How IDEX Corporation (IEX) Is Proving Skeptics Wrong

Contrarian options traders should take a long, hard look at IDEX Corporation (IEX)

Alex Eppstein
Oct 12, 2016 at 10:51 AM
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This morning, Schaeffer's Senior Quantitative Analyst Rocky White highlighted 10 sectors where analysts have become more bearish over the past five years. He then featured several stocks within those sectors that have seen their percentage of "buy" ratings drop markedly over the same time span. One stock that stood out in White's analysis was pump specialist IDEX Corporation (NYSE:IEX).

What makes IEX so special? In short, of all the stocks analysts have turned against in the last five years, only IEX has outperformed the broader market. The stock's average annualized return is a gaudy 23.2%. Yet, the percentage of "buys" has dropped from 75% in 2011 to 23.1% in 2016.

This has all the makings of an ideal contrarian trade. Wall Street can maintain negativity toward an outperforming stock for only so long. At some point, the skeptics will give in, potentially adding fuel to the outperformer's fire. In this case, IEX has tacked on a market-beating 13.9% year-to-date at $87.27, yet 10 of 13 analysts rate it a lukewarm "hold." This leaves plenty of room for a round of well-deserved upgrades to bolster buying power on the shares.

The brokerage community isn't the only place IEX has faced doubters. In fact, while short interest has been declining -- and now represents less than 3% of the stock's float -- it would still take more than a week for short sellers to cover their outstanding bearish positions. Specifically, IEX's short-interest ratio of 7.50 suggests there's ample buying power sitting on the sidelines, which could contribute to a short-squeeze situation.

True, IEX has struggled a bit on the charts since topping out at a record $95.33 in late August, down 8.5%. At the same time, however, the stock's 14-day Relative Strength Index (RSI) has tumbled to about 32.5, at last check. This RSI is on the brink of oversold territory, suggesting a short-term bounce could be in the cards -- the type of catalyst that could send skeptics running to the hills.

An earnings beat could spark a similar reaction, too. IDEX Corporation (NYSE:IEX) is slated to hit the earnings confessional next Monday evening, and in the session following its mid-July quarterly report, the stock jumped 3.2%.

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