Successful short-term trading is a learnable skill. It takes a combination of a keen eye to identify changing fundamentals within the market or company and the ability to read price.
By "reading price," I mean the aptitude to study price changes on a spreadsheet or chart in order to make an educated guess as to whether the price trend will continue or reverse.
In addition, the ability to handle losses while not deviating from your trading plan is a key factor in short-term trading success.
Using the above factors as a guide, I identified FuelCell Energy
) as a very likely candidate for substantial short-term profits. Let's take a closer look at this innovative company.
FuelCell Energy is a Danbury, Conn.-based manufacturer and distributor of stationary fuel cell power plants. In other words, the company makes large batteries and markets them to electric utilities, independent power producers and the education, health care and hospitality industries, among a variety of other sectors. FCEL boasts a market cap of around $640 million, revenue of nearly $188 million in the past 12 months, and just under $68 million in cash.
Things appear to be improving for the company, which posted record revenue for fiscal year 2013, ended Oct. 31, up 56 percent year over year to $187.7 million. It has just reached profitability with gross profits of $7.1 million for the year, compared with just $0.04 million in fiscal 2012.
Adding to the bullish improvements, Chief Operating Officer Tony Rauseo stated, "We began 2013 with North American production levels at an annual run-rate of 56 megawatts, smoothly increased the production rate to 70 megawatts during the year, and expanded total capacity by about 11 percent through process improvements to 100 megawatts annually."
The company is backlogged with orders, $355.4 million at the end of fiscal 2013, which helps build the short-term bullish case for the shares.
What I like most about FCEL's current picture is what appears to be the start of massive demand for its products. Multiple utilities in four U.S. states have submitted over one gigawatt of renewable power requests for proposals (RFP's) that all include fuel cells. And FCEL is aggressively pursuing these requests.
FuelCell Energy makes large batteries and markets them to electric utilities, independent power producers, and the education, health care and hospitality industries, among a variety of other sectors.
In addition, large-scale adoption is ramping up in South Korea with recent announcements by partner POSCO Energy including 20-megawatt and 40-megawatt projects.
Another company in the sector, Plug Power
), just announced a deal to provide Wal-Mart
) with 1,700 more fuel cell units, hydrogen supply and six-year service contract. This news sent PLUG soaring, and the stock is now up roughly 5,000 percent in the past 52 weeks. This deal sparked rallies across the sector, with FCEL spiking roughly 70 percent since the news was announced Feb. 26.
FCEL has more than doubled since the start of the year, hitting a multiyear high of $3.40 Wednesday before pulling back. I do not believe this rally is over. In fact, I think shares could easily double again from here. However, there will likely be a pullback prior to the $3.50 level being taken out.
Profit-taking is nearly certain to take place after such an already sharp price increase. The gaps on the daily price chart make me nervous about continued up moves prior to a pullback.
I expect prices to drop back into the $2 to $2.23 range before climbing again. However, it is possible that shares will continue higher from the current level. This is why I am recommending several initial buy levels for FCEL.
Action to take:
- Buy FCEL on a breakout above $3.50
- Set stop-loss at $2.93
- Set initial price target at $6.40 for a potential 83 percent gain in four months
Or . . .
- Buy FCEL on a pullback to the $2 to $2.23 channel
- Set stop-loss at $1.93
- Set initial price target at $6.40 for a potential 187 to 220 percent gain in four months
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