As volatility picks up in the market, so too do the dramatic headlines, and we’re starting to see that now—but once again, nothing has really changed with the evidence: The trends of the major indexes are still pointed down, and most strength is being rejected, both of which argue for a continued defensive stance. As for rays of light, we’re still seeing a fair amount of names holding up well, as well as some minor positive divergences. All in all, our antennae remain up—we think upside surprises are possible—but our Market Monitor remains at a level 3.
This week’s list has another crop of resilient stocks from a variety of different areas, from medical to energy to restaurants. Our Top Pick is a familiar growth stock that went through the wringer and is now base-building normally despite the market’s grumpiness.
Cabot Top Ten Trader Issue: October 3, 2022
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Follow the PlanAs volatility picks up in the market, so too do the dramatic headlines, and we’re starting to see that now—weekend worries about Credit Suisse’s solvency and the U.K. bond market made the rounds, with recession talk at a fevered pitch and plenty of military saber rattling overseas. But once again, nothing has really changed with the evidence: The trends of the major indexes are still pointed down, and most strength is being rejected, both of which argue for a continued defensive stance. As for rays of light, we’re still seeing a fair amount of names holding up well, as well as some minor positive divergences (growth funds haven’t hit new lows while things like the Dow Industrials have), not to mention the fact that everyone is leaning bearish. All in all, our antennae remain up—we think upside surprises are possible—but want to see more than a few hours on the upside before putting any real money to work. Our Market Monitor remains at a level 3.
This week’s list has another crop of resilient stocks from a variety of different areas, from medical to energy to restaurants. Our Top Pick is Wingstop (WING), whose pullback has been normal of late and whose long-term growth story is back on track.
| Stock Name | Price | Buy Range | Loss Limit |
| Axonics (AXNX) | 74 | 71.5-74.5 | 62.5-64.5 |
| Biogen (BIIB) | 265 | 255-262 | 229-233 |
| Cheniere Energy (LNG) | 167 | 160-165 | 146-149 |
| Chord Energy (CHRD) | 144 | 140-145 | 127-129 |
| Livent (LTHM) | 31 | 32-33 | 27.5-28.5 |
| Paylocity (PCTY) | 244 | 250-255 | 226-230 |
| Penumbra (PEN) | 195 | 192-197 | 173-175 |
| Texas Roadhouse (TXRH) | 87 | 89-91 | 80-81 |
| Trip.com (TCOM) | 28 | 26.5-28 | 23-24 |
| Wingstop (WING) ★ TOP PICK ★ | 124 | 129-133 | 114-117 |
Stock 1
Axonics (AXNX)
| Price | Buy Range | Loss Limit |
| 74 | 71.5-74.5 | 62.5-64.5 |
Why the Strength
About 78 million Americans suffer from urinary incontinence, and Axonics believes its products more effectively address the two types of incontinence better than what’s been on the market. Based on sales growth, that appears to be the case, with revenue seen at $253 million this year, just three years after the business launched in the U.S. One type of urinary incontinence is sacro neuromodulation (SNM). It’s the unnecessary urge to go, caused by a nervous system miscommunication. Some 58 million Americans suffer from some form of it. Only about half ever seek treatment and most give up due to unmet expectations. Axonics’ therapy is a battery powered device implanted to mildly stimulate the nerves, restoring normal urges. It’s a $750 million market that the company thinks its devices can double because they’re smaller and have much longer battery life – its F15 model, rolled out this year, lasts 20 years, compared to as little as three for competitors. SNM-revenue was up 39% in Q2, mainly from the F15. Another form of incontinence is a physical problem called stress urinary incontinence. It afflicts women with weak pelvic floor muscles, often caused by childbirth. Axonics sells an injected bulking gel called Bulkamid that allows the urethra to fully close, eliminating discharge during exertion like exercise or laughing. It’s a low-impact solution compared to common surgeries for the condition. Bulkamid requires a few injections over 15 minutes and lasts about seven years. Sales are modest, $13 million total last quarter, but management feels the market is dramatically underserved, with about 29 million women who could benefit, compared to 40,000 Bulkamid treatments given annually today. Analysts see revenues up 30%-plus the rest of this year and 25% next, both of which are likely conservative.
Technical Analysis
AXNX has set up a giant base on its weekly chart, with a top last September near 80, a drop to 42 in January, a successful retest of that low (including a big shakeout) in May and then a rally back to 80 three weeks ago. Of course, the stock has since wobbled some with the market, but last week’s solid snapback after the prior week’s dip is a good sign. Long-term, a break over 80 would be the real green light, but if you want in, a nibble here with a stop at last week’s lows is an idea.
| Market Cap | $3.55B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -1.48 |
| Current P/E | N/A | FY 2021 | -1.86 |
| Annual Revenue | $217M | FY 2022e | -1.81 |
| Profit Margin | N/A | FY 2023e | -1.21 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 69 | 50% | -0.47 | N/A |
| One qtr ago | 48.4 | 41% | -0.50 | N/A |
| Two qtrs ago | 53.1 | 53% | -0.34 | N/A |
| Three qtrs ago | 46.9 | 33% | -0.38 | N/A |
Stock 2
Biogen (BIIB)
| Price | Buy Range | Loss Limit |
| 265 | 255-262 | 229-233 |
Why the Strength
For the past year, Biogen was the dog’s dinner after a failed launch of its Alzheimer’s drug, Aduhelm. But stellar results from a late-stage drug trial for lecanemab, a new drug for treating Alzheimer’s, has breathed new life into the company. Last week, Biogen and its partner Eisai announced that lecanemab showed promise in slowing the rate of cognitive decline in Alzheimer’s patients versus a placebo. The drug targets a plaque that accumulates in the brain and contributes to the disease, and patients who took it in trials saw a 27% average reduction in the plaque, suggesting that Alzheimer’s can be slowed in its early symptomatic stage. Biogen and Eisai had already applied for accelerated FDA approval for the drug (a decision is expected by early January), with plans to pursue full approval using the latest data. The clinical results sent Wall Street scurrying to upgrade the stock (a reason for the strength), with at least three major institutions upping their price targets for the company. Biogen is also focused on growing its biosimilars division; last week European authorities accepted its marketing application for Actemra, which is indicated for several autoimmune diseases, including rheumatoid arthritis (the drug is also used to treat adult Covid patients who are under systemic corticosteroids and require respiratory support). All told, Biogen’s pipeline includes 27 drug candidates in various stages of testing for maladies including insomnia, depression, multiple sclerosis and Parkinson’s. On the financial front, the company is highly profitable, though numbers have been shrinking for a while, but investors may start looking ahead to lecanemab sales down the road.
Technical Analysis
BIIB soared in June 2021, peaking at 468, after the FDA granted accelerated approval of Aduhelm—but shares quickly returned to earth on the back of the drug’s commercial failure. The stock continued its waterfall decline into this year before finally hitting bottom at 188 in May. Four months of base-building followed, which set the stage of last week’s blast-off on overwhelming volume (13x average) on the lecanemab news. It’s higher risk, but if you’re aggressive, we’re OK taking a stab on BIIB on dips.
| Market Cap | $38.7B | EPS $ Annual (Dec) | |
| Forward P/E | 16 | FY 2020 | 24.12 |
| Current P/E | 16 | FY 2021 | 19.22 |
| Annual Revenue | $10.6B | FY 2022e | 15.45 |
| Profit Margin | 29.6% | FY 2023e | 15.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 2.59 | -7% | 5.25 | -8% |
| One qtr ago | 2.53 | -6% | 3.62 | -32% |
| Two qtrs ago | 2.73 | -4% | 3.39 | N/A |
| Three qtrs ago | 2.78 | -18% | 4.77 | -15% |
Stock 3
Cheniere Energy (LNG)
| Price | Buy Range | Loss Limit |
| 167 | 160-165 | 146-149 |
Why the Strength
Massive damage to the Nord Stream pipeline that transports Russian gas to Germany is threatening already stretched supplies while boosting the outlook for liquefied natural gas (LNG) providers like Cheniere (covered in the August 15 issue). Europe’s ongoing energy crisis, meanwhile, has enabled Cheniere— the world’s second-largest LNG operator—to secure several contracts with global customers looking to secure long-term, reliable supplies of LNG in support of energy security. The worldwide boom in clean energy demand has further facilitated the construction of Cheniere’s LNG Stage 3 Liquefication expansion, which it calls a “significant growth project,” with the goal of providing much-needed volumes to the global LNG market by the end of 2025. And with the cash the completed project is expected to provide, Cheniere intends to focus on increasing shareholder value. Last month, Cheniere announced its “20/20 Vision” long-term capital allocation plan, where it expects to generate over $20 billion of cash through 2026. The plan is also expected to achieve a run-rate of $20 per share of distributable cash flow—double the amount of last year’s outlook—now that the firm has reached what it calls a “cash flow inflection point;” indeed, Cheniere reached its debt reduction goal (cutting $4 billion) two years ahead of schedule and boosted its three-year share buyback amount by another $4 billion (nearly 10% of the market cap). Management further expressed confidence in the outlook by raising its 2022 adjusted EBITDA midpoint guidance to $11.3 billion (up 12% from prior guidance). As an added bonus, Cheniere hiked the quarterly dividend payment by about 20% to 40 cents a share. The upbeat guidance prompted at least one major Wall Street firm to raise its price target on the stock (a reason for the strength). Analysts, meanwhile, see the bottom line soaring into 2023.
Technical Analysis
We missed our suggested entry point for LNG in August after it got away from us on the upside, but we’re looking to take another stab at it soon. The stock first grabbed our attention after it tagged the 200-day line in July for the first time since the pandemic crash, holding above it and subsequently galloping to new highs. After the latest peak last month, shares have been bobbing and weaving between 150 and 175, though we’re impressed with the big-volume rebound last week. The market is still an issue, so if you want in, we suggest looking for dips of a few points.
| Market Cap | $42.3B | EPS $ Annual (Dec) | |
| Forward P/E | 17 | FY 2020 | -0.34 |
| Current P/E | N/A | FY 2021 | -9.25 |
| Annual Revenue | $25.2B | FY 2022e | 9.74 |
| Profit Margin | 9.3% | FY 2023e | 17.70 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 8 | 165% | 2.90 | N/A |
| One qtr ago | 7.48 | 142% | -3.41 | N/A |
| Two qtrs ago | 6.56 | 135% | -5.22 | N/A |
| Three qtrs ago | 3.2 | 119% | -4.27 | N/A |
Stock 4
Chord Energy (CHRD)
| Price | Buy Range | Loss Limit |
| 144 | 140-145 | 127-129 |
Why the Strength
Many oil stocks cracked a couple of weeks ago as oil prices faded on recession fears—and not just short-term, but possibly after etching bigger picture tops. However, we admit we’re impressed with the snapbacks, and if the group does hold its own, though, we’re thinking Chord Energy could be one of the fresh leaders. The firm was formed mid-year by the combination of Oasis Petroleum and Whiting Petroleum, creating the largest acreage holder in the high-return Williston Basin (second largest producer for now, behind Continental Resources); the deal left the company with hardly any debt ($400 million total of notes, ~7% of the market cap) and many years of excellent drilling inventory. And because of all that the company has quickly leapt head first into the shareholder return pool: Assuming low leverage, Chord is set to return 75% or more of its free cash flow each quarter, partly via a solid base dividend (3.7% yield) and partly through special dividends and share buybacks (it gobbled up 2% of the firm in July alone). And there could be upside from that—Chord recently sold about half (11.4 million shares) of its stake in Crestwood Equity, which it got when Crestwood bought its MLP arm, bringing in proceeds of $307 million, or $7.30 per share, some of which could be paid out. The one fly in the ointment, of course, is energy prices; most of Chord’s projections were based on $90 oil and $6 gas (those totals would result in $8 of free cash flow per quarter!), but we’ll see what $70 to $80 oil might bring. Still, it appears that Wall Street isn’t too worried, figuring even modestly lower prices than here will lead to solid dividends and buybacks.
Technical Analysis
CHRD peaked at 159 in June, slipped to 93 as the merger went through and then rebounded back to 150 in late August, which was more powerful than many peers. The decline started normally but got a bit hairy two weeks ago, but (a) the stock really didn’t give back much of its summer rally, and (b) it held its 200-day line, which again was better than most peers. And then CHRD immediately bounced back, strongly moving back above 50-day line. You could take a swing at some shares around here or (preferably) on weakness.
| Market Cap | $5.74B | EPS $ Annual (Dec) | |
| Forward P/E | 4 | FY 2020 | 42.55 |
| Current P/E | 7 | FY 2021 | 9.43 |
| Annual Revenue | $2.33B | FY 2022e | 38.27 |
| Profit Margin | 19.4% | FY 2023e | 38.86 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 789 | 117% | 7.30 | 493% |
| One qtr ago | 653 | 101% | 7.77 | 252% |
| Two qtrs ago | 522 | 310% | 4.25 | -89% |
| Three qtrs ago | 369 | 36% | 1.70 | 673% |
Stock 5
Livent (LTHM)
| Price | Buy Range | Loss Limit |
| 31 | 32-33 | 27.5-28.5 |
Why the Strength
EVs and renewable energy storage are driving demand for lithium, the chemical element that is preferred for its ability to charge faster, last longer and maintain a relatively high power-to-density ratio. Livent is a pure-play lithium producer based in the U.S., producing lithium from facilities in Quebec and Argentina. The company gets about half its sales from lithium hydroxide, preferred for use in high-end batteries given its properties allowing for improved battery performance with a lower operating temperature. Another 20% of sales come from lithium carbonate and lithium chloride, used in laptop batteries and EV chargers. The balance of revenue comes from related specialty metals, primarily butyllithium, which feeds into many unique applications, like military alloys and industrial polymers. The lithium market has been roughly in balance the past two years, with global production meeting demand. But supply is expected to lag in coming years as EV and grid adoption accelerates, which has driven prices much higher. Already EV and storage are nearly 80% of demand and that’s with EVs just 4% of the market; by the end of the decade, EVs probably will be 40% of new car sales. Plus, there’s as much renewable energy planned to come online this decade in the U.S. as already exists (more than 1,100 gigawatts), with almost all planned with co-located energy storage. Looking ahead, that means supercharged sales for Livent – revenue should double this year to about $850 million with $1.36 EPS on roughly level output. Lithium is a commodity, which does mean there is downside demand risk – but Livent is mitigating some of that, highlighted by a six-year supply agreement with General Motors inked this summer. Most see big earnings growth ahead as production picks up and prices remain buoyant.
Technical Analysis
Despite projections of lithium demand growth, the stocks of the producers have been volatile, as Wall Street vacillates over valuations. LTHM hit a high of 34 in May and then dropped 40% in two months as companies in the sector missed sky-high earnings targets in the summer. The supply deal with GM, worth nearly $200 million, reversed LTHM’s decline, as did Q2 earnings that came with boosted guidance. Shares have pulled in with the market (though it shrugged off a downgrade today), but are still in the upper reaches of their overall range. We’ll set our buy range up a bit from here.
| Market Cap | $5.07B | EPS $ Annual (Dec) | |
| Forward P/E | 23 | FY 2020 | -0.04 |
| Current P/E | 45 | FY 2021 | 0.18 |
| Annual Revenue | $590M | FY 2022e | 1.36 |
| Profit Margin | 33.5% | FY 2023e | 1.72 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 219 | 114% | 0.37 | 825% |
| One qtr ago | 144 | 56% | 0.21 | 950% |
| Two qtrs ago | 123 | 50% | 0.08 | N/A |
| Three qtrs ago | 104 | 43% | 0.03 | N/A |
Stock 6
Paylocity (PCTY)
| Price | Buy Range | Loss Limit |
| 244 | 250-255 | 226-230 |
Why the Strength
As worries over a possible economic recession abound, a growing number of major companies are freezing new hires. (Meta Platforms, formerly Facebook, just announced =plans to reduce its workforce.) But while big firms are playing defense, smaller companies with fewer than 50 employees are gaining traction. This trend has contributed to the success of Paylocity (covered in the August 8 issue), allowing it to continue growing in an increasingly challenging climate. Paylocity provides a variety of cloud-based services for enterprises, including payroll and expense management, tax service, recruiting and employee management software, but its focus is on smaller firms while its products are geared for all aspects of the human capital management (HCM) process. The company is making waves with its approach to HCM, recently garnering Brandon Hall Group’s 2022 Excellence Award in the HCM innovation category. More importantly, Paylocity continues to generate impressive numbers, including extremely consistent 30%-plus revenue growth for many quarters and even faster earnings growth. In fiscal Q4, Paylocity ended the year with a total of over 33,000 customers (up 16% from a year ago) and saw revenue of $230 million jump 36% while EPS of 80 cents rose 74%, prompting a major Wall Street bank to upgrade its share price outlook (a reason for the strength). Looking ahead, management expressed optimism for fiscal 2023, guiding for sales to increase around 30% in Q1 and 25% for the year (in-line with analysts’ estimates). The HCM segment is a long-term growth area, and Paylocity is a rare former leader that looks like it can resume its advance when the bulls return. Analysts see earnings growth a bit soft this year (14%) but accelerating over time.
Technical Analysis
PCTY peaked at 315 last November, retreated to 153 in May and bottomed out for a couple of months before bouncing a bit and then surging on its Q2 report. And what’s happened since is quite encouraging—PCTY has built a seven-week structure on its chart while the market has imploded. It’s definitely worthy of your watch list, and if you’re aggressive, you could consider a stake on a rally from this pullback.
| Market Cap | $13.6B | EPS $ Annual (Jun) | |
| Forward P/E | 67 | FY 2021 | 2.11 |
| Current P/E | 76 | FY 2022 | 3.25 |
| Annual Revenue | $853M | FY 2023e | 3.69 |
| Profit Margin | 19.8% | FY 2024e | 4.58 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 229 | 37% | 0.80 | 74% |
| One qtr ago | 246 | 32% | 1.22 | 39% |
| Two qtrs ago | 196 | 34% | 0.64 | 64% |
| Three qtrs ago | 182 | 34% | 0.59 | 55% |
Stock 7
Penumbra (PEN)
| Price | Buy Range | Loss Limit |
| 195 | 192-197 | 173-175 |
Why the Strength
Penumbra is a global medical device maker focused on therapies that address challenging needs for a range of diseases that restrict blood flow. The company’s main offering is the Indigo Aspiration System (IAS), a minimally-invasive device that can be used to remove blood clots from vessels of the peripheral arterial and venous systems, as well as for the treatment of pulmonary embolism. (The system uses the Penumbra Engine aspiration source to deliver a nearly pure, continuous vacuum, enabling thrombus removal in blood vessels of various sizes.) Penumbra also offers diagnostic tools for real-time blood flow monitoring, as well as a series of catheters and separators to facilitate blood clot removal for neuro and vascular procedure patients. The company is expanding its footprint and has a growing number of partnerships with other firms, including one with brain imaging analysis software provider RapidAI to combine the latter’s AI platform with Penumbra’s products to provide a faster, more accurate diagnosis for treating patients who suffer from stroke and pulmonary embolism. Penumbra also just teamed up with Japan’s Asahi Intecc to bring the IAS to the Japanese market, pending regulatory approval, and has received regulatory approval in Europe for its RED Reperfusion Catheters that restore blood flow in acute ischemic stroke patients (a reason for the strength). In Q2, revenue rose 13% from a year ago, to $208 million, while per-share earnings of 1 cent topped estimates by 4 cents. Wall Street expects growth to accelerate for Penumbra as hospital staffing improves, which should allow for more launches of intelligent aspiration systems. Analysts are guiding for steady, 15 percent-ish sales growth and sharply recovering earnings over the next many quarters.
Technical Analysis
PEN topped out near 300 in the middle of last year, finally cracked in January and nosedived to as low as 115 in June. The stock only bottomed out for a month before turning up—and the rally has been very solid, with some explosive-volume buying in July and early August, and after some tightness, another round of accumulation in early September. If you’re aggressive, you could nibble here with a stop under 175.
| Market Cap | $7.37B | EPS $ Annual (Dec) | |
| Forward P/E | 653 | FY 2020 | -0.70 |
| Current P/E | 872 | FY 2021 | 0.69 |
| Annual Revenue | $806M | FY 2022e | 0.30 |
| Profit Margin | 0.2% | FY 2023e | 1.20 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 208 | 13% | 0.01 | -95% |
| One qtr ago | 204 | 21% | -0.01 | N/A |
| Two qtrs ago | 204 | 22% | 0.10 | 150% |
| Three qtrs ago | 190 | 26% | 0.12 | N/A |
Stock 8
Texas Roadhouse (TXRH)
| Price | Buy Range | Loss Limit |
| 87 | 89-91 | 80-81 |
Why the Strength
Texas Roadhouse doesn’t have any one thing that stands out, but it’s a well-managed firm that’s been able to push through most of the issues for the restaurant sector in the past year or two—and the future looks brighter, which has buyers beginning to step up. The firm is a mid-cap leader in the casual dining segment, with 678 namesake restaurants (as well as 37 Bubba’s 33 locations and four Jaggers restaurants) across the country, and that figure is steadily increasing; the company plans to open 34 new restaurants this year (U.S. and international, owned and franchised) and, despite a larger format (and more to-go space), continues to see solid returns. And that’s the second piece of good news—in Q2, same-store sales rose more than 7% (and were up 4% in the first four weeks of the current quarter), with in-store guest counts above both last year and 2019, with no real pushback to menu price increases that have been implemented. Now, there has been cost inflation (earnings were down 1% even though revenues up 14% last quarter), but that should ease going ahead—analysts see the full-year bottom line growing 12% this year and 18% in 2023, both of which are likely low. And those totals are boosted by a pristine financial position: Texas Roadhouse has very little debt and solid margins (7.1% after-tax in Q2 even with the inflation), which allows them to pay a good dividend (2.1% annual yield) and, when the stock got hit, to buy back a bunch of shares (about 4% of shares in the first half of the year; share count is down 3.3% from a year ago). Like we wrote above, there’s no one standout thing with Texas Roadhouse, but it has a solid business, prospects and positioning.
Technical Analysis
TXRH’s post-pandemic run topped back in April 2021 near 110 and led to a steady drip lower for more than a year. Interestingly, though, the relative performance (RP) line (not shown) began to bottom out in December, and the stock hit a nadir in March. After a few retests, TXRH rallied nicely and has since pulled in normally toward support. We’ll set our buy range up a bit, thinking an upside resumption would be bullish.
| Market Cap | $6.04B | EPS $ Annual (Dec) | |
| Forward P/E | 23 | FY 2020 | 0.45 |
| Current P/E | 24 | FY 2021 | 3.50 |
| Annual Revenue | $3.78B | FY 2022e | 3.91 |
| Profit Margin | 7.1% | FY 2023e | 4.62 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 1025 | 14% | 1.07 | -1% |
| One qtr ago | 988 | 23% | 1.08 | 19% |
| Two qtrs ago | 896 | 40% | 0.76 | 171% |
| Three qtrs ago | 869 | 38% | 0.75 | 79% |
Stock 9
Trip.com (TCOM)
| Price | Buy Range | Loss Limit |
| 28 | 26.5-28 | 23-24 |
Why the Strength
An end to a two-and-a-half year Covid-related quarantine in Hong Kong paves the way for the region to make a big economic comeback. This is good news for Trip.com (formerly known as Ctrip), which last week said outbound bookings from Hong Kong increased nearly four-fold from the prior week as the city ends its quarantine. The China-based company is an international travel booking website which offers customers deals in over 1.2 million hotels across more than 200 countries, as well as services for flights, car rentals, airport transfers, tours and attraction tickets. In Q2, Trip.com posted revenue of nearly $600 million that, while a 34% drop from a year ago, managed to beat expectations by 17%. A per-share loss of 5 cents, meanwhile, surprised the consensus by 22%, but both metrics obscured what the firm sees as a strong travel bookings recovery in U.S. and Europe, as well as Asia travel returning to its fastest pace since the start of the global pandemic. (Indeed, both air-ticket and hotel bookings on the company’s global platforms increased over 100% in Q2!) The company also said that, in spite of continued Covid restrictions in China, local hotel bookings in that country rose over 20% in Q2 and 30% from their 2019 level, thanks in part to “staycation” demand. Management emphasized that the global travel industry has made “continued progress towards full recovery” and said product innovation, better services and pent-up demand—especially in the Asia Pacific region—will keep the momentum going into year-end 2023. The real boost should/will come if China, which is Trip.com’s most important market, moves on from the “zero Covid” policy in the year ahead. Wall Street sees earnings recovering sharply next year with that in mind.
Technical Analysis
TCOM rallied from a post-pandemic crash low of 20 to a high of 45 by mid-March of 2021 before entering a prolonged slide for the next year. The nadir was reached in March at 15, followed by a retest of that area in May. From there, TCOM popped above its 40-week line and has mostly held firm the past three months—and the good-volume buying of the past two weeks is intriguing. If you’re aggressive, you could start a position here with a stop near the lows and add on a powerful move above 30.
| Market Cap | $17.4B | EPS $ Annual (Dec) | |
| Forward P/E | 125 | FY 2020 | -0.23 |
| Current P/E | 181 | FY 2021 | 0.33 |
| Annual Revenue | $2.81B | FY 2022e | 0.22 |
| Profit Margin | N/A | FY 2023e | 1.09 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 599 | -34% | -0.05 | N/A |
| One qtr ago | 648 | 3% | -0.01 | N/A |
| Two qtrs ago | 737 | -3% | 0.08 | -70% |
| Three qtrs ago | 829 | 3% | 0.13 | -62% |
Stock 10
Wingstop (WING) ★ TOP PICK ★
| Price | Buy Range | Loss Limit |
| 124 | 129-133 | 114-117 |
Why the Strength
As we wrote about a few weeks ago, Wingstop has always had a big idea, to be a top 10 global restaurant brand, and it’s been executing on its cookie-cutter plan in fine fashion for many years—at the end of June, the store count of 1,791 was up 14% from a year ago, and it thinks it can have 4,000 domestic (1,588 now) and 3,000 international (203 now) locations when all is said and done. And those locations are increasingly profitable, too: sales average $1.6 million per domestic restaurant, up from $1.1 million in 2015 and on its way to $2 million down the road as same-store sales slowly expand; today, all of this leads to a payback of initial investment in well under two years, a figure that should improve going forward. Interestingly, part of the story here is deflation, which you don’t hear much about these days—rising wing prices (up 72%) last year hurt margins, but now wing prices are down to pre-pandemic levels. Combined with an expected re-acceleration in same-store sales and a broader menu (Wingstop is moving into chicken sandwiches), Wall Street is thinking the underlying growth story is back on track after some ups and downs during the pandemic: While growth has been modest the past couple of quarters, analysts see the top line lifting 36% in Q3 and 24% for 2022 as a whole, while earnings estimates continue to trickle higher (mid to upper teens growth this year and next), with years worth of expansion beyond that. We think Wingstop can be a small-cap leader of the next sustained market upmove. Earnings are due October 26.
Technical Analysis
WING fell 63% from top to bottom in this bear market, and at its May low of 68, hadn’t made any net progress for three and a half years—both of which surely scared and wore out the weak hands. And the stock has been acting very well since then, with not just a big post-earnings move, but a higher high and higher low (and support near the 50-day line) in recent weeks. Definitely keep WING on your watch list, and if you don’t own it and want in, we’ll set our buy range up a bit, thinking a strong bounce back could result in a good run. FYI, if you already own some, we suggest loosening the stop into this loss limit range (115 give or take).
| Market Cap | $3.82B | EPS $ Annual (Dec) | |
| Forward P/E | 81 | FY 2020 | 1.09 |
| Current P/E | 96 | FY 2021 | 1.35 |
| Annual Revenue | $298M | FY 2022e | 1.57 |
| Profit Margin | 16.2% | FY 2023e | 1.87 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 83.8 | 13% | 0.45 | 18% |
| One qtr ago | 76.2 | 8% | 0.34 | -23% |
| Two qtrs ago | 72 | 14% | 0.23 | 28% |
| Three qtrs ago | 65.8 | 3% | 0.29 | -6% |
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 10/3/2022 |
| HOLD |
| 9/12/22 | Academy Sports | ASO | ★ | 48.5-51.5 | 44 |
| 8/15/22 | Albermarle | ALB | ★ | 272-283 | 274 |
| 9/26/22 | Cal-Maine Foods | CALM | | 57-59 | 55 |
| 9/6/22 | Cameco | CCJ | ★ | 27.5-29 | 28 |
| 8/29/22 | Chord Energy | CHRD | | 141-146 | 144 |
| 7/25/22 | Chesapeake Energy | CHK | | 89-92 | 99 |
| 9/26/22 | Consol Energy | CEIX | | 63.5-65.5 | 69 |
| 9/19/22 | Dick’s Sporting Goods | DKS | | 108-111 | 110 |
| 6/6/22 | Enphase Energy | ENPH | | 197-205 | 287 |
| 9/12/22 | Evolent Health | EVH | | 36.5-38 | 37 |
| 8/8/22 | First Solar | FSLR | | 100-104 | 137 |
| 9/26/22 | HealthEquity | HQY | | 67-69 | 68 |
| 9/19/22 | Interactive Brokers | IBKR | | 65-67 | 64 |
| 9/19/22 | Iveric Bio | ISEE | | 15.7-16.7 | 18 |
| 9/12/22 | Karuna Therapeutics | KRTX | | 245-260 | 230 |
| 9/19/22 | Las Vegas Sands | LVS | ★ | 37.5-39.5 | 39 |
| 8/29/22 | Livent Corp. | LTHM | | 30-32 | 31 |
| 9/6/22 | LPL Financial | LPLA | | 215-222 | 226 |
| 8/8/22 | Paylocity | PCTY | ★ | 248-263 | 244 |
| 9/6/22 | Pinduoduo | PDD | | 62-65 | 63 |
| 9/12/22 | Regeneron Pharm | REGN | | 700-720 | 735 |
| 6/27/22 | Shockwave Medical | SWAV | | 185-195 | 279 |
| 9/19/22 | Uber | UBER | | 30-31.5 | 27 |
| 8/1/22 | WillScot | WSC | | 37-38.5 | 42 |
| 8/22/22 | Wingstop | WING | | 115-120 | 123 |
| 8/22/22 | Wolfspeed | WOLF | ★ | 104-109 | 108 |
| 9/26/22 | Xometry | XMTR | ★ | 54.5-57 | 59 |
| WAIT |
| 9/26/22 | Akero Therapeutics | AKRO | | 23.5-25 | 33 |
| 9/26/22 | Onsemi | ON | | 66-68 | 65 |
| 9/26/22 | Shift4 Payments | FOUR | | 40.5-42.5 | 44 |
| SELL RECOMMENDATIONS |
| 9/12/22 | Alteryx | AYX | | 65-67 | 56 |
| 9/6/22 | ATI Inc. | ATI | | 28-29.5 | 28 |
| 9/6/22 | Chipotle Mex Grill | CMG | | 1590-1640 | 1505 |
| 6/13/22 | Neurocrine Bio | NBIX | | 89-92 | 107 |
| 9/19/22 | Tesla | TSLA | | 297-310 | 242 |
| DROPPED |
| None this week | | | | | |
The next Cabot Top Ten Trader issue will be published on October 10, 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.
