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 our proprietary database of detailed earnings model on more than 1225 U.S. listed companies. The historical data for these earnings models is sourced from SEC filings.
Performance of last week’s model portfolio was,
- Net: 0.8%
- Longs: -0.1%
- Shorts: 0.9%
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,
|2||WKHS||Workhorse Group Inc|
|4||MITK||Mitek Systems Inc.|
|5||Z||Zillow Group Inc.|
|6||IPI||Intrepid Potash Inc.|
|9||COUP||Coupa Software Inc.|
|11||SPT||Sprout Social Inc.|
|12||BGS||B&G Foods Inc.|
|13||AGNC||AGNC Investment Corp.|
|14||IBKR||Interactive Brokers Group Inc.|
|16||IIPR||Innovative Industrial Properties Inc.|
|17||MTSC||MTS Systems Corp.|
|18||COST||Costco Wholesale Corporation|
|20||CHTR||Charter Communications Inc.|
|3||ZTO||ZTO Express (Cayman) Inc.|
|4||HCAT||Health Catalyst Inc.|
|5||SAVE||Spirit Airlines Inc.|
|6||AAL||American Airlines Group Inc.|
|8||X||United States Steel Corporation|
|9||SBGI||Sinclair Broadcast Group Inc.|
|10||CIT||CIT Group Inc.|
|12||CLI||Mack-Cali Realty Corporation|
|13||WW||WW International Inc.|
|14||EPAY||Bottomline Technologies Inc.|
|15||VNET||21Vianet Group Inc.|
|16||SSRM||SSR Mining Inc.|
|17||KHC||The Kraft Heinz Company|
|18||KDP||Keurig Dr. Pepper Inc.|
|19||UMC||United Microelectronics Corp.|
Trends visible in stocks for next week list
Call it summer lull or the bulls are tired but there was limited movement that can be termed as a trend this past week. The broader market was held up by a handful of stocks but small and micro caps missed the action. Last week, we talked about looking at the businesses that have stabilizing fundamentals with the stocks trading near the bottom and smart ‘bottom fishing’ continues to be the theme for this week as well.
No, the data is NOT telling us correction or retracement. There is close to $5.5 trillion cash on the sidelines and 30% of the S&P stocks are within 20% of their 52-week highs. The volume may remain thin till Labor Day, increasing volatility for small and medium cap names. Thus fundamentals study of the businesses and risk control can add significant value at current levels.
Mitek Systems, a micro-cap, is included in this week’s list. The fundamentals were covered in a detailed note we wrote earlier this week, but the chart is equally inviting. The stock is breaking out of a 20-year pattern with volume that was 2-3x the normal average volume. Valuation is below peers and digital ID verification is a hot sector. That’s why the name is in our weekly list.
The second micro-cap name that is included in this week’s list is Intrepid Potash. This is on the other side of the spectrum. The stock is trading near all-time lows of the last 12 years of trading. The stock has tested this bottom multiple times over the last four years. In the meantime, fundamentals of both the industry as well as the company are improving, which were covered is a detailed note we wrote on Intrepid Potash earlier this week.
Last week we talked about fertilizers and miners, besides the gold miners, showing strength in our models, a trend that continues this week. Intrepid Potash is included in this week’s list and we wrote a detailed note on Mosaic earlier this week, a name that we like even though not included in this week’s list. Looking forward to drilling deep on this theme if the numbers continue to improve.
The retailers with significant online sales and strong balance sheets look good, especially after Labor Day when investors start to focus on the holiday season and 2021. Some large-cap tech names like Alphabet look good, especially relative to other large high-beta names that have run-up too much and investors wait for consolidation before starting fresh positions.
Airlines are back in the negative list after a break of a few weeks. Mostly because stable commodity and the weak holiday season are wreaking havoc on the industry’s numbers and the balance sheet of most players continue to be weak. Our screens suggest another major leg down.
Our bearish call on the stocks of China-based businesses continues to prove good so far and there is little for us to change stance. If anything, results from Vipshop Holdings and Pinduoduo reaffirm our negative view on these names. Some stock from the space looks good on fundamentals but quantitative data is still weak.
Like last week, fast-growing, high-beta stocks, with exposure to subscription-based and Cloud-based business models, continue to get weak on a quantitative basis. Low volume is making it difficult for these names to outperform, especially as large institutions positioning portfolios for next year.
Have a great weekend and happy hunting!
DISCLAIMER: These are NOT investment recommendations.