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 1325 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: 2.4%
- Longs: 5.5%
- Shorts: -3.1%
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||CRWD||CrowdStrike Holdings Inc.|
|2||WKHS||Workhorse Group Inc.|
|4||ARC||ARC Document Solutions Inc.|
|5||IIPR||Innovative Industrial Properties Inc.|
|6||YSG||Yatsen Holding Limited|
|8||TME||Tencent Music Entertainment Group|
|11||BWMX||Betterware de Mexico S.A.B de C.V.|
|15||LQDT||Liquidity Services Inc.|
|16||SPT||Sprout Social Inc.|
|17||ATEC||Alphatec Holdings ltd.|
|18||ONEM||1Life Healthcare Inc.|
|19||TW||Tradeweb Markets Inc.|
|20||OPRT||Oportun Financial Corporation|
|1||ZM||Zoom Video Communications Inc.|
|2||COST||Costco Wholesale Corporation|
|4||TAL||TAL Education Group|
|6||DLR||Digital Realty Trust Inc.|
|7||ARCE||Arco Platform Limited|
|8||AVB||AvalonBay Communities Inc.|
|9||SJM||The J.M. Smucker Company|
|10||CPB||Campbell Soup Company|
|13||CLI||Mack-Cali Realty Corporation|
|15||AZRE||Azure Power Global Limited|
|16||EPAC||Enerpac Tool Group Corp.|
|17||GTN||Gray Television Inc.|
|18||GCP||GCP Applied Technologies Inc.|
|20||BIG||Big Lots Inc.|
Trends visible in stocks for next week list
With two weeks left in the year, it is safe to assume that hardly anyone would want to bet on any major reversal or new theme at this time. Indeed, booking profit may also take a backseat for the last ten trading days of the year. Like previous few weeks, 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.
Market is near all-time high and high beta bets performed amazingly well this year, which may lead to profit booking and traders moving towards safety and value trades at this time, but this might be a bit early to predict a full-blown shift in favor of these trades. Yes, they are bound to attract some capital.
Emerging markets and Chinese ADRs have seen increased interest from investors over the last few months and given relatively large value gap between US stocks; this shift may accelerate over the coming weeks. There is a wide value divergence underway between recent SPACs and existing EV manufacturers, perfect condition for second leg of rally in those stocks.
Crypto market movement suggest concerns about inflation are gaining ground, which somewhat ties into the strength visible in the basic metal commodity stocks, i.e. the likes of United States Steel, Alcoa, etc., over the past few weeks.
Like previous week, oil continued to show 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.
Once again, 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.
Last week, I talked about how pharmacy stocks, i.e. CVS, Walgreens, and Rite Aid, are showing up high on my screens over the past few weeks. Rite Aid came out with earnings, further establishing the comeback thesis. I do plan to write a detailed note on Rite Aid, a great restructuring story that I hold in my portfolio as well.
Like the previous few weeks, 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.
If balance sheets are troubled in today’s environment, when money supply is through the roof, there is a strong case that stocks will be in trouble soon, as is the case for selected REITs and capital-intensive industries.
Once again, consumer staples and grocery retail stores benefited from the lockdown, even though 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.
For retailers and restaurants, 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.