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 our 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: -1.6%
- Longs: -3.7%
- Shorts: 2.1%
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||ZM||Zoom Video Communications Inc.|
|2||WKHS||Workhorse Group Inc.|
|6||SGMS||Scientific Games Corporation|
|9||IIPR||Innovative Industrial Properties Inc.|
|12||CYD||China Yuchai international Limited|
|15||LPRO||Open Lending Corporation|
|16||RCM||R1 RCM Inc.|
|17||SPT||Sprout Social Inc.|
|18||PACB||Pacific Biosciences of California Inc.|
|19||HCAT||Health Catalyst Inc.|
|20||Z||Zillow Group Inc.|
|1||PING||Ping Identity Holding Corp.|
|3||SPOT||Spotify Technology S.A.|
|7||EPAY||Bottomline Technologies Inc.|
|9||MTSI||MACOM Technology Solutions Holdings Inc.|
|10||ESE||Esco Technologies Inc.|
|11||VNET||21 Vianet Group Inc.|
|13||HL||Hecla Mining Company|
|17||CLI||Mack-Cali Realty Corporation|
|18||RLGY||Realogy Holdings Corp.|
|19||CIT||CIT Group Inc.|
|20||CNNE||Cannae Holdings Inc.|
Trends visible in stocks for next week list
Record new issues and an economy that is taking longer to fully recover suggest – tread carefully. For the last few weeks, we talked about how growth is looking weak on our screens and better to stick to either value names or growth names that are already out with the earnings, but that seems to be changing.
Contrary to consensus, we believe value trade may be over for now and results are the culprit. As we updated our earnings model with the latest results, barring a few, most growth-oriented names are delivering, whereas value names after the recent run-up look dependent upon improving the economy for the next leg of the rally.
Yes, the global economy continues to open up, but the market data suggests that be it economy, inflation, or emerging markets (ex. China), things aren’t coming back as quickly as once expected and market participants are not patient with ‘show me’ stories. Better to position into proven themes and stories.
Signs of things taking longer to come back may get visible in everything related to travel, gold, interest rates, casinos, etc. Indeed, there is palpable stress in retail and financial names as well; sectors that were showing steady progress for the last few months.
Chinese ADRs have been in the doghouse for a while now, mostly due to concerns related to politics, including fears of de-listing and things like the Tik-Tok ban, but several of those names have continued to deliver strong results throughout and the risk-reward tradeoff, once again, looks favorable. Yes, there is just one name on the list this week, but several names showed up high on our screens.
The strong stock performance of DraftKings Inc. and Penn National Gaming Inc. is well documented, but there is an equally strong fundamental growth story building up in the broader gaming industry. Zynga and GameStop are in this week’s list, but several other names are showing up strong on our screens, some of which will be covered in our notes in the coming week.
We don’t have very many healthcare names in our database, but there are selective niches that are shaping up to be good opportunities. De-linking from China of the API industry is one among them. We wrote a note on Lasa Supergenerics, a small API manufacturer in India. Private equity players have been actively scooping up assets. Most businesses in the US are part of large pharmaceutical companies, but we intend to take a closer look at Eastman Kodak Company.
More than outright negative, various sectors are losing steam, and financials names are high among those. Other than some beaten-down names in selective niches, the broader sector looks weak, mostly due to changing expectations related to the recovery in the economy and interest rate movements.
Most REITs also look vulnerable once again. Fundamentally, the sector never recovered but quantitative data turned favorable for a while, thanks to bottom fishing, but the momentum seems to be lost once again.
Last week, we talked about Airlines at risk in the absence of a strong package from the government; the theme continues this week as well. Indeed, changing expectations about economic recovery and inflation is creeping into mining names as well. Given high commodity prices are baked into most mining company’s results, the next leg of the rally needs commodity prices to increase or at the least sustain at current levels. Both of those options look weak for now.
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.