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: 2.9%
- Longs: 2.5%
- Shorts: 0.4%
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.|
|3||UAL||United Airlines Holdings Inc.|
|4||ARC||ARC Document Solutions Inc.|
|5||SPG||Simon Property Group Inc.|
|8||OPRT||Oportun Financial Corporation|
|10||ALGM||Allegro Microsystems Inc.|
|11||HRI||Herc Holdings Inc.|
|12||ATEC||Alphatec Holdings ltd.|
|13||TSEM||Tower Semiconductor Ltd.|
|15||RRR||Red Rock Resorts Inc.|
|16||ATLC||Atlanticus Holdings Corporation|
|18||LBRT||Liberty Oilfield Services Inc.|
|19||ASYS||Amtech Systems Inc.|
|20||LQDT||Liquidity Services Inc.|
|1||ZM||Zoom Video Communications Inc.|
|3||VEEV||Veeva Systems Inc.|
|5||ARCE||Arco Platform Limited|
|6||ZTO||ZTO Express (Cayman) Inc.|
|7||VSTO||Vista Outdoor Inc.|
|9||SPT||Sprout Social Inc.|
|12||ENR||Energizer Holdings Inc.|
|13||SJM||The J.M. Smucker Company|
|15||BIG||Big Lots Inc.|
|18||WEN||The Wendy’s Company|
|19||TSCO||Tractor Supply Co.|
|20||PZZA||Papa John’s International Inc.|
Trends visible in stocks for next week list
The ‘post lockdown’ trade gains momentum. Continuing the theme of the previous few weeks, my screens are pointing towards further strengthening of the ‘post lockdown’ trade, i.e. opening up of economy as well as the return of travel, tourism, and ‘normal’ lifestyle.
Fundamentals and valuation give further credence to the trade. As mentioned in last week’s note, some of the hardest-hit sectors, like airlines and cab aggregators, look relatively 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.
Funds flow reports coming out of brokerage houses is calling for further strengthening in large caps relative to small and medium caps, but my screens continue to suggest a bias towards small and medium caps, especially if you can stomach higher volatility, which is why you can see average market cap is larger on the shorts side.
Although not part of the positive list, some of the 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 are not yet fully supported by the fundamentals but somewhat supported by the commentary coming out industry analysts. Similar things can be said about selective REITs.
Like the previous few weeks, airlines continue to show up high on my screens. As mentioned earlier, I have updated my models for a lot of major airlines and the result is encouraging, especially on the cost front. Yes, revenue comeback is a major question mark, but even if one assumes some of the major airlines to achieve previous peak revenue by 2024, the stocks are worth looking at closely. Good time to study the sector. United that I own is in this week’s list, but Delta and some others look equally good.
Even though the broader retail sector may pause given the recent run-up in stocks and slower recovery in revenue, pharmacy stocks, i.e. CVS, Walgreens and Rite Aid, are showing up high on my screens. Even though names are not in this week’s list, they are worth studying closely at current levels.
Highlighting yet again. Capital equipment names, across the wide spectrum of industries, are popping up high on my screens. A lot of the companies in the space are getting extremely tight on capacity, leading to better utilization rates and improved margins. This might partly be due to the underinvestment of the last few years, a great time to start working on the names nonetheless. Tower Semiconductor, included in this week’s list, is somewhat of a play on the theme, but semi equipment stocks are probably better plays.
Yes, no ebb in optimism but profit booking and consolidation may continue to irk growth investors, especially names that benefited the most from the pandemic, i.e. names like Zoom, which is included in this week’s list as well.
Like previous week, large cap growth tech names continue to look extremely vulnerable to me and I won’t be surprised to see institutions selling into the vaccine. Once again, the resurgence in the number of Covid-19 cases may slow down the pace of correction, fundamentals deteriorating relative to value and GARP names. Negative catalysts continue to pile up and concerns and the number of companies failing to deliver growth against strong comparison numbers are increasing.
Retail, especially consumer staples, and restaurants are showing 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.