There’s not much to say when it comes to the market—the downturn that started in late August continues, with the major indexes back down to their May/June lows, keeping the intermediate- and longer-term trends pointed down. Moreover, after last week’s Fed meeting, the sellers finally came around for many resilient names, causing a bunch to crack support. Today, we’re staying cautious and continuing to hold plenty of cash, but we’re keeping an open mind as we see how this retest phase plays out. Our Market Monitor is down to a level 3.
This week’s list is mostly names that have taken on water (like everything else) but are still acting “normally.” Our Top Pick is a name that’s acting very unusually good, and it has a good story and excellent growth, too.
Cabot Top Ten Trader Issue: September 26, 2022
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Lots of Negativity—but No Buyers YetThere’s not much to say when it comes to the market—the downturn that started in late August continues, with the major indexes back down to (and in some cases through) their May/June lows, keeping the intermediate- and longer-term trends pointed down. Moreover, after last week’s Fed meeting, the sellers finally came around for many resilient names, causing a bunch to crack support. As always, we’ll let others predict what comes next and how the Fed, interest rates, U.S. dollar, junk bonds, foreign currencies and the Russian war will play out—for our part, we’ll just follow along. Today, that means staying cautious and continuing to hold plenty of cash, and remaining cautious until we see legitimate indications the bulls are taking control … but it also means keeping an open mind as we see how this retest phase plays out. Our Market Monitor is down to a level 3 as fewer stocks are holding support.
This week’s list is mostly names that have taken on water (like everything else) but are still acting “normally.” There is one that is acting very unusually—Xometry (XMTR) is a thinner, newer name, but it has a good story, excellent growth and the stock is pushing higher even in this environment. We wouldn’t chase it, but you could consider a nibble on weakness.
| Stock Name | Price | Buy Range | Loss Limit |
| Akero Therapeutics (AKRO) | 27 | 23.5-25 | 19.5-20.5 |
| Albemarle (ALB) | 265 | 258-269 | 238-243 |
| Cal-Maine Foods (CALM) | 60 | 57-59 | 52-53 |
| Consol Energy (CEIX) | 59 | 63.5-65.5 | 56-58 |
| First Solar (FSLR) | 128 | 122-126 | 106-109 |
| HealthEquity (HQY) | 71 | 67-69 | 61.5-62.5 |
| Onsemi (ON) | 63 | 66-68 | 59-60 |
| Shift4 (FOUR) | 42 | 40.5-42.5 | 35-36 |
| Wolfspeed (WOLF) | 110 | 104-108 | 93-96 |
| Xometry (XMTR) ★ TOP PICK ★ | 58 | 54.5-57 | 46.5-48 |
Stock 1
Akero Therapeutics (AKRO)
| Price | Buy Range | Loss Limit |
| 27 | 23.5-25 | 19.5-20.5 |
Why the Strength
Non-alcoholic steatohepatitis (NASH) has been called a “silent” disease with few or no symptoms. It’s an advanced form of fatty liver disease that can be caused by underlying conditions like obesity, metabolic syndrome or type 2 diabetes, although it’s currently without any approved therapies. Akero, a clinical-stage cardio-metabolic biotech, is leading the way to find a treatment for this potentially deadly affliction. The company’s lead drug candidate, the genetically engineered fusion protein Efruxifermin (Efru), is currently being evaluated in a Phase IIB clinical trial as a potential treatment for NASH. Encouraging results for Efru are a big reason behind Akero’s recent strength after the company said the drug improved liver fibrosis without the worsening of liver disease, reaching the main goal of the latest trial. The study also showed statistically significant effects in several secondary goals, including improvements in liver fat, liver enzymes, blood sugar, body weight and non-invasive fibrosis markers. Akero also took important steps in Q2 to fund its development of Efru, including closing a $25 million equity investment from Pfizer and a $100 million term loan facility from business development company Hercules Capital. Additionally, Akero just announced the closing of an upsized public offering of nearly nine million common shares which brought in gross proceeds of about $230 million (the firm said the combined funds should provide enough cash to fund its operations for another two years, including plans for bringing Efru to market). The current numbers (or lack of them) are basically meaningless, as Q2 saw no sales and a 77-cent EPS loss. But management has high hopes for successful Phase III for Efru, an outcome that would put Akero firmly on the path toward profitability.
Technical Analysis
AKRO came public in June 2019 at 16, and after the typical post-IPO drop, went on to reach a high of 41 in July of the following year. This proved to be a major peak, however, and shares spent most of the next two years in a steady downswing. A bottom was finally established this June at 8, and after three months of bottom building, the stock more than doubled this month on exceptionally high volume following the trial results. The stock has held up well despite the market mayhem—though we’d still aim for dips if you want in.
| Market Cap | $1.20B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -2.52 |
| Current P/E | N/A | FY 2021 | -2.89 |
| Annual Revenue | Nil | FY 2022e | -3.10 |
| Profit Margin | N/A | FY 2023e | -3.55 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | Nil | N/A | -0.77 | N/A |
| One qtr ago | Nil | N/A | -0.74 | N/A |
| Two qtrs ago | Nil | N/A | -0.93 | N/A |
| Three qtrs ago | Nil | N/A | -0.70 | N/A |
Stock 2
Albemarle (ALB)
| Price | Buy Range | Loss Limit |
| 265 | 258-269 | 238-243 |
Why the Strength
So the market is a total mess, with the Fed on a hawkish rampage and almost explicitly saying it wants to damage the economy—so, if you’re a big money manager, what do you do? For growth stocks, you want rapid and very reliable growth, where even a global economic pothole won’t hit a firm’s prospects too hard. That leads us to Albemarle, which is the institutional way to play the lithium boom—the firm has one of the biggest positions in the metal that’s effectively being legislated into scarcity as the world forces the move toward electric vehicles (and the batteries they require); Albemarle sees lithium demand doubling from 2022 to 2025, and then more than doubling again by 2030. The company has vertically-integrated lithium operations all over the world (both hydroxide and carbonate), and the main risk of late has been execution risk; with huge expansion plans ($1.3 billion CapEx to boost output 25% this year; more spending to come to expand output at 20% annual rates after), Albemarle looked like a cash-burn operation for a long time to come, but the sky-high prices for lithium (even in the face of an economic downturn) actually should result in the firm being free cash flow positive this year and even more so next year, all while earnings go through the roof, leaping to over $20 per share this year and actually pushing even higher in 2023 (resulting in a reasonable valuation). It’s always possible prices do ease if the economy gets hairy enough, but there’s little doubt Albemarle is going to get a lot bigger in the years ahead.
Technical Analysis
Nobody likes a bear market, but the latest whoosh lower is making it easier to spot the names that are resisting the tsunami—and ALB sticks out like a sore thumb, with bottom in July way down at 190, a set of higher highs (290, 298, 308) since mid August, a higher low last week (260 vs 250) and support near the 50-day line. We’re not opposed to a nibble here, or just keeping ALB near the top of your watch list.
| Market Cap | $31.6B | EPS $ Annual (Dec) | |
| Forward P/E | 13 | FY 2020 | 4.12 |
| Current P/E | 34 | FY 2021 | 4.04 |
| Annual Revenue | $4.33B | FY 2022e | 20.37 |
| Profit Margin | 27.4% | FY 2023e | 23.56 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 1.48 | 91% | 3.45 | 288% |
| One qtr ago | 1.13 | 36% | 2.38 | 116% |
| Two qtrs ago | 0.89 | 2% | 1.01 | -14% |
| Three qtrs ago | 0.83 | 11% | 1.05 | -4% |
Stock 3
Cal-Maine Foods (CALM)
| Price | Buy Range | Loss Limit |
| 60 | 57-59 | 52-53 |
Why the Strength
A serious outbreak of the highly pathogenic avian influenza this year has resulted in a major reduction in the number of table-egg laying hens in the U.S. Add to that an increase in feed prices due to the Russia-Ukraine war, and companies that specialize in egg production are facing significant supply-chain woes. Despite this, Cal-Maine—the nation’s largest shell egg distributor and producer—has been able to navigate these headwinds and has the numbers to prove it. The company posted record quarterly specialty egg sales in its fiscal Q4, which featured revenue of $593 million that jumped 70% from a year ago while fiscal 2022 sales (ending in May) increased 32% to $1.8 billion. Additionally, per-share earnings of $2.25 beat estimates by 16% and, despite inflationary pressures, gross margin for the full year rose to 19% (compared with 12% a year ago). Cal-Maine’s record quarterly revenue was driven by significantly higher average selling prices, supported by “solid” consumer demand compared with the year-ago quarter. And while egg prices nationally have come down nearly 30% in recent weeks, they’re still double the three-year average price, which means the company should have plenty of good times ahead. Management also touted a “strong” financial position which it says will be used to look for additional opportunities to extend its market reach in fiscal 2023. To that end, the company has just approved (and started) a project to boost its production capacity to an additional 1.5 million cage-free hens, with completion expected by late 2025. Wall Street, meanwhile, sees the bottom line expanding 114% in the current fiscal year—and thanks to its policy of paying out one-third of net income, dividends (75 cents per share in the last quarter) should remain buoyant.
Technical Analysis
CALM started to surge at the start of the year and rallied up to 60 in early April before finally correcting down to 44 over the following 10 weeks. The stock used most of this summer to establish a new uptrend, testing the 50-day line three times between August and early September before taking off and reaching a new high last week. We don’t want to chase strength in this environment, but we’re not opposed to a nibble if/when CALM pulls in a few points.
| Market Cap | $3.00B | EPS $ Annual (May) | |
| Forward P/E | 10 | FY 2021 | 0.04 |
| Current P/E | 22 | FY 2022 | 2.72 |
| Annual Revenue | $1.78B | FY 2023e | 5.82 |
| Profit Margin | 18.5% | FY 2024e | 1.94 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 593 | 70% | 2.25 | N/A |
| One qtr ago | 478 | 33% | 0.81 | 189% |
| Two qtrs ago | 391 | 13% | 0.02 | -92% |
| Three qtrs ago | 316 | 8% | -0.37 | N/A |
Stock 4
Consol Energy (CEIX)
| Price | Buy Range | Loss Limit |
| 59 | 63.5-65.5 | 56-58 |
Why the Strength
Benchmark coal prices are trading near historic highs, as a series of power crises across the world have led countries to increase their dependency on coal for what is expected to be a long, harsh winter ahead. Consol (covered in the July 18 report) is a Pennsylvania-based producer and exporter of high-BTU bituminous thermal and metallurgical coal. The company owns and operates some of the most important productive longwall mining operations in the U.S. and is one of the largest export terminals on the Eastern seaboard. Consol reports seeing “robust” demand for its coal globally as a result of the energy crisis and tight supply. In Europe, Australia and Japan, governments are bringing back coal-fired electricity generation units in the face of electrical grid reliability worries due to a potential loss of Russian natural gas. Meanwhile in the U.S., Consol said it’s seeing domestic coal-fired generation units that were scheduled for retirement being delayed on account of the energy shortage and grid reliability concerns. Consequently, the company has managed some major new contract wins, is fully contracted this year and has 20 million tons contracted for 2023. Additionally, the firm has increased its forward sale position by nearly eight million tons through 2025, so it’s certainly possible the recent earnings moonshot could have legs. On the financial front, Q2 revenue of $544 million nearly doubled was up 90%, while cash flow of $160 million soared 200% and per-share earnings of $3.54 crushed the consensus by 56%. On the back of the strong results, Consol announced a special dividend of $1 per share and initiated a shareholder return program, initially targeting around 35% of free cash flow while continuing to reduce debt at an accelerated pace. Yes, there are obviously economic concerns, but analysts still see earnings mushrooming to a ridiculous $22 per share next year—even if it proves half that, Consol will be spinning off huge cash flow.
Technical Analysis
The situation with Russia kicked CEIX much higher earlier this year, with shares rising to almost 60 by early June. A brief (but sharp) hiccup after that gave way to a push all the way to near 80 before the latest four-week retreat (egged on by the market) cut 25% off shares. Even so, volume has been light, and the long-term trend looks very much intact—as do the fundamentals. We’ll set our buy range up a bit, thinking a strong rebound up a few points would raise the prospects of the latest dip being “just” a shakeout.
| Market Cap | $2.06B | EPS $ Annual (Dec) | |
| Forward P/E | 6 | FY 2020 | -0.37 |
| Current P/E | 18 | FY 2021 | 0.96 |
| Annual Revenue | $1.53B | FY 2022e | 9.71 |
| Profit Margin | 23.2% | FY 2023e | 22.03 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 545 | 90% | 3.54 | 999% |
| One qtr ago | 359 | 5% | -0.13 | N/A |
| Two qtrs ago | 481 | 48% | 3.30 | 573% |
| Three qtrs ago | 149 | -39% | -3.30 | N/A |
Stock 5
First Solar (FSLR)
| Price | Buy Range | Loss Limit |
| 128 | 122-126 | 106-109 |
Why the Strength
Sweeping climate change legislation passed by the U.S. Congress last month has given the solar industry a second wind, prompting First Solar (covered in the August 8 issue) to dramatically expand its solar panel manufacturing capacity. Just after the legislation was passed, First Solar—a leading global provider of comprehensive solar solutions—announced it would commit over $1 billion to build a fourth, fully integrated factory in the southeastern U.S., with the ability to produce 3.5 gigawatts (GW) of solar modules annually by 2025 (3% of the nation’s entire solar industry capacity). First Solar has since revealed additional plans to commit $185 million to expand one of its Ohio factories by nearly 1 GW. All told, the company’s total manufacturing capacity is expected to increase to more than 10 GW in the next three years, not to mention other potential investments the firm said it’s considering. The capacity expansion plans sent a slew of big Wall Street banks scurrying to upgrade the stock and raise their price targets (a reason for the strength). Management, meanwhile, expects the company’s increased capabilities to result in higher U.S. solar panel shipments and higher profitability. But First Solar isn’t solely focused on domestic production; it’s also busy expanding its global footprint, including a recent investment of almost $700 million for a 3 GW, fully vertically integrated photovoltaic (PV) solar module manufacturing plant in India, set to begin operation later next year. Last week, First Solar said it has agreed to supply 600 megawatts of its advanced thin film (more efficient) PV solar modules to an India-based solar provider—the first deal for the new factory. The numbers here have always been lumpy, but analysts see earnings up 30% in Q3, pushing up in 2023 and expanding nicely longer term.
Technical Analysis
FSLR hit a major peak at 120 last November and then tumbled with the rest of the solar industry over the next four months. Interestingly, though, shares basically hit a low in late February, successfully retesting that level in May, June and again in July before the green energy bill sent the stock skyrocketing. Better yet, the latest dip has been extremely modest, just to the 25-day line—we’ll set our buy range down a lower, thinking further dips are possible, but should be opportunities to enter.
| Market Cap | $13.8B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | 3.73 |
| Current P/E | 75 | FY 2021 | 4.38 |
| Annual Revenue | $2.48B | FY 2022e | -0.08 |
| Profit Margin | 9.0% | FY 2023e | 1.55 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 621 | -1% | 0.52 | -32% |
| One qtr ago | 367 | -54% | -0.41 | N/A |
| Two qtrs ago | 907 | 49% | 1.23 | 14% |
| Three qtrs ago | 584 | -37% | 0.42 | -71% |
Stock 6
HealthEquity (HQY)
| Price | Buy Range | Loss Limit |
| 71 | 67-69 | 61.5-62.5 |
Why the Strength
The hot labor market means that companies are offering more benefits to attract workers. That’s created a strong 2022 for tax-advantaged benefits programs, the most common of which are Health Savings Accounts (HSAs). HealthEquity is the second-largest HSA provider in the country (after UnitedHealthcare’s Optum), meaning it administers the collection of funds from employers and employee paychecks, manages custody and pays out reimbursements to workers. The first half of 2022 saw the number of Americans using HSAs exceed pre-pandemic levels, with HealthEquity seeing new account growth up 20% from last year. Altogether, HealthEquity manages HSAs for 7.5 million workers, plus it manages eight million other accounts like FSAs and commuter benefit programs, which in total hold $20.5 billion in assets. Employers pay a fee per employee, starting at $2.50 a month, so it benefits from the competition for talent. HSAs are about half of the benefits market right now and that’s seen growing to 70% by 2030. It’s unlikely new HSA account growth can keep up the 20% year-over-year pace, but even more modest increases will keep fueling HealthEquity’s growth – and when unemployment ticks higher, as looks likely, the firm’s COBRA administration business will pick up the slack. In early September, management said the firm would generate revenue of about $839 million for the current fiscal 2023, its third bump in guidance this year. That came before the latest interest rate hike, which will boost revenue a bit more since, like a bank, HealthEquity earns a spread on the rate it earns on deposits and the interest it pays out to account holders. Consensus for the year is for $1.27 earnings per share, which would be a tick below 2021 due to one-time costs from its acquisition of competitor WageWorks—but 2023 should see the bottom line surge.
Technical Analysis
HQY crashed last December when earnings were disappointing and the market first began to sink, but that was the low, as shares actually pushed persistently higher from that point until April. Of course, the stock ran into selling at that point, but it’s now built a solid-looking launching pad; the last four weeks, too, have all shown above-average buying volume. As with everything else, we’d only buy small and on dips, so if you’re game, a retreat of two or three points would be tempting.
| Market Cap | $6.06B | EPS $ Annual (Jan) | |
| Forward P/E | 56 | FY 2021 | 1.67 |
| Current P/E | 64 | FY 2022 | 1.33 |
| Annual Revenue | $795M | FY 2023e | 1.27 |
| Profit Margin | 13.6% | FY 2024e | 1.71 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 206 | 9% | 0.33 | -18% |
| One qtr ago | 206 | 12% | 0.27 | -29% |
| Two qtrs ago | 203 | 8% | 0.20 | -52% |
| Three qtrs ago | 180 | 0% | 0.35 | -15% |
Stock 7
Onsemi (ON)
| Price | Buy Range | Loss Limit |
| 63 | 66-68 | 59-60 |
Why the Strength
After more than a year of supply shortages, the U.S. semiconductor industry received the biggest boon in its history when the White House signed the CHIPS Act into law. The bill contains $52 million in subsidies for microchip manufacturers to build new capacity in the U.S. Onsemi, a leader in intelligent power and sensing technologies, said the legislation has injected “confidence” into North American manufacturing and has prompted the company to expand its own production. Auto and industrial end markets comprise two-thirds of Onsemi’s of revenue (and are expected to comprise up to three-quarters of sales by 2025), and the outlook for both sectors look fine both near- and long-term. Indeed, Onsemi has inked several long-term agreements with its biggest customers in both areas while investing in new plants in the CHIPS Act’s wake. The company also said it expects the burgeoning greentech revolution to provide a major tailwind to the company’s future growth (the firm’s components are heavily used in electric vehicle (EV) batteries and other renewable energy equipment). Meanwhile, Onsemi just launched an expansion of a silicon carbide (SiC) wafer production plant in the Czech Republic, while opening a new SiC plant in New Hampshire—both of which will dramatically lift those plants’ SiC capacity. The company’s SiC solutions are used intensively in the EV supply chain, and on this score, management expects to triple last year’s SiC revenue this year and exceed $1 billion in sales in 2023 (though that’ll still be less than 20% of the total sales tally). On the financial front, Onsemi saw revenue increase 25% from a year ago in Q2, while per-share earnings more than doubled. Wall Street sees a slowdown next year, but the future after that looks bright and the valuation here (14x earnings) is certainly reasonable.
Technical Analysis
ON has had struggled at times since the market top, but net-net, the performance has been impressive—the stock was around 64 when the Nasdaq topped back in November of last year, and today it’s hovering near the same level despite that index being down 33% from its peak. The stock recently ran all to way to new highs before the latest dip, which has gotten a big ugly with the market in the past few days—but ON is still holding the 200-day line, selling volume has been just average and there should be support nearby as shares back in the middle of their range. We’ll set our buy range up a bit, thinking a strong rally could tell you the sellers have run out of ammo.
| Market Cap | $27.4B | EPS $ Annual (Dec) | |
| Forward P/E | 12 | FY 2020 | 0.85 |
| Current P/E | 14 | FY 2021 | 2.95 |
| Annual Revenue | $7.63B | FY 2022e | 5.12 |
| Profit Margin | 28.3% | FY 2023e | 4.93 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 2.09 | 25% | 1.34 | 113% |
| One qtr ago | 1.95 | 31% | 1.22 | 249% |
| Two qtrs ago | 1.85 | 28% | 1.09 | 211% |
| Three qtrs ago | 1.74 | 32% | 0.87 | 222% |
Stock 8
Shift4 Payments (FOUR)
| Price | Buy Range | Loss Limit |
| 42 | 40.5-42.5 | 35-36 |
Why the Strength
Every cycle seems to have at least one payment processor (that also offers lots of back-of-the-shop help) that helps lead the advance, and with “old” names like PayPal and Block on the outs, we think Shift4 has a great shot at being the next in line. Really, the firm is already a leader when it comes to fundamentals: It’s been around for a quarter century with a massive blue-chip set of clients, and this year it’s on track to process nearly $70 billion payments (up nearly 50%). The firm’s specialty is in the retail and hospitality segments, which includes restaurants (Shift4 just released its latest point-of-sale solution for that sector) but also operations that have large campuses—many pro and college football stadiums have signed up, for instance, along with firms like Caesars, Planet Hollywood, Bally’s and and a few boutique hotel chains too (Gansevoort, Langham Chicago, Nobu), not to mention golf courses and the like. But Shift4 isn’t limited to just those areas; in fact, it’s been gaining momentum in all areas thanks to its unified commerce offerings, inking deals to run things like Allegiant Air’s payment platform, non-profit payments (via a buyout of The Giving Block), digital media (Time), online gaming (BetMGM) and even Starlink, all of which should ramp in the second half of the year. (Of course, the return of fall sports should boost things, too.) The economy is clearly a risk near-term, but the second half tailwinds should help, and Shift4 is a big-picture growth play that should attract thousands more big and small clients over time. The numbers are excellent, with solid profits and free cash flow, too, and analysts see big growth in 2023 despite all the bad news out there. We like it.
Technical Analysis
FOUR went over the falls with everything else during the first few months of the year, and didn’t really bottom until July, later than the indexes. But the big-volume, earnings-induced rally in early August was a bullish heads-up, and while FOUR was unable to tackle its 200-day line for weeks, the stock is actually holding up well of late—shares are not just well above the yearly low but also holding up around the late August low point. If you want to nibble here, you can, or just keep FOUR on your watch list.
| Market Cap | $3.50B | EPS $ Annual (Dec) | |
| Forward P/E | 34 | FY 2020 | -0.58 |
| Current P/E | 51 | FY 2021 | 0.69 |
| Annual Revenue | $1.69B | FY 2022e | 1.29 |
| Profit Margin | 4.6% | FY 2023e | 1.94 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 507 | 44% | 0.30 | 30% |
| One qtr ago | 402 | 68% | 0.24 | 140% |
| Two qtrs ago | 399 | 89% | 0.08 | N/A |
| Three qtrs ago | 378 | 76% | 0.26 | N/A |
Stock 9
Wolfspeed (WOLF)
| Price | Buy Range | Loss Limit |
| 110 | 104-108 | 93-96 |
Why the Strength
Silicon is still king in semiconductors but the high heat demands of renewable energy and electric vehicles have opened a space for a next generation of chips built on alternative materials, including silicon carbide (SiC). The business is so promising that a long-dominant provider of LED lighting, Cree, sold off its lighting business two years ago and changed its name to Wolfspeed to focus on SiC. Already its multi-year pipeline for SiC orders is $35 billion, a figure that’s doubled during fiscal 2022 (which ended in June). Two-thirds of the backlog comes from EV makers, who value SiC chips because regular silicon tends to get brittle and less efficient under the electrical flow inside the vehicle and between the EV and its chargers. Wolfspeed is going to build the world’s largest SiC wafer plant in North Carolina to supply its new SiC fabrication plant in central New York, which combined will allow it to continue to widen gross margin from today’s 36.5% to a target of 50% in 2026. SiC makes up just 5% of the semiconductor market now and as that grows, Wolfspeed could become a dominant supplier. It’s not all EVs driving growth – many mobile phone networks are embracing the semiconductor for heat performance and radio frequency characteristics. Management says they’re seeing a market that is gravitating toward SiC faster than anticipated, which should allow fiscal 2023 revenue to crest over $1 billion, from to $792 million. The increased demand brings some added capital costs as they tool up to use New York capacity faster than previously projected. Still, after three years of losses Wolfspeed should swing to net income again, of 16 cents a share this year and booming after that.
Technical Analysis
WOLF slid to an 18-month low under 60 in June, but a 35% bump in management’s projections for 2026 revenue, to about $2.8 billion (bolstered by a record set of bookings last quarter), sent shares gapping higher in August to 122; in fact, shares were hitting multi-month highs early last week! The stock has come down since then, of course, but WOLF remains north of its 50-day line and really hasn’t done anything “wrong;” in fact it’s still above its prior two short-term nadirs in the 105 area. Keep it near the top of your watch list, and if you want to nibble, a bit more weakness would be tempting.
| Market Cap | $13.7B | EPS $ Annual (Jun) | |
| Forward P/E | N/A | FY 2021 | -0.93 |
| Current P/E | N/A | FY 2022 | -0.50 |
| Annual Revenue | $727M | FY 2023e | 0.16 |
| Profit Margin | N/A | FY 2024e | 1.73 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 229 | 57% | -0.02 | N/A |
| One qtr ago | 188 | 37% | -0.12 | N/A |
| Two qtrs ago | 173 | 36% | -0.16 | N/A |
| Three qtrs ago | 137 | 36% | -0.21 | N/A |
Stock 10
Xometry (XMTR) ★ TOP PICK ★
| Price | Buy Range | Loss Limit |
| 58 | 54.5-57 | 46.5-48 |
Why the Strength
So here’s a new, high-potential story: Xometry is attempting to follow in the footsteps of some very large players that have thrived by digitizing industries—PayPal for payments, AirBnb in part for travel, autotrader.com for cars—but in this case, the firm is consolidating the huge ($2 trillion), fragmented (75% of employers have less than 20 employees) and highly inefficient market for manufactured custom (and other) parts. The firm has an AI-driven platform that looks like a huge leap over traditional sourcing (which is slow and costly), with instant pricing and lead time quotes, predictive characteristics (lifetime value of offerings for both buyers and suppliers), customer matching knowledge and even 3D geometry (to better ID issues and have better pricing accuracy); the platform can also be integrated in some ERP software and offers financial services for buyers, too. Because the market is so huge, many sectors use it (everything from aerospace to medical to robotics and more) all over the world, and last December’s buyout of a peer (Thomas, another platform for industrial sourcing) should goose results as those clients are steadily converted to Xometry’s offering. While small, it’s catching on quick—in Q2, there were 33,491 active buyers (up 40%), including 894 accounts with at least $50,000 in spend annually (up 76%), while 95% of revenue came from repeat clients (very few are leaving). The bottom line is still in the red, but the top brass sees positive EBITDA in 2023, and Wall Street sees the top line slowing but continuing to grow rapidly (up 38% next year, which is almost surely conservative) next year. We’re intrigued.
Technical Analysis
XMTR came public in the middle of last year and steadily fell through May, just like nearly all of its IPO peers during that time. But it’s what’s happened since that is eye-catching—not only did the stock bounce, it caught fire after Q2 earnings in August, and the stock has actually built on those gains, even advancing during last week’s market maelstrom. It’s thinly traded, and there is some resistance in this area, so we wouldn’t chase it--but another couple of points on the downside could be worthwhile.
| Market Cap | $2.68B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -0.67 |
| Current P/E | N/A | FY 2021 | -1.16 |
| Annual Revenue | $303M | FY 2022e | -0.92 |
| Profit Margin | N/A | FY 2023e | -0.31 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 95.6 | 89% | -0.18 | N/A |
| One qtr ago | 83.7 | 91% | -0.27 | N/A |
| Two qtrs ago | 67.1 | 77% | -0.40 | N/A |
| Three qtrs ago | 56.7 | 35% | -0.33 | N/A |
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 9/26/2022 |
| HOLD |
| 9/12/22 | Academy Sports | ASO | ★ | 48.5-51.5 | 43 |
| 8/15/22 | Albermarle | ALB | ★ | 272-283 | 265 |
| 9/12/22 | Alteryx | AYX | | 65-67 | 58 |
| 9/6/22 | ATI Inc. | ATI | | 28-29.5 | 28 |
| 9/6/22 | Cameco | CCJ | ★ | 27.5-29 | 25 |
| 9/6/22 | Chipotle Mex Grill | CMG | | 1590-1640 | 1532 |
| 8/29/22 | Chord Energy | CHRD | | 141-146 | 121 |
| 7/25/22 | Chesapeake Energy | CHK | | 89-92 | 91 |
| 9/19/22 | Dick’s Sporting Goods | DKS | | 108-111 | 102 |
| 6/6/22 | Enphase Energy | ENPH | | 197-205 | 275 |
| 9/12/22 | Evolent Health | EVH | | 36.5-38 | 35 |
| 8/8/22 | First Solar | FSLR | | 100-104 | 128 |
| 9/19/22 | Interactive Brokers | IBKR | | 65-67 | 64 |
| 9/19/22 | Iveric Bio | ISEE | | 15.7-16.7 | 15 |
| 9/12/22 | Karuna Therapeutics | KRTX | | 245-260 | 217 |
| 9/19/22 | Las Vegas Sands | LVS | ★ | 37.5-39.5 | 40 |
| 8/29/22 | Livent Corp. | LTHM | | 30-32 | 30 |
| 9/6/22 | LPL Financial | LPLA | | 215-222 | 215 |
| 6/13/22 | Neurocrine Bio | NBIX | | 89-92 | 101 |
| 8/8/22 | Paylocity | PCTY | ★ | 248-263 | 232 |
| 9/6/22 | Pinduoduo | PDD | | 62-65 | 61 |
| 9/12/22 | Regeneron Pharm | REGN | | 700-720 | 686 |
| 6/27/22 | Shockwave Medical | SWAV | | 185-195 | 255 |
| 9/19/22 | Tesla | TSLA | | 297-310 | 276 |
| 9/19/22 | Uber | UBER | | 30-31.5 | 27 |
| 8/1/22 | WillScot | WSC | | 37-38.5 | 39 |
| 8/22/22 | Wingstop | WING | | 115-120 | 124 |
| 8/22/22 | Wolfspeed | WOLF | ★ | 104-109 | 110 |
| WAIT |
| None this week | | | | | |
| SELL RECOMMENDATIONS |
| 8/29/22 | Advanced Drainage | WMS | ★ | 135-140 | 120 |
| 7/5/22 | Alliance Resource Ptnr | ARLP | | 17.3-18.3 | 22 |
| 8/22/22 | Alnylam | ALNY | | 208-215 | 197 |
| 9/6/22 | Array Tech | ARRY | | 19.5-21 | 16 |
| 5/16/22 | Celsius | CELH | | 53-56 | 88 |
| 9/19/22 | Chargepoint | CHPT | | 16.5-17.5 | 15 |
| 8/1/22 | Chart Industries | GTLS | | 187-193 | 177 |
| 9/12/22 | Comstock Res. | CRK | | 18-19 | 16 |
| 5/10/21 | Devon Energy | DVN | ★ | 25-26.5 | 55 |
| 8/1/22 | EQT Corp. | EQT | | 40.5-43 | 39 |
| 8/15/22 | Globalfoundries | GFS | | 60.5-62.5 | 53 |
| 8/22/22 | Hyatt | H | | 94-96 | 78 |
| 9/12/22 | Plug Power | PLUG | | 27-29 | 22 |
| 7/11/22 | PTC Therapeutics | PTCT | | 41-43 | 48 |
| 8/1/22 | Shoals | SHLS | | 21-22.5 | 19 |
| 8/29/22 | Stem Inc. | STEM | | 13-14 | 13 |
| 9/6/22 | TripAdvisor | TRIP | | 25-26 | 22 |
| DROPPED |
| 9/19/22 | Repligen | RGEN | | 229-233 | 179 |
The next Cabot Top Ten Trader issue will be published on October 3, 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.
