Schaeffer's Street Chatter Highlights the Following Stocks: Red Hat, Research in Motion Limited, and ConAgra Foods

Business Wire, Dec 22, 2005

CINCINNATI -- Today's "Street Chatter" from Schaeffer's Investment Research focuses on: Red Hat (NASDAQ:RHAT), Research in Motion Limited (NASDAQ:RIMM), and ConAgra Foods (NYSE:CAG). "Street Chatter" is a report that analyzes three newsworthy stocks that are generating a lot of attention on Internet message boards. "Street Chatter" is published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

For additional information about this report or to have it delivered to you free via email every day click on the following link: http://www.schaeffersresearch.com/redirect.aspx?CODE=PRSC12M&PAGE=1 .

Street Chatter:

Red Hat

Linux specialist Red Hat (NASDAQ:RHAT) came out swinging in the earnings confessional last night. The company reported third-quarter net income of $23.2 million, or 12 cents per share, compared to last year's net income of $10.8 million, or six cents per share. Revenue for the quarter rose to $73.1 million compared with $50.9 million in the prior year. The report blew away the Street's expectations for earnings of nine cents per share on revenue of $71 million.

On the news, RHAT has surged more than five percent, setting a new annual high in the process. Furthermore, the equity looks poised to challenge its previous high of 29.06 set in June 2004, as it has taken out potential resistance in the 27-27.50 area. On a short-term basis, the security has enjoyed the support of its rising 10-day and 20-day moving averages since August. Pulling back a bit, I see that RHAT has also rallied along the intermediate-term support of its 10-week and 20-week trendlines since April.

However, you'd think that investors would be a little bit more enthused about the shares given their performance lately, but the bears are firmly in command of RHAT's sentiment backdrop. In the options pits, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.96 ranks above 99.6 percent of all those taken during the past year, indicating an extreme degree of pessimism from the group. Furthermore, this ratio has been on the rise lately; a positive sign for RHAT, as the security tends to trend in the direction of its SOIR.

Turning to RHAT's other sentiment indicators, short interest may have decreased by five percent during November, but it still accounts for more than 10 percent of the equity's total float. What's more, it would take nearly five days to cover the 16.5 million RHAT shares sold short, providing ample fuel for a covering rally on today's positive earnings news.

The one chink in RHAT's armor lies with the brokerage bunch. Currently, Zacks reports that 11 of the 17 covering analysts rate the shares a "buy" or better, with no "sells" to be found. While this obviously bullish configuration worries me, today's test in the earnings confessional has alleviated some of this worry for me for the time being.

With heavy short interest, a rising SOIR, and a solid technical portfolio for the past several months, RHAT looks nicely poised to continue its run higher. This configuration has also earned the stock a Schaeffer's Equity Scorecard rating of 8.0 out of 10.

Click the following link to see a SOIR Chart for RHAT Since September 2005 and a Weekly Chart of RHAT Since April 2005 With 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/wire?ID=14848 .

Research in Motion Limited

Our next focus stock has also come under the scrutiny of the Street's earnings eyes this morning. Last night, Research in Motion (NASDAQ:RIMM) reported third-quarter net earnings of $120.2 million, or 61 cents per share, compared with $90.4 million, or 46 cents per share, a year ago. On an adjusted basis, earnings arrived at $139.1 million, or 71 cents per share. Revenue rose to $560.6 million, up from $365.9 million a year ago. Wall Street was expecting adjusted earnings of 65 cents per share on sales of $549 million.

The shares have responded nicely to this Street-beating performance, rallying more than eight percent on the news. However, resistance in the 67-68 area seems to have once again stalled RIMM's advance. This region has capped the equity for the better part of the past three months, and is looking to reject RIMM once again in today's session, despite the earnings news. Pulling back for a monthly view, the stock's 10-month and 20-month trendlines have just completed a bearish cross, with the former quickly descending into the area. While these moving averages have been troublesome in recent months, their resistive ways could come more fully to bear on the shares if RIMM cannot breakout to the upside on today's news.

Switching gears into the sentiment realm, pessimism has begun to creep into RIMM's backdrop. But is it enough to help the shares continue higher? In the options pits, the equity's SOIR has risen from its December 14 reading of 0.82 in the ninth percentile to today's reading of 0.94. But this ratio arrives at a meager annual percentile rank of 58 - not an extremely bearish reading by any means.