Monday, June 02, 2014

Trading Idea: Concho Resources (CXO)

Concho Resources (CXO) more then tripled in price from its cup and handle breakout in 2009 and has spent the past three years digesting the gains. The stock attempted to breakout of a first stage cup and handle base in April.  Volume was anemic and the stock made little progress before settling into the current, tighter, flat base.

Quarterly sales growth has accelerated for four straight quarters from 30% to 40%. Annual sales and earnings growth are expected to accelerate from 27% to 34% and -9% to 53%. Net margins have expanded for four straight quarters from 9.8% to 12.5%. Accelerating sales growth and margins create the potential for major earnings surprises in the upcoming quarters.

Our initial price target is $170 with a potential PE expansion price target of $400. Investors and traders should be prepared to buy the stock as it surpasses the 135.33 pivot point. Aggressive traders could buy sooner if volume begins to pick up.

Full Disclosure: No Current Position

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