As for today’s market, the long-term trend remains up, and it appears as though the intermediate-term correction of the past month MAY be over.  Yes, I know the Dow hit a new high today, but the Dow’s not the market.  I wrote last week about the DIVERGENCE that develops as bull markets mature, and today’s market behavior is textbook.  Don’t be fooled.

But don’t be dissuaded either.  If you’re in the mood for buying, you should take a good hard look at growth stocks hitting new highs.

One I like a lot is Fuel Systems Solutions (FSYS), which was recommended back in August by Cabot Green Investor.  In that issue, editor Brendan Coffey wrote the following.

“Fuel Systems Solutions makes the equipment and systems that convert a traditional engine to one that can use CNG, LNG or propane or to an engine that has the option to use either CNG, LNG, propane, diesel or gasoline on demand.

“Fuel Systems grew out of a 50-year-old California company called Impco, which focused on industrial equipment and stationary power, and combined last decade with Italian competitor BRC, which focused on light vehicles.

“Fuel Systems sells to the aftermarket for individuals or companies that want to convert existing engines to use natural gas, and to the original equipment market (OEM), tweaking automakers’ cars and trucks to use CNG or LNG before they are delivered to dealers.  …  Whether OEM or aftermarket, conversion work involves adding equipment under the hood and replacing or installing additional fuel canisters that store the alternative fuel. Fuel Systems customers include Fiat, Opel, Ford and many other major automakers, none of which account for more than 10% of revenue.

“The company has manufacturing facilities in California and northern Italy, and maintains sales offices in the major CNG and LNG consumer regions, Europe, Australia, India and Pakistan chief among them. In Pakistan, for instance, the relative cheapness of natural gas versus oil means only the elite have cars running on gasoline. In Europe, a desire to reduce air pollution steers consumers to natural gas, as does the European union mandate to get 20% of all vehicles running on fuels other than petrol or diesel.

“The big story for Fuel Systems is the potential of the American market. About 80% of revenues each of the past three years have come from outside the United States … a potential boon is a bill introduced by Senate majority leader Harry Reid of Nevada to provide tax incentives to buyers of natural gas vehicles, a plan that has gotten a lot of vocal support from oilman T. Boone Pickens, who owns the majority of natural gas fueling station chain Clean Energy Fuels.

“The bill would boost the tax incentive to natural gas vehicles to as much as $12,500 per vehicle and to $100,000 for natural gas fueling stations. The bill is certain to pass, if the number of its co-sponsors (77) is a reliable indicator, although it may not be addressed until after health care in September. The House of Representatives passed a bill earlier this summer authorizing $150 million to research natural gas vehicles.”

Well, today the bill has not yet passed; the House has been busy with the health care bill and other matters.  But Brendan’s subscribers don’t mind.  When he recommended the stock back in August, it was trading at 30.  It hit 37 in September, and then marked time for a while, letting its 50-day moving average catch up.

Late October brought a sharp dip below that moving average, shaking out weak holders, and then last Thursday the company announced excellent third quarter earnings results and the stock gapped up to new highs on seven times average volume, hitting 45.  And since then it’s kept climbing!

We know from experience that stocks that gap up on earnings on heavy volume tend to keep running and that’s what FSYS has done.  You could still buy it here, though downside risk is clearly bigger than it was a week ago.  Or you could take a no-risk trial subscription to Cabot Green Investor and buy Brendan’s NEXT recommendation, which comes out this week.