By the slimmest of margins, the Nasdaq Composite index snapped a four-week losing streak last week. The 0.3% weekly advance was far from earth-shattering but could mark an inflection point for a market that has struggled to build off last year's extraordinary gains.
Within the Nasdaq several names have formed interesting technical patterns in recent weeks. The mid-cap space has seen several bullish signals pointing to significant upside moves ahead. Let's dive into a few of these breakout candidates.
Will South State Stock Break Resistance?
Regional banks have quietly been one of the hottest performing groups this year. The Dow Jones U.S. Regional Banks Index is up 35% year-to-date thanks to improving lending activity and expectations of higher interest rates.
One stock that is participating in the rally is South State (NASDAQ:SSB) a Florida-based regional bank. It has over one million customers to which it provides consumer banking, commercial banking, mortgage, and wealth management services.
South State is working through a symmetrical continuation triangle that formed on the daily chart last month. The bullish pattern suggests the stock may soon be headed to the mid $90's. To do so it will have to break through resistance at $91.49. There's good reason to believe this will happen.
On May 19th, it bounced perfectly off the 50-day moving average and finished near the high for the day. The long candlestick was followed by two more days of green including a nice gapper on Friday.
The fundamentals look good as well. South State has exposure to some of the highest growth banking markets including Florida, Georgia, Alabama, Virginia, and the Carolinas. It is also well-diversified by business line with strength in capital markets and improving technology platforms.
If South State can breach resistance, it could be well on its way to hitting triple digits for the first time in its 24-year trading history.
What is a Good Insurance Stock?
Staying in the financial sector, Selective Insurance Group (NASDAQ:SIGI) is another name poised to break out. The New Jersey-based property and casualty insurer is trading just a couple bucks shy of $77.88 where it previously faced resistance.
On Friday, a symmetrical continuation triangle formed on the daily chart. This means that after a month-long consolidation period, the share price has finally broken upward. It suggests that the prior uptrend will resume, and that Selective Insurance could climb as high as $83 over the next few weeks. Not a huge move, but 10% upside in less than a month isn't bad especially for a low-risk insurance play.
Selective Insurance also looks like a good buy from a valuation perspective. It is going for less than 15x forward earnings which is below the P&C insurance industry average of 16x as well as the S&P 400 Mid-cap forward multiple of 18x.
The nearly 100-year old insurer has exposure to the New Jersey and metropolitan New York City markets that are among the most lucrative in the country. Approximately 80% of its premiums come from commercial lines sold to businesses, government agencies, and non-profits.
The company is expected to derive growth from its strong insurance portfolio, increasing premiums, and new business wins. Last quarter net written premiums jumped 23% due to higher renewal pricing and customer acquisitions in the Excess and Surplus (E&S) division. It will also find growth by continuing to expand outside its home market. The core commercial business now has a presence in 27 states and is expected to enter new states over the next few years.
Insurance stocks can play a valuable role in long-term portfolio growth because insurance is a business that is in demand in strong and weak economies alike. Investors looking for this type of resiliency should consider selecting Selective Insurance.
Is MACOM Technology Solutions Heading Higher?
Switching gears to the technology sector, MACOM Technology Solutions (NASDAQ:MTSI) is another mid-cap ready to bust out. The Massachusetts-based semiconductor company twice reached a record intraday high of $69.29 in February and March. It then went on a slide as high growth technology names got hit due to inflation worries. But the stock has found support around the $50 level and has recently regained some key technical milestones. Step one was the crossing of the 200-day moving average. This occurred last week in good volume. Next, the share price just crossed the all-important 50-day moving average suggesting the underlying uptrend is back on.
MACOM is one of the most favored semiconductor companies among sell-side analysts. Nine call it a 'buy' while the remaining three see it as a 'hold'. Several price targets are in the $70's which would be a fresh all-time high for the stock.
The company is one of the strongest players in a data center market that is seeing increasing deployment of cloud services globally. As enterprises continue to migrate to the cloud, MACOM's chips are expected to be in steady demand. Its array of opto-electronic products is also in demand from telco operators that are ramping their buildouts of 5G networking.
MACOM is a less talked about semiconductor play on data center and 5G growth. Roughly 60% of its revenue comes from outside the U.S. making it a truly global beneficiary of some of the biggest themes in technology and telecommunications.
As a more volatile tech stock, MACOM packs more of a breakout punch than the financial names on this list, making it more appropriate for risk-bearing investors.
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