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Top Ten Trader
Discover the Market’s Strongest Stocks

Cabot Top Ten Trader Issue: August 1, 2022

2022 has been pretty sour this year, but let’s give credit where it’s due—the market has been able to put one foot in front of the other for a few weeks now, and importantly, after showing enough strength to turn the intermediate-term trend up two weeks ago, the buyers have kept on buying, really the first time we’ve seen that all year. The vast majority of action has been from off-the-bottom names, so it’s not the time to go bananas on the buy side. But with the evidence continuing to improve, we’re OK extending your line as things start working.

This week’s list has a wide range of names in a variety of sectors. Our Top Pick has a reliable story and solid growth, and its sector is suddenly acting very spunky. Try to buy on dips after the recent move.

Cabot Top Ten Trader Issue: August 1, 2022


Encouraging Action

2022 has been pretty sour this year, but let’s give credit where it’s due—the market has been able to put one foot in front of the other for a few weeks now, and importantly, after showing enough strength to turn the intermediate-term trend up two weeks ago, the buyers have kept on buying, really the first time we’ve seen that all year. Now, to be clear, it’s still not Shangri-La out there---the vast majority of stocks are still stuck below long-term moving averages, and so far, the the best action has been from off-the-bottom names (a lot of which are starting to hit resistance areas), with most that are near multi-month highs generally stagnating (though, to be fair, some have started to pop). Overall, then, it’s not the time to go bananas on the buy side, but with the evidence continuing to improve, we’re OK extending your line as things start working. We’re moving up our Market Monitor another notch to a level 5.

This week’s list has a wide range of names in a variety of sectors. Our Top Pick is Cadence Design (CDNS), which has a reliable story and solid growth, and the chip sector is suddenly acting very spunky. Try to buy on dips after the recent move.

Stock NamePriceBuy RangeLoss Limit
Analog Devices (ADI)171167-172152-154
Cadence Design Systems (CDNS) ★ TOP PICK ★185178-183161-164
CH Robinson (CHRW)110107-11098-100
Chart Industries (GTLS)190187-193165-167
Enphase Energy (ENPH)281268-280222-227
EQT Corp. (EQT)4240.5-4335.5-37
Petrobras (PBR)1413.5-14.012.0-12.2
Shoals Tech (SHLS)2221-22.517.5-18.5
Willscot Mobile Mini (WSC)3937-38.533-34
WW Grainger (GWW)550530-550490-500

Stock 1

Analog Devices (ADI)

PriceBuy RangeLoss Limit

Why the Strength

As the digitization-of-everything trend accelerates, chip maker Analog Devices (covered in the May 23 report) is positioned to be a leader, holding the top position in analog, mixed signal and radio-frequency (RF) semiconductors and the number two position in power management chips. Analog’s recent strength was due to a major Wall Street bank giving the firm its top ranking among semiconductor companies, noting the firm’s “defensive stance” in the face of weakening demand for PCs and cell phones. Before that, another major bank named Analog its favorite chip stock, stating its belief the company has eclipsed Texas Instruments as the leading analog chip maker based on its “accelerating” free cash flow. Another driving force behind Analog’s rebound is last week’s passage of federal legislation designed to increase domestic chip manufacturing and make the industry more competitive with China (the bill provides $52 billion in subsidies to the industry, plus another $24 billion in investment tax credits to chip facilities). And finally we have China’s reopening after its strict Covid-related lockdown measures earlier this summer, which at least one analyst believes will goose results in the quarters to come. When the company reports Q3 earnings on August 17, analysts expect revenue of $3 billion (up 74% from a year ago if realized) and per-share earnings of $2.43 (up 40%), and while growth should slow next year, management sees a path to $15 of annual EPS (up from an estimated $9.21 this year) and a whopping 40% free cash flow margin (which will lead to big shareholder returns). A 1.8% dividend yield—plus a 19-year string of annual payout increases—is also a plus.

Technical Analysis

We took a nibble at ADI a couple of months back when it was resisting the market’s weakness in May, but it soon gave up the ghost with most chip stocks in June, diving to a new bear low of 139 early last month. But that now looks like a shakeout, as ADI has moved persistently higher back above its 200-day line (which capped the March and May rallies) and near six-month highs. We’re fine buying a little here or on minor weakness.

Market Cap$89.1BEPS $ Annual (Oct)
Forward P/E19FY 20204.91
Current P/E22FY 20216.30
Annual Revenue$9.75BFY 2022e9.26
Profit Margin42.5%FY 2023e9.88

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr2.9779%2.4056%
One qtr ago2.6872%1.9435%
Two qtrs ago2.3453%1.7320%
Three qtrs ago1.7621%1.7226%

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Stock 2

Cadence Design Systems (CDNS) ★ Top Pick

PriceBuy RangeLoss Limit

Why the Strength

The semiconductor industry has grabbed the spotlight in recent months, with the chip shortage spawning a tidal wave of private and public sector money to increase capacity. A leader in the electronic design segment of the chip industry is Cadence, which provides software, hardware and internet protocol that turn design concepts into reality. Beyond chip makers, its clientele is quite extensive and includes major players in the automotive, aerospace, healthcare and telecom spaces. But semiconductors are the main story right now, as many firms in that industry rely on Cadence’s software to design and test their chips. Last week’s Q2 report underlined the company’s belief that the mega-trend in semiconductors and convergence of system and chip designs will prompt more companies to increase investments in silicon for years to come, constantly widening its customer base. To that end, Cadence just acquired OpenEye Scientific—a molecular modeling software provider whose products are used by Pfizer, AstroZeneca and other biotechs and academic institutions—that will extend its system design and computational software strategy into the life sciences market. Cadence also recently bought Future Facilities, which will expand its footprint in the data center design space. On the financial front, Cadence is a model of consistency, with earnings up at least six years in a row, and in Q2, the firm delivered double-digit growth across all product categories, with Q2 revenue of $857 million increasing 18% from a year ago, while per-share earnings of $1.08 were up 26% and beat estimates by 11 cents. Going forward, Cadence expects the growth to continue, guiding for sales of around $870 million in Q3 (up 16% if realized and in-line with estimates), with earnings of 96 cents per share expected (up 20%).

Technical Analysis

It has been a rocky ride for CDNS in the past year, with shares rallying from 150 last August to a record peak of 190 by the end of the year, followed by a quick, market-induced slide all the way to 133 in February. However, that was the low, with the stock finding support at that level in May, etching a higher low in June and after one more dip to 150 in July, taking off on great volume, with shares now attacking their old high. A pullback here is likely, so if you want in, aim for dips of a few points.

Market Cap$50.7BEPS $ Annual (Dec)
Forward P/E45FY 20202.80
Current P/E47FY 20213.29
Annual Revenue$3.28BFY 2022e4.11
Profit Margin34.7%FY 2023e4.60

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr85818%1.0826%
One qtr ago90223%1.1741%
Two qtrs ago7732%0.82-1%
Three qtrs ago75113%0.8014%

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Stock 3

CH Robinson (CHRW)

PriceBuy RangeLoss Limit

Why the Strength

The efforts made by thousands of companies to try to recover from global supply chain snafus continues in a way that benefits C.H. Robinson, one of the world’s largest logistics platforms. It’s easier now to get goods from one place to another than during the peak of the pandemic, but lingering issues means that rates have been remaining higher than usual. That’s good for Robinson, which acts as a broker between some 100,000 shippers and customers. The company has a clause that allows it to reprice contracted rates in response to the market, allowing Robinson to pass on higher freight rates as well as increased fuel costs with its contracted carriers –half its business is in North American trucking and 85% of business overall is North America. Results for Q2, reported Thursday, showed the company using its heft well: Revenue was up 23% to $6.8 billion with adjusted gross profit – gross profit excluding amortization of its brokering software system – topping $1 billion, up 38% from a year ago. In particular, Robinson has been unlocking gains in the trucking market, which on a volume basis was about level across full truckload and less-than-truckload segments, but saw the bottom line rise thanks to a rise in automated bookings through its software platform, where deals are brokered and priced without a Robinson employee getting involved. These boom times won’t last forever, but the stock is strong because they could last for much longer than first thought—for 2022, Robinson should produce revenue of $26.6 billion and earnings per share of $8.65, and while 2023 should see a retrenchment as fuel and shipping rates fall toward normal, the bottom line should still be in the $6.50 to $7 range. A 2% dividend yield adds a nice cherry on top of the story.

Technical Analysis

CHRW isn’t a dynamic performer—the stock has effectively been range bound for a couple of years despite rising earnings, mostly on the view that the good times won’t last and, of course, because of the weak market. But there are signs the stock is ready to go: The RP line has been moving up since February and after many attempts to break the 112 area, the stock’s latest big-volume earnings move may have absorbed all available supply. Of course, resistance could lead to a bit of a wobble near-term, but we’re OK nibbling here or on dips.

Market Cap$13.9BEPS $ Annual (Dec)
Forward P/E13FY 20203.72
Current P/E13FY 20216.31
Annual Revenue$26.4BFY 2022e8.56
Profit Margin5.1%FY 2023e6.63

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr6.823%2.6785%
One qtr ago6.8242%2.0560%
Two qtrs ago6.543%1.7461%
Three qtrs ago6.2648%1.8585%

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Stock 4

Chart Industries (GTLS)

PriceBuy RangeLoss Limit

Why the Strength

Chart is a leading equipment provider for clean energy and industrial gas companies, and its products are used in every phase of the liquid gas supply chain. The company is positioned to benefit from the myriad energy supply issues related to the Russian invasion and, more significantly, is poised to gain from the ongoing transition away from fossil fuels, as liquified natural gas (LNG) has become a leading lower-carbon fuel source for generating electricity. The stock is strong today after last week’s Q2 report set new records across the business. The company achieved its best-ever quarter for orders ($888 million) and record gross margin dollars ($95 million), and its seventh consecutive record backlog quarter (nearly $2 billion). Meanwhile, revenue of over $400 million was 26% higher from a year ago, and EPS of 88 cents beat the consensus by 5%. Aside from LNG-related activity, Specialty Products orders were the highest in Chart’s history—and the sixth consecutive quarter above $100 million—driven by record orders for hydrogen, space exploration (including a $16 million commitment from a large space customer) and water treatment, as well as elevated activity in the food and beverage end markets. Looking ahead, the growth doesn’t look to be ending anytime soon, as Chart’s said it was in discussions with over 550 different potential hydrogen customers at the end of Q2 (up over 80% from a year ago) and over 300 possible large-scale carbon capture customers (up 50%). Analysts see the bottom line surging this year, and the top brass thinks earnings can grow north of 25% annually during the next few years.

Technical Analysis

After breaking out of a seven-month holding pattern last August and running up over 20%, GTLS hit a ceiling at 200 in September. From there, it stumbled with the rest of the market, falling 45% into January, but it didn’t stay down, with a very nice advance in late March. GTLS then spent the next four months in a holding pattern above 150, but last week’s strong move looks like a change in character, with Friday’s push back to resistance a good sign. Today’s hesitation isn’t surprising (most names are still struggling overtaking resistance), but we’re OK starting small here or on dips.

Market Cap$7.17BEPS $ Annual (Dec)
Forward P/E38FY 20202.41
Current P/E65FY 20212.72
Annual Revenue$1.47BFY 2022e5.17
Profit Margin9.0%FY 2023e8.02

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr40526%0.8810%
One qtr ago35423%0.65-12%
Two qtrs ago37921%0.73-20%
Three qtrs ago32820%0.49-22%

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Stock 5

Enphase Energy (ENPH)

PriceBuy RangeLoss Limit

Why the Strength

Solar stocks have taken pole position as the leading sector of this nascent market rally, and Enphase Energy looks like the top dog in that group. The company is the leading provider of microinverters for solar arrays, which offer lots of benefits compared to “regular” string inverters—when combined with its chip designs and decision-making software, Enphase’s offering has far better performance and lower failure rats, even allowing the solar array (like one on top of a house) to acts as its own grid should the general power grid fail (assuming customers are using its latest iQ8 microinverter). That business alone has great potential, but the company has its fingers in other large cookie jars, too: The firm’s advanced energy storage systems are selling like hotcakes (deliveries in Q2 up 10% from the prior quarter), and a recent acquisition has led to Enphase moving into the EV charger market (sold 8,250 chargers in Q2 with much bigger numbers to come). The industry as a whole is doing well, but that’s now being supercharged by Europe, where businesses and individuals are looking for energy security anywhere it can find it; revenues soared 69% sequentially in Q2 (up 89% from a year ago), with another 40% sequential gain likely in Q3! The U.S. business is doing just fine as well, leading to a big pickup in sales growth in the quarter (68% vs. 46% in Q1) and earnings that not only doubled but crushed estimates ($1.11 per share beat by 26 cents). Analyst have ratcheted up their expectations (this and next year’s estimates are both up 45 cents from before the quarterly report), and it’s a good bet that even those figures will prove conservative, especially if the new green energy bill passes Congress.

Technical Analysis

ENPH spent more than a year and a half gyrating in a wide range after a major top in January 2021, but the stock had shown lots of relative strength this year, with much higher lows after January’s nadir and plenty of support in June and early July (although the action was very hectic). Then came last week, which looks like the coming out party, with ENPH surging back to its old highs on its second heaviest weekly volume since the early 2021 top. Pullbacks should be buyable, but use a loose leash.

Market Cap$38.2BEPS $ Annual (Jan)
Forward P/E71FY 20201.37
Current P/E85FY 20212.41
Annual Revenue$1.74BFY 2022e3.98
Profit Margin28.3%FY 2023e4.80

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr53068%1.11109%
One qtr ago44146%0.7941%
Two qtrs ago41356%0.7343%
Three qtrs ago35297%0.60100%

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Stock 6

EQT Corp. (EQT)

PriceBuy RangeLoss Limit

Why the Strength

There’s been something of a rebound in energy stocks as both energy prices remain elevated despite recession fears/realities ($94 oil and $8 gas) and Q2 earnings reports show the underlying cash flow stories in the sector are very much intact. EQT Corp. is similar to Chesapeake Energy (written about last week) in that it’s heavy into natural gas—in fact, it’s the #1 gas producer in the U.S. (it says it would be the 12th largest gas producer if it was its own country!) with more than 1,800 core locations (and more besides), which translates into 15 years or so of inventory given its maintenance production outlook. And while everyone is half-anticipating the energy sector coming back down to earth fundamentally , it’s not looking that way: In Q2, EQT cranked out $543 million of free cash flow (3.3% of the market cap in one quarter) even as its averaged realized price (including hedges) was a mere $3.21. And, really, cash flow should pick up from here as unprofitable hedges roll off, land capital spending eases further and breakeven rates decline: At strip prices, the firm sees cumulative free cash flow of $22 billion through 2027, which is 130% of the current market cap; even assuming prices average $4, that figure would still be $17 billion, or nearly $3 billion annually. To be fair, one fly in the ointment here is EQT’s still-big debt position (including more than $3 billion that matures 2025-2027), which is being chipped away at but is for now still taking up the lion’s share of that cash flow. Still, there’s still room for a decent dividend (1.4% yield, recently increased) and a $1 billion of share buybacks (it’s bought back 2.5% of shares outstanding since late last year)—and as the debt continues to come down (down 10% last quarter alone), it’s a good bet that more of the firm’s profits will be returned. Big picture, EQT should do very well even if the sector cools off for a while.

Technical Analysis

EQT was a laggard until March, when it took off on the upside, basically doubling in just a couple of months—before giving back most of those gains in the commodity-stock correction in June. That downturn was sharp (nearly 40%), but EQT did hold above its 40-week line, and while volume has been light, the stock has recouped a large portion of that decline, which is impressive. If you want in, we’re fine picking up a few shares here-ish.

Market Cap$16.1BEPS $ Annual (Sep)
Forward P/E11FY 2020-0.19
Current P/E20FY 20210.92
Annual Revenue$6.37BFY 2022e3.96
Profit Margin13.4%FY 2023e7.93

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr2.53N/M0.83999%
One qtr agoN/MN/M0.81212%
Two qtrs ago3.84N/M0.41N/A
Three qtrs agoN/MN/M0.12N/A

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Stock 7

Petrobras (PBR)

PriceBuy RangeLoss Limit

Why the Strength

Petrobras is one of the world’s largest oil and gas producers, engaging in refining, energy generation and trading. The Brazilian state-owned company’s expertise is in deep and ultradeep water exploration and production and is a world leader in this segment. Petrobras made headlines last week after announcing a huge dividend, as higher oil prices boosted cash flow in Q2, prompting the firm to announce a distribution of a whopping $17 billion to shareholders (30% of the current market cap and a reason for the strength). Half the record dividend (which represents around 87% of last year’s total payout) will be paid on August 1, with the other half paid on September 20, and is the result of Brazil’s government pressuring Petrobras to do more to help lower the nation’s inflation problem and fund social benefits. The dividend follows a blowout second quarter that saw solid results in the firm’s upstream and downstream segments go nuts: Revenue of $35 billion soared 65% from a year ago, while recurring EBITDA of $20 billion jumped 34% from the prior quarter and free cash flow of $13 billion rose 61% sequentially, thanks to higher Brent crude prices and strong natural gas and oil product sales. Looking ahead, Petrobras said it has already concluded most of its contracting for 2023 and 2024 and expects five new drilling rigs to come online next year, plus three more in 2024, thanks to the strong oil market outlook. Management also anticipates the company’s high refinery utilization rates (which hit 99% last week) to continue through the rest of 2022, likely averaging 86% in the second half. Analysts see earnings zooming this year and remaining elevated next year.

Technical Analysis

PBR didn’t do much from year-end 2020 to the fourth quarter of last year, but its December breakout led to a solid, relatively smooth run, with shares getting up to 15 near Memorial Day before the selling took over. PBR did fall sharply to around 11, but interestingly, it held its 40-week line and tightened up a bit at that point, and last week’s quarterly report/earnings announcement caused a solid-volume rush back toward its highs. Dips under 14 should be buyable.

Market Cap$94.0BEPS $ Annual (Dec)
Forward P/E3FY 20200.21
Current P/E2FY 20212.94
Annual Revenue$109BFY 2022e4.48
Profit Margin31.8%FY 2023e3.84

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr32.546%2.78111%
One qtr ago29.995%2.53999%
Two qtrs ago24.167%0.87-51%
Three qtrs ago22.377%0.88N/A

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Stock 8

Shoals Tech (SHLS)

PriceBuy RangeLoss Limit

Why the Strength

Solar stocks had already been making progress toward turning bullish again when news of an agreement on the Inflation Reduction Act last week jumpstarted interest. The bill, which still faces some risk of failing, would devote billions of dollars toward accelerating solar adoption nationally. Clean energy is deflationary because the technology keeps getting cheaper and over time utility bills should go down. Shoals Technologies is at the heart of utilities’ photovoltaic systems, with half the solar capacity in the U.S. using its electrical balance of systems (EBOS), the collection of the components needed to gather, regulate and transfer electricity from photovoltaic panels. The new bill would extend tax credits for solar installations out 10 years, providing lots of cost certainty for developers and helping Shoals’ sales pitch. The U.S. solar market has already been growing at a 17% annual rate, while EBOS has been growing faster, at 23%, as retrofits seek to upgrade to more efficient equipment. EBOS is about 6% of the cost of a typical utility project, with most of that taken up with labor. Shoals is focused on developing less labor-intensive ways of installing its products, saying today its systems require 43% less worker expense than competing ones. The company’s order backlog is up 67% from last year, to $302 million, about a full year’s sales. 2022 should see revenue up 47% to $315 million, with earnings lifting 36% off a low base; next year’s growth is expected to accelerate, and that was even before the proposal by Congress. Long term, any minimum domestic component requirement for tax credits would boost Shoals’ fortunes even more. Its EBOS expertise should also give it a foothold in EV chargers, systems that also require sophisticated electrical management. All in all, it’s a good solar story. Earnings are likely out in a couple of weeks.

Technical Analysis

SHLS came public in January and closed its first week at 34; nearly 10 months the later, the stock was at the same level before bear market mauled it, with shares imploding to 11 in February, and after a rally, to just below 10 in late April and early May. That’s when the repair process started, though, with a push up to 20 in June and a wild consolidation for the next few weeks. And when the news came out last week, SHLS gapped above its 200-day line for the first time in months. The stock is lower priced and super volatile (see today’s action), but we’re fine with a small buy here or (preferably) on weakness.

Market Cap$3.90BEPS $ Annual (Dec)
Forward P/E78FY 20200.28
Current P/E102FY 20210.22
Annual Revenue$236MFY 2022e0.30
Profit Margin13.3%FY 2023e0.68

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr6849%0.050%
One qtr ago48.124%0.01-80%
Two qtrs ago59.814%0.07-22%
Three qtrs ago59.738%0.0913%

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Stock 9

Willscot Mobile Mini (WSC)

PriceBuy RangeLoss Limit

Why the Strength

WillScotMobile isn’t going to be a stock you brag about at a cocktail party, but it’s got a great business that should do well even if the economy does slow down further. Thanks to its acquisition of Mobile Mini a couple of years ago, the firm is the hands-down leader in modular work space solutions and portable storage for North America (390,000 units), both of which you’ll see littered all over major construction projects in the U.S.. It might seem like a highly cyclical business but the facts tell otherwise—the average contract length here is 30 months, providing lots of visibility, while modular offerings see their rental prices rise pretty nearly every year (up 10% in just the past year and a half). Plus, these boxes last for two or three decades, so CapEx is low after the initial purchase (though the firm does expand through M&A, with three small buys in the past three months alone). The customer base is extremely broad, and the strong construction economy and limited CapEx profile is leading to very good results, especially as the firm moves into value-added products (office chairs, coffee makers, etc., which are higher margin) making up a bigger piece of the pie—sales were up 20% in Q1, with EBITDA up 17% and free cash flow coming in at 24 cents per share (larger than earnings). And management sees a long runway of growth ahead, with revenues growing high single digits and free cash flow moving from $1.16 per share in the past 12 months to the $2 to $4 range in the next three to five years. The next big event will come Wednesday after the close, when WillScot will report earnings.

Technical Analysis

WSC topped out in January of this year and had three legs down after that, with lows at 34 in March, 32 in May and then under 31 in June. But like a lot of stocks, that looks like the bottom, with WSC quickly recouping lost ground and tagging three-month highs last week. Earnings on Wednesday are obviously important, so it’s fine to wait to see the reaction—but if you want to roll the dice ahead of that, we suggest aiming for dips.

Market Cap$8.51BEPS $ Annual (Dec)
Forward P/E29FY 20200.41
Current P/E43FY 20210.80
Annual Revenue$1.98BFY 2022e1.33
Profit Margin10.1%FY 2023e1.69

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr50920%0.2269%
One qtr ago51818%0.3260%
Two qtrs ago49118%0.26271%
Three qtrs ago46180%0.08-33%

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Stock 10

WW Grainger (GWW)

PriceBuy RangeLoss Limit

Why the Strength

You’ve likely heard of Grainger, a top broadline industrial supply and equipment provider with a 100-year history. Its offerings range from motors, lighting and tools to plumbing and safety supplies, and its retail outlets can be found in almost every U.S. state, as well as in Canada, Japan and the U.K. What you may not realize is the company recently entered the storied ranks of “dividend kings” (that is, companies with a record of at least 50 consecutive years of rising payouts), albeit the payout is a modest 1.3%. The larger part of Grainger’s appeal is the underlying business—it supplies 4.5 million active customers across virtually every industry imaginable, making it fairly recession-proof, and the firm is able to increase its addressable market by constantly adding new product categories to its huge catalog. Grainger showed just how resilient it was in a weakening retail sales environment during Q2, posting revenue of $3.8 billion—up 20% from a year ago—while per-share earnings of $7.19 beat estimates by 54 cents and lifted 68%. The company reported “strong demand” for its products and said the execution of its strategic initiatives is driving “sustained growth and share gain” across the business, allowing it to return over $200 million to shareholders through dividends and stock buybacks. The strong results prompted management to raise the guidance for 2022, including expected sales growth of around 16% and a forecasted 41% EPS midpoint increase, in what it sees as “an exceptionally strong year.” Wall Street anticipates sales growth of around 15% for both Q3 and the full year, which could prove too conservative given Grainger’s momentum. It’s not sexy, but Grainger is a solid operation.

Technical Analysis

GWW sailed to a record high of 480 in April 2021 before turtling over the next five months. The decline was halted in October at 390 and by year’s end, it had recovered to a new high at 520, but the sellers quickly were back on the scene, with the net result that shares made no net progress from that April 2021 peak through two weeks ago. But the reaction to earnings last week was great, with GWW popping back to new highs on big volume and then tacking on more gains today. We’re OK taking a swing at it here or on weakness.

Market Cap$27.4BEPS $ Annual (Dec)
Forward P/E20FY 202016.18
Current P/E20FY 202119.84
Annual Revenue$14.2BFY 2022e26.50
Profit Margin9.7%FY 2023e29.36

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M)(vs. yr-ago-qtr)($)(vs.yr-ago-qtr)
Latest qtr3.8420%7.1968%
One qtr ago3.6518%7.0758%
Two qtrs ago3.3614%5.4449%
Three qtrs ago3.3712%5.6525%

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Previously Recommended Stocks

Below you’ll find Cabot Top Ten Trader recommended stocks. Those rated HOLD are stocks that traded within our suggested buy range within two weeks of appearing in the Top Ten and still look good; hold if you own them. Stocks rated WAIT have yet to dip into our suggested buy range … but can be bought if they do so within the next week.

Those stocks rated SELL should be sold if you own them; they will no longer be listed here. Finally, Stocks in the DROPPED category are those that failed to trade within our buy range within two weeks of our recommendation; that’s not a bad thing, we just never got the price we wanted. Please use this list to keep up with our latest thinking, and don’t hesitate to call or email us with any questions you may have. New recommendations each week are in bold.

DateStockSymbolTop PickOriginal Buy RangePrice as of 8/1/2022
7/18/22Acadia HealthACHC73-7682
7/11/22Agilon HealthAGL24-25.525
7/5/22Alliance Resource PtnrARLP17.3-18.323
7/18/22Axsome TherepeuticsAXSM38.5-40.536
6/27/22Biomarin PharmBMRN83-8685
7/18/22Consol EnergyCEIX53.5-56.560
7/25/22Chesapeake EnergyCHK89-9290
7/18/22Crisper TherapeuticsCRSP75.5-78.574
7/18/22Day One PharmaDAWN16-17.516
5/10/21Devon EnergyDVN25-26.562
6/6/22Enphase EnergyENPH197-205281
7/25/22Global Blood TherGBT32-3432
7/25/22Incyte Corp.INCY78-8077
5/16/22Intra-Cellular TherapiesITCI54-5752
7/11/22Karuna TherapeuticsKRTX127-131124
7/25/22Lattice SemiLSCC54.5-5662
7/25/22Levi StraussLEVI18.0-18.819
5/23/22Nexstar MediaNXST173-178189
6/13/22Neurocrine BioNBIX89-9292
6/21/22Ollie’s Bargain OutletOLLI56-58.561
7/11/22PTC TherapeuticsPTCT41-4345
6/27/22Royalty PharmaRPRX41.5-43.543
6/13/22Scorpio TankersSTNG31-3340
6/27/22Shockwave MedicalSWAV185-195213
5/31/22United TherapeuticsUTHR224-230225
7/11/22Vertex PharmaceuticalsVRTX288-296274
7/11/22Zoom CommunicationsZM105-109105
7/25/22Quanta ServicesPWR127-131139
6/27/22Daqo New EnergyDQ66.5-7061
5/31/22Dollar TreeDLTR155-161167
7/5/22Legend BiotechLEGN51-5445
7/18/22Li AutoLI37.5-4034
7/5/22Northrop GrummanNOC477-485476
None this week

The next Cabot Top Ten Trader issue will be published on August 8, 2022.

About the Analyst

Mike Cintolo

A growth stock and market timing expert, Michael Cintolo is Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable is his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.