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: -1.1%
- Longs: 0.1%
- Shorts: -1.2%
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.|
|6||UBER||Uber Technologies Inc.|
|9||RCM||R1 RCM Inc.|
|10||DGII||Digi International Inc.|
|11||ATEC||Alphatec Holdings ltd.|
|12||ONEM||1Life Healthcare Inc.|
|13||WSC||WillScot Mobile Mini Holdings Corp.|
|14||HRI||Herc Holdings Inc.|
|16||ENVA||Enova International Inc.|
|18||ACEL||Accel Entertainment Inc.|
|19||BWMX||Betterware de Mexico S.A.B de C.V.|
|20||TRV||The Travelers Companies Inc.|
|1||ZM||Zoom Video Communications Inc.|
|2||COST||Costco Wholesale Corporation|
|4||TAL||TAL Education Group|
|7||ARCE||Arco Platform Limited|
|8||AVB||AvalonBay Communities Inc.|
|10||ZTO||ZTO Express (Cayman) Inc.|
|13||CLI||Mack-Cali Realty Corporation|
|15||X||United States Steel Corporation|
|16||EPAC||Enerpac Tool Group Corp.|
|17||GTN||Gray Television Inc.|
|18||CASY||Casey’s General Stores Inc.|
|20||BIG||Big Lots Inc.|
Trends visible in stocks for next week list
With four trading days left in the year, most investors, especially retail, I talked to are more bothered about repeating this year’s performance and taxes than finding new investment ideas. Much of the profit booking may have already happened and given low trading volume expected, it may not be advisable either.
Recent anti-trust probe against Alibaba by Chinese regulatory authorities and Bitcoin price movements have potential to cause major shifts over the coming weeks. Action against Alibaba and the resulting stock correction can reset the trading multiple for the entire basket of emerging market stocks and strength of crypto market can do the same to ‘inflation dependent’ business, e.g. basic metal commodity stocks.
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. Most of which can be characterized as GARP (Growth At Reasonable Price) plays, off course ‘reasonable price’ is relative in current market environment.
Retail traders, who pretty much led this year’s market rally and outperformed almost every other investor due to their high risk and volatility tolerance, continue to be bullish; so this might be a bit early to predict a any major shift away from momentum names, at least based quant data.
Healthcare names are showing relative strength, with decent earnings momentum and relatively better valuation metrics. Part of this may be because tech names, especially growth and high beta, have run up too much and profit booking is leading to increased interest in this safety trade.
Last week’s volume was so low, as expected, that it would be unwise to read too much into either bounces or corrections and rotate out of what’s working. Looking at the macro picture, oil continued to show strength and oil services names are also starting to show life in terms of improving numbers down the road.
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.
Yes, one week’s data or regulatory troubles at one company doesn’t define a trend, but concerns related to Chinese ADRs continue to creep up. The timing couldn’t have been worse given relative outperformance and exceptionally strong fund flow into the US market was coming to a draw and investors may soon be looking to diversify. On most fundamental metrics, most Chinese ADRs look great, growing fast and trading at a discount to their US counterparts.
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 like the tower companies.
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.