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Unfortunately, Crime is a Narrative that Long-Term Investors Should Consider Investing in

When it comes to long-term investing, a fundamental narrative with enough staying power to feed long-lasting industry growth and bullish trend characteristics is essential to an investment’s success.

Unfortunately, the upward trajectory of crime in this country is one narrative that investors have been betting on in this new post-COVID world.

As investors, we have the freedom to choose whether we want to profit from trends that negatively affect society.

Today, I am going to discuss the technical setup of one company that specializes in “less-lethal” personal defense products, and whose stock is building one of my favorite patterns.

Crime is on the rise

The majority of this country’s largest police jurisdictions saw increases in at least one category of violent crimes in 2020, which include homicide, rape, robbery, and aggravated assault, according to a report produced by the Major Cities Chiefs Association.

Although the economy has recovered from the depths of the COVID crisis, the crime surge has continued into the first half of this year.

Thanks to a “perfect storm” of social anxiety because of a pandemic, de-policing in major cities after protests that called for the abolition of police departments, shifts in police resources from neighborhoods to downtown areas because of those protests, and the release of criminal defendants pretrial or before sentences were completed to reduce risk of COVID-19 spread in jails, a number of major cities have indicated they are still experiencing high rates of violent crime.

In Chicago, homicides were up 33% in the first three months of the year compared to 2020, while shootings are up nearly 40% for the same period year-over-year. In New York City, the NYPD data shows murders jumped by nearly 14% through March 28, the latest numbers the department has made public, while shootings were up nearly 50%.

Introducing Return On Capital Employed (ROCE)

The art of identifying a stock that can grow to become a multi-bagger over time is complex.

It starts by identifying certain key fundamental strengths, many of which may be quite foreign to a lot of retail investors.

Today, I’m going to introduce you to one of these fundamental measures called return on capital employed (ROCE).

What is Return On Capital Employed (ROCE)?

ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business.

If applied to Byrna Technologies, the formula would look like this:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.074 = US$1.0m ÷ (US$22m – US$8.0m) (Based on the trailing twelve months to May 2021).

The result is a ROCE of 7.4%, which is around its underlying industry (Aerospace & Defense) average of 7.8%.

This is especially favorable since the Aerospace & Defense industry is considered to be capital-intensive.

This is because unlike other fundamentals such as return on equity (ROE), which only analyzes profitability related to a company’s shareholders’ equity, ROCE considers debt and equity.

Ultimately, ROCE uncovers the amount of profit a company is generating per $1 of capital employed.

Byrna Technologies, Inc. (BYRN) is “flagging”

When we are looking for investments that we want to hold for the long-term, the combination of strong fundamentals and technicals is almost always the winning recipe.

When performing chart analysis for long-term investing ideas, it’s good practice to start by looking at the monthly chart.

Why?

Well, not only will you be able to see areas of support or resistance that date back to well before what is shown on the 3-to-12 month daily charts that so many of us use by default, but they usually reveal big patterns that often go unnoticed on charts with shorter timeframes.

When we look at BYRN’s monthly chart, we see two “bull flags.”

If BYRN closes above $26 to confirm a break above the most recent “flag” that is still developing (see blue lines and arrows), it would produce a measured target that extends to right around the area of the larger “bull flag” that was confirmed earlier this year (see green lines and arrows) and has yet to reach its measured target.

That’s right! Both “flags” target the $36 area, which represents roughly another 60% upside potential from here.

Figure 1

How to position in BYRN for the long-term

When we break the chart down to a smaller time frame in Figure 2 below, we can see that the stock is trying to rotate up and out of the recent “flag” consolidation phase.

Figure 2

When building a position in an investment that will be held for the long-term, the process does not have to be rushed.

What you want to do is identify a price area that is critical to the health of the prevailing trend you are trying to take advantage of.

As Figure 2 below shows, that area is the $20 to $22 area, which is where the early-July swing low, “flag” support, and bullish April breakout area have all joined forces to create a support platform (use this as your stop-out level) that, if breached, would signal a breakdown in this bullish trend setup.

Author: RagingBull

RagingBull is the foremost trading education website where traders of all skill and experience levels can learn to trade or to become a better trader. Students can learn from experienced stock and options traders, and be alerted to the real money trades these traders make. Become a better trader with RagingBull.com's courses and programs.

In 1980, Utah State University’s Center for Atmospheric and Space Sciences was buzzing with preparations for the launch of the space shuttle program. Gilbert Moore bought and donated a regular research compartment on the space shuttle and Utah State would have the first spot on the 4th shuttle launch – that space was about the size of a 55-gallon oil drum and would house 8 student experiments. The launch went well in the summer of 1982, and programs continued until February 2003 when the Space Shuttle Columbia was destroyed.

The US Government phased out the shuttle program and partnered with Russia to continue research. Funding for space exploration had already faded from it’s peak at above 4% of the national budget in 1966 during the first space race between the United States and the Soviet Union, to less than 1% of the federal budget, and currently lands below ½% [source: Planetary.org]

In July, 2021, the NEW space race went head to head – Brunson vs Bezos.

 

How did the private sector take over the domain of government-sponsored scientific breakthroughs and is there an opportunity for you to get in on the action?

Commercializing Space

Before NASA had phased out the shuttle program, SpaceX was raising funds and looking to the stars. Founded by Elon Musk in 2002, even before he started Tesla in 2003, he was looking at frontiers beyond earth-bound travel. Virgin Galactic, founded by British entrepreneur Richard Branson in 2004, entered this new type of space race

Elon Musk’s goal was to reduce costs of space transportation in order to enable colonization of Mars. Richard Brunson’s goal was space travel as well.

But even before Musk in 2002, and Branson in 2004, Jeff Bezos founded Blue Origin. I recall reading a WIRED Magazine article in December of 1999 that featured Bezos as “Man of the Year” [source: WIRED] Back then, Amazon was just selling books, but yet in the middle of the tech stock crisis that decimated stock values for companies like Amazon and Microsoft, On September 8, 2000, Bezos founded Blue Origin, also in the quest to make access to space cheaper and more reliable through reusable launch vehicles.

To beginner angel investors, who were focused entirely on stock market information, most only heard that Musk was in the space business when one of his test rockets exploded or failed during launch between 2006 and 2008. Branson, likewise experienced an explosion during testing components of the rocket motor planned for use in flights, which resulted in 3 employee fatalities and 3 employees being critically injured. Bezos’ Blue Origin didn’t do a first development test flight until 2015. [source: wikipedia]

An interesting side-by-side comparison of capital raised, and valuation is in these two graphs, created by Stanford Venture Capital Initiative and TechCrunch. [source: craft.co]

Riding the Billionaire Space Race Wake

While traditional names in aerospace like Northrop-Grumman with satellite launches and 16 unmanned supply delivery to the International Space Station, SpaceX has sent over 22 cargo resupply shipments. But there are other needs that startups are fulfilling. Here are four startups but as you do your own research, you’ll find there is a lot of opportunity in this industry.

Leolabs

If you ever saw the 2013 Sandra Bullock-George Clooney movie “Gravity”, you gained a fictionalized perception of the dangers space junk poses to space research structures and astronauts. There’s actually a lot of junk out there – 27,000 pieces of orbital debris according to NASA. But there’s also much smaller debris that is too small to be tracked but large enough to threaten human spaceflight and robotic missions in the near-Earth space environment. The debris travels at approximately 15,700 mph in low Earth orbit so a tiny particle colliding with a spacecraft could create big problems.

LeoLabs addresses these safety risks through an expanding radar system built to track this junk in low Earth orbit (LEO). Founder, Ed Lu described the space station’s hull that shields astronauts from objects smaller than 2 centimeters. Most objects smaller than 10 centimeters are not tracked, meaning astronauts would have no warning if a smaller piece of debris suddenly pierced the hull. “We can change that. With… radar we will have the capability to provide collision-avoidance services for objects too small to be currently tracked.” [source: Space News] They have radar locations now established in Alaska, Texas, New Zealand, and Costa Rica, with a recent announcement of an expansion to the system to the Azores in Portugal.

LeoLabs has raised $82 Million so far, with a Series B round just this past June, 2021. Investors included Insight Partners (Jeff Horing, Jerry Murdock) and Velvet Sea Ventures, which has also invested in Twitter, Square, SpaceX, Snap, Facebook, Pinterest, Domo, Buzzfeed and more. [source: crunchbase]

LeoLabs founders include former NASA astronaut Ed Lu, along with Daniel Ceperley, John Buonocore and Michael Nicolls who came from SRI International – a nonprofit research institute supporting government and industry that employs over 1500 scientists, engineers, technologists, policy researchers, and corporate/support staff. [source: LeoLabs, SRI.com] Nicolls left LeoLabs to join the team at SpaceX. [source: LinkedIn]

GHGSat

GHGSat (GreenHouseGas Satellites) is leveraging space to track greenhouse gas through imaging technology using small satellites that measure just 20 x 30 x 40 cms. (it would fit in your college backpack but you’d look like you were packing four or five thick textbooks).

GHGSat helps the oil and gas, coal mining and waste management industries accurately and precisely monitor emissions around sites quickly and at a lower cost compared to on-the-ground monitoring operations.

[source: GHGSat]

GHGSat has raised $87.5 Million since beginning in 2011. Series A funding in May of 2016 preceded the launch of its first satellite just a month later. The most recent Series B round was just a month ago (July 15, 2021) which raised $45 Mil from SpaceAngels and Space Capital; both based out of New York, Schlumberger, which is based out of Houston and other investment firms from Quebec and London. [source: crunchbase]

GHGSat is based out of Montreal, Quebec and founded by Stephane Germain in 2012. Germain has a bachelor’s degree in Applied Science, Engineering Physics and n MBA; he worked for Bain out of Boston, Massachusetts for 6 years before joining Xiphos Systems Corporation which is the parent company of GHGSat.

Orbital Insight

Orbital Insight is in essence a data analytics company. Orbital Insight was founded in 2013 by James Crawford, whose background in artificial intelligence systems with Bell Labs, Google Books and NASA’s Mars Rover project

The company helps defense, intelligence and law enforcement analyze situations, detect anomalies and visualize dynamic threats globally. They help consumer goods companies uncover links in their supply chain and the supply chains of their competitors for better strategic decisions and make more progress toward sustainability goals. They work with energy and industrials to monitor global facility outages and anomalies in near-real-time to gain intelligence, size up new opportunities and improve margins. Geospatial solutions also reach into real estate, helping customers get a true trade analysis, gain an objective reality check on resources and improve due-diligence. And the financial services industry gets near-real-time data monitoring trends in industries, regions, companies or goings-on at specific locations. [source: Orbital Insight]

Organizations who have benefited from Orbital Insight’s work includes World Bank to analyze poverty data, e-GEOS, S.p.A., Bloomberg, Airbus, Planet Labs, just to name a few.

Investors include ClearVision Ventures, Google Ventures, and Sequoia Capital. Total funding to date is at $128.7 million with Series D round in November 2019.

Slingshot Aerospace

Slingshot Aerospace specializes in “situational intelligence” with data analytics, helping companies in aerospace and defense make sense of the massive amount of data collected by observation technology on satellites, planes and drones. The company builds space simulation and analytics solutions incorporating virtual reality space simulators. This has application in not just science, but in entertainment as well, partnering with the VFX studio Third Floor which has worked on projects like the Gravity movie I mentioned earlier, as well as the Martian and The Mandaorian.

The company pivoted a bit during the pandemic to adapt their earth mapping tool to help people in the Los Angeles area locate free or low-cost food. [source: Fast Company]

Just this week, (August 12, 2021) Slingshot Aerospace announced the launch of “Slingshot Beacon”, a collision avoidance collaboration and communication platform for space. The platform helps with the anticipated challenge of dealing with 115,000 satellites expected to be in space around the Earth by 2030, meaning more potential for collision avoidance decisions that will have to be made. Source: businesswire]

Slingshot Aerospace is a relatively new company, with pre-seed funding beginning in 2017, and most recently its Series A round October 29, 2020; a total of $19.5 Million to date. Investors include ATX Venture Partners, Techstars Ventures, Gregory Mead, Keith Masback and others. [source: crunchbase]

Bottom Line:

The startups in the space race are looking ahead to data needs and safety as we put more humans into the space experience. It’s not just about Mars and beyond, but the research derived from these innovators will be instrumental as bases free of Earth’s gravity will help stair-step us into new exploration. NASA already has plans for the first American Astronauts to explore the Moon’s South Pole, looking for water and other resources that may eventually lead to the precise location of Artemis Base Camp. [source: NASA] There is a lot of technology to be developed between here and there with opportunities for entrepreneurs and investors alike.

Author: RagingBull

RagingBull is the foremost trading education website where traders of all skill and experience levels can learn to trade or to become a better trader. Students can learn from experienced stock and options traders, and be alerted to the real money trades these traders make. Become a better trader with RagingBull.com's courses and programs.

Understanding the concept of relative strength and weakness can be a powerful tool. Not only might this be used to help manage trades, but the technique can also be helpful to identify potential trade opportunities and trends in a sector or specific stock.

I want to go over this topic in detail because this tool can be used in all market environments. It is not a tool conducive to one type of market or environment but rather to all conditions. I would go as far as to call it a timeless technique!

Relative strength and weakness refer to how strong or weak a particular instrument is versus another instrument. If the instrument you are mainly looking at is stronger than what you are comparing it with, you would say it has relative strength. Alternatively, if it is weaker than the comparison, the instrument is relatively weak.

This is an easy exercise to conduct, and most charting software offer it. For example, on Thinkorswim, it can be found by right-clicking on the screen, select: quick study, and then select: compare with. Simple!

Let’s look at an example by looking at the top-performing S&P 500 stock compared to the SPY ETF.

Moderna (NASD: MRNA) is the top-performing S&P 500 stock this year. Year to date, the stock is up 268.84%, while the SPY ETF is up 18.70%.

MRNA is represented with the purple line and left Y-axis, and SPY is the right Y-axis. I can see from the comparison that MRNA has dramatically outperformed the overall mark by looking at the extent of the stock’s up move. The low in SPY above is $319.80, while the low in MRNA is $54.21.

During one year, $MRNA increased 548.69%, while the market increased 33.35%.

Let’s look at another example. This time I want to look at a stock showing relative weakness. Let’s pretend that I wanted to buy a stock showing relative strength in the biotech sector. I have narrowed my list down to two individual stocks. Now I want to compare both stocks with each other and the IBB biotech ETF. I do this to identify which stock is showing the most relative strength or weakness.

First, I will compare both names with each other.

AMGN versus GILD

In the above chart, I can see that over a year, GILD, which is the purple line and left Y-axis, has outperformed shares of AMGN. In this case, GILD is showing relative strength to AMGN. AMGN is clearly showing relative weakness.

How do they each stack up against the sector ETF IBB?

GILD versus IBB

This chart tells me that GILD has outperformed the biotech sector year to date. On the recent pullback, shares of GILD impressively held up, which is a further sign of current relative strength. Year-to-date shares of GILD are up 19.88%, while shares of IBB are up 10.80%.

AMGN versus IBB

By comparing AMGN with IBB, I can see that not only is AMGN relatively weak versus GILD, but it is also relatively weak versus the biotech sector ETF. AMGN year to date is down 0.78%, while the IBB is up 10.80%.

For this hypothetical case study, these comparisons with the two stocks and the overall sector have helped me identify which stock is a stronger candidate for a potential long.

Although this is a simple technique, it should not be underestimated. This technique could also be used on days the market has a significant selloff. For example, on said days, this tool can be used to identify oversold stocks relative to the market, which could present a buying opportunity.

The technique could also be used to identify stocks that are showing great strength versus the market. That could also present a buying opportunity.

This technique could also be used to identify which industries show strength or weakness when the overall market has significant up or down days. When the market experiences corrections, this technique can identify sectors that offer relative strength and safer options to be long, for example.

Author: RagingBull

RagingBull is the foremost trading education website where traders of all skill and experience levels can learn to trade or to become a better trader. Students can learn from experienced stock and options traders, and be alerted to the real money trades these traders make. Become a better trader with RagingBull.com's courses and programs.