Virgin Mobile USA (VM): A wireless breakout

"Virgin Mobile USA (NYSE: VM)  is one of the strongest issues this year among the low-priced stocks; it has climbed from 76 cents to nearly $5," says technical expert Leo Fasciocco. 

Here's the latest from his Ticker Tape Digest, an advisory service that focuses on finding stocks that are breaking out from technical basing patterns. Here's his look at this breakout candidate.

"Based in New Jersey, Virgin Mobile offers wireless subscribers a choice in wireless service and innovative products without annual contracts; annual revenues are $1.3 billion.

"Its voice pricing plans range from monthly options with unlimited nights and weekends to by-the-minute offers, allowing consumers to adjust how and what they pay. The company's handsets, include the Wild Card, Super Slice and Cyclops. They are available at top retailers.

"The stock's long-term chart shows VM trading as high as 15. It was dragged lower during the bear market. However, the stock has made the turn and is now in an up trend supported by good earnings prospects.  

"The stock is now in a well-defined 12-week, cup-and-handle base; the pattern is ideal. The handle portion of the base - the most recent pull back - is well contained and shows a good contraction in volume. Notice on the recent advance to 5  volume expanded sharply. The overall set up is bullish.

"The accumulation - distribution line is in an up trend. It is well positioned to breakout at any time. Technically, its breakout level is $5.35 a share.

"For the recently reported second quarter, VM posted a big jump in net with earnings per share coming in at 23 cents a share, up from 7 cents a year ago. 

"VM's earnings for the upcoming third quarter are expected to rise 13% to 9 cents a share from 8 cents a year ago. The highest estimate on the Street is at 11 cents a share. So some think a big quarter could be coming.

"For the year, the Street projects a 46% surge in net to 38 cents a share from 26 cents a share a year ago. The stock sells with a price-earnings ratio of  13. TTD sees that as low given the current earnings growth and outlook.

" Going out to 2010, VM's profits are expected to surge another 46% to 55 cents a share from the anticipated 38 cents a share this year. With strong earnings expected this year and next, we sees the stock with good potential to move higher. We suggest accumulation.

"The largest fund buyer recently was 4-star rated Hartford Small Company Fund HLS which purchased 214,000 shares. Also, Hartford Small Company Fund, a different fund, was a recent buyer of 107,000 shares.

"Overall, we are very bullish on VM. One can set a stop buy near 5.35 to enter. We are is targeting VM for a move to $7.20 after a breakout. A protective stop can be placed near $4.90 after a breakout. Further, we believe the stock could double in 12 to 15 months if earnings remain on course."