Watching for a Double Top Breakout with Ladenburg Thalmann (LTS)

Trading breakouts is a highly risky, but potentially rewarding way to turn a quick profit in the stock market. When a stock’s price penetrates its 52-week top, it often entices traders to jump into the mix, leading to a quick spurt of buying and fresh “breakout” highs.

In that regard, the company whose stock I want to bring your attention to today is Ladenburg Thalmann Financial Services (LTS). Provocatively, not only has LTS been knocking on the door of its 52-week high at $3.90; that also represents a level that this issue hasn’t seen in about 15 years! Technically then, a breach of the $3.90 mark on solid buying could trigger a powerful “coiled spring” response, sending the stock into previously uncharted terrain.

By way of background, Ladenburg Thalmann is one of the oldest companies in the U.S., founded in 1876. Through its subsidiaries, it provides brokerage and advisory, investment banking, equity research, institutional sales and trading, asset management, and trust services. The company operates through two segments, Independent Brokerage and Advisory Services, and Ladenburg.

The Independent Brokerage and Advisory Services segment offers securities brokerage and advisory services for mutual funds and other investment vehicles. The Ladenburg segment is engaged in investment banking activities comprising corporate finance, and strategic and financial advisory services, among many others.

As you can see from the chart below, at the end of May LTS shares entered an uptrend, busting through round number resistance at $3 per share, consolidating those gains during the month of June, then pushing to new a new 52-week top of $3.90 about six-weeks ago. That high coincided with the day after the company announced that one of its subsidiaries, Securities America, had acquired Dalton Strategic Investment Services — a company with approximately $950 million in client assets.

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And, as you might expect, after an almost 50% run-up in the stock’s share price in such a short period of time, profit-taking kicked in, leading to a quick pullback. That resulted in a test of the low $3 mark. As it turned out $3 held and this provided another nice springboard for trading gains, with a retest near the $3.90 mark taking place earlier this week.

After that early week push to $3.85 failed to generate enough buying interest to send the issue into 52-week high terrain, sellers took control, pushing LTS’s stock price back to $3.50 in the latest dealings on Wednesday. In the meantime, the company has reported solid sales and earnings growth, along with several deals that should only serve to enhance the company’s bottom line.

For the six-months ended June 30, 2014, Ladenburg Thalmann had revenues of $432.6 million, a 13% increase over revenues of $381.2 million for the comparable 2013 period. Net income for the period weighed in at $7.2 million, compared to a net loss of $5.4 million in the comparable 2013 period.

Net income available to common shareholders, after payment of preferred dividends, was $0.3 million or $0.00 per basic and diluted common share for the six months ended June 30, 2014, compared to a net loss available to common shareholders, after payment of preferred dividends, of $6.4 million or $(0.03) per basic and diluted common share in the comparable period.

In addition to those solid numbers, the company has been busy making acquisitions, announcing three significant deals over the past month. Most recently LTS added Seattle’s KMS Financial Services to its portfolio, adding $14 billion in client assets, and bumping up the company’s total asset base to a whopping $110 billion.

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With no apparent bad news responsible for the recent spate of profit taking, it appears as if the $3.50 level may be the stock’s new area of support. Keeping in mind that financial services firms like Ladenburg are particularly sensitive to macro-economic developments, current prices may offer an excellent entry point for a renewed assault on the issue’s 52-week high — and a subsequent push into blue sky country if buying volume is strong enough to support the move. It may take time and patience, but if that scenario unfolds, it will be well worth the wait.
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With no apparent bad news responsible for the recent spate of profit taking, it appears as if the $3.50 level may be the stock’s new area of support. Keeping in mind that financial services firms like Ladenburg are particularly sensitive to macro-economic developments, current prices may offer an excellent entry point for a renewed assault on the issue’s 52-week high — and a subsequent push into blue sky country if buying volume is strong enough to support the move. It may take time and patience, but if that scenario unfolds, it will be well worth the wait.
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As always, trade this and all stocks with extreme caution!

Warren Gates, Senior Analyst, Normandy Research

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