Stock Idea of the Month: HomeAway

Here is the full interview I had with Amy Smith about Lumber Liquidators and her newest idea, HomeAway.

Stock Idea of the Month: HomeAway

Last month, Amy Smith, author of the bestselling How to Make Money in Stocks Success Storiesmentioned Lumber Liquidators (NYSE:LL) as a stock to watch. For long-term traders, it was an ideal choice.

When Smith first discussed LL in my February 8th MarketWatch column (http://on.mktw.net/12tTDYx), it was trading at $58 per share. It slowly went higher, and on the day it released earnings, it shot up to over $65 per share.

If you are a trader, you remember the old rule, “Buy on the rumor; sell on the news.” After the earnings news came out, the entire market sold off, along with LL, which dropped to $54. It quickly recovered and is now trading at over $64.00 (as of March 7).

Smith has a new stock idea for this month: HomeAway (Nasdaq:AWAY). The following is her analysis of both stocks.

Q: What happened to Lumber Liquidators?

LL broke out of a price consolidation in early February, and it made a nice little run, but came under selling pressure on February 21st. Toll Bros, a homebuilder, missed their earnings, and there was some negative news on housing. It was mostly a lot of speculation of what was going on in the housing market. Even good stocks can get hit if the overall market trend is down. You can’t fight the general market.

On Feb. 26, LL recovered because the housing data that came out said new home sales jumped 16% in January, which was the highest level in four years. We also had a good earnings report from Home Depot; they beat their quarter estimates, and were up 36%. And the stock reacted well, turned around, and went up on much higher volume after a short selloff.

Q: Should investors continue holding LL?

So far LL is recovering nicely from the selloff. It is currently holding tight, but we’ll continue to see how the housing market does.  If I was sitting on a large profit and bought LL some time ago, I might hold to see if it will recover.

If you look at the daily chart, the selloff might scare you a little bit, but if you look at the weekly chart, you get a longer-term view of what the stock might be doing. Is it forming a new base or a new price consolidation?

In terms of when to sell a stock, A lot when to sell a stock has to do with when you got into it, and how large of a profit you are sitting on. You never want to take more than a 7-8% loss from where you purchased a stock.

Q: Are there other stocks you are watching?

Yes, HomeAway (Nasdaq:AWAY). This company had its IPO in July 2011. They are the world’s leading online market place for vacation rentals. They have 720,000 paid vacation home listings in 168 countries. Some may recognize their web sites: Vacationrentals.com and Bedandbreakfast.com. HomeAway has rental properties in the U.S., Europe, Australia, and South America. If you have a home you own in Hawaii, Europe, or Brazil, HomeAway helps link people up who will rent your home for a week or so.

HomeAway shot up out of a price consolidation on very big volume on Feb. 21 to a 16-month high. It went up 13% because they beat 4th quarter earnings. The earnings in the recent quarter were what we look for: up 100%. Those triple digit numbers captures the attention of institutions.

The volume numbers: The stock gapped up Feb. 21 with stock volume 491% above average. With CAN SLIM® Investing, That is what we look for. When a stock gaps up with that much volume, it means that institutional investors picked up shares.

The gap up means there is enormous buying. I wouldn’t be surprising to see the stock slow down or pull back slightly as it digests its gains. As long as the stock pulls back on low volume, it means institutions are holding onto the shares. With this much power and volume going into it, it’s unlikely institutions will sell shares they just bought.

What are you looking for now?

We still have a ways to go before it reports earnings on April 24th. But it continues to look strong, although it’s a little extended because it shot up so fast. We like to buy stocks that come out of a price consolidation. If you buy a stock after it goes up several days in a row, and there is a huge volume and price increase, the stock will usually pull back a little at some point. If you buy it too late in the game, you are risking you will get hit on the pullback.

HomeAway is a good stock for your watch list. Remember that on the pullback, it should be on low volume, maybe to one of its moving averages. As long as it pulls back on low volume, the stock is fine. But never sit and hope a stock will come back when you are losing money. Sell it and get out of the way.

Note: As of this publication date, Michael Sincere and Amy Smith do not own shares of HomeAway.

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