The big event last week for the market was that, by our measures, the intermediate-term trend of the major indexes and many growth funds turned up, which is enough for us to extend our line a bit—but, at this time, just a bit, as there remain many headwinds, including the longer-term trend and (very important) the lack of upside breakouts quite yet. That tells us to go slow and keep our eyes peeled for further upside confirmation—if we see that, we’ll continue to put more money to work in fresh leaders, but should the nascent rally hit a wall, we’ll hold off. For now, we’ve nudged our Market Monitor up to a level 4 and will take it day by day from here.
This week’s list has a bunch of names that have shown solid power of late, though most do report earnings within the next two or three weeks, so be sure to keep things small and aim for dips.. Our Top Pick is an innovative software firm whose stock is actually tightening up after a good-looking bottoming process.
Cabot Top Ten Trader Issue: July 25, 2022
DOWNLOAD ISSUE PDF
Continued Improvement—but Far from a Raging BullThe big event last week for the market was that, by our measures, the intermediate-term trend of the major indexes and many growth funds turned up, and combined with the baby steps we’ve seen in recent weeks, it’s enough for us to extend our line a bit—but, at this time, just a bit, as there remain many headwinds, including the longer-term trend, uncertainty surrounding this week’s Fed meeting, earnings season and (very important) the lack of upside breakouts quite yet. None of those things are necessarily bearish, but it does tell us to go slow right here and keep our eyes peeled for further confirmation (higher prices in the indexes, earnings gaps and upside breakouts in individual stocks)—if we see that, we’ll continue to put more money to work in fresh leaders, but should the nascent rally hit a wall, we’ll hold off (or back off) depending how it goes. For now, we’ve nudged our Market Monitor up to a level 4 and will take it day by day from here.
This week’s list has a bunch of names that have shown solid power of late, though most do report earnings within the next two or three weeks, so be sure to keep things small and aim for dips.. Our Top Pick is GitLab (GTLB), an innovative software firm whose stock is actually tightening up after a good-looking bottoming process.
| Stock Name | Price | Buy Range | Loss Limit |
| Chesapeake Energy (CHK) | 92 | 89-92 | 79-81 |
| Cinemark Holdings (CNK) | 19 | 18.5-19.3 | 16.4-16.8 |
| Gitlab (GTLB) ★ TOP PICK ★ | 55 | 53.5-56 | 46-47.5 |
| Global Blood Therapeutic (GBT) | 33 | 32-34 | 28-29 |
| Incyte Corp (INCY) | 81 | 78-80 | 72-73 |
| Lattice Semi (LSCC) | 57 | 54.5-56 | 48.5-49.5 |
| Levi Strauss (LEVI) | 19 | 18.0-18.8 | 16.5-16.8 |
| Qualcomm (QCOM) | 153 | 147-153 | 132-134 |
| Quanta Services (PWR) | 134 | 127-131 | 116-118 |
| Repligen (RGEN) | 198 | 189-194 | 165-168 |
Stock 1
Chesapeake Energy (CHK)
| Price | Buy Range | Loss Limit |
| 92 | 89-92 | 79-81 |
Why the Strength
Despite pervasive recession fears, tanking leading economic indicators and a hawkish Fed, natural gas prices never really gave up the ghost (recent low of $5.50 was well above last year’s range) and have stormed back to north of $8, and anything close to that is going to lead to ridiculous cash flows for a firm like Chesapeake. The company thinks it has the best story among the entire energy group, and it’s hard to disagree, as its gas-heavy operations in the Marcellus (45% of production), Haynesville (42%) and Eagle Ford (13%) have a wealth of high-return wells (more than 2,000 with returns north of 100% even at $3.50 gas and $70 oil!), translating into a couple of decades of fantastic inventory. And that’s going to lead to some hard-to-believe cash flow figures for many years to come—even at the aforementioned price deck ($3.50 gas/$70 oil, which is way below the current market), Chesapeake would spin off $1.8 billion of free cash flow annually for the next five years (16% of the market cap), with much higher figures should current prices stick. And that, of course, is going to lead to huge payouts and buybacks—Chesapeake has a solid base dividend ($2 per share annually that would stick even down to $2.15 natural gas prices!), pays out half of cash flow above that (the Q1 dividend was $2.34 per share total; Q2’s should be much bigger) and is aiming to buy back $1 billion of stock in both 2022 and 2023 (about 9% of the current market cap each year). Obviously, there is a risk that the energy prices could eventually tumble—maybe a lessening/end of the Russian invasion would do it—but when you combine all of the above with a small debt position (far less than 1x cash flow), it’s clear Chesapeake will be paying out mounds of cash for years to come. Some modest insider buying in late June is also a plus. Earnings are due August 3.
Technical Analysis
CHK had a stair-step advance from early 2021 through February of this year, then accelerated higher with the sector into its top at 105 in late May. The correction was sharp (down to 73 earlier this month), but interestingly, shares did hold their 200-day line, and while the bounce hasn’t been one of the record books, CHK has recouped as much as 60% of its decline and is around 12% off its peak. Earnings will be important, of course, and near-term dips are possible, but we think a nibble on weakness could prove fruitful.
| Market Cap | $11.5B | EPS $ Annual (Dec) | |
| Forward P/E | 6 | FY 2020 | 19.34 |
| Current P/E | 10 | FY 2021 | 33.47 |
| Annual Revenue | $5.60B | FY 2022e | 14.40 |
| Profit Margin | 46.6% | FY 2023e | 18.14 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 935 | -18% | 3.09 | -89% |
| One qtr ago | 3086 | 147% | 2.39 | -79% |
| Two qtrs ago | 890 | -7% | 2.38 | -53% |
| Three qtrs ago | 693 | 37% | 1.64 | -93% |
Stock 2
Cinemark Holdings (CNK)
| Price | Buy Range | Loss Limit |
| 19 | 18.5-19.3 | 16.4-16.8 |
Why the Strength
Movie theaters were under serious pressure during the 2020 pandemic and for many quarters last year, too, and Cinemark was no exception. The company, which operates 520 movie theaters and nearly 6,000 screens across the U.S. and Latin America, was forced to temporarily close in March 2020, and within a few months, there were rumors on Wall Street that Cinemark was running out of liquidity. But the theater chain responded aggressively to the crisis through a series of measures that included salary reductions and a dividend suspension, while also launching a series of progressive ventures near the end of 2020 that recaptured some of its lost business (including the rollout of private screenings and gaming parties, plus the introduction of a new dine-in theater, kitchen and bar—with extra safety precautions—at two of its Texas locations). A year-and-a-half later, Cinemark is reaping the fruits of those pandemic-era decisions while witnessing the return of foot traffic at its theaters nationwide (helped along by the long-awaited stream of new movie releases), prompting a major institution to upgrade the shares (a reason for the strength). In Q1, revenue came in even better than expected, quadrupling to over $460 million as box-office momentum accelerated in the quarter and, according to management, “continues to build.” Even more tellingly, Cinemark’s net loss narrowed substantially, to $74 million (from a year-ago loss of $208 million), while EBITDA turned positive, to $25 million compared to a $92 million loss a year ago. Looking ahead, the company further plans to open three new theaters (42 screens) this year, plus nine more theaters (70 screens) after that. And when the Q2 report comes out on August, 5, analysts expect revenue to increase 150% (likely conservative).
Technical Analysis
After a big rally between October 2020 and March 2021, which saw CNK rally from 8 to 26 on pandemic recovery hopes, the stock hit a wall and stumbled back to 14 last August. There was a good rally after that, but that, too, hit a wall, with the result being multiple tests of the 13-14 support area during the next many months. Now, though, CNK is changing character, with five weeks up in a row, including last week’s big-volume leap toward 20. With earnings out soon, we advise keeping it small if you want in.
| Market Cap | $2.28B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -5.25 |
| Current P/E | N/A | FY 2021 | -3.55 |
| Annual Revenue | $1.86B | FY 2022e | -0.06 |
| Profit Margin | N/A | FY 2023e | 1.09 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 461 | 303% | -0.62 | N/A |
| One qtr ago | 667 | 579% | 0.05 | N/A |
| Two qtrs ago | 435 | 999% | -0.65 | N/A |
| Three qtrs ago | 295 | 999% | -1.19 | N/A |
Stock 3
Gitlab (GTLB) ★ Top Pick
| Price | Buy Range | Loss Limit |
| 55 | 53.5-56 | 46-47.5 |
Why the Strength
Software has become the backbone of just about every company—yes, there are many old school out outfits there, but whether you’re consumer facing or trying to improve your own productivity, just about every big- and medium-sized firm has a development team that’s building new capabilities into their technology via software. And GitLab is becoming a go-to way to help these teams do that more quickly and efficiently: The firm’s DevOps platform (combines development and operations teams) helps clients develop (and secure, package and release) new software, modules and apps at top speed. Obviously, the platform is detailed and complex, but the idea here is simple and catching on; the number of organizations using platforms like GitLab’s is growing at 50%-plus rates, and as this company’s expands its capabilities, clients continue to sign up for more and more offerings (configuring, monitoring and protecting are future growth areas). Interestingly, too, GitLab is a real modern outfit—it has no physical locations and has been 100% remote since it was founded. As for sales, the firm does offer some free stuff, but obviously most sign up on a per-user, per-month basis, and the customer list includes big players across a range of sectors (Equinix, T Mobile, Ticketmaster, Vistaprint, Siemens, Nvidia, Goldman Sachs, UBS and more). The numbers here are impressive: In Q1 (reported in June), sales rose 75% while the client count was up 64% and the large client count (paying six figures annually) was up 68% and made up 11% of the base (overall same-customer revenue growth is north of 30%), with plenty more of that coming. Granted, the bottom line is clearly in the red and the valuation is up there, but that’s part of what intrigues us—the fact the stock has been resisting the market for months tells us big investors see a great future.
Technical Analysis
GTLB came public in October of last year and after a few weeks went splat, declining from a super-hyped price of 135 to a low near 30 in March. But that was a key point—the stock found extraordinarily-heavy volume support at that time (four straight days massive buying), and that turned out to be the low point, with a retest in May holding up, a bullish earnings reaction in June followed by GTLB motoring up to resistance. We like the tightness of late, too. We’re OK taking a swing at the stock here or (preferably) on weakness with a stop in the upper 40s.
| Market Cap | $8.50B | EPS $ Annual (Jan) | |
| Forward P/E | N/A | FY 2021 | -1.35 |
| Current P/E | N/A | FY 2022 | -1.08 |
| Annual Revenue | $290M | FY 2023e | -0.89 |
| Profit Margin | N/A | FY 2024e | -0.76 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 87.4 | 75% | -0.18 | N/A |
| One qtr ago | 77.8 | 69% | -0.32 | N/A |
| Two qtrs ago | 66.8 | 58% | -0.29 | N/A |
| Three qtrs ago | 58.1 | 69% | -0.28 | N/A |
Stock 4
Global Blood Therapeutic (GBT)
| Price | Buy Range | Loss Limit |
| 33 | 32-34 | 28-29 |
Why the Strength
Global Blood Therapeutics is a biopharma specializing in developing treatments for underserved diseases, with a strong focus on sickle cell disease (SCD). The company’s blockbuster drug, Voxelotor (also known as Oxbryta), has been approved for treating SCD in patients ages four and up, and Global’s pipeline also includes two drugs currently in Phase III trials. The first is Inclacumab, for reducing the frequency of vaso-occlusive crises (VOCs) and reducing hospital re-admissions post-VOC. But the more promising candidate is GBT601, a potential next-generation sickle hemoglobin polymerization inhibitor—it’s this drug that’s making all the waves right now for the company, and the stock’s recent strength is partly due to last month’s announcement that it’s initiated a phase 2/3 clinical trial for it. GBT601 uses a similar mechanism of action as Voxelotor, and it’s designed to bring better results with a smaller dose. Global Blood also just launched an expanded access program for Voxelotor in patients with SCD in Brazil, which has authorized the program in clinical sites around the country. Moreover, a major Wall Street institution recently suggested the company could be a potential acquisition candidate in the biotech space following Pfizer’s deal to acquire Biohaven Pharmaceutical in May. On the financial front, Q1 revenue of $55 million was 41% higher from a year ago, driven by 1,200 new patients taking Voxelotor (a number that has improved each quarter since 2019), with some analysts seeing the potential for hundreds of thousands of patients on the drug down the road. Management believes that as the pandemic subsides, the number of new prescriptions for the drug will improve and anticipates getting authorization for it in Great Britain this year, driving rapid sales growth for years to come. The Q2 report is due out August 2.
Technical Analysis
GBT had a rough 2020 and 2021 and spent most of those two years in a tailspin, dipping from the mid 80s all the way to a low of 22 in August and September of last year. That proved to be the bottom for a few months, and when GBT broke that low, it was relatively briefly—and the strong action since mid June raises the possibility the turn has come. There’s still plenty of overhead to chew through, but after missing our buy price earlier this month, we’re not opposed to a nibble here or on further dips if you want to roll the dice ahead of earnings.
| Market Cap | $2.22B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -4.04 |
| Current P/E | N/A | FY 2021 | -4.81 |
| Annual Revenue | $211M | FY 2022e | -4.60 |
| Profit Margin | N/A | FY 2023e | -2.74 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 55.2 | 41% | -1.26 | N/A |
| One qtr ago | 56.1 | 36% | -1.36 | N/A |
| Two qtrs ago | 52.1 | 41% | -1.13 | N/A |
| Three qtrs ago | 47.6 | 51% | -1.12 | N/A |
Stock 5
Incyte Corp (INCY)
| Price | Buy Range | Loss Limit |
| 81 | 78-80 | 72-73 |
Why the Strength
Incyte is a global biopharmaceutical company focused on finding solutions for cancer and skin disease. Its drug portfolio includes blood cancer treatments Pemazyre and Jakafi (its best seller), the autoimmune disease drug Olumiant, the lymphoma drug Monjuvi and the dermatitis drug Opzelura. The latter drug just received clearance from the FDA for topical treatment of non-segmental vitiligo (a skin disorder with autoimmune roots) in patients 12 years and older, which is a reason for the stock’s strength. Also contributing to the strength is Incyte’s recent collaboration with Pfizer to investigate a combination of Pfizer’s TTI-622 protein with Monjuvi to treat diffuse large B-cell lymphoma in patients who cannot get a stem cell transplant. (The study will be conducted in North America, Europe and Asia-Pacific.) On the financial front, while per-share earnings of 55 cents were 12 cents lower than a year ago on higher operating expenses, revenue of $733 million was 21% higher, led by a 17% increase in Jakafi. (Incyte also collected $71 million in Jakafi royalty revenue from Novartis, up 8% from a year ago). The firm’s oncology portfolio grew 24% in the quarter, driven by new product uptake and multiple new launches, including Pemazyre in Europe and Japan and Monjuvi in Europe. In addition to these launches, there are a number of programs in Incyte’s pipeline that management believes could have a “meaningful impact” on revenue. Looking ahead, analysts expect top- and bottom-line growth of 13% for 2022, followed by several more years of solid upside, while earnings are expected to catapult next year. The Q2 report is due out August 2.
Technical Analysis
INCY hit a major peak at 110 two years ago and fell into a rut that didn’t end until last November, when shares bottomed out at 63. This was a pivotal turning point for the stock, which rallied to 85 in April before etching its first legitimate launching pad in a long time—INCY formed a 23% deep, 14-week structure that should lead to good things if earnings are pleasing. As with most everything out there, resistance (near 85) has led to some selling, but if you want in ahead of earnings, you could pick up a few shares on dips below 80.
| Market Cap | $17.9B | EPS $ Annual (Dec) | |
| Forward P/E | 38 | FY 2020 | -0.42 |
| Current P/E | 32 | FY 2021 | 2.76 |
| Annual Revenue | $3.12B | FY 2022e | 2.16 |
| Profit Margin | 16.8% | FY 2023e | 3.47 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 733 | 21% | 0.55 | -18% |
| One qtr ago | 863 | 9% | 0.10 | -89% |
| Two qtrs ago | 813 | 31% | 1.18 | 413% |
| Three qtrs ago | 706 | 3% | 0.80 | -35% |
Stock 6
Lattice Semi (LSCC)
| Price | Buy Range | Loss Limit |
| 57 | 54.5-56 | 48.5-49.5 |
Why the Strength
Chip stocks were one of the weaker groups coming into July, but they’ve made a nice turnaround with a couple of firms featured in this week’s issue. Lattice’s story revolves around its suites of field programmable gate arrays (FPGAs), which allow for programming by the end customer—Lattice’s FPGAs are known for using the least power, the smallest packaging size, better speeds for videos and still having the best reliability, so its offerings targeted to industrial, communications, computing and autos are being gobbled up. The company’s Auto segment has been a big growth driver lately, including a 40% increase from a year ago in Q1 (and up 16% from the prior quarter). Most recently, Lattice launched CertusPro-NX, which is designed to extend battery life in electric vehicles (EVs) while also providing best-in-class bandwidth, power efficiency and support for a wide range of applications. The company’s growth in autos is also being driven by a ramp of new designs in advanced driver assistance systems (ADAS) and infotainment applications. Lattice’s other segments are also firing on all cylinders, including Communications segment sales that rose 27% (up 4% sequentially) in the latest quarter, driven by servers, computers (Lenovo recently started production with its ThinkPad line) and 5G products, while its consumer segment is also growing nicely thanks to smart home offerings. All told, company-wide revenue grew 30% in Q1, to $151 million, while per-share earnings of 37 cents beat expectations by 4 cents and rose 68%. Management guided for Q2 sales between $153 and $163 million (up 25% at the midpoint and in-line with estimates), while analysts see earnings taking a huge jump this year and growing another 18% in 2023. It’s not changing the world but Lattice has a leadership position in a variety of high-growth areas. The next quarterly report is due out August 1.
Technical Analysis
LSCC had a gigantic post-crash run that finally hit a major peak last November at 85, with shares tracing out a series of lower highs and lows for the next several months; all in all, the stock lost nearly half its value by the time it hit a low near 44 in May. But support showed up after that, with successful retests a couple of times in June and July, and LSCC has recently spurted to nearly four-month highs. You can see what earnings brings, or if you’re aggressive, look to nibble on weakness.
| Market Cap | $7.88B | EPS $ Annual (Dec) | |
| Forward P/E | 36 | FY 2020 | 0.69 |
| Current P/E | 49 | FY 2021 | 1.06 |
| Annual Revenue | $551M | FY 2022e | 1.59 |
| Profit Margin | 35.0% | FY 2023e | 1.88 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 151 | 30% | 0.37 | 68% |
| One qtr ago | 142 | 32% | 0.32 | 68% |
| Two qtrs ago | 132 | 28% | 0.28 | 47% |
| Three qtrs ago | 126 | 25% | 0.25 | 47% |
Stock 7
Levi Strauss (LEVI)
| Price | Buy Range | Loss Limit |
| 19 | 18.0-18.8 | 16.5-16.8 |
Why the Strength
Our favorite firms are ones with new, potentially revolutionary product that are being gobbled up by the masses as they change the way we work, live or are entertained, and Levi Strauss … is not that type of company. Instead, it’s simply a well-managed outfit that’s far outperformed its peers during a time of slowing economic growth and supply chain issues, and the market is beginning to sense the stock is very undervalued. The firm needs no introduction, with one of the top set of brands in the apparel world with a huge base of loyal customers, though despite that, Levi was lost in the wilderness a few years back as it rested on its laurels. In recent years, though, new management has expanded the product lineup: Women’s apparel makes up a third of sales now, up from 26% a decade ago, while tops (20% vs 10%) are also a bigger slice of the pie and there’s a revamping of the Docker’s line and a move into yoga, dresses and even maternity wear that’s starting to pay off. Throw in cost cuts over time and fine-tuning the supply chain, and it’s all paying off now in a tough environment—in Q2 (reported July 7), Levi saw currency-neutral sales rise 20% while earnings lifted 26% (29 cents per share beat by six cents), saw margins actually rise (a rarity in the sector), reaffirmed guidance and it even hiked the dividend by 20% (now yielding a solid 2.5%). As we wrote above, there’s nothing revolutionary here, and analyst estimates show that (earnings up mid/high single digits this year and next), but (a) those should prove conservative given the company’s execution and (b) even with that, the dividend and low valuation (12x trailing earnings) implies there’s room for upside surprises.
Technical Analysis
LEVI had a good (not amazing) post-pandemic rally, but it peaked in May of last year at 31, topped out for a few months and then hit the skids with everything else—it wasn’t until shares sank below 16 in May that they started to find support. That support area held during the market’s June meltdown, and July has been outright bullish—LEVI began pushing higher after its Q2 report and has kept going, rallying for all but three days this month (!) and nosing out to three-month highs in the process. We wouldn’t chase it, but our guess is the worst is behind the stock—if you want in, aim for dips.
| Market Cap | $7.70B | EPS $ Annual (Dec) | |
| Forward P/E | 13 | FY 2020 | 0.21 |
| Current P/E | 12 | FY 2021 | 1.47 |
| Annual Revenue | $6.24B | FY 2022e | 1.55 |
| Profit Margin | 7.9% | FY 2023e | 1.66 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 1.47 | 15% | 0.29 | 26% |
| One qtr ago | 1.59 | 22% | 0.46 | 35% |
| Two qtrs ago | 1.68 | 22% | 0.41 | 105% |
| Three qtrs ago | 1.5 | 41% | 0.48 | 500% |
Stock 8
Qualcomm (QCOM)
| Price | Buy Range | Loss Limit |
| 153 | 147-153 | 132-134 |
Why the Strength
The smartphone market has been weakening this year, with global handset shipments expected to decline 4% for 2022. Despite the softer market, telecom and semiconductor equipment giant Qualcomm managed to generate over $6 billion in smartphone processor revenue in fiscal Q2, up 56% from a year ago, leading to an increase in the company’s share of that market while continuing to expand its portfolio of 5G mobile platforms. Qualcomm Snapdragon processors currently power 75% of Samsung’s Galaxy S22 premium smartphones and 40% of its S21 devices, and the company says it’s the “mobile technology platform of choice for premium and high-tier Android” smartphones made by other leading OEMs. In fact, analysts estimate that Qualcomm captured 44% of all smartphone application processor sales in this year’s first quarter. And with the increasing adoption of 5G smartphones, the firm’s front-end radio frequency (RD) modules are also growing, rising 28% in Q2 and allowing Qualcomm to command a leading share of the front-end RF modules market. Elsewhere, management sees its Snapdragon digital chassis platform as a “significant driver” of the firm’s increasing design wins in the auto sector, while its Snapdragon W5+ and W5 Gen 1 platforms are now the top choice for top-selling smartwatch makers. On the financial front, growth will be terrific during the next couple of quarters: The company’s guidance for fiscal Q3 calls for midpoint revenue of around $11 billion—up 35% if realized—and midpoint earnings of $2.85 per share that would massively exceed the $1.92 EPS from a year ago. Growth should slow some after that, but the surging momentum in the 5G devices, automotive and wearables markets should provide plenty of tailwinds. A modest valuation (14x trailing earnings; 2.0% dividend yield) add to the appeal. The next quarterly report is due out on Wednesday after the close.
Technical Analysis
QCOM leaped from support near 120 to all-time highs in last year’s fourth quarter, hitting an apex at 190. But the bear phase was too much to overcome, with shares steadily bumping downhill during the next few months, tagging correction lows back at that 120 support level in June. But the evidence has improved since then—QCOM has pushed back to its 200-day line (that’s better than ~80% of stocks out there), with a persistent rally in July. You could nibble here or on weakness if you want to roll the dice ahead of earnings, though we’re fine waiting to see the reaction.
| Market Cap | $171B | EPS $ Annual (Sep) | |
| Forward P/E | 12 | FY 2020 | 4.40 |
| Current P/E | 14 | FY 2021 | 8.54 |
| Annual Revenue | $39.3B | FY 2022e | 12.58 |
| Profit Margin | 32.8% | FY 2023e | 13.18 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 11.2 | 41% | 3.21 | 69% |
| One qtr ago | 10.7 | 30% | 3.23 | 49% |
| Two qtrs ago | 9.34 | 12% | 2.55 | 76% |
| Three qtrs ago | 8.06 | 65% | 1.92 | 123% |
Stock 9
Quanta Services (PWR)
| Price | Buy Range | Loss Limit |
| 134 | 127-131 | 116-118 |
Why the Strength
The White House’s two-year freeze on solar panel tariffs paves the way for further growth in the alternative energy sector, which bodes well for Quanta. The company (covered in the April 11 report) provides specialty contracting infrastructure solutions for electric power pipeline, industrial and telecom customers, has also expanded its footprint into the alt energy space, recently acquiring Blattner Holdings, a leading utility-scale renewable energy infrastructure solutions provider. Quanta sees the acquisition as an entrée to the “most attractive areas” of the electric infrastructure complex, and a major investment bank agrees, just upping its price target for the stock based on “renewed upside potential” from midstream and grid investment. Even before the solar tariff freeze, Quanta was firing on all cylinders as each of its segments (especially utilities, which account for the bulk of its orders) reported eye-opening growth in Q1. Revenue of almost $4 billion jumped 47% from a year ago, while record per-share earnings of $1.37 beat estimates by 16 cents. And the positive momentum is likely to continue as the company reported a record total backlog of $21 billion, supported by what Quanta sees as strong opportunities across its service lines (particularly in electric power infrastructure solutions); indeed, in the alt energy space, Quanta said its EV charging program is expected to increase “significantly” this year and beyond. Further out, management sees emerging opportunities for the firm’s underground utility and infrastructure solution operations based on carbon reduction trends. All in all, Quanta is a solid long-term growth outfit (earnings up at least six years in a row, with another big gain this year), and the top brass believes the bottom line can nearly double from this year through 2026. Earnings are expected out August 4.
Technical Analysis
PWR had a beautiful, smooth advance from August 2020 to May of last year, and since then we’ve seen a series of launching pads being built, with higher lows and highs over time—one from May to August of last year, another from November to March and, now we’ve seen one since April. It certainly seems like PWR wants to go higher if the market has turned the corner, but earnings will be key. You could wait for the report, or consider nibbling on a pre-earnings dip.
| Market Cap | $19.0B | EPS $ Annual (Dec) | |
| Forward P/E | 21 | FY 2020 | 3.82 |
| Current P/E | 24 | FY 2021 | 4.92 |
| Annual Revenue | $14.2B | FY 2022e | 6.31 |
| Profit Margin | 5.1% | FY 2023e | 6.90 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 3.97 | 47% | 1.37 | 65% |
| One qtr ago | 3.92 | 35% | 1.54 | 26% |
| Two qtrs ago | 3.35 | 11% | 1.48 | 6% |
| Three qtrs ago | 3 | 20% | 1.06 | 43% |
Stock 10
Repligen (RGEN)
| Price | Buy Range | Loss Limit |
| 198 | 189-194 | 165-168 |
Why the Strength
Demand for biological drugs produced from living organisms (as opposed to synthetics) to treat chronic diseases has risen dramatically, comprising nearly 40% of U.S. drug prescriptions last year and accounting for most of net drug spending globally. Firms specializing in biologics have accordingly seen immense growth in recent years, pointing to a bright future for Repligen. The company makes equipment and materials used in the production of biologics, from cell cultures through purification (dubbed chromatography) to the formulation of vaccines (Repligen’s equipment is widely used in the development and manufacture of mRNA and DNA therapies). Last week, a major Wall Street bank initiated coverage of the firm with a “buy” rating based on Repligen’s high leverage to biologics, with expectations of 20%-plus sales growth through 2025 (a big reason for the stock’s strength). Repligen did nothing to disappoint the sanguine outlook in Q1, reporting revenue of $206 million—up 45% increase from a year ago—along with EPS of 92 cents that beat the consensus by a whopping 20 cents. The company’s base business, meanwhile, improved 37%, led by impressive performance in the firm’s Filtration, Chromatography and Analytics segments with additional strength in gene therapy revenue (up over 100%). Repligen also makes resins used in chromatography and has a leading share in that market. Management has been aggressive building up this business in recent years, including a new launch of its first AAV resins (for gene therapy purification). Analysts see revenue up 18% this year while earnings come in flat-ish, but that’s almost surely conservative given the Q1 beat and bullish long-term outlook. The Q2 report is due out August 2.
Technical Analysis
RGEN was in a long-term uptrend for years but finally topped out after a blowoff move in September near 325—then the market got a hold of the stock, with shares sinking to 138 in April. That was the start of what looks to be a bottom-building phase: The stock found huge-volume support after Q1 earnings, held the upper 130s area in May and again in June, bounced some, and then surged last week after the upgrade. The quarterly report will be key, but we’re OK nabbing a few shares on a shakeout ahead of that.
| Market Cap | $11.2B | EPS $ Annual (Dec) | |
| Forward P/E | 65 | FY 2020 | 1.66 |
| Current P/E | 62 | FY 2021 | 3.06 |
| Annual Revenue | $734M | FY 2022e | 3.10 |
| Profit Margin | 26.0% | FY 2023e | 3.54 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 206 | 44% | 0.92 | 35% |
| One qtr ago | 187 | 72% | 0.81 | 56% |
| Two qtrs ago | 178 | 89% | 0.78 | 95% |
| Three qtrs ago | 163 | 86% | 0.79 | 88% |
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 7/25/2022 |
| HOLD |
| 7/18/22 | Acadia Health | ACHC | ★ | 73-76 | 79 |
| 7/11/22 | Agilon Health | AGL | ★ | 24-25.5 | 25 |
| 7/5/22 | Alliance Resource Ptnr | ARLP | | 17.3-18.3 | 21 |
| 6/21/22 | Argenx | ARGX | | 345-355 | 364 |
| 7/5/22 | Autonation | AN | | 113-117 | 114 |
| 7/18/22 | Axonics | AXNX | | 60-62 | 61 |
| 7/18/22 | Axsome Therepeutics | AXSM | | 38.5-40.5 | 38 |
| 7/11/22 | Baidu | BIDU | | 141-145 | 140 |
| 6/27/22 | Biomarin Pharm | BMRN | | 83-86 | 85 |
| 7/11/22 | Braze | BRZE | | 40-42 | 40 |
| 5/23/22 | Bumble | BMBL | | 25.5-27.5 | 34 |
| 5/16/22 | Celsius | CELH | | 53-56 | 83 |
| 7/18/22 | Consol Energy | CEIX | | 53.5-56.5 | 61 |
| 7/18/22 | Chewy | CHWY | | 39.5-42 | 42 |
| 7/18/22 | Crisper Therapeutics | CRSP | | 75.5-78.5 | 77 |
| 6/21/22 | CrowdStrike | CRWD | | 161-168 | 183 |
| 6/27/22 | Daqo New Energy | DQ | | 66.5-70 | 60 |
| 7/18/22 | Day One Pharma | DAWN | | 16-17.5 | 18 |
| 5/10/21 | Devon Energy | DVN | ★ | 25-26.5 | 58 |
| 5/31/22 | Dollar Tree | DLTR | | 155-161 | 168 |
| 6/6/22 | Enphase Energy | ENPH | | 197-205 | 219 |
| 7/11/22 | Fortinet | FTNT | | 59-61 | 61 |
| 4/18/22 | Halozyme | HALO | | 40.5-42 | 50 |
| 5/16/22 | Intra-Cellular Therapies | ITCI | | 54-57 | 53 |
| 6/27/22 | JD.com | JD | | 63-66 | 63 |
| 7/11/22 | Karuna Therapeutics | KRTX | | 127-131 | 128 |
| 7/18/22 | Lantheus | LNTH | | 65-67.5 | 70 |
| 7/5/22 | Legend Biotech | LEGN | | 51-54 | 50 |
| 7/18/22 | Li Auto | LI | | 37.5-40 | 35 |
| 5/23/22 | Nexstar Media | NXST | | 173-178 | 184 |
| 6/13/22 | Neurocrine Bio | NBIX | | 89-92 | 95 |
| 7/5/22 | Northrop Grumman | NOC | | 477-485 | 454 |
| 6/21/22 | Ollie’s Bargain Outlet | OLLI | | 56-58.5 | 64 |
| 7/5/22 | Perrigo | PRGO | | 39.5-41 | 41 |
| 7/11/22 | PTC Therapeutics | PTCT | | 41-43 | 43 |
| 6/27/22 | Royalty Pharma | RPRX | ★ | 41.5-43.5 | 43 |
| 6/13/22 | Scorpio Tankers | STNG | | 31-33 | 40 |
| 6/27/22 | Shockwave Medical | SWAV | | 185-195 | 208 |
| 7/5/22 | Trip.com | TCOM | | 25-26.5 | 27 |
| 5/31/22 | United Therapeutics | UTHR | ★ | 224-230 | 228 |
| 7/11/22 | Vertex Pharmaceuticals | VRTX | | 288-296 | 284 |
| 7/11/22 | Xpeng | XPEV | | 28-30 | 24 |
| 7/11/22 | Zoom Communications | ZM | | 105-109 | 106 |
| WAIT |
| None this week | | | | | |
| SELL RECOMMENDATIONS |
| 6/13/22 | Academy Sports | ASO | ★ | 32-34 | 43 |
| 6/27/22 | BJ’s Wholesale Club | BJ | | 62-64.5 | 69 |
| 6/13/22 | Jinkosolar | JKS | | 56-58.5 | 62 |
| 6/21/22 | Pinduoduo | PDD | | 59-62 | 56 |
| 6/21/22 | SolarEdge | SEDG | | 270-285 | 299 |
| DROPPED |
| None this week | | | | | |
The next Cabot Top Ten Trader issue will be published on August 1, 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.
