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 1225 U.S. listed companies. The historical data for these earnings models is sourced from SEC filings.
Performance of last week’s model portfolio was,
- Net: 1.4%
- Longs: -2.8%
- Shorts: 4.2%
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,
|2||WKHS||Workhorse Group Inc|
|3||AXP||American Express Company|
|4||DLTH||Duluth Holdings Inc.|
|6||KCAC||Kensington Capital Acquisition Corp.|
|8||VRA||Vera Bradley Inc.|
|10||ALLY||Ally Financial Inc.|
|11||AVB||AvalonBay Communities Inc.|
|12||DFS||Discover Financial Services|
|14||AEO||American Eagle Outfitters Inc.|
|15||MOS||The Mosaic Company|
|16||SIG||Signet Jewelers Limited|
|17||BOOT||Boot Barn Holdings Inc.|
|18||CYD||China Yuchai International Limited|
|20||ENVA||Enova Investment Inc.|
|4||WORK||Slack Technologies Inc.|
|5||PING||Ping Identity Holding Corp.|
|6||COUP||Coupa Software Inc.|
|7||TPIC||TPI Composites Inc.|
|10||GTN||Gray Television Inc.|
|11||PRO||PROS Holdings Inc.|
|13||WW||WW International Inc.|
|14||EPAY||Bottomline Technologies Inc.|
|16||MTSI||MACOM Technology Solutions|
|17||CNNE||Cannae Holdings Inc.|
Trends visible in stocks for next week list
Is this the beginning of the big rotation out of growth names that are trading near extreme valuation by any metric under the sun and into value names? Yes, the last three days of the week are not big enough a data point to call it a trend but the way the market punished high growth high beta names that couldn’t deliver ‘big beat’ numbers during the last quarter suggests there is a large spread between where value investors will step in and where growth investors will leave.
The economy continues to open up and even though the back-to-school season is expected to be weak this year, retail jobs data was encouraging. If the core economic data is positive and the vaccine is around the corner, will the market continue to sell-off?
Even if the broader market sell-off stops, who can blame investors in booking profit and repositioning, after all, September is usually tough, all market gaps are filled, a high amount of margins in the system do increase volatility, and options need to be un-winded. There is ample data available to show that investors are leveraged and overly bullish via options.
For the last few weeks, we have been turning bullish on the retail sector, as evident from recent notes on numerous names from the space, and the sector is finally starting to outperform. Our screens continue to scream at us for more retail exposure, which is why there are five names from the sector that are on this week’s list.
Another sector that is prominent in this week’s list is financials. Even though industry analysts continue to warn us about rising inflation and the resulting impact on interest rates, risk-reward trade-off seems to be favoring the space.
Other than these two, residential REITs are also there, partly due to the recent quarterly data that seems to be pointing that things may not be as bad with significant tenants continue to pay rent.
Prices of agriculture commodities are going up and usually fertilizer stocks tend to follow the prices with a lag, as covered in detail in our note on The Mosaic Company, which suggests that investors may soon start to get excited about the financial impact of rising commodities.
Last week, we talked about how slow-growth technology names that run up with the broader tech rally may be in trouble soon given the weakness exposed by the latest quarterly numbers and using those names as a source of capital for new ideas for the next year. The thesis worked perfectly and there is limited to suggest that the trend may reverse during the coming week. Indeed, some of the high growth names with questionable long-term competitive positioning may also come under fire soon.
There are several ‘remote working’ stocks are on this week’s negative list, but rather than a sectorial call that is largely a function of the mismatch between fundamentals, Street’s expectations, and quantitative data turning against the names.
Our negative call on Chinese ADRs has largely played out and fundamentals continue to be strong, suggesting most names may not come under pressure, relative to other weak tech names, which is why there are hardly any names from the space in this week’s negative list.
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.