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 1250 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: 0.6%
- Longs: 5.6%
- 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,
|1||DADA||Dada Nexus Limited|
|2||WKHS||Workhorse Group Inc.|
|3||PLTR||Palantir Technologies Inc.|
|4||PERI||Perion Network Ltd.|
|7||MITK||Mitek Systems Inc.|
|8||SWKS||Skyworks Solutions Inc.|
|11||SPT||Sprout Social inc.|
|12||DLTH||Duluth Holdings Inc.|
|15||MAXR||Maxar Technologiies Inc.|
|16||CURO||Curo Group Holdings Corp.|
|17||ENVA||Enova International Inc.|
|18||PACB||Pacific Biosciences of California Inc.|
|19||BABA||Alibaba Group Holdings Limited|
|20||DGII||Digi International inc.|
|3||SPOT||Spotify Technology S.A.|
|4||WBA||Walgreens Boots Alliance Inc.|
|5||CVS||CVS Health Corporation|
|7||CLI||Mack-Cali Realty Corporation|
|8||AAL||American Airlines Group inc.|
|9||SBGI||Sinclair Broadcast Group Inc.|
|10||AZRE||Azure Power Global limited|
|11||ENR||Energizer Holdings Inc.|
|12||GTN||Gray Television Inc.|
|13||CRSR||Corsair Gaming Inc.|
|14||CPB||Cambell Soup Company|
|15||PRO||PROS Holdings inc.|
|16||WSC||Willscot Mobile Mini Holdings Corp.|
|18||IRM||Iron Mountain Inc.|
|19||SUMO||Sumo Logic Inc.|
|20||PZZA||Papa John’s International Inc.|
Trends visible in stocks for next week list
Other than election shocks, hardly anyone can tame this market in the near-term. But then other than valuation, there are limited reasons to worry about on the fundamentals front. On the valuation front too, it’s primarily the premium for growth that is high.
Indeed the optimism is slowly transferring to international markets and micro-cap names. I’m more concerned about scalping, i.e. booking profits on a small increase or decline in the price of the stock, which usually suggests both lack of conviction as well as increased participation from the retail investors who are more bothered about their win rates than the total winnings.
Yes, I don’t see retail investors as any less than institutional investors; it’s just that investor who lack conviction is usually the first one to bail out on any sign of uncertainty thus increase volatility. Better to tread with caution, extreme caution if you’re levered.
Another thing that didn’t sit well with me is the return of thematic positioning after months of bottoms-up stock picking, i.e. markets rewarding individual players that are performing well more than the sector they participate in. One such example is the mining stocks that are yet again driven by macro factors, i.e. inflation, interest rates, size of the bailout package, etc.
Chinese ADRs, a theme from the last 2-3 weeks, is looking even better. There weren’t very many names on the positive list for the last few weeks, but there are three this week, and could have added 2-3 more, if I didn’t care for diversification of the list. Do plan to write on a few of them, especially some of the Chinese education sector plays that I have rarely covered in detail on this platform.
Financial names that are driven by fundamentals of the subprime lending market also look good here. There are two on this week’s positive list. Fundamentals haven’t deteriorated but the stocks have been destroyed in anticipation of rising delinquencies that have yet to materialize in a big way, offering a very favorable risk/reward tradeoff.
Last week, I talked about how the semiconductor sector usually serves as a good leading indicator for the economy and semiconductor stocks coming up short on the quantitative front were worrisome, but things are turning around. There are two names on the list this week but could’ve added more. Fundamental screens have been positive for many players for a while now.
Most thematic shorting opportunities that I could find out seem to have been well covered and played out. Opportunities on the negative list this week are largely due to profit booking and less so on deteriorating fundamentals.
Some of the gaming stocks, especially the tier 2 and 3 names in terms of scale, look vulnerable. With ever-growing competition for customer attention, the cost of customer acquisition and topline growth may start to raise concerns for some of these companies.
Retail is another sector that may find it hard to deliver as per increasing investor expectations. Even though the fourth quarter is traditionally strong for retailers, stocks are at risk of running ahead of the fundamental improvement, and investors on edge may run to book profit on a minor hiccup.
Once again, traditional media names look vulnerable. Broadcasting names like Sinclair Broadcasting and Gray Television are on this week’s negative list as well and several other names from the space came up high on my negative screens.
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.