Honeywell Better Than McDonalds?

In the December 29th, 2014 issue of Seasonal Forecaster I presented one of my ‘wallflower' finds:

“I don't like to think in terms of shorting stocks when in a bull market. But when a lot of top stocks remain overbought, I like to look for ‘wallflower' stocks – the stocks you seldom hear about in the news. I look for rebounds after pullbacks, stochastics rising out of oversold territory, steadily growing revenue and earnings (and dividends), good seasonal track records, insider buying, etc. It's hard to find all of these qualities in one stock, but I regularly find candidates with several of these traits.

“For example, you don't hear much about Honeywell International (HON) nowadays. Honeywell is a diversified technology and manufacturing company. It has an Earnings Growth Rate of 22%, and a Return on Equity of 26%. The stock is currently under accumulation. The number of funds holding it has steadily increased over the past year. Currently at 101.63, the Consensus Price Target is $106.50 (4.8% higher). Five analysts have Hold ratings, ten have Buy ratings.

“But it was the seasonal chart of HON that got my attention. Honeywell is due to announce earnings on January 23rd, before the open (unconfirmed). The track record of HON before then isn't notable. But after they announce earnings is a different story.

“Over the next 17 weeks, HON has gained an average 10.0%, most of that starting right after they announce Q4/year-end earnings. What's more, in the past 29 years, there were only 2 losing periods! Many of the gains were large enough to make option traders smile.

“Right now, HON is setting at new all-time highs, and stochastics are in overbought territory. I would not enter a trade in HON at this time.

“However, with Honeywell earnings less than 4 weeks away, a pullback here would produce an ideal trade setup for playing their typical post-earnings rise.”

And on January 8th, 2015 I sent this comment to readers:

“I was looking for a pullback in Honeywell (HON), as I covered in the 12/29/2014 newsletter. I like the current setup. So if the market, and HON, open on a positive tone, I will consider buying HON (or an alternative trade) shortly after the open.

“Honeywell is due to announce earnings on January 23rd, before the open (unconfirmed). Therefore, my approach would be to enter a smaller initial position, maybe a half-sized trade. Even if an alternative trade could be done with options, I'd think in terms of doing a stock trade so that if I take a chance and hold the position through earnings, it will be a small position, and I can add to it if Honeywell's earnings are well received.

“The objective will be to hold it until it reaches the top of its recent ascending channel, around 102.50, and then evaluate the situation. This should also be done as the earnings release date on 1/23 nears. I suggest protecting the trade with an 8% stop-loss and 8% trailing-stop.”

HON opened that morning at 99.64, gapping up from the previous close. The pullback was most likely over and it was an ideal time to enter this trade.

We're currently up 2.7% on this trade, and HON looks ready to break to new highs. The stock continues to show strong accumulation, mostly likely by institutions.

This ‘wallflower' stock is starting to draw attention. Yesterday's MarketWatch.com site had an article titled Which is the better value play, Honeywell or McDonald’s?  Thomas Kee's conclusion? “On a relative value basis, when comparing MCD to HON, HON is the clear winner.”

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2015 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

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