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: -1.1%
- Longs: 3.2%
- Shorts: -4.3%
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||WKHS||Workhorse Group Inc|
|6||MITK||Mitek Systems Inc.|
|7||COST||Costco Wholesale Corporation|
|9||Z||Zillow Group Inc.|
|11||DOYU||DouYu International Holdings Limited|
|12||ENVA||Enova Investment Inc.|
|17||LINC||Lincoln Educational Services Corporation|
|18||LPRO||Open Lending Corporation|
|20||AL||Air Lease Corporation|
|4||WBA||Walgreens Boots Alliance Inc.|
|7||HCAT||Health Catalyst Inc.|
|9||VSTO||Vista Outdoor Inc.|
|12||EPAY||Bottomline Technologies Inc.|
|13||WW||WW International Inc.|
|14||BMI||Badger Meter Inc.|
|17||HAIN||The Hain Celestial Group Inc.|
|18||CLI||Mack-Cali Realty Corporation|
|20||ZTO||ZTO Express (Cayman) Inc.|
Trends visible in stocks for next week list
Large fast-growing technology names, aka the ‘new-age’ safety trade, continues to outperform or maybe the only names performing given the markets are driven by a handful of stocks, i.e. the likes of Tesla, NVIDIA, Zillow, etc. Yes, much to the annoyance of value-oriented investors.
Another interesting trend visible in the market is that investors are quick to reap profits on breakouts and not forgiving to stocks of companies coming out with weak numbers, i.e. weak relative to the expectations, irrespective of the sector. Right now, the trend is more visible in small and mid-cap names, but the same may soon catch up with large-cap names as well.
Last week, we talked about not expecting any major correction or retracement in the near-term given close to $5.5 trillion cash on the sidelines and the volumes may remain thin till Labor Day. Investor’s confidence is visible in how the market is warming up to the highly leveraged names, e.g. Aramark or Herc Holdings, suggesting ‘bottom-fishing’ taking holding or maybe value guys are finally throwing in the towel and participating.
Over the last month, only four electric vehicle stocks have dominated the space – Tesla, NIO Limited, Nikola, and Tortoise Acquisition (to be merged with Hyliion), with the stock of each up between 50-100%, but we believe other players will soon join this second-leg of the rally. If this year was when investors woke up to the promise of electric vehicles, next year will separate companies that can back the promise with deliveries. Secondly, investors have started to warm up to truck manufacturers after cars and other electric vehicles may soon join the party.
Why does Workhorse Group continues to be on the weekly list? The strength of the fundamentals of the business have been covered in our previous reports on the name and the recent success of DiamondPeak Holdings, which will merge with Lordstown Motors, U.S. based EV manufacturer with a ready product, in which Workhorse owns 10% besides some royalty arrangements.
After the first leg, most EV players with decent fundamentals consolidated for a few weeks and then moved to the second leg of the rally. Workhorse is entering into the 8th week. The stock continues to hold well besides numerous hack job of articles and negative rumors about the USPS contract, suggesting both the growing understanding of the name among long-term institutional investors as well as the strength of the technical chart.
For the last few weeks, our bearish call on the stocks of China-based businesses worked well, but the risk-reward trade-off seems less favorable. Yes, there are names on the list; the number of names on this week’s negative list is much less than the previous week.
Slow-growth technology names that run up with the broader love for anything tech may be in trouble soon given the latest quarterly numbers have demarcated the tech businesses that are more exposed to cyclical headwinds than others and with high valuations, they may act as a good source of capital for new ideas for the next year.
Have a great weekend and happy hunting!
DISCLAIMER: These are NOT investment recommendations.