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: 0.8%
- Longs: 5.2%
- Shorts: -4.4%
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||TME||Tencent Music Entertainment Group|
|2||WKHS||Workhorse Group Inc.|
|4||ARC||ARC Document Solutions Inc.|
|7||UAL||United Airlines Holdings Inc.|
|8||COE||China Online Education Group|
|10||YALA||Yalla Group Limited|
|12||SFIX||Stitch Fix Inc.|
|13||SPR||Spirit AeroSystems Holdings Inc.|
|14||ATEC||Alphatec Holdings Inc.|
|16||PERI||Perion Network Ltd.|
|18||AOSL||Alpha and Omega Semiconductor Limited|
|19||LBRT||Liberty Oilfield Services Inc.|
|20||CURO||CURO Group Holdings Corp.|
|1||ZM||Zoom Video Communications Inc.|
|8||TENB||Tenable Holdings Inc.|
|9||TSCO||Tractor Supply Co.|
|10||VEEV||Veeva Systems Inc.|
|12||VSTO||Vista Outdoor Inc.|
|15||BGS||B&G Foods Inc.|
|16||CAG||Conagra Brands Inc.|
|17||ENR||Energizer Holdings Inc.|
Trends visible in stocks for next week list
The ‘post lockdown’ trade continues. Much like the previous week, my screens aren’t telling me to go back and visit the ‘stay at home’ names. The vaccine is near and the shift to position the portfolios for a post Covid-19 era is well established.
Besides the vaccine development, valuation and earnings momentum is also supporting the move towards value and GARP names, a lot of which are from sectors hit hard due to lockdown and now showing improvement at the operating levels.
Maybe a sign of the last leg of the rally, but more small and medium cap names are popping up on my screens for potential Longs, more based on fundamentals. Quantitatively, medium and large caps continue to perform strongly, but that may change fast if the investor confidence remains strong and volatility goes down a bit. After all, investors tend to feel confident during the last few weeks of the year.
Continue to update numbers and getting ever more comfortable with the idea that things might not be back to ‘normal’ before 2022-23 for some of the hardest-hit sectors on the demand front, e.g. travel-related names, but even if it takes that long, the businesses are worth studying given the relative valuation, especially if the balance sheets for those businesses are in good shape.
Once again, airlines are showing up strongly on my screens. I have updated my models for a lot of major airlines and the result is encouraging, especially on the cost front. Yes, revenue comeback is a major question mark, but even if one assumes some of the major airlines to achieve previous peak revenue by 2024, the stocks are worth looking at closely. Good time to study the sector. United is in this week’s list, but Delta looks equally good.
Chinese ADRs continue to look exciting, most based on fundamentals but some on quantitative factors as well. Results are also validating my bullishness. Like the previous few weeks, there are four names on this week’s positive list, but several others showing up high on my screens.
Highlighting again. Capital equipment names, across the wide spectrum of industries, are popping up high on my screens. A lot of the companies in the space are getting extremely tight on capacity, leading to better utilization rates and improved margins. This might partly be due to the underinvestment of the last few years, a great time to start working on the names nonetheless.
Among small caps, a lot of fabless semiconductors and oilfield services names are popping up high. Plan to write on a few so stay tuned and if you see any trends related to the same, please do share it.
Yes, my lack of fondness for large-cap technology names is only getting stronger, especially the consumer-facing tech names. Yes, the resurgence in the number of Covid-19 cases may slow down the pace of correction, fundamentals deteriorating relative to value and GARP names. Negative catalysts continue to pile up and concerns and the number of companies failing to deliver growth against strong comparison numbers are increasing.
I am not a fan of intra-sector pair trades, especially value arbitrage pair trades, but some sectors are showing extreme divergence with almost similar macro tailwinds, suggesting a closer look. One such sector is EV manufacturers. The market seems to be assigning huge premium for some while some names are correcting after the run-up.
Agricultural names are throwing a surprise, worth tracking closely. I have followed closely and written about names like Mosaic and Intrepid Potash. Improving fertilizer dynamics and inflation were two major tailwinds for the sector, but recent commodity pricing and business fundamentals are pointing to not so much inflation and weak consumption patterns.
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.