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: -1.3%
- Longs: -6.3%
- Shorts: 5.0%
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||PLTR||Palantir Technologies Inc.|
|7||LI||Li Auto Inc.|
|8||TME||Tencent Music Entertainment Group|
|10||TRV||The Travelers Companies Inc.|
|11||YALA||Yalla Group Limited|
|12||SCHW||The Charles Schwab Corporation|
|17||AVY||Avery Dennison Corporation|
|18||TSEM||Tower Semiconductor Ltd.|
|19||RCM||R1 RCM Inc.|
|20||X||United States Steel Corporation|
|5||SPOT||Spotify Technology S.A.|
|7||EBON||Ebang International Holdings Inc.|
|8||EPAY||Bottomline Technologies Inc.|
|10||PRMW||Primo Water Corporation|
|12||HAIN||The Hain Celestial Group Inc.|
|16||PING||Ping Identity Holding Corp.|
|18||TENB||Tenable Holdings Inc.|
Trends visible in stocks for next week list
Book profits now and ask questions later seem to be the mood of the market given more liquid large caps that delivered most of the outperformance since March this year suffered the most over the last few days.
And there is little to suggest that this panic may retreat during the coming week. After all, images of Paris residents stuck in traffic jams and a rise in the number of Covid-19 cases will do little to inspire shoppers ahead of the holiday season. Even if political uncertainty is gone and the election results are to the liking of the market.
Relatively, Asia looks much better now, with Covid-19 cases under check, not much political risk, economy opening up, companies delivering better growth than their counterparts in other countries, and valuations cheaper than that of US growth names.
Over the last few weeks, stocks of gold miners haven’t done well, in sync with the price of the gold, suggesting inflation isn’t much of a worry for the market now. The key question is whether Bitcoin will be the next one to correct? And going by its sympathetic movement with the stock market this past week, a correction may not be that surprising.
Once again, value names are looking much better than the growth ones, especially in the US. The economy is recovering while growth names are coming against seriously high expectations with not much margin of error given the high valuations.
When everything is going down, one can say there is no trend, other than downtrend, which is why names that stand out because of their fundamentals, even if lacking in quantitative support, came up high on the screens.
Palantir, fuboTV, and Yalla, all recent IPOs that have yet to command interest from the investors are in this week’s list. Even though the quantitative data is thin on these three, fundamentals are too strong to ignore, especially relative to their peers, which is why they are showing up high on my screens.
The EV market is a tale of two cities. Some names are performing and expected to grow strongly over the next 1-2 years and then story-driven stocks that may not have meaningful revenue over the next 1-2 years. NIO Limited, Workhorse Group, and Li Auto are expected to see hockey stick type growth over the next 1-2 years, showing up high on this week’s positive list.
A lot of Chinese ADRs are looking good, mostly because of their fundamentals. Another sector that looks good is the Insurance tech, not so much on the quantitative data, but looking better every day on the fundamentals.
A couple of months back, retail, especially soft lines, were showing up high on my screens, which is why I wrote on several companies in the space, including Duluth Trading and American Eagle, but the valuations seem to have run up a bit, may pause here for some time, even though results have come out good for most players and holiday season is ahead. Grocery retailers may be the exception.
Last week, I talked about how real estate brokerage related names look tired. It seems like the weakness is catching up with homebuilders and home renovation plays as well. Again, the fundamental performance is not improving in sync with investor excitement.
Payment processing names also look weak, with deteriorating fundamentals across the scale spectrum. Fundamentals are no more what the Street is used to expecting from growth businesses.
Carrying forward the theme from last week, large-cap growth technology names are losing sheen fast. Negative catalysts continue to pile up. Usual complaints about valuation are fast 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.