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: 2.2%
- Longs: 7.0%
- Shorts: -4.8%
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,
|2||WKHS||Workhorse Group Inc.|
|4||ARC||ARC Document Solutions Inc.|
|6||LI||Li Auto Inc.|
|7||UBER||Uber Technologies Inc.|
|9||DADA||Dada Nexus Limited|
|10||AEO||American Eagle Outfitters Inc.|
|13||LPRO||Open Lending Corporation|
|14||NUAN||Nuance Communications Inc.|
|15||LITE||Lumentum Holdings Inc.|
|16||SIG||Signet Jewelers Limited|
|17||WSC||WillScot Mobile Mini Holdings Corp.|
|18||GDS||GDS Holdings Limited|
|19||ALGM||Allegro MicroSystems Inc.|
|20||TME||Tencent Music Entertainment Group|
|1||ZM||Zoom Video Communications Inc.|
|4||DLR||Digital Realty Trust Inc.|
|5||AVB||AvalonBay Communities Inc.|
|7||TAL||TAL Education Group|
|8||WW||WW International Inc.|
|9||BIG||Big Lots Inc.|
|10||BGS||B&G Foods Inc.|
|12||CLI||Mack-Cali Realty Corporation|
|13||CPB||Campbell Soup Company|
|15||RBA||Ritchie Bros Auctioneers Inc.|
|16||PRO||PROS Holdings Inc.|
|17||FIZZ||National Beverage Corp.|
|18||IRM||Iron Mountain Inc.|
|19||PEAK||Healthpeak Properties Inc.|
|20||WEN||The Wendy’s Company|
Trends visible in stocks for next week list
Relatively, almost every valuation metrics is supporting a bigger shift towards value names, but almost every major quantitative metric is gunning for continuation of the trend, i.e. stick with the growth. The key question is what can change that? Fourth quarter results may force investors to look at valuation again but until then hard to fight the trend.
Compared to small and medium cap, large cap names look not just a safer bet if volatility increases, as some technical analysts predict, but also better positioned to monetize earnings recovery as Covid-19 vaccine rolls out.
Yes, high growth and Beta names are back again, but my fundamental screens are telling me that subscription-based revenue driven names may not command the kind of investor excitement they commanded in last year’s rally.
Bitcoin price movement may prove to be a better predictor of inflation than the price of gold this time. Gold price has corrected but almost all other major commodities are holding up strong just when recovery is beginning to take hold. I think we are heading towards tight capacity and challenges in capital expansion.
Chinese ADRs took a major sigh of relief after the US Senate election results. Fundamentally, a lot of names were already trading at a significant discount to the similar business out of the US and with quantitative support now, these names seem well positioned to outperform. There are five names in this week’s positive list.
Pharmacy stores, i.e. CVS, Walgreens and Rite-Aid, look very exciting around these levels. None of the names are in this week’s list due to the relative nature of the list, but worth a closer look nonetheless, especially for risk-averse investors.
Financials, especially those focused on sub-prime borrowers, seem to be coming out of funk. Companies aggressively provisioned for losses, but the consumer held up well and now that the recovery is taking shape, the names look very promising.
Semiconductor names are starting to draw investor interest and the trend may sustain for a while. Yes, economic recovery usually bodes well for the sector, but this time business might benefit from improved pricing power and resulting increase in gross margins on top of the economic recovery led gains.
Somewhat similar are dynamics for major construction equipment rental names, i.e. United Rentals and Herc Holdings. Improving demand, tight capacity and lean cost structure should lead to better pricing power and strong margins, leading sharp increase in earnings per share.
REITs, of almost every kind, seem to be out of favor. Fundamentally, the story was already deteriorating and with value and safety out of favor, the shift against the names is accelerating. There are a number of names in this week’s negative list.
Once again, restaurant stocks look vulnerable. Yes, the third wave of Covid-19 cases is partly to blame but the stocks went up too fast in anticipation of the recovery as well. Initially, the businesses cut costs aggressively, which helped, improved the margins but most of those gains do not seem enough to offset the weak sales.
Retail stocks are working again and I have been bullish on the sector but I would avoid chasing the names. Fundamentals are yet not supporting a major rally. Market may soon have to get its arm around the lack of earnings growth post holiday sales.
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.