Every week, our model comes up with 40 stocks, 20 positive and 20 negatives, to watch for next week’s trading. The model is based on a mix of fundamental and quantitative factors, built on my proprietary database of detailed earnings model on more than 1375 U.S. listed companies. The historical data for these earnings models is sourced from SEC filings.
Performance of last week’s model portfolio for the week was,
- Net: 0.3%
- Longs: 0.2%
- Shorts: 0.1%
Assuming 5% is dedicated to each position, resulting in 0% net exposure and no change in position size during the week.
Here are the names that came up for next week,
|1||UBER||Uber Technologies Inc.|
|2||YALA||Yalla Group Limited|
|4||AMAT||Applied Materials Inc.|
|9||IIPR||Innovative Industrial Properties Inc.|
|10||MU||Micron Technology Inc.|
|12||FRHC||Freedom Holding Corp.|
|13||MDC||M.D.C. Holdings Inc.|
|14||ACLS||Axcelis Technologies Inc.|
|15||WSC||WillScot Mobile Mini Holdings Corp.|
|16||RMNI||Rimini Street Inc.|
|17||ALTG||Alta Equipment Group Inc.|
|18||AAN||The Aaron’s Company Inc.|
|19||BHF||Brighthouse Financial Inc.|
|20||USX||U.S. Xpress Enterprises Inc.|
|1||ZM||Zoom Video Communications Inc.|
|2||EDU||New Oriental Education & Technology Group Inc.|
|5||TDOC||Teladoc Health Inc.|
|7||CHTR||Charter Communications Inc.|
|9||AZRE||Azure Power Global Limited|
|10||ACB||Aurora Cannabis Inc.|
|11||PAYA||Paya Holdings Inc.|
|13||RAAS||Cloopen Group Holding Limited|
|14||PRO||Pros Holdings Inc.|
|15||CALM||Cal-Maine Foods Inc.|
|19||WOOF||Petco Health and Wellness Company Inc.|
Trends visible in stocks for next week list
Back to races, especially for the mid caps, seems to be message from the holiday shortened week. Fast growth mid cap space was where much of the damage happened during the 4-6 weeks prior to the previous week and now that the earnings are behind us and weak hands are shaken out, won’t be surprising to see investors chasing the names thrown out just a few days ago.
Jobs data is encouraging, commodities continue to be strong, and crypto is back races; it may be safe to assume that yields may start to creep higher. Now the question is whether rising interest rates will scare stock investors? Longer-term, markets will have to adjust the trading multiple accordingly, but throwing up growth names early may also prove disastrous for relative returns.
Last week, I talked about how a lot of growth stocks have given up most of the gains of the past few quarters and investors may hide in value for sometime but sooner or later, high topline growth and earnings improvement will start to attract attention. Now that growth is starting to shine again, good time to look at names where results continue to be strong and valuation has adjusted after the correction; there are more than a handful such names now.
Capital spending driven names seems ready for a breakout. Once again, a new cycle for capital equipment spending is taking shape. Commodity prices continue to be strong and reports of shortages are aplenty, including much talked about semiconductor shortages. What it suggests is that the new capital spending cycle underway has legs. So be prepared for capital equipment players to be popular for a while and until the new capacity comes online, be prepared for increased level of inflation as well.
Social media names, be it US names like Facebook, Snap, Pinterest, etc. or international ones like Yalla, are showing up strong on my screens. Quantitatively, stocks seem to be enjoying momentum, more than that numbers are showing good operating leverage and a continued strength on the top line.
After the Archegos Capital’s margin call driven meltdown, there are a number of Chinese ADRs that are showing up high on my screens. Recent IPOs like iHuman and 17 Education & Technology among the are definitely worth a closer look, trading below or near the offering price in many cases.
Recovery trade seems to be at risk. No, not doubting the direction of economic improvement. The recovery may continue, but the pace may disappoint the Bulls, especially in sectors like retail that is trading near or above the pre-Covid-19 levels while numbers aren’t as supportive given revenue growth continues to be weak, margin expansion seen over the past few quarters is proving to be temporary and capital spending is starting to increase.
Once again, Cloud and subscription business models commanded extremely high valuation premiums over the last 1-2 years, mainly due to high revenue growth and high operating leverage in their business models, but a lot of companies serving enterprise customers seem to be slowing down on both those metrics and may come remain under pressure even if the broader growth stocks stabilize.
Yet again, cannabis stocks continue to look weak. Fundamentals were never great but investors, especially retail, for a while were excited about favorable legislations and ended up bidding the stocks to sky high valuations. Now that things are cooling off, it might be a while before the names bottom.
Have a great weekend and happy hunting!
DISCLAIMER: These are NOT investment recommendations. Please do your research and consult your financial advisor before making any investment decision.