Callaway Golf Company designs, manufactures and markets high quality, innovative golf clubs and golf balls. ELY products include metal woods, irons, woods, and putters. For the FY ended 12/31/00, net sales rose 17% to $840.4M. Net income rose 50% to $83M. Revenues reflect increased sales from the launching of the new Rule 35(TM) golf ball. Net income reflects a reduction in employee benefits and depreciation expenses.

February 25, 2001

Callaway Golf (ELY) is a leading designer and manufacturer of high quality, premium priced, golf clubs. The company’s golf clubs have been favorably received by both professional and weekend golfers on the basis of performance and ease of use. In addition to a strong product line, greater efficiencies in golf-club manufacturing have kept ELY’s profit margins on the upswing. These efficiencies are expected to translate into a 40% increase in earnings this year. In turn, this has created plenty of upside momentum for the stock. Clearly the stock is a momentum play now that higher levels are being confirmed by an expansion in volume. Friday, ELY soared to a new 52-week high of $24 on excellent volume of 701,300 shares. A move above this level in the upcoming week could be a good signal for momentum traders to resume their buying. That said, we’ll look for potential entry points to arise when ELY pushes though $24 on good daily volume above the 3-month average of 480,000 shares. Also, be aware that the $25 mark often presents a formidable challenge. Support will reside at $22.50, propped by recent highs and the 10-dma of 22.41. ELY’s strong uptrend is bolstered by good readings in the MACD and OBV indicators, which suggests that a continued sustainable move is likely. We’ll set our stops at $20 for downside protection.

Picked on February 25th @ $23.99
Change since picked 0.00
Stop Loss @ $20.00

March 8, 2001

Having staged a remarkable recovery from the 1998 El Nino lows, which kept golfers off the courses, Callaway has found new venues to drive sales growth. The key to this turnaround has come mostly through international growth, where last year’s annual sales jumped 29%, compared to only a 10% increase stateside. Moreover, overseas momentum continues to build, as witnessed by the company’s 54% increase in revenues abroad last quarter. These strong sales numbers have generated a steady flow of buyers to the stock, which has kept ELY shares on the upswing. On the day, shares did give back some ground from yesterday’s sharp rally and closed the session at $26.44, down $0.57. Volume came in strong at 656,600, which surpassed the three-month average. Still, upside volume has nearly doubled the three-month average on breakouts. We’ll look for resistance to come at the 52-week high of $27.18 and then at the $30. Support comes in at the $26 mark, bolstered by the 5-dma of $25.96. Traders might want to consider a position if the stock can bounce off support at the 5-dma at or move through resistance at $27.18 on 250,000 shares traded by noon. We’ll limit our downside risk with a raised stop of $25.50.

Picked on February 25th @ $23.99
Change since picked +2.45
Stop Loss @ $25.50

March 6, 2001

Callaway has made much headway in reining in costs over the past two years. But, even more impressive, the company has grown stronger due to steady sales growth from its new product introductions and a recent venture into the premium golf ball market. Despite the skepticism of some investors, ELY is continuing with its ramp-up efforts to gain more share of the golf ball market, which it hopes to attain through Callaway’s established brand name. As for our play, ELY shares kept climbing on Tuesday, setting yet another new 52-week high of $93.48. The run up came on excellent volume of 937,800 shares and leads us to believe that the stock is still able to attract plenty of buying at higher levels. Looking at the short-term technical indicators, the MACD remains positive and the OBV continues its push to higher highs. So, to that end, we’ll expect to see the stock face its next level of resistance at the $27 mark, followed by a more difficult barrier at $30. Keep in mind that a sharp bounce from either of these levels could provide a good exit signal. Support is at the 5-dma of $25.14 and then the $25 mark. We’ll look for potential entry points to occur when ELY rallies through resistance or reverses from support on good volume by midday of at least 250,000 shares. Our raised stop of $24.75 will limit our risk on the downside and help to lock in gains.

Picked on February 25th @ $23.99
Change since picked +2.10
Stop Loss @ $24.75

March 4, 2001

Manufacturing improvements and reduced labor expenses are helping to drive Callaway’s profit margins to 50% this year. What’s more, the company should also bring in healthy sales numbers, thanks to the recent launch of two new lines of titanium drivers, the Big Bertha ERC II and the Hawk Eye VFT. We’re pleased with this week’s action in ELY shares. The stock broke through resistance and managed to tack on 4%. Still, what has really captured our attention this week has been the volume. The stock's 3-month average volume is 497,000 shares per day. However, over the past five days, ELY has logged an average of 854,000 shares, some 70 percent above normal. We feel this is an excellent confirmation of a momentum breakout and should lead to more near-term gains on the upside. To that end, we’ll look for resistance to come at the 52-week high of $25.41 and then at the $30 mark. Support comes in at the $24 mark, bolstered by the 10-dma of $23.92. Traders considering a position in ELY should look to time their entries when the stock rises above resistance or bounces swiftly from support on strong volume of 250,000 shares traded by noon. We’ll limit our downside risk with a stop at $20.

Picked on February 25th @ $23.99
Change since picked +1.01
Stop Loss @ $20.00