This week, two stocks, namely ISOTeam and Sunpower caught my attention with their potential bullish chart developments amid volume expansion.
Chart looks positive with strengthening indicators and volume
Based on Chart 1 below, ISOTeam has been trading in a range $0.225 – 0.245 since 2 Aug 2019. ADX is starting to rise (closes at 18.7) amid positively placed DIs. In addition, indicators such as MACD, OBV and RSI are strengthening. MACD has done a bullish MACD line crossover and centerline crossover. A sustained breach above $0.245 with volume expansion is positive for the chart with an eventual technical target $0.265.
Near term supports: $0.235 / 0.225 / 0.220
Near term resistances: $0.245 / 0.255 / 0.275
Chart 1: Volume picks up amid strengthening indicators
Source: InvestingNote 5 Nov 2019
Other interesting aspects of ISOTeam
a) Average analyst target price $0.320; potential capital upside 33%
Based on Figure 1 below, ISOTeam is covered by three brokers with all buy calls. Target price ranges from $0.31 to $0.34. Average analyst target is around $0.320. This represents a potential capital upside of around 33%. Readers can refer to ISOTeam’s analyst reports HERE.
Figure 1: Average analyst target $0.320
b) Other factors
Personally, there are other noteworthy potential developments in the near term which I find it interesting.
Completion of M&A for Pure Group cum funding exercise for the acquistion. ISOTeam has extended the completion date to 30 Nov 2019. During the AGM held on 30 Oct 2019, I get the feeling that ISOTeam is committed to complete this earnings accretive acquisition, as they believe Pure Group is a synergistic fit with ISOTeam. In addition, Pure Group has a profit after tax targets of $3.0m for FY20 and $5.0m for FY21. To put this in perspective, ISOTeam’s FY19 net profit is $6.8m.
More contract wins. This month, Sunseap clinched a contract from HDB and the Singapore Economic Development Board to install more than 170,000 solar panels at 1,218 HDB blocks and 49 government sites. Based on a Businesstimes article dated 14 Jan 2019, it was reported that with ISOTeam’s $5m investment in Sunseap in 2017, there is a clause whereby Sunseap has to award 50% of the installation work to ISOTeam. According to a 17 Feb 2016 contract win announcement by ISOTeam, Sunseap awarded a $1.8m contract to ISOTeam to install solar panels on 33 HDB blocks. Conservatively speaking, if ISOTeam were to get a 1/3 share (instead of 50%) to install the solar panels on 400 HDB blocks, a back of the envelope calculation works out to be around $21.8m contract. Besides this, ISOTeam has shared that their outlook remains bright with many contracts open for bidding, especially as we near election.
A final dividend of around $0.0042 / share will be ex on 8 Nov 2019. This translates to approximately 1.8% dividend yield at the closing price $0.240.
Readers can refer to ISOTeam AGM’s takeaways HERE.
c) Risk factors
Some of the possible risk factors include but not limited to a broad market selloff; failure / long postponement of their acquisition of Pure Group; illiquidity which can lead to large price swings etc.
2. Sunpower – challenges its multi-month resistance $0.525
Based on Chart 2 below, Sunpower has been trading in a multi month trading range $0.415 – 0.525 since 23 May 2019. ADX closes at 34.5, amid positively placed DI. All the exponential moving averages (“EMAs”) are rising, indicative of an uptrend, with golden cross formations. Volume has been picking up recently. RSI closes at 68.5 which is not overbought yet. For Sunpower, RSI can easily touch 84 before it turns lower. Past 10-year high RSI is at 92.0. A sustained break above $0.525 points to an eventual technical measured target of around $0.640. This is an eventual technical target which is unlikely to reach immediately.
Near term supports: $0.520 / 0.510 / 0.500
Near term resistances: $0.535 / 0.550 / 0.575
Chart 2: Chart looks bullish with rising ADX & EMAs and strengthening indicators
Source: InvestingNote 5 Nov 2019
Other interesting aspects of Sunpower
a) Analyst target price $0.830; potential capital upside 58% – 85%
UOB Kayhian is the only broker covering Sunpower with a target price of $0.830. Smartkarma has a target price of around $0.970. This represents a potential capital upside of around 58% – 85%. Readers can refer to the analyst reports HERE and Smartkarma’s report HERE.
b) Attractive valuations
Based on Bloomberg, Sunpower trades at 7.3x current PE vis-à-vis its 10-year average of 10.1x. I.e. This seems attractive if we compare against its 10-year average PE.
c) Sunpower’s positive outlook in FY19 and beyond
According to Sunpower’s 2QFY19 results, Sunpower shares the following developments outlined below which may bode well for FY19:
The continued ramp-up of existing GI projects, driven by: a) Continuous securing of new customers following the mandatory closure of small “dirty” boilers and relocation into industrial parks, and b) The organic growth of existing factories in industrial parks served by the Group’s GI plants. In this aspect, an article on Businesstimes dated 8 Jul 2019 corroborates this trend. It cites Hebei, China’s top steel making province has brought forward the closure of small coal fired industrial boilers by two months to the end of October 2019.
Yongxing Plant, acquired in Q3 2018, is expected to contribute for the full year, particularly as its profitability has been enhanced by post-acquisition upgrades.
Full year electricity sales by Changrun Project.
Lianshui Project is expected to make further progress by adding new customers in 2H 2019.
Start of trial production by Shantou Project Phase 1 in 2H 2019.
Contributions from the newly-acquired Suyuan Plant.
Potential accretive M&A of GI plants that can contribute immediately to the top and bottom-line.
Strong M&S order book
d) Risk factors
Some of the possible risk factors include but not limited to a broad market selloff; project execution risk; higher leverage from expansion; forex etc.
The above is written on the basis of technical chart. To my best effort, I have included in some updates for ISOTeam and Sunpower so as to give you some of their near term potential developments. Readers, as usual, please do your own due diligence and exercise your independent judgement.
P.S: I have already notified my clients to take note of ISOTeam and Sunpower respectively. I am vested in both for trading purposes only.
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