It hasn’t been smooth, of course, but the market’s evidence has improved a bit during the past six or seven weeks. The way we look at this is that the market has put itself in a position to do something positive in the intermediate-term—but it still has to actually do it, meaning show enough strength to turn the trends up and see more stocks break out and follow through to higher prices. Right now we remain in watch and wait mode: We’re keeping our eyes open, but it’s best to remain defensive until the bulls show us more.
This week’s list is again heavy on biotech and Chinese names, though we’re also seeing some strength in a few new (but smaller and sometimes less liquid) growth names. Our Top Pick is a unique medical-related outfit whose stock is changing character for the better.
Cabot Top Ten Trader Issue: July 11, 2022
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More Positives—but Need to Keep BuildingIt hasn’t been smooth, of course, but the market’s evidence has improved a bit during the past six or seven weeks—growth stocks (the leaders of the bear phase on the downside) stopped going down in mid May; for the first time all year, some growth titles are staging breakouts from multi-month ranges; and the broad market has stabilized and shrugged off plenty of bad news. The way we look at this is that the market has put itself in a position to do something positive in the intermediate-term—but it still has to actually do it, meaning show enough strength to turn the trends up and see more stocks break out and follow through to higher prices. Earnings season will likely have a lot to say about the next major move, especially when it comes to potential leading names, but right now we remain in watch and wait mode: We’re keeping our eyes open, but it’s best to remain defensive until the bulls show us more. Our Market Monitor remains at a level 3.
This week’s list is again heavy on biotech and Chinese names, though we’re also seeing some strength in a few new (but smaller and sometimes less liquid) growth names. Our Top Pick is Agilon Health (AGL), a newer name with a great story and a strengthening stock—as with most ideas, we suggest aiming for dips and keeping new positions. small.
| Stock Name | Price | Buy Range | Loss Limit |
| Agilon Health (AGL) ★ TOP PICK ★ | 26 | 24-25.5 | 20.5-21.5 |
| Baidu (BIDU) | 144 | 141-145 | 125-128 |
| Braze (BRZE) | 42 | 40-42 | 34-35 |
| Duolingo (DUOL) | 94 | 106-108 | 92-94 |
| Fortinet (FTNT) | 62 | 59-61 | 53-54 |
| Karuna Therapeutics (KRTX) | 130 | 127-131 | 111-113 |
| PTC Therapeutics (PTCT) | 43 | 41-43 | 35.5-36.5 |
| Vertex Pharm (VRTX) | 294 | 288-296 | 260-265 |
| Xpeng (XPEV) | 29 | 28-30 | 23.5-24.5 |
| Zoom Communications (ZM) | 108 | 105-109 | 93-95 |
Stock 1
Agilon Health (AGL) ★ Top Pick
| Price | Buy Range | Loss Limit |
| 26 | 24-25.5 | 20.5-21.5 |
Why the Strength
Agilon is a six-year old business seeking to remodel how seniors and their physicians manage care. Agilon enters 20-year partnerships with physician groups in which the usual model of doctor compensation – a fee per visit, often $100-$200 – is shifted to a monthly, subscription-like payment more than four times that, which doctors have total responsibility for. The idea is that physicians are rewarded for focusing on the total care of a patient, encouraging more preventative teamwork that reduces higher cost outcomes like hospitalizations – and conforms better to the type of practice most doctors wish to be doing. Agilon and member doctors split the upside from the savings evenly, with the average primary care doctor doubling their income to nearly $400,000. The company says a key part of its strategy is gaining a mass of doctors in a region, for scale. For that reason, Agilon focuses on often-overlooked markets like Akron, Syracuse and Austin, where it now has about a third of the city’s doctors signed up. Benchmarks for care appear much better with Agilon’s physicians, with more patients taking annual wellness and cancer screenings and having fewer hospital admissions than traditional care models. Agilon’s model doesn’t require a lot of capital to expand and each new physicians group signed up pays back Agilon’s cost of acquisition in a year. While it’s not a household name, this is no small outfit: Company revenue will be over $2.5 billion this year (lifting north of 40%), more than three times 2019, with its non-GAAP ‘medical margin’ – before profit sharing with doctors and covering corporate expenses – rising to about $300 million. Watch for adjusted EBITDA – which includes additional costs like money spent in new markets not yet generating revenue – to turn positive for the first time this year.
Technical Analysis
AGL priced its IPO at 23 in April 2021 and surged to 45 last summer before the market got its claws into it, cutting the stock by about two-thirds. Twice this year AGL made a low in the 15-16 area during general market selloffs but opportunistic buyers supported shares. And last week, AGL broke through resistance at its 40-week line on four straight days of above-average trade as it challenges resistance in the 28 area. We like the action, but suggest aiming for weakness if you want in.
| Market Cap | $10.9B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -0.16 |
| Current P/E | N/A | FY 2021 | -1.02 |
| Annual Revenue | $2.08B | FY 2022e | -0.10 |
| Profit Margin | 0.1% | FY 2023e | 0.09 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 654 | 58% | 0.01 | N/A |
| One qtr ago | 463 | 44% | -0.14 | N/A |
| Two qtrs ago | 459 | 47% | -0.09 | N/A |
| Three qtrs ago | 499 | 70% | -0.76 | N/A |
Stock 2
Baidu (BIDU)
| Price | Buy Range | Loss Limit |
| 144 | 141-145 | 125-128 |
Why the Strength
Baidu is basically China’s version of Google and owns a dominant stake (74%) of the nation’s online search engine market. While generating most of its revenue from digital ads, its AI-based Baidu Cloud business—which offers cloud storage, client software and resource sharing—is fast becoming a major sales driver in its own right and is projected to make up close to 30% of the company’s non-ad business by 2024. Baidu also runs a robotaxi service, Baidu Apollo Moon, and like its U.S. counterpart Google, has made a foray in the autonomous vehicle industry. Last month, Baidu launched Jidu Robo 1, a prototype car that is capable of driving itself and communicating with passengers, providing full voice control capability for more than 99% of the car’s functions. Baidu, along with its partner Geely, plans to mass produce and deliver the car in 2023, and aims to launch a second car in 2024. Also accounting for the recent strength was Baidu’s announcement that it plans to sell its controlling stake in the Chinese video streaming firm iQIYI (total market cap is around $3 billion), raising capital that it will put toward its AI and autonomous driving businesses. On the financial front, things haven’t been great, but investors think a turnaround is coming within a couple of quarters: Q1 revenue of $4.5 billion was 4% higher from a year ago, while per-share earnings of $1.77 were down 6% but beat the consensus by a mile; while core ad revenue was down year-on-year, cloud/AI revenue was up 35% and made up 20% of the total. Going forward, China’s recently announced $220 billion stimulus plan is expected to boost the economy, which in turn should help the legacy ad business while the firm’s newer ventures continue to take flight.
Technical Analysis
Like many other Chinese ADRs, BIDU peaked in February last year after a huge run and had an equally huge decline—shares fell from around 350 to 100 before buyers finally said enough. The massive-volume support in March led to a successful retest in May, and while BIDU hasn’t exactly lit the world on fire of late, the stock has held above its 10-week line for seven weeks and has actually tightened up. If you’re game, today’s broad China selloff could be an opportunity.
| Market Cap | $53.5B | EPS $ Annual (Dec) | |
| Forward P/E | 21 | FY 2020 | 9.80 |
| Current P/E | 19 | FY 2021 | 8.38 |
| Annual Revenue | $19.5B | FY 2022e | 7.33 |
| Profit Margin | 13.7% | FY 2023e | 9.27 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 4.48 | 4% | 1.77 | -6% |
| One qtr ago | 5.21 | 12% | 1.83 | -41% |
| Two qtrs ago | 4.95 | 19% | 2.27 | -24% |
| Three qtrs ago | 4.86 | 32% | 2.39 | 15% |
Stock 3
Braze (BRZE)
| Price | Buy Range | Loss Limit |
| 42 | 40-42 | 34-35 |
Why the Strength
Software stocks have been the dog’s dinner during this bear phase, but we’re starting to see a few act better—mostly among newer names that weren’t overplayed during the last bull run. Braze looks like a potential winner with a straightforward story: The company has what appears to be a better customer engagement platform for brands of all sorts, allowing them to ingest huge amounts of data and stay in touch (welcome to our rewards program!) and/or prompt (via emails, texts, app alerts and more) customers to use their offerings more. Basically, Braze lets brands give consumers personalized, real-time interactions across a range of channels to keep engagement and loyalty strong, and it integrates with tons of leading data storage and management platforms (including Snowflake, Azure, Google Cloud and more), all of which makes it a step-function improvement from legacy marketing clouds, which tend to focus on one channel (just email or text) and don’t work as well for enterprises. And it’s clearly catching on: Gap, Venmo, the NBA, Wine.com, Pizza Hut, HBO, Intuit, IBM, Sephora, Sonic, Burger King, GoFundMe, FanDuel, P&G, CVS, Ralph Lauren, Shake Shack, Allergan, Etsy, Yelp and Nascar are just some of the 1,500-plus customers (a figure that’s up 50% from last year!), helping the firm’s revenue to kite ahead at a 60%-plus clip in recent quarters, partly thanks to growth among the existing base (same-customer revenue growth has been between 23% and 28% for at least the past nine quarters, and the growth is even faster among large clients), while remaining performance obligations rose 57% in Q1. To be fair, the valuation isn’t cheap ($4.4 billion, about 14x run-rate revenue), but we think Braze has something unique and could be a new leader if the stock can grow up a bit liquidity- and sponsorship-wise.
Technical Analysis
BRZE came public at a great time for the company (but a horrid time for investors), right near the market top in mid November, and shares quickly deflated from a post-IPO peak near 100 to a low of 27 in May. But the stock began to find its footing at that point, with big-volume support in mid June, a push above its 50-day line in late June and a nice lift last week. Like most names at this point, we think BRZE is a better buy on dips, especially given the relatively low trading volume (~$34 million per day), while using a loose loss limit.
| Market Cap | $4.30B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2021 | -0.35 |
| Current P/E | N/A | FY 2022 | -0.77 |
| Annual Revenue | $268M | FY 2023e | -0.80 |
| Profit Margin | N/A | FY 2024e | -0.61 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 77.5 | 62% | -0.19 | N/A |
| One qtr ago | 70.4 | 64% | -0.47 | N/A |
| Two qtrs ago | 64 | 63% | -0.10 | N/A |
| Three qtrs ago | 55.8 | 55% | -0.13 | N/A |
Stock 4
Duolingo (DUOL)
| Price | Buy Range | Loss Limit |
| 94 | 106-108 | 92-94 |
Why the Strength
Duolingo isn’t a well known name, but it’s the dominant player in a good-sized field: The company has the highest grossing education app across app stores and is the most popular way for people to learn languages—Duolingo says that seven times as many people Google “duolingo” compared to “learn Spanish.” The firm’s platform offers learning for 40 different languages, though these aren’t usually hard-core courses; they instead are presented almost as games to make learning more fun, which keeps people coming back. On the more serious side of things, the company also has an English test that’s used for international admissions by more than 3,600 higher education outfits. All told, it’s a big market, much bigger than you might think: Duolingo has 49.2 monthly million active users and 12.5 million daily active users (it says there are more people learning many languages on its platform than those that natively speak them!), though the vast majority use the product for free (with ads providing some revenue); at the end of Q1, the company has 2.9 million paying subscribers (up 60% from a year ago; no ads and more features), which account for most of the revenue (about three quarters of the total). Still, all business lines are growing—subscription revenue was up 45% in Q1, while ads (up 27%) and English tests (up 60%) are also expanding, and while earnings are in the red, free cash flow is positive thanks to the subscription (deferred revenue) aspect of the business. Big picture, Duolingo is becoming the standard for anyone to learn a new language, so there should be plenty of growth potential, first from converting current free users to paying ones, second by attracting new users, and third via the English test (management thinks we’re in the early stages of standardized assessments moving online). Analysts see the top line lifting more than 40% this year and nearly 30% next, both of which are likely low. It’s a good story.
Technical Analysis
DUOL came public last July, and after a brief pop, had a big decline, partly due to the typical post-IPO droop and partly because of the market. But the stock started to put up a fight in March, when it found big-volume support, and it did so again in May, which has led to some positive performance in recent weeks—including last week’s mild-volume surge above the 40-week line. A downgrade and the weak market today took a chunk out of DUOL, so we’ll set our buy range up a bit, thinking a rebound from today would be bullish.
| Market Cap | $4.10B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -0.43 |
| Current P/E | N/A | FY 2021 | -1.63 |
| Annual Revenue | $277M | FY 2022e | -1.75 |
| Profit Margin | N/A | FY 2023e | -1.50 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 81.2 | 47% | -0.31 | N/A |
| One qtr ago | 73 | 51% | -0.46 | N/A |
| Two qtrs ago | 63.6 | 40% | -0.79 | N/A |
| Three qtrs ago | 58.8 | 47% | -0.01 | N/A |
Stock 5
Fortinet (FTNT)
| Price | Buy Range | Loss Limit |
| 62 | 59-61 | 53-54 |
Why the Strength
Cyberattacks are becoming increasingly dangerous as cyber criminals use sophisticated innovations powered by artificial intelligence and automation via AI “fuzzing” and machine learning. To combat this, cybersecurity giant Fortinet is fighting fire with fire by using AI in its cybersecurity solutions to stay ahead of evolving threats. The company’s FortiAI, for instance, alleviates the tedious manual threat investigation of security alerts and threat response by identifying threats and malware outbreaks in fractions of a second and blocking them. Fortinet’s AI-based offerings have increased its already massive customer base—the firm boasts 80% of Fortune 500 companies among its customers—and it enjoys a leading position (38% share) in the firewall market with FortiGate being the world’s most deployed network firewall. It also has the second-biggest position (20% share) in the software-defined wide area network (SD-WAN) hardware appliance market behind Cisco Systems. Fortinet’s strength was underscored by a stellar Q1 report which boasted revenue that increased 34% from a year ago along with per-share earnings of 19 cents that beat estimates and were up 19%. Other metrics were equally impressive, including bookings of $1.3 billion that jumped 50%, billings that soared 36% and deferred revenue that rose 33%. Customers are also spending more on the firm’s products, including 90 deals in Q1 that were worth $1 million or more (up 36%). Also accounting for the recent strength was a 5-for-1 stock split that brought the share price down. Analysts see earnings up nearly 30% this year and north of 20% in 2023, both of which are likely conservative.
Technical Analysis
FTNT was a slow starter coming out of the 2020 pandemic compared to many cybersecurity names, but it finally broke out in early 2021 and had a beautiful, smooth advance until it topped in the 75 area last December. However, the stock has been resilient throughout the bear phase—shares have held support in the low 50s for all but a few days in May and, while it’s not setting the world on fire, FTNT’s RP line set a new high last week. There should be resistance here, so if you want to nibble do so on weakness.
| Market Cap | $50.5B | EPS $ Annual (Dec) | |
| Forward P/E | 62 | FY 2020 | 0.67 |
| Current P/E | 74 | FY 2021 | 0.80 |
| Annual Revenue | $3.59B | FY 2022e | 1.02 |
| Profit Margin | 16.2% | FY 2023e | 1.24 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 955 | 34% | 0.19 | 19% |
| One qtr ago | 964 | 29% | 0.25 | 19% |
| Two qtrs ago | 867 | 33% | 0.20 | 11% |
| Three qtrs ago | 801 | 30% | 0.19 | 12% |
Stock 6
Karuna Therapeutics (KRTX)
| Price | Buy Range | Loss Limit |
| 130 | 127-131 | 111-113 |
Why the Strength
Karuna Therapeautics is a clinical-stage biotech outfit that focuses on psychiatric and neurological conditions, a huge and (unfortunately) growing market that includes 2.7 million Americans (and more than 20 million worldwide) living with schizophrenia, which not only crushes a person’s (and caregivers) standard of living but can cut life short by 30 years. Current treatments all approach that disease in the same way, and thus “only” address things like hallucinations and delusions and don’t touch apathy, lack of motivation, memory impairments and more. And these treatments also have big side effects (weight gain, abnormal movement disorders, etc.) that lead many (even most) to stop treatment within 18 months. Karuna’s possible claim to fame is a drug in trials known as KarTX, which goes about treating schizophrenia in a different way, using xanomeline (one of the first compounds found to be effective against schizophrenia and, in some cases, those with Alzheimer’s) along with trospium (to limit peripheral effects)—and the early results have been fantastic, with huge declines in a wide array of symptoms, and while there were some side effects, they were much milder than current treatments, didn’t cause anyone to stop treatment and didn’t include weight gain, sedation and the like. Karuna has a bunch of Phase III trials going now for the drug, with top line data for one of them likely this quarter and for another likely in Q1 of next year. Obviously, the success of those trials will make or break Karuna (if the data is good, a submission to the FDA won’t be far behind; if not, the stock will probably collapse), and it’s not unusual for psychological drugs to fail in late-stage trials. Translation: This is clearly a speculative, heads-or-tails situation, though it’s worth noting that one of the firm’s directors is certainly a believer, buying a whopping $14 million (120,000 shares at 123 a share) worth of stock on July 1.
Technical Analysis
KRTX has actually handled itself fairly well during the bear phase, effectively bottoming in February near 94 and holding that general area in both May and June. But it’s the recent action that caught our eye—KRTX has rallied four straight weeks, all on above-average weekly volume, pushing back toward resistance near 140 and above all of its key moving averages. To reiterate, this stock is more like a lottery ticket when looking out a few months, so handle it with care—but if you want to roll the dice, we’re OK with a nibble on dips of a few points.
| Market Cap | $3.99B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -2.59 |
| Current P/E | N/A | FY 2021 | -4.91 |
| Annual Revenue | Nil | FY 2022e | -8.02 |
| Profit Margin | N/A | FY 2023e | -8.45 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | Nil | N/A | -1.95 | N/A |
| One qtr ago | Nil | N/A | -0.94 | N/A |
| Two qtrs ago | Nil | N/A | -1.72 | N/A |
| Three qtrs ago | Nil | N/A | -1.17 | N/A |
Stock 7
PTC Therapeutics (PTCT)
| Price | Buy Range | Loss Limit |
| 43 | 41-43 | 35.5-36.5 |
Why the Strength
PTC is a biopharma focused on developing orally administered, small molecule drugs and gene therapies for diseases with high unmet medical needs, with five approved medicines in its portfolio. Promising results from a placebo-controlled trial for one of its drugs, called Translarna, which is used in patients with a rare genetic disease (nonsense mutation Duchene muscular dystrophy (nmDMD), catapulted the company onto Wall Street’s radar and is a big reason for the recent strength. PTC said the 18-month trial demonstrated a significant benefit for the experimental therapy across the target population. Translarna is already an authorized treatment for nmDMD in Europe, and the trial results should lend support to the drug remaining on the E.U. market and increase the chances of Translarna securing a full FDA approval in the U.S. (where it remains an investigational drug). Wall Street thinks both outcomes could happen, and a major institution just raised its price target for PTC in the wake of the trial (another reason for the strength). The institution also sees optionality for PTC’s other pipeline assets, including its Phase II clinical trial for evaluating the effect of its drug PTC518 for treating patients with Huntington’s Disease, the degenerative brain disorder. The company’s Q1 financial performance support the optimism; while per-share earnings were in the red and missed estimates, total revenue of $149 million was up 26% from a year ago, while product revenue soared 42%, led by $79 million in Translarna sales. Management guided for revenue of around $725 this year—a 35% improvement from 2021—and said the firm is committed to building out its “robust” pipeline of new therapies. Analysts see sales 35%-ish percent sales in the next three quarters.
Technical Analysis
PTCT topped near the end of 2020 and was cut in half over the next few months, and while it held support for a while after that, it eventually plunged to new lows with the market into mid June. But that last dip looks like a big shakeout now, as PTCT exploded higher three weeks ago on the trial results and the RP line has ripped ahead to its highest level since April 2021. The 45 area could be sticky, and after the recent run, we advise aiming for dips if you want to grab a few shares.
| Market Cap | $3.15B | EPS $ Annual (Sep) | |
| Forward P/E | N/A | FY 2020 | -6.64 |
| Current P/E | N/A | FY 2021 | -7.43 |
| Annual Revenue | $570M | FY 2022e | -5.28 |
| Profit Margin | N/A | FY 2023e | -3.93 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 149 | 26% | -1.78 | N/A |
| One qtr ago | 165 | 39% | -2.03 | N/A |
| Two qtrs ago | 139 | 17% | -1.89 | N/A |
| Three qtrs ago | 117 | 55% | -1.68 | N/A |
Stock 8
Vertex Pharm (VRTX)
| Price | Buy Range | Loss Limit |
| 294 | 288-296 | 260-265 |
Why the Strength
Vertex is a blue chip in the resilient biotech field and is best known for its treatments for cystic fibrosis (CF), led by its main CF drug Trikafta, which brought in nearly $6 billion sf sales last year. The company is making significant headway in diversifying into other treatment areas, which should increase its addressable market. Vertex already boasts a robust pipeline of investigational small molecule, cell and genetic therapies in other ailments, including type 1 diabetes and Duchenne muscular dystrophy. Among the most promising of these is Exa-Cel, for patients with transfusion-dependent beta thalassemia (TDT) and severe sickle cell disease (SCD). Last month, Vertex and its partner CRISPR Therapeutics released Phase III clinical data that showed Exa-Cel has the potential to be a one-time “functional cure” for both TDT and SCD patients—a reason for the stock’s strength. Another promising Vertex drug candidate in Phase III trials is VX-147, which treats a rare genetic kidney disease (the market for which is 20% bigger than the CF market). Vertex is also addressing the opioid crisis with its Phase II drug, VX-548, which treats acute pain following abdominoplasty surgery. The company released positive results of its latest trial for this drug in Q1 and aims for pivotal development later this year, which could help fill the huge demand for non-opioid pain management options. As for the here and now, business is good: Sales and earnings were both up 20%-ish in Q1, led by a nearly 50% bump in Trikafta sales, though to be fair Wall Street does see growth slowing in the intermediate-term while its other products get through the approval process (Exa-Cel will be submitted for approval before year-end). All in all, Vertex offers stability but also solid growth prospects down the road.
Technical Analysis
VRTX was a poor performer in 2020 and much of 2021, but that’s led to a solid rebound since it bottomed out back in October—there has been plenty of chop with the market since February, but the stock has etched higher lows throughout the past few months and, more recently, VRTX has bounced back from the 235-240 area twice, with the latest surge on solid volume. We’re OK nibbling here or (preferably) on dips.
| Market Cap | $75.5B | EPS $ Annual (Dec) | |
| Forward P/E | 21 | FY 2020 | 10.32 |
| Current P/E | 22 | FY 2021 | 13.02 |
| Annual Revenue | $7.94B | FY 2022e | 14.17 |
| Profit Margin | 43.2% | FY 2023e | 15.22 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 2.1 | 22% | 3.52 | 18% |
| One qtr ago | 2.07 | 27% | 3.37 | 34% |
| Two qtrs ago | 1.98 | 29% | 3.56 | 35% |
| Three qtrs ago | 1.79 | 18% | 3.11 | 19% |
Stock 9
Xpeng (XPEV)
| Price | Buy Range | Loss Limit |
| 29 | 28-30 | 23.5-24.5 |
Why the Strength
China is stimulating domestic demand for new cars by cutting sales tax rates through December. EVs from manufacturers like Xpeng will continue to get preferential treatment over internal combustion engines, with buyers able to get a credit back on all sales tax, plus various new local incentives that are in place. The moves come as Xpeng sees a strong rebound in EV demand even before this push: In June, the firm’s monthly update revealed that it delivered 15,295 vehicles in June, more than double the year ago figure and coming on top of a near-doubling in May. Continuing pandemic lockdowns in some Chinese cities has crimped demand, but in most regions, management says buying has returned to pre-pandemic levels, even with higher pricing. The firm also benefits from manufacturing its cars outside cities that are still battling with Covid – even as many competitors still face plant slowdowns – though that doesn’t completely eliminate continuing supply chain problems. Each Xpeng EV needs about 5,000 computer chips for everything from interfacing with the company’s own charger network to powering driver-assisted parallel parking. That means current quarter sales will be held back by lack of parts, but full year sales are still seen hitting $6.2 billion, about 90% greater than last year. Longer-term, Xpeng is doubling its own chip production to focus on meeting domestic demand (while easing plans to expand sales in Europe) and aims to use more of its own chips in future vehicles, including the G9 SUV, which is due to roll out in September. Management expects it to be a ‘blockbuster’ in the medium size SUV market in China starting next year. The G9, along with fleet-wide add-on fees for driver assist and fast-charging access have analysts expecting gross margin to improve to 20% going into 2023, though the bottom line remains in the red.
Technical Analysis
XPEV lost more than 50% of its value in the first quarter of the year, but the action didn’t actually take it far out of its (very, very wide) two-year trading range. Like most Chinese peers, the stock found huge-volume support in March, double bottomed in May and the recent move higher (including three weeks in a row of gains on solid volume) is encouraging. XPEV has pulled back after smacking resistance near the 40-week, which is par for the course in this environment--if you want to grab some shares, you can do so on this retreat.
| Market Cap | $27.5B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -0.58 |
| Current P/E | N/A | FY 2021 | -0.83 |
| Annual Revenue | $4.00B | FY 2022e | -1.04 |
| Profit Margin | N/A | FY 2023e | -0.62 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 1.18 | 161% | -0.28 | N/A |
| One qtr ago | 1.35 | 208% | -0.22 | N/A |
| Two qtrs ago | 0.89 | 203% | -0.27 | N/A |
| Three qtrs ago | 0.58 | 597% | -0.21 | N/A |
Stock 10
Zoom Communications (ZM)
| Price | Buy Range | Loss Limit |
| 108 | 105-109 | 93-95 |
Why the Strength
As the return to work trend continues apace, video conferencing provider Zoom has seen a drop-off in individual customers. But Zoom is still growing by expanding its product offerings and focusing on contact center solutions driven by artificial intelligence (AI). Zoom just completed an acquisition of Solvvy, a provider of conversational AI customer support technology, which the company sees accelerating the adoption of its new contact center product. Another big development is Zoom Phone, a cloud-based solution that allows users to seamlessly make and receive phone calls, share content, participate in video meetings and send chat messages from Zoom’s desktop and mobile apps; in a recent presentation, the firm touted the “very strong momentum” of Zoom Phone as it’s achieved two million licenses since its inception in 2019 and crossed the three million paid seat threshold during Q1—an industry record. Additional new products include Zoom Whiteboard and Zoom IQ for sales teams, Zoom Rooms for modern workspace solutions and the just-launched Zoom One, an all-in-one communication and collaboration offering. Obviously, the best growth for the company is behind it—the pandemic was a once-in-a-lifetime (we hope) situation—but this is still an emerging blue chip of sorts in its fields. In fiscal Q1, the company posted revenue of just over $1 billion that was 12% higher than a year ago while earning $1.03 per share (16 cents above estimates, but down 22%). High-paying customer sales (i.e. above $100,000) were up 46%, while the net-dollar expansion rate for enterprise customers rose 23% on a trailing 12-month basis. Management raised guidance for the full year and now expects revenue of about $4.4 billion (up 7%) and EPS of around $3.73 (up 7% from prior estimates). Wall Street sees modest but steady growth resuming next year.
Technical Analysis
After reaching an all-time peak just south of 600 in October 2020, ZM topped out and then collapsed, erasing the gains the stock made during the pandemic. But the last four months have seen a bottoming process, with shares hitting a nadir of 80 in May and etching out a base that could serve as a launching pad for a new bull move; ZM has lived above its 10-week line for seven weeks and is back to where it was in February, both far better than the indexes. The 120 area has been a wall, but the pullback is normal thus far and approaching support. There’s risk, but we’re OK nibbling here if you want to start a position.
| Market Cap | $37.0B | EPS $ Annual (Jan) | |
| Forward P/E | 33 | FY 2021 | 3.34 |
| Current P/E | 25 | FY 2022 | 5.07 |
| Annual Revenue | $4.21B | FY 2023e | 3.78 |
| Profit Margin | 29.4% | FY 2024e | 4.01 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 1.07 | 12% | 1.03 | -22% |
| One qtr ago | 1.07 | 21% | 1.29 | 6% |
| Two qtrs ago | 1.05 | 35% | 1.11 | 12% |
| Three qtrs ago | 1.02 | 54% | 1.36 | 48% |
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.
| Date | Stock | Symbol | Top Pick | Original Buy Range | Price as of 7/11/2022 |
| HOLD |
| 6/13/22 | Academy Sports | ASO | ★ | 32-34 | 37 |
| 6/6/22 | Alkermes | ALKS | | 27.5-29 | 31 |
| 7/5/22 | Alliance Resource Ptnr | ARLP | | 17.3-18.3 | 20 |
| 6/21/22 | Argenx | ARGX | | 345-355 | 356 |
| 7/5/22 | Autonation | AN | | 113-117 | 113 |
| 6/27/22 | Biomarin Pharm | BMRN | | 83-86 | 88 |
| 6/27/22 | BJ’s Wholesale Club | BJ | | 62-64.5 | 69 |
| 5/23/22 | Bumble | BMBL | | 25.5-27.5 | 34 |
| 5/16/22 | Celsius | CELH | | 53-56 | 75 |
| 6/21/22 | CrowdStrike | CRWD | | 161-168 | 185 |
| 6/27/22 | Daqo New Energy | DQ | | 66.5-70 | 69 |
| 5/10/21 | Devon Energy | DVN | ★ | 25-26.5 | 53 |
| 5/31/22 | Dollar Tree | DLTR | | 155-161 | 166 |
| 6/6/22 | Enphase Energy | ENPH | | 197-205 | 206 |
| 5/16/22 | Funko | FNKO | | 18.8-19.8 | 24 |
| 4/18/22 | Halozyme | HALO | | 40.5-42 | 50 |
| 5/16/22 | Intra-Cellular Therapies | ITCI | | 54-57 | 55 |
| 6/27/22 | JD.com | JD | | 63-66 | 60 |
| 6/13/22 | Jinkosolar | JKS | | 56-58.5 | 70 |
| 5/23/22 | Nexstar Media | NXST | | 173-178 | 166 |
| 6/13/22 | Neurocrine Bio | NBIX | | 89-92 | 96 |
| 7/5/22 | Northrop Grumman | NOC | | 477-485 | 476 |
| 6/21/22 | Ollie’s Bargain Outlet | OLLI | | 56-58.5 | 71 |
| 7/5/22 | Perrigo | PRGO | | 39.5-41 | 42 |
| 6/21/22 | Pinduoduo | PDD | | 59-62 | 55 |
| 6/27/22 | Royalty Pharma | RPRX | ★ | 41.5-43.5 | 43 |
| 6/13/22 | Scorpio Tankers | STNG | | 31-33 | 32 |
| 6/27/22 | Shockwave Medical | SWAV | | 185-195 | 201 |
| 6/21/22 | SolarEdge | SEDG | | 270-285 | 280 |
| 7/5/22 | Trip.com | TCOM | | 25-26.5 | 25 |
| 5/31/22 | Ulta Beauty | ULTA | | 410-420 | 383 |
| 5/31/22 | United Therapeutics | UTHR | ★ | 224-230 | 242 |
| WAIT |
| 7/5/22 | Global Blood Ther. | GBT | ★ | 31-33 | 34 |
| 7/5/22 | Legend Biotech | LEGN | | 51-54 | 55 |
| SELL RECOMMENDATIONS |
| 6/27/22 | FedEx | FDX | | 233-238 | 224 |
| 6/6/22 | Synopsis | SNPS | | 317-326 | 315 |
| DROPPED |
| None this week | | | | | |
The next Cabot Top Ten Trader issue will be published on July 18, 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.
