Wizardry at Scholastic

Veteran technical analyst and market-timer Mark Leibovit usually doesn't buy and hold a stock--unless he sees something unusually compelling, such as an extended upswing. That's what he says is in store at Scholastic (SCHL ), the premier publisher of children's books and magazines.

Leibovit likes the way Scholastic has been behaving: For six months, it has traded in the 35 to 45 range. Recently it fell to 36, from which it has been rising, closing at 39 on Sept. 5. "The volume in these ups and downs tells the entire story," says Leibovit, who has developed a "volume-reversal" rule: When a stock comes down from a high level on unusually strong volume, it points to an imminent reversal in the stock's direction. That's the time to buy, he says. Scholastic has been falling from 45 on big volume, says Leibovit, who thinks the stock is bound to hit the mid-50s this year. "The shares are moving from weak hands to strong hands," he says--meaning that the stock is being bought by committed investors. The volume, he adds, means the recovery is real.

More fundamentally, Warner Bros.' release in November of a Harry Potter movie, based on the blockbuster series published by Scholastic, could precipitate strong buying in late October. If there's heavy volume, "more upside is likely," says Leibovit. Author J.K. Rowling has agreed to write a fifth Harry Potter book, to be put out by Britain's Bloomsbury Publishing, which owns the rights for English-speaking countries outside the U.S. Scholastic holds the American rights. Brandon Dobell of CS First Boston, who rates the stock a buy, expects Scholastic to earn $2.40 a share in the year ending May 31, 2002, up from 2001's $2.24.

By Gene G. Marcial

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