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 1350 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: 1.6%
- Longs: 3.5%
- Shorts: -1.9%
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.|
|5||DADA||Dada Nexus Limited|
|6||YALA||Yalla Group Limited|
|7||AOSL||Alpha and Omega Semiconductor Limited|
|8||UPST||Upstart Holdings Inc.|
|9||AFRM||Affirm Holdings Inc.|
|10||GSX||GSX Techedu Inc.|
|11||MDC||M.D.C. Holdings Inc.|
|12||AEO||American Eagle Outfitters Inc.|
|13||MITK||Mitek Systems Inc.|
|14||RCM||R1 RCM Inc.|
|15||GDS||GDS Holdings Limited|
|17||ALGM||Allegro MicroSystems Inc.|
|18||AVID||Avid Technology Inc.|
|19||ATLC||Atlanticus Holdings Corporation|
|2||ARCE||Arco Platform Limited|
|3||COST||Costco Wholesale Corp.|
|6||CAG||Conagra Brands Inc.|
|7||SBGI||Sinclair Boradcast Grroup Inc.|
|9||SJM||The J.M. Smucker Company|
|10||CPB||Campbell Soup Company|
|12||RBA||Ritchie Bros Auctioneers Inc.|
|14||WEN||The Wendy’s Company|
|15||CCK||Crown Holdings Inc.|
|16||GTN||Gray Television Inc.|
|17||EPAC||Enerpac Tool Group Corp.|
|18||PRO||PROS Holdings Inc.|
|19||WW||WW International Inc.|
|20||BRP||BRP Group Inc.|
Trends visible in stocks for next week list
Results are starting to pour in and volatility is bound to increase over the coming weeks. In such an environment, nobody can blame investors for booking some profits on some of the higher beta names. Quantitatively, size of market cap and average volume traded matters more while booking profits.
Rotation seems to have slowed down. Rather than new names, some of the comeback and restructuring stories continue to offer great opportunities over the past few days, case in point – GameStop, a name that I have been bullish on for a while.
Is the market overpaying for momentum? It definitely looks like that. I do not belong to the club that believes that short squeeze alone is responsible for bifurcated sector performance, with selective names in hot sectors like solar or EV trading at stratospheric multiples while other names struggling to find momentum.
Fundamentally, everything is expensive and may remain so as long as interest rates are trailing near all-time lows. Which is why I am watching 10-yr rate like a hawk, when that shoots up higher, it will be a clarion call to leave the party for me.
Once again, homebuilders look exciting around current levels. Most major names from the space worked well during the week. Fundamentals have continued to improve but stocks haven’t done much, relatively. Bears have continued to shrug off business strength to temporary reasons, including Fed interventions, stimulus and low interest rates. The gap between fundamentals and quantitative performance may start to close soon.
Chinese ADRs, long shunned by investors due to political risks, look good again. Fundamentally, a lot of names were trading at a significant discount to similar businesses based out of the US and with easing political risks; these names are starting to work again. The momentum may stay strong for a while.
More and more industry analysts have started to talk about potential semiconductor shortages in store. For last few weeks, I talked about how semiconductor equipment names are showing up high on my screens, with high utilization rates at most fabs and demand for semiconductors staying strong. Besides economic recovery, semiconductor manufacturers should benefit from improved pricing power and resulting increase in gross margins soon.
Retail in general has been a good comeback story and auto retailers look good around current levels, with help from production cuts at auto manufacturers and demand for used autos increasing. As mentioned earlier, fundamentals, after updating my models, suggest margin improvement is holding up at these companies, which may lead to another leg of the rally in the sector stocks.
Travel and tourism related names, including airlines, look vulnerable around current levels. The stocks made strong recovery as Covid-19 concerns eased but with rising oil prices and demand staying weak, numbers do not seem to be supporting the comeback thesis for now. The Bulls may be disappointed during the coming earnings season.
Once again, restaurant stocks look vulnerable. As mentioned earlier, 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 and rich valuation.
Payment processing space in general looks relatively weak. Square and PayPal have been drawing strong interest from investors due to strong rally in crypto currencies, but most payment processing names are showing up low on my screens. Fundamentally, competition, especially in the US, is increasing and sector leadership may undergo change. With weak long-term growth prospects, valuation multiples may come under pressure.
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.