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 1275 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: 3.3%
- Longs: 2.4%
- 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,
|1||UBER||Uber Technologies Inc.|
|2||WKHS||Workhorse Group Inc.|
|4||ARC||ARC Document Solutions Inc.|
|5||IIPR||Innovative Industrial Properties Inc.|
|6||UAL||United Airlines Holdings Inc.|
|7||TRV||The Travelers Companies Inc.|
|9||ALLY||Ally Financial Inc.|
|11||ATLC||Atlanticus Holdings Corporation|
|13||LPRO||Open Lending Corporation|
|14||RCM||R1 RCM Inc.|
|15||DGII||Digi International Inc.|
|17||ATEC||Alphatec Holdings ltd.|
|18||ONEM||1Life Healthcare Inc.|
|19||PRO||PROS Holdings Inc.|
|20||KC||Kingsoft Cloud Holdings Limited|
|1||ZM||Zoom Video Communications Inc.|
|5||TDOC||Teladoc Health Inc.|
|6||NTCO||Natura & Co. Holding S.A.|
|7||VEEV||Veeva Systems Inc.|
|8||DLR||Digital Realty Trust Inc.|
|10||CLI||Mack-Cali Realty Corporation|
|12||AZRE||Azure Power Global Limited|
|15||BIG||Big Lots Inc.|
|16||CAG||Conagra Brands Inc.|
|17||CPB||Campbell Soup Company|
|20||CPT||Camden Property Trust|
Trends visible in stocks for next week list
Last week, the biggest excitement was reserved for IPOs. Other than IPOs, there was hardly an established trend. Market rotation continued but profits from such rotations are usually the toughest to sustain. In the meantime, my screens continue to point towards strengthening of the ‘post lockdown’ trade, i.e. stocks benefiting from opening up of the economy and return to ‘normal’ lifestyle.
Over the last few weeks, I have been bullish on sectors like airlines and cab aggregators that look good even if one expect normalization of demand over the next two years. This is partly because everything else that saw stable demand over the last few quarters is trading at sky-high valuations.
Looking at the market reaction to DoorDash IPO, I won’t be surprised to see excitement return to Uber as analysts reassess the value addition opportunities offered by Uber Eats and Postmates. Indeed, somewhat similar another leg of rally opportunities exist in sectors like EV as well where there is a wide value divergence underway between recent SPACs and existing manufacturers.
Like previous few weeks, basic metal commodity stocks, i.e. the likes of United States Steel, Alcoa, etc., are suggesting a major improvement in pricing and margins on the way; things may not be fully supported by the fundamentals yet but commentary coming out from industry analysts does offer support.
Oil is showing consistent strength and oil services names are also starting to show life in terms of improving numbers down the road. There aren’t very many E&P names in my database, but some small and medium cap equipment and services names are there and most of them are looking better.
Rising oil prices may raise doubts about airlines but my models suggest there is ample earnings growth potential even if oil prices move towards normalization. Airlines have cut costs aggressively over the past few quarters, which should show prominently as revenues start to come back. As mentioned earlier, even if one assumes some of the major airlines to achieve previous peak revenue by 2024, the stocks are worth looking at closely.
Maybe it’s a typical risk-off trade, but healthcare names started to come up high on the quant screens. Pharmacy stocks, i.e. CVS, Walgreens, and Rite Aid, are showing up high on my screens over the past few weeks. I do plan to write a detailed note on Rite Aid, a great restructuring story that I hold in my portfolio as well.
Largely a profit booking trade, most sectors that benefited from the lockdown are coming back to earth. Names like Zoom in particular and the broader ‘stay at home’ sector that saw a surge in demand are coming up against difficult comps. The stocks are trading at rich valuations while business momentum is deteriorating.
Consumer staples and grocery retail stores also benefited from the lockdown, even if the extent of revenue strength was nowhere near the tech names. There was a visible positive impact on revenue and gross margins. Now that things are normalizing, many of those names are showing high on my screens as potential shorts or hedges.
REITs and restaurants continue to show up extremely weak on my screens. The gap between valuations, especially after the recent run-up, and fundamentals is widening. Yes, the numbers are improving but not fast enough to avoid consolidation.
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.