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A few years ago, one company captured the public's attention with an ad campaign featuring stark white backgrounds, an assortment of white products and a sultry spokeswoman delivering the thinly veiled sexual reference, "It's all about the O."
The company is online marketplace retailer Overstock.com (NASDAQ: OSTK), and its stock has a strong history of putting profits in investors' pockets.
OSTK stock has been riding an incredible high of late, soaring 111% over the past six months. In late October, shares spiked after the company reported robust Q3 earnings. Revenue for that three-month period came in at $255.4 million, which was 7% greater then the same quarter a year ago. More importantly, the company logged a profit of $0.11 per share, which essentially righted the losing ship of a loss of $0.33 the year before.
Last week, the company reported its Q4 earnings, and though the shares didn't spike as dramatically as they did in October, the results did cause traders to pile into OSTK stock. In the final quarter of the year, Overstock said its revenue came in at $342 million, which represents a 9% increase over the same period last year.
The company also posted earnings per share (EPS) of $0.37, which once again represents a big turnaround from the loss of $0.15 per share the company saw a year earlier. For the full year, Overstock's revenue increased 4% to $1.1 billion, while EPS came in at $0.62 compared with a loss of $0.84 cents in 2011.
Given numbers like this, it's no surprise that OSTK shares are providing traders "the big O" when it comes to gains. Fortunately, I don't think the ride in the stock is over just yet, and that means more opportunity for momentum players looking to buy into strength.
The chart here of OSTK over the past 52 weeks shows the marked move in the stock since April. That's when a steady rise began that sent the stock above its short-term, 50-day moving average, as well as its long-term, 200-day moving average.
The buying in the stock last week after posting Q4 results has caused OSTK shares to break out again, and they now trade at their highest point since March 2011.
If the online discount retailer can keep the revenues streaming in, and if they can contain costs and continue to see EPS and gross margins grow, I suspect the shares can move substantially higher in 2013.
For traders, the latest bounce represents a sound opportunity to ride the "O" wave higher, at least until the shares make it up to the psychologically significant $20 mark.
Recommended Trade Setup:
-- Buy OSTK at the market price-- Set stop-loss at $15.26-- Set initial price target at $20 for a potential 23% gain in two months
Once a pillar of the American economy, this group is crumbling, and investors would be wise to avoid the rubble.
After a solid run, the technical evidence tells us shares are headed for a quick drop.
This sector is one of the few showing real growth, and there is an undeniable upside catalyst on the horizon.