Nasdaq 100 Watch List: March 19, 2013

Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.

Watch List Summary

Garmin (GRMN) was highlighted by us on August 15, 2010 when the stock was trading at $27.05.  At the time we said the following, “This week’s list makes it challenging to ignore Paychex (PAYX) and Garmin (GRMN)…GRMN wouldn’t be so difficult of an investment if they paid a quarterly dividend. However, Valueline has GRMN priced at fair value around $44.10 or 63% above the current price.”

Garmin rose from $27.05 to as high as $50.67, a gain of +87%.  GRMN has a technical downside targets of $30, $28 and $26.  With the decline of the stock price below $34.63, Dow Theory indicates that the next downside target is $26.61.  Those interested in Garmin should review the fundamentals for the company at or below $29.

The next stock of interest is Intuitive Surgical (ISRG).  The last time the stock was our watch list was in November 26, 2010 at a price of $275.08 (found here).  As with our observation on Apple’s (AAPL) contracting volume as the price rose, ISRG has experienced the same phenomenon (found here). In addition, as ISRG has declined recently, the amount of average volume has increased dramatically. This suggests that there may be support for the idea that this stock could fall much lower from the current levels.

 According to Dow Theory, ISRG has downside targets of $426.91, $342.92 and $258.93.  We think that $426.91 AND $342.92 are a lock for the downside risk.  A decline below $342.92 suggests that $299 and below is the next target.

Finally, Whole Foods (WFM) is on our watch list for the first time since the July 23, 2009 Dow Theory bull market initiation of the New Low Observer.  In the run up to the 2005 peak and December 2008 bottom, Whole Foods had had increasing volume all the way.  However, as the stock price rose from the 2008 low, Whole Foods has had a continued decline in trading volume.  More recently though, the decline from the October 5, 2012 top has resulted in higher average volume indicating that those wishing to get out are doing it in “droves.”

Dow Theory suggests that the following downside targets are $70.25, $54.44 and $38.64.  Whole Foods falling to the $70.25 level could mean that the situation is dire, from a price standpoint.

Watch List Performance Review

In our ongoing review of the Nasdaq 100 Watch List, we have taken the topic 5 stocks from March 16, 2012 (found here). The top 5 companies from the watch list are provided below with the closing price from March 16, 2012 to March 15, 2013.

The performance of Ctrip.com (CTRP), declining –18.96, was highlighted well in advance in our December 16, 2011 posting (found here). At that time (CTRP at $23.10) we said the following:

“Ctrip.com International (CTRP) is on a pace to replicate the performance from the high in April 2008 to the low of January 2009 which equaled a loss of 72%. A similar decline in CTRP from the high of $50.57 would bring the price down to $14.16. Suffice to say, the stock “only” needs to decline another $8.94 or 38% from the current price of $23.10. This seems very easy considering the high volatility of Chinese stocks. We believe that unless CTRP is summarily dismissed from the Nasdaq 100 index, there may yet be life in this company.

We believe that the Nasdaq 100 committee added CTRP to the index based on the performance of Priceline.com (PCLN). Amazingly, at the current price of $23.10, CTRP sits one penny below the 2^nd Dow Theory support level of $23.11. any further deviation below the current price almost ensures that the stock is destined for the $10 range.”

At its lowest point, Ctrip.com fell as low as $12.36 on July 30, 2012. We feel that our analysis, based on Dow Theory provided appropriate warning on the downside risk.

Apollo Group’s (APOL) decline was of little surprise.  In fact, we’ve thought that the company should have been removed from the Nasdaq 100 as early as December 2010.  In our October 7, 2011 performance review, we said the following, “Apollo Group [performance] was a considerable surprise to us since we believed that the stock should have been dropped from the Nasdaq 100 at the time of the annual re-ranking of the index in December 2010 (found here).”

In our  2012 Nasdaq 10o Re-Rank review (found here), we said the following of Apollo Group:

“Apollo Group (APOL) is finally be[ing] dropped after we were certain that it would be eliminated in the 2010 re-ranking (November 26, 2010 article here). Not being booted from the index meant an increase in price of over +60% from Dec. 2010 to Jan. 2012. Unfortunately, because the stock was in a rising trend for all of 2011, probably due to not getting dropped in late 2010, the stock has decline –39% from the Nov. 26, 2010 article and –63% from the Jan. 2012 high.”

Overall, the decline of Apollo Group has been of no surprise to us.  However, as our 2012 Nasdaq 100 Re-Rank review has indicated, the performance of stocks removed from the index is exceptional.  In the last three months alone,  four stocks that were dropped from the index have had above average performance, as seen below:

• NFLX : +94%
• GMCR: +39%
• VRSN: +26%
• WCRX: +18%

These returns are above the gains of the Dow, S&P 500, Nasdaq 100 in the same period of time.  More astonishingly, these stocks have beat the small cap index, Russell 2000, which has been on a tear lately.  With the data and our analysis, we believe that Apollo Group is worth watching, even though we’re not too excited about the company.

Only Vodafone (VOD) was able to meet our minimum goal of gaining +10% within the year.