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 1275 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: -2.0%
- Longs: 1.2%
- Shorts: -3.2%
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||PLTR||Palantir Technologies Inc.|
|2||WKHS||Workhorse Group Inc.|
|4||ARC||ARC Document Solutions Inc.|
|5||LU||Lufax Holding Limited|
|6||TME||Tencent Music Entertainment Group|
|7||QFIN||360 DigiTech Inc.|
|9||IBKR||Interactive Brokers Group Inc.|
|10||ATLC||Atlanticus Holdings Corporation|
|14||LPRO||Open Lending Corporation|
|15||RCM||R1 RCM Inc.|
|19||X||United States Steel Corporation|
|2||ZM||Zoom Video Communications Inc.|
|7||TDOC||Teladoc Health Inc.|
|8||VEEV||Veeva Systems Inc.|
|9||AZRE||Azure Power Global Limited|
|10||BIG||Big Lots Inc.|
|11||BGS||B&G Foods Inc.|
|12||ENR||Energizer Holdings Inc.|
|14||IRM||Iron Mountain Inc.|
|16||WORK||Slack Technologies Inc.|
|18||TENB||Tenable Holdings Inc.|
|19||TSCO||Tractor Supply Co.|
|20||PTON||Peloton Interactive Inc.|
Trends visible in stocks for next week list
Beginning of the end of the Covid-19 trade. Yes, the vaccine is near and the market may have given up on the initial euphoria after the announcement of the vaccine, but the shift to position the portfolios for a post Covid-19 era is well established. Good time to dust off airlines, travel, casinos, and cruise liners.
There are seven weeks left in this memorable year and to expect the market to give up on its celebrations related to the end of political uncertainty and the vaccine would be a bit ambitious, even though valuations are near multi-year highs.
Global and emerging markets look better than the US market, mostly due to better valuations and stronger growth metrics. Once again, risk/reward tradeoff continues to favor value and GARP names, looking at the fundamentals.
Chinese ADRs continue to look strong, a theme we have been bullish on for the last few weeks. There are six names on this week’s positive list. Increased volatility in these names can be frustrating, but also an opportunity if you have an investor base that is not focused on every day’s closing prices. Our screens are based on value created for the shareholders on a yearly basis.
For most of this year, I have been bullish on the electric vehicle space, which worked well this year. First leg of the rally in the EV stocks worked with the help of Tesla, which saw exceptional topline growth this year, and the second leg of the rally may work on the back of non-Tesla majors experiencing the initial adoption driven revenue growth, as evident from the recent results of China-based Li Auto, XPeng Inc. and NIO Limited.
Recent IPOs, Palantir and fuboTV, are on this week’s list as well. Yes, the quantitative data is thin on these names, but fundamentals are too strong to ignore, especially relative to their peers, as evident from the recent results as well. Both still seem under owned by the institutional investors.
Some of the basic metal names look good as well, United States Steel and Ternium are in this week’s list. If the macro industry fundamentals stay strong, small and medium cap metal processors may also start to improve, some of which are trading near multi-year lows. Good time to start tracking the space closely.
The major lockdown trades, i.e. names like Zoom, Teladoc and sectors like used car sales, etc. look extremely vulnerable, both on the basis of fundamentals as well as quantitative data. Growth metrics for the next year are coming up against what may be peak numbers seen earlier this year, valuations are extremely rich and the global economy is opening up. The list is weekly, but troubles for these players may stay for a while.
Retail, especially soft lines look week for this week as well. Yes, the results have come out good for most players, the holiday season is ahead and I have been bullish on these names earlier, but the names have run up a bit while talks about another 4-5 weeks lockdown in the US are gaining ground. Risk/reward tradeoff is just not as favorable.
Once again, large-cap growth technology names continue to lose sheen on my models. Indeed, the pace of correction may pick pace in the coming weeks. Negative catalysts continue to pile up and concerns about valuation are getting support from companies failing to deliver growth against strong comparison numbers.
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.