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: -2.5%
- Longs: -7.1%
- Shorts: 4.6%
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||IIPR||Innovative Industrial Properties Inc.|
|8||KC||Kingsoft Cloud Holdings Limited|
|10||CVS||CVS Health Corporation|
|14||MDC||M.D.C. Holdings Inc.|
|15||UAL||United Airlines Holdings Inc.|
|16||AMAT||Applied Materials Inc.|
|17||URI||United Rentals Inc.|
|18||ALTG||Alta Equipment Group Inc.|
|19||SGRY||Surgery Partners Inc.|
|2||PTON||Peloton Interactive Inc.|
|4||TEAM||Atlassian Corporation Plc.|
|6||TDOC||Teladoc Health Inc.|
|8||VEEV||Veeva Systems Inc.|
|10||AZRE||Azure Power Global Limited|
|13||PRO||Pros Holdings Inc.|
|16||MYTE||MYT Netherlands Parent B.V.|
|20||ORA||Ormat Technologies Inc.|
Trends visible in stocks for next week list
One of the signs of peak panic is when rumors about funds blowing up and entering into forced liquidations are circling. This is precisely what happened this past week when Chinese education stocks cratered even in an otherwise strong market. Add to that general nervousness among growth investors related to the rising bond yields and hit pieces from short sellers; no wonder profit booking seems to be overdone.
Growth bubble eased if not busted altogether. Yes, broader markets haven’t moved much lower, but a lot of growth stocks have given up most of the gains of the past few quarters. Investors may hide in value for a while but sooner or later, high topline growth and earnings improvement will start to attract attention. All in all, a good time to start looking at quality high growth names now.
Bond yields are going up again, economy continues to open up, even if one can have different opinions regarding the pace after the recent reports of another surge coming soon. In such a scenario, it makes little sense to fight the recovery trade.
Once again, 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.
As the recovery trade takes hold, travel related names, including airlines, continue to look good. Even amid reports of new mutations, there is hope that travel restrictions will be easing over the next few quarters 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.
A lot of media and betting stocks, especially high growth middle cap names, have been hit hard over the past few days and showing up extremely strong on my screens. Given many businesses are growing revenue at high double to triple digits, stocks are looking strong on next year’s numbers.
A new cycle for capital equipment spending is taking shape. 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 increased level of inflation as well.
Once again, earnings have proved 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. 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.
Over the last 1-2 years, Cloud and subscription models commanded extremely high valuation premiums, mainly due to high revenue growth and high operating leverage in their business models, but a lot of companies serving enterprise customers seem to be slowing down on both those metrics and may come remain under pressure even if the broader growth stocks stabilize.
Again, 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.