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: 0.4%
- Longs: -0.4%
- Shorts: 0.8%
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||CRWD||CrowdStrike Holdings Inc.|
|7||MDC||M.D.C Holdings Inc.|
|8||DAL||Delta Air Lines Inc.|
|10||WTM||White Mountains Insurance Group Ltd.|
|11||TRV||The Travelers Companies Inc.|
|12||MGI||MoneyGram International Inc.|
|13||RRR||Red Rock Resorts Inc.|
|14||NMRK||Newmark Group Inc.|
|16||RCM||R1 RCM Inc.|
|17||ATEC||Alphatec Holdings Inc.|
|18||BWMX||Betterware de Mexico, S.A.B, de C.V.|
|19||ATLC||Atlanticus Holdings Corp.|
|20||MGA||Magna International Inc.|
|2||CAG||Conagra Brands Inc.|
|4||X||United States Steel Corporation|
|5||ARCE||Arco Platform Limited|
|6||BGS||B&G Foods Inc.|
|7||HOG||Harley- Davidson Inc.|
|10||WOOF||Petco Health and Wellness Company Inc.|
|12||RBA||Ritchie Bros Auctioneers Inc.|
|14||IP||International Paper Company|
|15||AZRE||Azure Power Global Limited|
|16||HCAT||Health Catalyst Inc.|
Trends visible in stocks for next week list
Last week, I talked about how inflation trade is gaining acceptance. This past week, investors seem to have taken note of the challenges associated with the trade. Call it profit taking or consolidation but ‘risk off’ mode was definitely on. How long it lasts is anyone’s guess, but US 10-yr bond, energy commodities, agricultural commodities, livestock, industrial commodities, etc., almost everything continues to heat up.
Results have started to pour in and most reports, at least the notable ones, were better than Street expectations, yet the market wasn’t impressed much. Yes, valuations are partly to blame, but some smart investors have raised concerns about shrinking number of stocks that are outperforming, a sign usually visible during late stage of a rally.
GARP names are looking relatively better. Given growth is expensive, investors are waiting for results to confirm their holdings, value names are lined up with doubts related to economy, vaccinations, consumer confidence, this might ideal conditions for GARP style of investing.
One good thing that seems to be coming out of this continued enthusiasm for new issues, including SPACs, is that class of recent IPOs is throwing some good opportunities, both Long and Short.
Although there are no SPACs in this week’s positive list, but some do look good after the recent correction in prices of many. I will be spending more time on the names and adding a few to my earnings database. Few will disagree that that there has been permanent change in how businesses raise funds and institutional investors are now comfortable with the idea of SPACs. My two current favorites are Forest Road Acquisition ($FRX) and Osprey Technology Acquisition ($SFTW).
Somewhat related to the increase in treasury yields, homebuilders and mortgage industry stocks have taken a hit. Fundamentally the businesses continue to do well and industry demand equation looks sound. The mismatch between stock prices and fundamentals is making the space relatively attractive.
Even though fewer Chinese ADRs in this week’s list, my screens continue to suggest that real action over the next few weeks might be coming from emerging and frontier markets. 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. Many of these companies continue to trade at a significant discount to similar businesses based out of the US.
Once again, 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. Selective pockets of travel related names are also worth watching closely, especially airlines, car rentals and booking platforms.
Once again, Covid-19 recovery trade is losing momentum, both fundamentals as well as quantitatively. Be it growth rates or profitability, numbers are coming up against some tough comps and investors may not have patience to wait much during consolidation. Sectors like healthcare that benefited may come against profit booking after the run.
Safety trades like utilities and consumer staples are also showing weak on my screens. Yes, rising yields are to partly to blame given a lot of balance sheets in the space are carrying high levels of debt. Consumer staples companies may also experience margin pressures with the recent rise in price of agriculture commodities and demand normalizing after the lockdown. Indeed, paper companies may also feel pressure from rising interest rates and commodity prices.
Soft line retailers are starting to look weak. The stocks were flying high since late last year but fundamentals weren’t improving fast enough to sustain the positive momentum. Economic recovery in the US is relatively weak, consumer sentiment continues to weak and the stocks are coming against seasonally weak data.
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.