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: -2.3%
- 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||YALA||Yalla Group Limited|
|6||TME||Tencent Music Entertainment Group|
|8||CVS||CVS Health Corporation|
|13||UAL||United Airlines Holdings Inc.|
|14||SIG||Signet Jewlers Limited|
|15||HRI||Herc Holdings Inc.|
|16||ATEC||Astec Industries Inc.|
|17||ENVA||Enova International Inc.|
|18||DBI||Designer Brands Inc.|
|20||AFRM||Affirm Holdings Inc.|
|3||PTON||Peloton Interactive Inc.|
|5||TDOC||Teladoc Health Inc.|
|9||ACB||Aurora Cannabis Inc.|
|10||PRO||Pros Holdings Inc.|
|11||PZZA||Papa John’s International Inc.|
|14||AZRE||Azure Power Global Limited|
|20||EPAY||Bottomline Technologies Inc.|
Trends visible in stocks for next week list
No peace before the 10 yr. yields stabilize seems to be the message from the markets. Yes, headline indices may not have moved much but high beta tech and growth stocks, including SPACs, continued to move lower, pockets where investors, especially retail, made good over the past few months.
Commodity prices continue to be strong and reports of shortages are aplenty, including much talked about semiconductor shortages. What it suggests is that the new capital spending cycle underway has legs. So be prepared for capital equipment players to be popular for a while and until the new capacity comes online, be prepared for increasing inflation as well.
Frontier and some emerging markets with weak financial health seem to be at major risk, if the yields continue to risk. Case in point Turkey. Reports of rising overnight rates and turnover at the country’s central bank may have been shrugged by the markets for now but seasoned investors will attest to how these things tend to come back haunt markets at times.
As mentioned in previous week’s note, an important shift from all these changes is that 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.
The EV players overshadowed old school auto manufacturers, including the likes of Volkswagen, Ford and Stellantis, over the last 1-2 years, but things may be changing fast as investors wake up to EV scale and rollout schedule of the existing players. Not just Tesla, but even the emerging China based players may be in for some consolidation.
Most commodities, be it metals, industrial or agriculture, are up double-digits for the year and stocks of companies related are reflecting the market strength, look at US Steel, Alcoa, etc. Somewhat similar is the case with US consumer retail stocks. Consumer retail demand held up well over the past 2-3 quarters and now stocks are trading higher then pre-pandemic levels in many cases. Yes, last leg before the sector capital spending ramps up and margins erode, but quantitative strength is hard to ignore for now.
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.
Now that the earnings season is coming to an end, it is quite clear that a lot of high growth and recent SPACs are failing to grow into high expectations and rich valuations assigned by the market. The adjustment to new expectations may take a while. My screens continue to warn me against catching the falling knife. 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.
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.
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.