Compared to the prior three weeks when the major indexes imploded, last week was a breath of fresh air. As we like to say, up is good, so the action is certainly a plus—and, more important, we still see a good number of stocks in multi-month setups. All that said, much of the recent buying has been from the off-the-bottom crowd, and at best, the intermediate-term trend of the overall market is sideways while the longer-term trend remains down. We’re certainly OK holding onto our resilient names, but we continue to need to see more before we advise becoming aggressive. We’re leaving our Market Monitor at a level 4.
This week’s list has a few more turnaround and steady Eddie-type names despite the market’s rally. Our Top Pick is a cheap name near the top of a huge launching pad that also has a decent long-term cookie-cutter story, too.
Cabot Top Ten Trader Issue: September 12, 2022
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Good Bounce, but Need MoreCompared to the prior three weeks when the major indexes imploded (the Nasdaq fell 13% in just 15 trading sessions), last week was a breath of fresh air, with much of the market bouncing and many indexes even nosing north of their 50-day lines. As we like to say, up is good, so the action is certainly a plus—and, more important, we still see a good number of stocks in multi-month setups (either bottoming action or, less frequently, legitimate leadership setups) that could be ready to move. All that said, much of the recent buying has been from the off-the-bottom crowd, and at best, the intermediate-term trend of the overall market is sideways while the longer-term trend remains down. We’re certainly OK holding onto our resilient names, and we remain open to anything the market wants to do, especially given the huge amount of pessimism out there, but we continue to need to see more before we advise becoming aggressive. We’re leaving our Market Monitor at a level 4.
This week’s list has a few more turnaround and steady Eddie-type names despite the market’s rally. Our Top Pick is Academy Sports & Outdoors (ASO), which is trying to break free from a huge launching pad, is dirt cheap and actually has a solid cookie-cutter story.
| Stock Name | Price | Buy Range | Loss Limit |
| Academy Sports & Outdoors (ASO) ★ TOP PICK ★ | 51 | 48.5-51.5 | 43-44.5 |
| Alteryx (AYX) | 69 | 65-67 | 57-59 |
| Comstock Res. (CRK) | 20 | 18-19 | 15.5-16 |
| Evolent Health (EVH) | 40 | 36.5-38 | 32.5-33.5 |
| Karuna Therapeutics (KRTX) | 256 | 245-260 | 210-220 |
| Plug Power (PLUG) | 30 | 27-29 | 23.5-24.5 |
| Regeneron Pharm (REGN) | 710 | 700-720 | 635-645 |
| Shoals (SHLS) | 26 | 25-26.5 | 20.5-21.5 |
| Wesco (WCC) | 143 | 136-141 | 124-126 |
| WillScot Mobile (WSC) | 43 | 41.5-43 | 37-38 |
Stock 1
Academy Sports & Outdoors (ASO) ★ TOP PICK ★
| Price | Buy Range | Loss Limit |
| 51 | 48.5-51.5 | 43-44.5 |
Why the Strength
Academy Sports is a sporting goods retailer that operates a chain of over 260 retail outlets across 17 U.S. states, mainly in the South, with nearly a third of its stores located in the nation’s fastest-growing metropolitan areas. This is a key part of Academy’s strategy of becoming the nation’s leading provider of sports and outdoor equipment, with eight new store openings scheduled for this year, plus 80 to 100 more planned over the next five years, giving it a solid cookie-cutter growth angle. Last week, Academy gave investors reasons for optimism with solid Q2 results featuring a 26-cent EPS beat of $2.30 as the company said it “substantially” outperformed its pre-pandemic levels of sales and profits. Revenue of $1.7 billion was 6% lower, but this was partly due to a strong comparison from a year ago as the effect of stimulus waned; however, revenue was 36% higher compared with the 2019 quarter. Comparable sales also declined 6%, though improved sequentially, thanks to a robust back-to-school season. (Academy expects further comp sales improvement during the tailgating, hunting and fall sports season and into the holidays.) Additionally, the company reported eye-opening progress with its e-commerce segment, as sales rose 12% in the quarter—and a whopping 245% (!) compared to 2019. The big idea here is that, after soaring in the pandemic, earnings are not sloughing off at all (north of $7 per share!), leaving the stock with a bargain valuation (7 times earnings), which is one reason why the top brass is engaged in an aggressive share buyback program--in Q2, the share count was down 11.5% from a year ago.
Technical Analysis
ASO came public in late 2020, had a big run as business surged, but then topped in November of last year with the market. Now, though, the stock has etched a great-looking, multi-month launching pad, with support in March and again in May, a solid push back to its highs in August and, after a three-week dip, excellent support buying after earnings last week. We’re OK starting a position here or on weakness, and a decisive push over 50 would be very bullish.
| Market Cap | $4.18B | EPS $ Annual (Jan) | |
| Forward P/E | 7 | FY 2021 | 4.16 |
| Current P/E | 7 | FY 2022 | 7.60 |
| Annual Revenue | $6.56B | FY 2023e | 7.18 |
| Profit Margin | 11.6% | FY 2024e | 7.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 1.69 | -6% | 2.30 | -2% |
| One qtr ago | 1.47 | -7% | 1.73 | -8% |
| Two qtrs ago | 1.81 | 13% | 1.61 | 48% |
| Three qtrs ago | 1.59 | 18% | 1.75 | 61% |
Stock 2
Alteryx (AYX)
| Price | Buy Range | Loss Limit |
| 69 | 65-67 | 57-59 |
Why the Strength
Alteryx sells data and analytics services like a self-service version of programming. The company offers hundreds of pre-coded modules that corporate workers can use to automate processes that usually have to be done over and over again by hand in a spreadsheet program. The software essentially replaces work that requires a dedicated programmer or, more commonly, takes “regular” workers many hours to figure out on their own. Its main product, Alteryx Designer, allows the creation of automated workflows and analytical programs in a drag-and-drop interface that makes sense to non-IT workers. For instance, a person wanting to create a map-based analysis of clients would just drag the proper Alteryx module into Designer to slice and dice internal data. They can supplement that by importing third-party data Alteryx offers, like area demographic information. The service has been generating good traction, with recurring revenue growing 33% year over year in Q3. Last year, the company made $536 million in sales from about 8,300 businesses. Larger customers are signing up, seeing Alteryx as a way to replace multiple software services they use; Alteryx is now being used in 46% of the world’s largest 2,000 companies, according to management, with the latest quarter the best ever for inking new client deals worth $1 million or more. Full year 2022 should bring revenue of $776 million, growth of nearly 45%, with a per-share loss of 51 cents. Contracts run an average of three years; the firm recognizes about half of every deal upfront and the rest over its life, so revenue visibility is good. Next year Wall Street expects a per share profit of 10 cents with revenue growth of nearly 20%, which we think will prove low.
Technical Analysis
AYX peaked at 178 in July 2020 and was in a downtrend for nearly two years, finally finding a floor in the mid 40s in June. Recent trading suggests a turnaround is underway: AYX jumped 19% on Q2 earnings in August, with follow-through action taking shares north of their 40-week line, and just as important, the stock held up during the market’s latest retreat and has quickly pushed back to its recent highs the past few days. Volatility is very high here and there is overhead around these levels, so if you’re game, look for dips of a couple of points to get started.
| Market Cap | $4.60B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | 0.94 |
| Current P/E | N/A | FY 2021 | -0.13 |
| Annual Revenue | $637M | FY 2022e | -0.51 |
| Profit Margin | N/A | FY 2023e | 0.10 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 181 | 50% | -0.46 | N/A |
| One qtr ago | 158 | 33% | -0.40 | N/A |
| Two qtrs ago | 174 | 8% | 0.17 | -73% |
| Three qtrs ago | 124 | -5% | -0.18 | N/A |
Stock 3
Comstock Res. (CRK)
| Price | Buy Range | Loss Limit |
| 20 | 18-19 | 15.5-16 |
Why the Strength
We generally prefer to stick with the liquid leaders of the energy space, but there are some smaller, secondary players that remain intriguing, with some nearing the end of their debt pay-down phase and should soon enter the payout phase. One example is Comstock Resources, which is all about natural gas—it’s one of the largest producers in the Haynesville Shale in Louisiana and Texas, which has good access to the LNG fairway in the Gulf Coast (70% of its gas is sold to the Gulf). Like most of the best plays in the energy patch, Comstock has tons of inventory (more than 1,600 locations = 25 years of drilling sites!), has some of the largest margins of any peers due to solid price realizations (contracts are tied to Henry Hub price, along with very low gathering and transportation costs) and is keeping production level (up 1% in Q2). That’s led to a gusher of free cash flow, totaling $190 million in Q2 alone (4.3% of the current market cap) thanks to realized prices near $7 per unit even with about 50% of output hedged. Comstock has used most of this cash flow to slash debt: It has no note maturities until 2029 and plans to wipe out its $350 million revolver balance (not due until 2024) by year-end, but with its leverage ratio now within range of its long-term target (now 1.2x cash flow), it aims to start a shareholder return program in the fourth quarter—and given where natural gas prices stand, dividends could be juicy. Plus, the top brass is branching out a bit, dedicating some money to bolt-on acquisitions going ahead and is slightly boosting its drilling program (two new rigs next year), so 2023 shows a little production growth. It’s a solid story that should produce big returns in the not-too-distant future.
Technical Analysis
Being smaller, CRK is clearly more volatile, and you can see that in the chart this year, with a moonshot from 8 to 22 earlier this year, followed by a 50% drop to 11 during the energy stock decline—and then a race back up to 21 as things perked up. However, now CRK is showing signs of coming under control, with a low volume, two-week dip to near its 25-day line before bouncing. We’ll set our buy range down a bit from here.
| Market Cap | $4.38B | EPS $ Annual (Dec) | |
| Forward P/E | 5 | FY 2020 | 0.23 |
| Current P/E | 8 | FY 2021 | 1.16 |
| Annual Revenue | $2.68B | FY 2022e | 3.56 |
| Profit Margin | 28.9% | FY 2023e | 4.48 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 946 | 175% | 1.00 | 400% |
| One qtr ago | 569 | 67% | 0.50 | 108% |
| Two qtrs ago | 655 | 139% | 0.37 | 164% |
| Three qtrs ago | 511 | 187% | 0.34 | N/A |
Stock 4
Evolent Health (EVH)
| Price | Buy Range | Loss Limit |
| 40 | 36.5-38 | 32.5-33.5 |
Why the Strength
Evolent is a player in the booming segment of helping doctors shift from the traditional pay-for-service model to value-based care. In the traditional care model, doctors charge fees for offices visit, tests and so forth – a system that inflates the costs of care by over-testing and treating problems after they appear. Value-based care pushes physicians toward preventative care, rewarding them for efforts that result in healthier people. Medicare is a driver behind value-based care, offering providers the opportunity to be in shared savings programs. The core idea is that doctors get flat fees per patient and share up to half of the money that isn’t spent, with options to collect more of the savings in exchange for committing to paying when costs exceed the budget. There are quality of care guardrails, of course, but the system naturally incentivizes doctors toward behaviors shown to cut medical costs – things like getting patients in for annual physicals and administering vaccines. Since providers must have at least 5,000 Medicare patients to participate, small offices want to join networks like Evolent that meet that bar. In return, Evolent takers a cut of the savings doctors generate, but its pitch is that its technology for billing and patient relationships, plus favorable pricing with private insurance providers, enlarges the pie for both parties. Doctors agree: Q2 revenue was up 44% to $320 million with a profit of 10 cents per share (up from a loss a year ago). Adjusted EBITDA, the company’s preferred metric, totaled $21.7 million, up sharply. Evolent is an aggressive buyer of smaller networks –it has made two in recent months – which, combined with organic growth, has Wall Street projecting sales of $1.35 billion this year (up 49%) and adjusted EBITDA around $90 million, with another solid growth year in 2023.
Technical Analysis
EVH has been in a solid uptrend for a couple of years, with even the bear market not doing too much damage—the stock did top near 35 in October and was yanked down to 21 in February, but that was the bottom, with shares building what turned out to be a solid nine-month launching pad. The liftoff from there has been choppy due to the market, but the fact that EVH is at new highs certainly says a lot. We advise aiming for dips (ideally toward the 25-day line) if you want in.
| Market Cap | $3.60B | EPS $ Annual (Dec) | |
| Forward P/E | 112 | FY 2020 | -0.19 |
| Current P/E | 145 | FY 2021 | 0.02 |
| Annual Revenue | $1.09B | FY 2022e | 0.35 |
| Profit Margin | 3.0% | FY 2023e | 0.64 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 320 | 44% | 0.10 | N/A |
| One qtr ago | 297 | 38% | 0.12 | N/A |
| Two qtrs ago | 248 | 1% | 0.08 | 167% |
| Three qtrs ago | 223 | -7% | -0.03 | N/A |
Stock 5
Karuna Therapeutics (KRTX)
| Price | Buy Range | Loss Limit |
| 256 | 245-260 | 210-220 |
Why the Strength
Neurological disorders affect up to one out of every six people on the planet, according to a World Health Organization estimate, with about 1% of the world’s population suffering from schizophrenia. Karuna is a clinical stage biotech that looks like it could come to the rescue for many of these patients, as it’s focused on treatments for psychiatric and neurological disorders, with a particular focus on schizophrenia. Its leading drug candidate, KarXT (currently in Phase III trials for three separate indications), is the main draw right now: Karuna recently announced that KarXT met its primary endpoint in its late-stage trial for experimental schizophrenia therapy (named Emergent-2) and intends to file for FDA approval by mid-2023, which would pave the way for commercial production in early 2024. Additionally, top-line data from the Phase III Emergent-3 and Arise trials of KarXT for schizophrenia are expected in Q1 2023 and first half of 2024, respectively. Analysts believe KarXT has the potential to be a blockbuster, with sales of nearly $2 billion by 2028—a big reason why investors are excited. In addition to treating schizophrenia, KarXT is also being tested in the treatment of psychosis related to Alzheimer’s disease (under the Adept clinical program), which is scheduled to conclude next year. Obviously, the current numbers are basically meaningless, with Q2 bringing a net loss of $2.17 per share and revenue of $5.3 million. More important, Karuna ended the quarter with over $400 million in cash, which it said will enable its funding requirements for at least a year after submitting the KarXT data for approval. There’s risk, of course, but Karuna is an interesting speculation.
Technical Analysis
We wrote about KRTX here in early July when it began to show great strength, and after some tight trading, the stock went vertical (easily out to new all-time highs) on the KarXT trial results, leading us to book our windfall gains. But we never stopped watching it, and over the past month, KRTX has pulled back grudgingly, and on reasonable volume, which is impressive given the market’s action. If you want in, we’re OK starting small here or (preferably) on a bit more weakness.
| Market Cap | $8.58B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -2.59 |
| Current P/E | N/A | FY 2021 | -4.91 |
| Annual Revenue | $5.3M | FY 2022e | -8.37 |
| Profit Margin | N/A | FY 2023e | -9.19 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 5.3 | N/A | -2.17 | N/A |
| One qtr ago | Nil | N/A | -1.95 | N/A |
| Two qtrs ago | Nil | N/A | -0.94 | N/A |
| Three qtrs ago | Nil | N/A | -1.72 | N/A |
Stock 6
Plug Power (PLUG)
| Price | Buy Range | Loss Limit |
| 30 | 27-29 | 23.5-24.5 |
Why the Strength
Plug Power is widely known for its hydrogen fuel cells that replace conventional batteries in electrical equipment and vehicles, and that’s still a big draw. More recently, though, the focus has turned to hydrogen: Plug has grown into the leading provider of green hydrogen, with the world’s largest fueling station footprint, saving many of its customers (including Walmart and Amazon) up to a million dollars a year in operational costs. By the end of this year, Plug is aiming to produce at least 70 tons of green hydrogen daily, made by splitting water into hydrogen and oxygen by using renewable energy, and 500 tons daily by 2025. Aside from producing the hydrogen, Plug also provides liquefaction and storage products that make storage safe and efficient, as well as a fleet of transportation vehicles. The current numbers here are a mixed bag (revenues were up 21% in Q2, though up 96% in Q1, with the bottom line still in the red), but the near future looks brighter— Plug’s current backlog of 1.5 gigawatts (GW) is ahead of targeted booking and backlog of 1 GW for the year, prompting management to affirm a 2022 midpoint revenue outlook of $912 million. an 82% increase from last year if realized. The company also said a “strong” business outlook provides a clear path to its 2025 targets ($3 billion of revenue, up five-fold from the tally of the past 12 months, with solid profit margins, too), which is further enhanced by recent U.S. climate legislation. The electrolyzer business remains solid, too, having just secured its largest multi-site electrolyzer order in Europe after a hydrogen producer bought ten 5 megawatt systems for green hydrogen production, with plans to jointly develop green hydrogen plants across Europe by 2025. Plug is a solid green-energy story.
Technical Analysis
PLUG was an underrated pandemic winner, breaking out at 6 and exploding as high as 75 in January 2021 before the rug was pulled out from under it—the stock had three huge legs down, to 19, then to 18, and finally to 13 in May of this year. The bottoming process after that was solid (10 weeks of choppy action), and the green energy bill sent PLUG nicely above its 40-week line and, like most peers, it’s held firm since then. The 30 to 32 area has been a wall, so if you want in, we advise looking for weakness.
| Market Cap | $17.3B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -1.68 |
| Current P/E | N/A | FY 2021 | -0.81 |
| Annual Revenue | $598M | FY 2022e | -0.96 |
| Profit Margin | N/A | FY 2023e | -0.42 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 151 | 21% | -0.30 | N/A |
| One qtr ago | 141 | 96% | -0.27 | N/A |
| Two qtrs ago | 162 | N/M | -0.33 | N/A |
| Three qtrs ago | 144 | 34% | -0.17 | N/A |
Stock 7
Regeneron Pharm (REGN)
| Price | Buy Range | Loss Limit |
| 711 | 700-720 | 635-645 |
Why the Strength
Regeneron is a biotech focused on neurotrophic factors—proteins that support the growth of neurons—and their regenerative capabilities (hence the company’s name). It has a pipeline of 35 drugs in various stages of development for treating disorders ranging from eye diseases, cardiovascular and metabolic diseases, hematologic conditions and infectious diseases. It also boasts seven FDA-approved treatments and is conducting one of the world’s largest gene sequencing efforts. Regeneron’s efforts at fighting the eye diseases diabetic macular edema (DME) and wet age-related macular degeneration (wAMD) met with success as the firm just announced that its blockbuster eye medicine Eylea (which had U.S. sales of nearly $6 billion last year) reached the primary endpoints in two new, pivotal trials designed to investigate a less-frequent dosing regimen in DME and wAMD patients (the reason for the stock’s big move). Regeneron and its partner Bayer plan to submit the data, which demonstrated improved vision with less frequent injections, to global regulatory authorities in what they believe will establish a potential new standard-of-care for treating both diseases. In the immediate aftermath of the announcement, several major Wall Street firms issued ratings upgrades for Regeneron, adding to the strength. The Eylea trial news was welcome after Q2 sales of $2.9 billion slipped 44% from a year ago, mainly due to falling sales of the firm’s Covid-19 therapy, Regen-Cov. Excluding this, however, revenue increased 20%, led by record global sales of Eylea (up 9%) and dermatitis therapy Dupixent (up 40%), while EPS of $9.77 beat estimates by 13%. The ex-Covid business should continue to grow, and big investors are likely to begin discounting the new Eylea indications, too.
Technical Analysis
REGN tried to break free from a huge, year-and-a-half-long base in March, but the market pulled it back in when it nosedived. But the damage wasn’t great (shares basically just fell back into their long trading range), and REGN shaped up for a couple of months after its June low. Then came last week, with the stock popping back to its March highs on the heaviest weekly volume in nearly two years. It’s going to be volatile, but we think you can grab a position around here with a stop in the mid 600s.
| Market Cap | $81.0B | EPS $ Annual (Dec) | |
| Forward P/E | 17 | FY 2020 | 31.47 |
| Current P/E | 12 | FY 2021 | 74.66 |
| Annual Revenue | $14.2B | FY 2022e | 41.78 |
| Profit Margin | 39.4% | FY 2023e | 42.98 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 2.86 | -44% | 9.77 | -62% |
| One qtr ago | 2.97 | 17% | 11.49 | 16% |
| Two qtrs ago | 4.95 | 104% | 23.72 | 149% |
| Three qtrs ago | 3.45 | 51% | 15.37 | 84% |
Stock 8
Shoals (SHLS)
| Price | Buy Range | Loss Limit |
| 26 | 25-26.5 | 20.5-21.5 |
Why the Strength
Solar remains in pole position to be among the leading groups of any sustained advance that develops—liquid names like First Solar and Enphase remain enticing, but there are many down-the-food-chain titles that should see business surge for years to come. Shoals is a little-known name that is actually a dominant nuts-and-bolts provider to the sector: The story revolves around what’s known as Electrical Balance of System (EBOS) solutions, which is a collection of things like junction boxes, re-combiners, splice boxes, disconnects, transition boxes and more that are required for every single solar project, no matter how big or small, and that work with every type of panel and mounting system. (EBOS makes up 6% of the average project cost in total.) While some of these products are commodity-like, (a) each EBOS is unique to its project, requiring some upfront engineering, and (b) three-quarters of Shoals’ sales mix are custom solutions, which include proprietary components and installation methods, which keeps barriers (and revenue visibility) high. (Big clients also like to work with established players given the undertaking of putting together thousands of wires and connections.) All told, Shoals has about a whopping 50% EBOS market share (!), and it also does good business in battery storage and is moving into EV chargers, too. While business was just OK in the first half due to sector uncertainties (tariffs, panel supply, etc.), the future is bright—while revenues were up “only” 23% in Q2, the backlog and awarded orders were up 63% from a year ago, and analysts see the top and bottom line booming for many quarters to come. We like it.
Technical Analysis
SHLS was crushed after the November market top, with shares imploding to 11 in March and below 10 in May. Interestingly, the stock quickly spiked back to its 40-week line, and after a five-week rest/correction, SHLS soared on the green energy bill. Better yet, shares have held up well since, trading mostly tightly despite the market (and a downgrade last week). You can nibble here or (preferably) on dips, but use a loose leash.
| Market Cap | $4.50B | EPS $ Annual (Dec) | |
| Forward P/E | 88 | FY 2020 | 0.28 |
| Current P/E | 138 | FY 2021 | 0.22 |
| Annual Revenue | $249M | FY 2022e | 0.30 |
| Profit Margin | 16.0% | FY 2023e | 0.66 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 73.5 | 23% | 0.07 | -22% |
| One qtr ago | 68 | 49% | 0.05 | 0% |
| Two qtrs ago | 48.1 | 24% | 0.01 | -80% |
| Three qtrs ago | 59.8 | 14% | 0.07 | -22% |
Stock 9
Wesco (WCC)
| Price | Buy Range | Loss Limit |
| 143 | 136-141 | 124-126 |
Why the Strength
Video conferencing is now a big part of today’s post-pandemic world and has become an essential tool for the way companies conduct business. Wesco (covered in the June 6 report) is an established name in the electrical parts space but has lately been pursuing what it sees as a high-growth opportunity in conferencing, as well as in automation and the Internet of Things (IoT). To that end, Wesco launched an audio/video conference room service to support the growing hybrid work trend; the service involves network-enabled touchless capabilities, wireless connections and voice-activated systems for room control—all big selling points in Covid’s wake—along with predictive maintenance and advanced automation features. Each of the firm’s three segments (Electrical and Electronics, Communications and Security and Utility and Broadband) delivered double-digit sales and profit growth in Q2, driven by the firm’s enterprise-wide cross-selling and gross margin improvement programs, with Wesco setting records in backlog, margins and profitability. Revenue of $5.5 billion was 19% above the year-ago level, while per-share earnings of $4.19 topped estimates by 24 cents and EBITDA rose 44%. This prompted Wesco to raise its full-year earnings outlook to a midpoint of $16 per share (up a whopping 60% from a year ago), with management adding that the results reflect its new business model after the merger with cable and electrical wire provider Anixter International (which doubled Wesco’s size). After this year’s boom, analysts see the bottom line remaining elevated (even inching higher) in 2023.
Technical Analysis
After a strong post-pandemic run which saw WCC hit a peak at 140 last November, the next several months were turbulent as shares chopped around in a sloppy-looking, 40-point trading range. However, now the stock is shaping up, with the test of resistance last month in the 145 area leading to a modest dip—and, last week, a renewed push higher. Given the market, we still favor looking for dips if you want in.
| Market Cap | $7.25B | EPS $ Annual (Dec) | |
| Forward P/E | 9 | FY 2020 | 5.16 |
| Current P/E | 10 | FY 2021 | 9.97 |
| Annual Revenue | $20.0B | FY 2022e | 16.07 |
| Profit Margin | 4.3% | FY 2023e | 16.57 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 5.48 | 19% | 4.19 | 59% |
| One qtr ago | 4.93 | 22% | 3.63 | 156% |
| Two qtrs ago | 4.85 | 18% | 3.17 | 160% |
| Three qtrs ago | 4.73 | 14% | 2.74 | 65% |
Stock 10
WillScot Mobile (WSC)
| Price | Buy Range | Loss Limit |
| 43 | 41.5-43 | 37-38 |
Why the Strength
Coming out of a bear phase, we always have our eyes peeled for new firms that have revolutionary products or services—but it’s important not to forget about stocks that have boring-but-solid businesses that are poised to crank out steady growth for a long time. WillScot Mobile fills that second bill, as it’s the top dog in providing modular space and storage solutions (those huge “boxes” and makeshift office spaces you see next to big construction projects; WillScot has nearly 400,000 of them), which is a huge business (north of $10 billion annually in North America) that has attractive characteristics: Average lease deals are more than 30 months, sales prices have risen year-over-year 19 straight quarters, the boxes have a useful life 20 to 30 years and payback of the initial investment of a new box is three to three and a half years. Moreover, WillScot is moving into value-added offerings (office chairs, coffee makers and much more) that have higher margins and boost the return profile further. As we said above, the firm isn’t changing the world, so growth here isn’t going to be extraordinary, but the long-term profile looks very solid, with organic (excluding buyouts) revenue likely rising in the 5% to 10% annually, EBITDA growing slightly faster and free cash flow likely to triple or more from $1.12 per share in the past 12 months to $3 per share or so within three to five years--which it plans to use to either bolster its positioning (M&A) or buy back stock. The economy is a risk (an implosion would likely crimp demand), but we think business should continue to plow ahead.
Technical Analysis
WSC did top at 42 in January and slid with the market during the next few months, but the damage wasn’t too bad, with shares falling to only to 31 or so in June. And when the pressure came off the market for a bit, the stock responded, surging five straight weeks in July/August, moving to new highs by a couple of points. Now we see a month’s worth of rest, with a low-volume dip as WSC’s moving averages catch up, setting up a decent risk/reward situation. We think you can take a swing at the stock around here.
| Market Cap | 9.07 | EPS $ Annual (Dec) | |
| Forward P/E | 31 | FY 2020 | 0.41 |
| Current P/E | 37 | FY 2021 | 0.80 |
| Annual Revenue | $2.10B | FY 2022e | 1.38 |
| Profit Margin | 12.6% | FY 2023e | 1.72 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 582 | 26% | 0.32 | 300% |
| One qtr ago | 509 | 20% | 0.22 | 69% |
| Two qtrs ago | 518 | 18% | 0.32 | 60% |
| Three qtrs ago | 491 | 18% | 0.26 | 271% |
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 9/12/2022 |
| HOLD |
| 8/29/22 | Advanced Drainage | WMS | ★ | 135-140 | 141 |
| 8/15/22 | Albermarle | ALB | ★ | 272-283 | 297 |
| 7/5/22 | Alliance Resource Ptnr | ARLP | | 17.3-18.3 | 25 |
| 8/22/22 | Alnylam | ALNY | | 208-215 | 212 |
| 9/6/22 | Array Tech | ARRY | | 19.5-21 | 21 |
| 9/6/22 | ATI Inc. | ATI | | 28-29.5 | 32 |
| 9/6/22 | Cameco | CCJ | ★ | 27.5-29 | 30 |
| 8/22/22 | Carlisle Co. | CSL | | 297-307 | 312 |
| 5/16/22 | Celsius | CELH | | 53-56 | 107 |
| 9/6/22 | Chipotle Mex Grill | CMG | | 1590-1640 | 1748 |
| 8/29/22 | Chord Energy | CHRD | | 141-146 | 143 |
| 7/25/22 | Chesapeake Energy | CHK | | 89-92 | 104 |
| 8/1/22 | Chart Industries | GTLS | | 187-193 | 201 |
| 8/22/22 | Denbury | DEN | | 86-89 | 88 |
| 5/10/21 | Devon Energy | DVN | ★ | 25-26.5 | 71 |
| 6/6/22 | Enphase Energy | ENPH | | 197-205 | 309 |
| 8/1/22 | EQT Corp. | EQT | | 40.5-43 | 50 |
| 8/8/22 | First Solar | FSLR | | 100-104 | 137 |
| 8/15/22 | Globalfoundries | GFS | | 60.5-62.5 | 60 |
| 8/22/22 | Hyatt | H | | 94-96 | 94 |
| 8/22/22 | Insulet | PODD | | 257-264 | 268 |
| 7/18/22 | Lantheus | LNTH | | 65-67.5 | 86 |
| 8/29/22 | Livent Corp. | LTHM | | 30-32 | 34 |
| 9/6/22 | LPL Financial | LPLA | | 215-222 | 232 |
| 6/13/22 | Neurocrine Bio | NBIX | | 89-92 | 107 |
| 8/15/22 | New Fortress Energy | NFE | | 54.5-57.5 | 55 |
| 8/8/22 | Onsemi | ON | | 64-66 | 72 |
| 8/29/22 | Palo Alto Networks | PANW | | 550-565 | 568 |
| 8/8/22 | Paylocity | PCTY | ★ | 248-263 | 261 |
| 9/6/22 | Pinduoduo | PDD | | 62-65 | 72 |
| 9/6/22 | Privia Health | PRVA | | 37-39 | 42 |
| 7/11/22 | PTC Therapeutics | PTCT | | 41-43 | 53 |
| 8/29/22 | RBC Bearings | ROLL | | 238-248 | 252 |
| 8/1/22 | Shoals | SHLS | | 21-22.5 | 26 |
| 6/27/22 | Shockwave Medical | SWAV | | 185-195 | 287 |
| 8/29/22 | Steel Dynamics | STLD | | 82-85 | 83 |
| 8/29/22 | Stem Inc. | STEM | | 13-14 | 17 |
| 8/29/22 | Super Micro Computer | SMCI | | 64.5-67.5 | 67 |
| 9/6/22 | TripAdvisor | TRIP | | 25-26 | 26 |
| 8/1/22 | WillScot | WSC | | 37-38.5 | 43 |
| 8/22/22 | Wingstop | WING | | 115-120 | 147 |
| 8/22/22 | Wolfspeed | WOLF | ★ | 104-109 | 117 |
| 8/1/22 | WW Grainger | GWW | | 530-550 | 568 |
| WAIT |
| 9/6/2022 | Cytokinetics | CYTK | | 48-50 | 54 |
| SELL RECOMMENDATIONS |
| 8/15/22 | Arista Networks | ANET | | 123-127 | 125 |
| 8/15/22 | CF Industries | CF | | 98.5-101.5 | 99 |
| 7/18/22 | Consol Energy | CEIX | | 53.5-56.5 | 66 |
| 8/22/22 | Deckers Outdoors | DECK | | 318-324 | 358 |
| 6/13/22 | Scorpio Tankers | STNG | | 31-33 | 45 |
| DROPPED |
| None this week | | | | | |
The next Cabot Top Ten Trader issue will be published on September 19, 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.
