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: -1.5%
- Longs: 8.9%
- Shorts: -10.4%
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.|
|4||ARC||ARC Document Solutions Inc.|
|5||YALA||Yalla Group Limited|
|7||UAL||United Airlines Holdings Inc.|
|9||WBA||Walgreens Boots Alliance Inc.|
|10||QFIN||360 DigiTech Inc.|
|11||RRR||Red Rock Resorts Inc.|
|12||NMRK||Newmark Group Inc.|
|13||URI||United Rentals Inc.|
|14||HRI||Herc Holdings Inc.|
|15||ENVA||Enova International Inc.|
|16||ASTE||Astec Industries Inc.|
|17||CWH||Camping World Holdings Inc.|
|19||VIOT||Viomi Technology Co. Ltd.|
|20||ACEL||Accel Entertainment Inc.|
|1||ZM||Zoom Video Communications Inc.|
|2||EDU||New Oriental Education & Tech. Group|
|3||TSM||Taiwan Semiconductor Mfg. Co. Ltd.|
|5||PTON||Peloton Interactive Inc.|
|6||TDOC||Teladoc Health Inc.|
|10||PING||Ping Identity Holding Corp.|
|11||ARCE||Arco Platform Limited|
|12||RAAS||Cloopen Group Holding Limited|
|14||ACB||Aurora Cannabis Inc.|
|15||ENR||Energizer Holdings Inc.|
|16||CPB||Campbell Soup Co.|
|18||WEN||The Wendy’s Co.|
|19||PZZA||Papa John’s International Inc.|
Trends visible in stocks for next week list
Like previous week, move to value continued and there is little to suggest that the trend will reverse any time soon given the broader market is barely down 10-12% from all time high. Tax season is not helping either since much of the damage over the past few days seem more of a case of profit booking.
Investors, including retail, have definitely woken up to the risk of sudden drops; add to that rising interest rates and even a recovering economy will not be enough to make bulls throw caution to the wind. Once again, the market seems to have made a full-fledged shift towards ‘post vaccine’ trade, at least looking at the commodity markets, interest rates and forward guidance from a lot of the companies.
Important shift from all these changes is that all the high flyers of the past few months, be it high growth technology companies, high beta stocks or financial engineering plays, including SPACs, will have to be answerable and show numbers to support the story; not an easy task for most.
Once again, travel related names, including airlines, are looking good. There is hope that travel restrictions will be easing by summer and valuation, at least for companies with higher quality balance sheets, is relatively attractive. As the market starts to focus on next year’s numbers, a lot of these names will stand out, delivering high growth, improving profitability and trading at a discount to historical valuations.
Financials are showing up high on my screens. Not difficult to understand given interest rates are moving higher, companies have provisioned aggressively, cost structure has been aligned and economy is expected to recover fast.
Somewhat related, leasing names, be it construction equipment leasing companies, aircraft leasing or auto leasing companies, are showing up high on my screens. Economic recovery will improve demand, underinvestment of the past few quarters may create shortage and pricing improvement, while stocks are trading at reasonable valuations.
Yet again, retail, both online and offline, has been one of the sectors that stood well during the past few days when almost everything was getting destroyed. Fundamentally, online players, including Wayfair and Amazon, have consolidated over the past few weeks, while offline players are benefiting from holiday season and pent-up demand after the lockdown eased up.
Restaurants are showing up weak on my screens. A lot of businesses performed well during the lockdown, costs were down, commodity markets were weak and demand held up relatively better. Result was that the markets rewarded them with rich multiple. Now the situation seems to be reversing, labor market will tighten with improving economy, minimum wage rate is increasing, commodity prices are going up and the valuations are rich in most cases.
Housing related stocks are suffering due to investor fears about rising interest rates and their impact on the demand. Fundamentals continue to be strong, but quantitative data is extremely unsupportive.
Most cannabis stocks are looking weak. Fundamentals were never great but investors, especially retail, for a while were excited about favorable legislations and ended up bidding the stocks to sky high valuations. Now that things are cooling off, it might be a while before the names bottom.
Once again, my screens continue to warn me against catching the falling knife, i.e. EVs, SPACs and high growth tech names trading at exorbitant valuations. Yes, there are a lot of quality names that got punished, but relatively most names look rich and results are forcing Street to adjust trading multiples assigned to the space.
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.