Stocks On My Screen For Week Starting February 15th, 2021

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 1375 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: 4.1%
  • Longs: 3.9%
  • Shorts:  0.2%

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,

Positive

No.SymbolName
1UBERUber Technologies Inc.
2WKHSWorkhorse Group Inc.
3FUBOfuboTV Inc.
4ARCARC Document Solutions Inc.
5YSGYatsen Holding Limited
6YRDYiren Digital Ltd.
7CRWDCrowdStrike Holdings Inc.
8MGAMagna International Inc.
9FRHCFreedom Holding Corp.
10MDCM.D.C Holdings Inc.
11MOMOMomo Inc.
12AVBAvalonBay Communities Inc.
13SPGSimon Property Group Inc.
14TSEMTower Semiconductor Ltd.
15RCMR1 RCM Inc.
16SPTSprout Social Inc.
17ATECAlphatec Holdings Inc.
18NMRKNewmark Group Inc.
19HRIHerc Holdings Inc.
20ATROAstronics Corp.
Not investment recommendations

Negative

No.SymbolName
1COSTCostco Wholesale Corp.
2SPLKSplunk Inc.
3CAGConagra Brands Inc.
4XUnited States Steel Corporation
5ENREnergizer Holdings Inc.
6SJMThe J.M. Smucker Company
7CPBCampbell Soup Company
8WOOFPetco Health and Wellness Company Inc.
9LESLLeslie’s Inc.
10PROPROS Holdings Inc.
11RBARitchie Bros Auctioneers Inc.
12WENThe Wendy’s Company
13WWDWoodward Inc.
14IPInternational Paper Company
15KMBKimberly-Clark Corp.
16AZREAzure Power Global Limited
17EBEventbrite Inc.
18PUBMPubMatic Inc.
19CALMCal-Maine Foods Inc.
20EPAYBottomline Technologies Inc.
Not investment recommendations

Trends visible in stocks for next week list

One of the major trends I see is that inflation trade is almost here and most portfolios aren’t ready for that. Over the past few days, US 10-yr bond, energy commodities, agricultural commodities, livestock, industrial commodities, etc., almost everything has shot up. Yes, stock market continues to trade near all-time high, which might be because economy continues to be weak, especially US where consumer sentiment index declined to 6 month low.

Investors poured in $58B into stock funds over the past week. US stock market continues to be one of the best performers among developed economies, but Asian indices are slowly taking the lead and my screens are telling me that real action over the next few weeks might be coming from emerging and frontier markets. Is it a case of late stage of a typical rally? May be, but you have to respect the market after all.

It is never a good idea to read too much into short-term movement of macro indicators, but spike in 10 yr. bonds has led to some of the interest rate plays looking good, including selective financials. The space is general hasn’t done much given investor expectations of low inflation to continue, but the market sentiment may change quickly. We have seen how swiftly oil and natural gas food chain stocks moved when energy commodities started to move.  Somewhat similar reaction might be in store for these interest rate driven stocks.

Positives

Once again, Chinese ADRs are showing up extremely strong on my screens. My extremely bullish stance on Chinese ADRs for the past few weeks are working. The number of Chinese stocks is down from last week, but mostly because some of them have spiked and may consolidate for a few days. Last week, I spoke of how even though a lot of names have done well, my screens are telling me that this may be too early to book profits and move on. Most of these companies never participated in the rally and they have to a lot to catch up to. Many of these companies continue to trade at a significant discount to similar businesses based out of the US.

There aren’t very many from the space in this week’s list but auto retailers continue to show up prominently on my screens. Yes, a lot of names have run up, but looking at the fundamental improvement, i.e. margin profile and operating cost structure, there is ample room for stocks to run from here onwards.

May be due to changing perceptions about inflation, but some of the REITs are starting to look good on quantitative screens. Yes, it is too early to find if it’s anything more than a ‘dead cat bounce’ given the stocks have come down significantly over the past few months and fundamental weakness will play out over the next months.

Once again, semiconductor food chain stocks look good, especially capital equipment and fabs, and strong results may take them higher. Fundamentals, both macro and micro, continue to be strong with economic recovery gaining pace, improved pricing power and resulting increase in gross margins.

Negatives

Soft line retailers are flying high but fundamentals are not improving fast enough to sustain this positive momentum. The risk/reward tradeoff doesn’t look as favorable around current levels. Economic recovery in the US is relatively weak, consumer sentiment continues to weak and the stocks are coming against seasonally weak data.

Once again, Covid-19 recovery trade is losing momentum, both fundamentals as well as quantitatively. Restaurants and travel related names have been doing well for the past few days, but if fundamentals do not improve fast, market’s enthusiasm about the stocks may fizzle out fast. Initially, restaurants did benefit from aggressive cost cuts, which helped margins but most of those gains do not seem enough to offset the weak sales and rich valuation.

Some of the non-energy commodity stocks are in for consolidation, even though the underlying commodities continue to be strong. Another pocket of weakness is the class of recent IPOs. After the record amount of new issues, there was bound to be investor fatigue towards new issues, which is on top of ridiculous valuations and poor quality of businesses.

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.

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