Medidata Solutions
The stock featured last August when it traded at $35.24 a share, but it has since reached the mid-$50s. The ‘back office’ software service provider to assist medical companies in running clinical trials will enjoy some of the pickings the Affordable Care Act will bring. The company has seen a 36% rise in its customer base over the past couple of years as it moves to grab market share.
The company reported earnings which met on expectations on revenue, and beat on earnings per share, but margins were down. Full year revenue was up 18% to $218 million. However, the company enjoyed strong bookings which left it with record backlog. Co-founder, Tarek A. Sherif, considered 2012 was an “inflection point” and left the company “poised to transition from being just a provider of Rave to a platform company with greatly expanded capabilities and opportunities.” The company was accelerating its investment into R&D for its non-Rave portfolio with a goal of 20% sustainable revenue growth. To highlight this switch, there was a 50% growth in customers committing to multiple products last year. And at the end of 2012, 38% of its customer base were multiproduct users. Non-Rave product sales grew 300% (!) year-on-year and accounted for a quarter of all sales in 2012.
If there is an issue, executing the covered call strategy may be difficult. Option liquidity is limited, so dangling an offer for July $55 Strike at $4 may catch a fill given the strength of its prior advance, but there may be only a couple of contracts available at the price. However, the underlying stock looks well placed to continue its advance.
American Railcar Industries
This was another high flyer which featured in August at $28.29 a share, but now trades in the mid-$40s. The stock is riding the powerful rally in the transport sector; an excellent lead sector for marking a recovery in the broader economy. According to IBD, the Dow Jones Transportation Index is the best performing index of the major indices it tracks for 2013.
Sales growth has slowed, although demand for rail cars remains high. CEO Jim Cowan noted an industry backlog of 60,000 railcars at the end of December, of which 89% is the tank and hopper rail car, American Railcar Industries key sector (mostly tank). However Hopper demand is expected to pick up in the second half of 2013, after a strong December and January.
Revenue for the fourth quarter was up 6% on the comparable year last. Consolidated earnings came in at a record $41 million, compared to $30 million in the third quarter, and the $15 million of the comparable quarter last year. A forward P/E of 10.8 sits comfortably inside current trailing P/E of 15.3. Competitors The Greenbrier Companies and Trinity Industries have trailing P/Es of 12.0 and 14.1 respectively, so the stock may offer another 20% of upside just to match projections it has handily beaten in the past.
From a covered call perspective, round numbers are hard to break. A June $50 strike at $1.70 looks tempting. This may rise to $3.50 if the stock makes another pass at $50 in the coming couple of weeks (as the June $45 strike has traded recently).
The article Time To Make Money From Your Holdings originally appeared on Fool.com and is written by Declan Fallon.
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