and-a-half months into the rally, buying opportunities are getting harder and harder to come by.
There are isolated examples of stocks still basing and consolidating gains, setting up for possible upside breakouts. But the best stocks have already moved. At this point, I'm waiting for the big leaders to pause and digest recent gains. When the market eventually pulls back, many leaders will present alternate buying opportunities at key support level like the 10-week moving average.
One still looks compelling. Shares of Copart (CPRT) staged a bullish technical breakout last week. The company, with a market capitalization of $3.2 billion, is an auctioneer of salvage vehicles, either damaged vehicles deemed a total loss for insurance or business purposes or recovered stolen vehicles where an insurance settlement with the vehicle owner has already been made.
Shares gapped up 8.6% in strong volume on Feb. 29 after the company reported strong fiscal second-quarter earnings. A big short-covering rally? I doubt it, considering that short interest isn't all that high in the stock based on its 50-day average volume of 240,000 shares. As of Feb. 15, 629,000 shares were held short, down from 1.1 million at the end of November.
Earnings growth accelerated for the fourth straight quarter, rising 54% to $0.71 a share. Sales rose 10% to $227.9 million. Service revenue rose 9% to $189.7 million, while vehicle sales increased 14% to $38.2 million. Copart doesn't show the explosive top-line growth that I normally like to see in a stock, but year-over-year sales growth of 10% accelerated from 6% growth in the prior quarter.
Copart has a strong Internet presence, but also operates 147 brick-and-mortar locations in the U.S., Canada and the U.K. The company sells vehicles for a variety of consignors including finance companies, banks, dealers, fleets, rental car companies and the insurance industry. Copart also sells vehicles to the public via CopartDirect and to franchised and independent auto dealers through its Copart Dealer Services division.
Annual return on equity at Copart is solid at 20%. So is annual cash flow per share of $3.21. It earned $2.11 a share in 2011. For a growth name like Copart, it's good to see cash flow per share at least 25% above annual earnings. In Copart's case, it's 52% above it.
Mutual fund sponsorship is another element I look at when evaluating a stock. I generally avoid overowned stocks. Instead, I focus on stocks still in the early stages of being discovered by fund managers. Fund ownership is solid at Copart and it's nowhere near over owned at this point. At the end of the fourth quarter 386 funds owned shares, up from 336 at the end of the second quarter. At the end of the fourth quarter, Neuberger & Berman Genesis Fund owned 2.7 million shares. Baron Growth Fund owned 2 million shares at the end of the third quarter.
Copart's technical picture is compelling. Shares closed Friday at $50.22, only 2.3% above a swing point, or buying area, of $49.09. I consider a stock extended, or too late to buy, when it moves more than 4% past a buying area. To me, Copart looks like an early-stage breakout.