Time Warner (TWX)

Market Cap: 72.8B
Average True Range: 1.16
Beta: 1.19
Forward P/E: 15.32
Sector: Entertainment Diversified
EPS Growth This Year: 24.30%
EPS Next Year: 23.71%
EPS Growth Past 5-year: 20.20%

Time Warner has been displaying very positive price performance recently and I believe TWX is on the verge of a big breakout move. We all know their content is premium quality and with HBO spinning off into an individual subscription service presents an interesting opportunity for growth in the near future.

The company's growth metrics won't blow your skirt up, but they have been consistently steady and seem poised for greater upside in the near-term. Time Warner has grown EPS by 20% for the past 5 years and is projected to continue into 2016. As we have seen recently, the opportunity exists for TWX to be a strong buy-out candidate as well. At current valuations it makes an attractive target for companies needing a boost to the bottom line.

The stock has been trading in mostly a sideways range since late 2013. Apart from the "Fox bid" surge in July of last year, it has mostly been working off the tremendous rally from the '09 lows. Recently we have seen the stock trade against the high end of the buy-out offer level, and just this week is making new 13-year highs.

I believe the recent trading behavior, acquisition support, and HBO subscription service make TWX a very good bet for out-performance for at least the next year. Simple range calculations suggest initial price targets in the $108 area, but on a percentage basis much more upside could exist.

TWX Monthly

 Here is a look at the monthly bars going back to the 2000 crash. The stock then went on to create a lower low during the '09 financial crisis, but has since broken through the swing high near $60. This is classic "Double Bottom" behavior and the breakout has seen substantial follow-through away from the prior range.

 TWX Weekly

Zooming in on the last 2+ years, the stock has continued to increase in value yet has been consolidating tightly for the better part of the last year. Each time that price has approached the highs at $87 the stock has fallen back. Yet on each successive test buyers have come in sooner and sooner creating an Ascending Triangle formation.

A setup like this has a higher than average probability of breaking out to the upside and creating a strong move away from the coiling formation.

 TWX Daily

Looking at the daily bars, the stock broke out to new 13-year highs yesterday. This coiling price action can create explosive moves in the direction of the breakout and I think this instance is no different. The trading ranges within the triangle have gotten tighter and tighter as time has gone on.

Periods of low volatility tend to be followed by volatility expansions. I believe TWX is on the verge of such a move right now. For risk purposes we will be using the daily swing low at $82.20 as our stop and will size our holding according to that risk. The Risk/Reward sits favorably here as we will be risking $6 with initial targets of $20 higher. I believe the 108 target is modest and that this stock could continue higher from there. But this still sits at a greater than 3-1 reward to risk using these initial projections.