Still Tricky, But More Positive than Not
Current Market Outlook
Turkey’s currency crisis is the latest of what seems like a never-ending string of worries this year (volatility implosions, trade wars, rate hikes, etc.) that have hit the market to some extent. That said, we’re relatively encouraged by what we’ve seen during the past couple of weeks, with the major indexes holding and bouncing off important support, some new leadership emerging on earnings and other leading names forming solid bases. It’s still a tricky, narrow and choppy environment, which is a good reason to pick your spots, honor your stops and hold some cash. But we’re nudging our Market Monitor up another notch, as we see a healthy number of good-looking leading stocks and the market’s major trends remain up.
For the second week in a row, we have a growth-oriented list, a positive sign after the late-July selloff. Our Top Pick is Roku (ROKU), a very volatile name with a very big story. Keep it small, try to buy on dips and expect plenty of wiggles.
| Stock Name | Price | ||
|---|---|---|---|
| Alteryx (AYX) | 132.78 | ||
| Carvana (CVNA) | 82.90 | ||
| CF Industries (CF) | 45.23 | ||
| CyberArk (CYBR) | 111.74 | ||
| Match (MTCH) | 0.00 | ||
| Michael Kors Holdings Limited (KORS) | 73.22 | ||
| Roku, Inc. (ROKU) | 150.46 | ||
| Seattle Genetics (SGEN) | 150.85 | ||
| Teladoc, Inc. (TDOC) | 127.95 | ||
| Wingstop (WING) | 121.52 |
Alteryx (AYX)
Why the Strength
Alteryx is a Big Data stock that went public in March 2017 and has performed exceedingly well ever since. Much of that performance is tied to outstanding growth. Revenue was up 53% last year and is expected to rise another 46% this year, though, with a Q2 beat delivered last week, consensus estimates are probably going up. The heart of the story is global demand for good, clean data to help businesses be more agile and make better decisions. That sounds dry from the outside, but when managers have the right data at their fingertips, they’re far better positioned to tap into strong trends and avoid weak ones. That’s where Alteryx comes in—its cloud-based analytics solutions improve operational efficiencies, make data workers smarter and even improve work-life balance. The value proposition is clearly hitting home. Alteryx secured a record number of six-figure deals in Q2, when it landed clients such as Dropbox, Samsung, Mindbody and Union Pacific. International sales doubled, and dollar-based net revenue retention (a measure of growth from current customers) exceeded 130% for the seventh consecutive quarter. Bottom line, the trends here are superb. And with a market cap of under $2 billion and a massive global market, Alteryx looks to have a lot more room to grow.
Technical Analysis
AYX went public last March and climbed higher for the next five months, before a temporary setback in September. The stock broke out to a fresh high in November, then another big rally in February took it up near 40. Shares then traded in a 10-point range for a few months before regaining their 50-day line in June. There were a couple of dips back down to that technical support area level (June and July), but nothing was out of the ordinary and the post-earnings blast-off last week decisively drove the relative performance (RP) line to new highs. Try to buy on weakness.
AYX Weekly Chart
AYX Daily Chart
Carvana (CVNA)
Why the Strength
There aren’t many companies that are trying to revolutionize a $764 billion market, but that’s what Carvana is doing. The firm’s online used car sales process is proving to be a big hit, with customers able to search a massive inventory (11,000-plus automobiles) with 360-degree interior and exterior “tours,” guarantees that the car has never been in a reported accident, and real-time trade-in and financing offers for customers. In many places, delivery can occur the next day, and customers have a seven-day test drive period in case they want to renege on the purchase. And, of course, the prices are generally better, with around $1,000 of savings compared to what you’d get at a dealer. As the firm has expanded its infrastructure (including distribution, car acquisitions and the like), it’s been rapidly expanding—it operated in 21 markets at year-end 2016, 44 at the end of last year and 65 at the end of June, on its way to 80 or so by the end of this year. And these markets have followed a similar, rapid growth trajectory, leading to the triple-digit revenue, car sales and online visitor growth in recent quarters. Plus, while the bottom line is still in the red, the top brass is making solid progress there, too. In Q2, gross profit per car sold rose to $2,173 (up from $1,539 at year-end), while the EBITDA loss was 8.8% of revenue (better than the 16.9% at year-end). Long-term, the sky’s the limit given the size of the industry and Carvana’s attractive offerings.
Technical Analysis
CVNA broke out of a huge post-IPO base-on-base in June around 31 and enjoyed a quick, stunning advance, rallying to 45 within just a couple of weeks! It eventually stretched as far as 50 before stalling out, but the pause was normal—shares dipped as low as 40 when growth stocks got hit, but the 50-day line held and the stock closed tight four weeks in a row. Then, last week, the roof blew off, with CVNA surging to new highs on earnings. It’s volatile, so try to snare some shares on dips.
CVNA Weekly Chart
CVNA Daily Chart
CF Industries (CF)
Why the Strength
CF Industries is one of the world’s largest producers of nitrogen-based fertilizers and other nitrogen compounds. The company’s nine manufacturing complexes make it the clear global leader at turning natural gas into nitrogen, and its extensive network of distribution centers and other logistics infrastructure make it a reliable source for agricultural and industrial customers. CF Industries, which has made 15 previous appearances in Cabot Top Ten Trader, went through a rough earnings patch from Q3 2015 through Q3 2017, but has come roaring back with three quarters of strong bottom-line growth, including a 440% jump in Q1 2017 and 530% in Q2. That Q2 earnings report on August 2 featured both strong revenue growth (up 16%) and a huge bump in earnings (up 530%) thanks to lower North American natural gas costs and higher nitrogen prices on firming demand. The report also featured strong guidance for the second half of the year due to “a tightening nitrogen supply and demand balance, supported by higher energy costs in other regions of the world.” As a result, management said, they would “begin returning excess cash to shareholders.” The company traded ex-dividend today (Monday, August 13), with a 30 cents per-share dividend payable on August 31. But while that dividend is out the door, the trends for CF Industries are clearly bullish, and further share buyback or dividend hike announcements should attract more buyers.
Technical Analysis
CF suffered through a huge correction from 70 in July 2015 to 20 in August 2016, but has made a strong comeback, reaching 37 in January 2017 and 45 in March 2018. Each of those peaks was followed by a substantial correction, but the trend is clearly up. CF closed at 44 on August 1 (the day before earnings), then jumped to near 50 on August 2 on the good earnings, dividend and guidance news. CF has now traded sideways under resistance at 50 for seven trading sessions. We think you can buy around here or on dips, with a stop below the 50-day line (currently around 44.5).
CF Weekly Chart
CF Daily Chart
CyberArk (CYBR)
Why the Strength
Protecting online assets is a thriving business, and each cybersecurity company has its own approach. CyberArk Software specializes in protecting especially sensitive or valuable files—records of company executives or IT data—even after a hacker has successfully penetrated past a company’s firewall. Israel-based CyberArk has enjoyed strong growth in contracts with the U.S. government, with 31 new agencies across 20 departments inked to deals in recent quarters. The company’s revenue growth over the last three quarters has been a strong 25% (Q4 2017), 22% (Q1 2018) and 35% in the most recent quarter, with earnings growth increasing from flat in Q4 to 71% in Q2 2018. The company gets more than half of its revenue from software licenses, with the remainder coming from maintenance and professional services, a model that keeps repeat business high. The company picked up an upgrade from neutral to overweight from J.P. Morgan after its strong quarterly showing and optimistic guidance from management about the second half of the year. Analysts see the good times continuing, albeit at a slightly slower pace.
Technical Analysis
After a few years of hacking around in a generally lower direction, CYBR finally found the up escalator in February 2018. The stock popped from 42 to 50 in February and followed through strongly, soaring to 70 in mid-July. A pre-earnings correction to below 60 in late July gave way to a little rally before the good earnings news powered a gap up to a close at 69 on August 8. The stock has made small gains since last Wednesday’s jump, and is now trading above 71 and at multi-year highs. If you like the story, you can buy a little right here or on dips.
CYBR Weekly Chart
CYBR Daily Chart
Match (MTCH)
Why the Strength
Match Group is in the dating business, with a strong portfolio of online dating products, including Tinder, Match, PlentyOfFish, OkCupid, OurTime, Meetic and Pairs, each with a slightly different approach and target audience. In June, the company also acquired 51% ownership of Hinge, a New York City relationship app, with the right to acquire the rest of the company in the next 12 months. All told, the company offers dating help in 42 languages across 190 countries. After virtually founding the dating category in the mid-1990s, the company has always come up with ways to improve its services via both internal incubation of new services and via M&A. Match Group has been consistently profitable, although some questions on user growth and some other shenanigans caused the stock to take a hit earlier this year. But investors are hot on the stock again because of the company’s well-received August 7 quarterly earnings report that featured 36% revenue growth (matching the strong Q1 growth rate) and a 156% boom in earnings per share, an acceleration from the 117% growth in Q1. Free cash flow increased to $229 million in the first half of 2018 (up from $138 million in the first half of 2017) and analysts are forecasting 114% earnings growth in 2018. With a big marketing push behind Tinder as the college back-to-school period approaches, the outlook for the rest of 2018 is very strong.
Technical Analysis
MTCH came public in November 2015 in the mid-teens, and was still in the mid-teens in June 2017. But the stock caught fire in September 2017, rallying to as high as 49 in April 2018 before the poorly-received earnings report on May 1 sent it back to 34 with a thud. The stock then based out for the next few months, rallying to 45 before backing off to retest its low in the mid 30s two weeks ago. MTCH then gapped up from 39 to 47 on August 8 and has stormed higher in subsequent trading to hit new all-time highs above 50. It’s powerful, but also straight up from its recent lows; try to buy on dips.
MTCH Weekly Chart
MTCH Daily Chart
Michael Kors Holdings Limited (KORS)
Why the Strength
Michael Kors isn’t the young growth stock it was when it made a huge move from its IPO in 2011 through its peak (near 101) in early 2014. But the stock is strong today because, after a few tough years, thing are looking up. The company, of course, is one of the leading fashion brands both in the U.S. and around the world, and after getting caught up in the promotional game (lower prices) in recent years, Q2 looked like a turning point in the business—after nine straight quarters of same-store sales declines in North America, that metric lifted into the low single digits and is seen as a leading indicator for the brand as a whole. Moreover, the firm’s Jimmy Choo operation (mostly known for luxury shoes) is doing well, growing 12% from the year before with high single-digit same-store sales; Choo made up about 15% of total revenues and the business is expected to turn profitable this year. Even when Kors was struggling, it was still highly profitable, and now, with margins picking up, analysts are beginning to boost their estimates, seeing double-digit growth this year, though that’s likely conservative given the size of the beat in Q2 ($1.32 vs. $0.94 expected). There’s nothing revolutionary here, but Kors is back on the right fashion track, which should lead to better-than-expected growth going forward.
Technical Analysis
Stock-wise, KORS’ turnaround began about a year ago, when the stock gapped up on earnings and eventually ran to 69 in January. From there, shares remained in a choppy range (56 to 70 or so), with the 40-week line being tested a couple of times. Then, last week, shares finally broke out, lifting to new price (but not relative performance) highs and, encouragingly, following through on the upside after the breakout. We’re OK buying some here, though with a stop in the mid 60s.
KORS Weekly Chart
KORS Daily Chart
Roku, Inc. (ROKU)
Why the Strength
We’ve featured Roku a number of times since the company went public and the story just keeps getting better. The big-picture trend, streaming TV over the internet, is very straightforward. But Roku’s split personality gives investors diversified exposure to the cord-cutting movement, and that’s a good thing. The company’s Platform segment (46% of sales in the last quarter) generates revenue from advertising, subscription and transaction fees, sales of branded channel buttons on remote controls, and licenses from operating systems installed on TVs. Its Player segment (54% of revenue in the last quarter) includes sales of over-the-top (OTT) streaming players. Roku makes a small profit margin on Player sales (22% gross margin) but a much, much bigger profit on Platform revenue (70% gross margin). For the model to work, Roku needs to keep pulling in users and selling them high-margin advertising, and the plan is working amazingly well right now. Active accounts were up 47% in Q1 and 46% in Q2 (to 22 million) while average revenue per user soared 48% (to $16.60 on a trailing twelve-month basis), in part because total streaming hours are going up (57% in Q2 to 5.5 billion hours). Put it all together and Roku’s Q2 revenue jumped 57%. The big news is on the bottom line though, where Roku delivered a break-even quarter when analysts expected a $0.15 loss. Forward guidance went up, as did the stock, which reacted very positively to the report. It’s a good story.
Technical Analysis
ROKU went public at 14 last September and the stock rallied right out of the gate, eventually topping out at 59 in December. Things sort of fell apart after that, with shares retreating to 29 in early-April. A month consolidating in the 30 to 35 range preceded the Q1 earnings report on May 9, after which investors began to pile back in. ROKU made a few fresh recovery highs before last week’s report, then gapped up strongly after earnings last Thursday. If you’re game, you can start a position here with a stop in the upper 40s.
ROKU Weekly Chart
ROKU Daily Chart
Seattle Genetics (SGEN)
Why the Strength
Seattle Genetics is a mid-cap biotech stock that develops transformative therapies targeting cancer. It’s not profitable yet, but has been a relatively steady revenue grower for the last five years, and growth has been accelerating in recent quarters, highlighted by a 57% surge in Q2. The story behind the numbers is that most sales in the recent quarter came from ADCETRIS, an industry-leading antibody-drug conjugate (ADC) technology that is approved for the treatment of multiple CD30-expressing lymphomas. With several recent label expansions more than doubling the eligible patient population, and more likely on the way, ADCETRIS is a big part of the growth story. That said, Seattle Genetics has a stacked pipeline of assets, including Enfortumab Vedotin for metastatic urothelial cancer, Tisotumab Vedotin for metastatic cervical cancer, and Tucatinib, a small molecule tyrosine kinase inhibitor for HER2-positive metastatic breast cancer. It also has a proprietary ADC technology that allows its drugs to attack cancer cells without the toxic effects of chemo. With the number of partnerships growing (Bayer, Pfizer, Roche, GlaxoSmithKline), the company not only has a nice little royalty business but is also likely becoming an increasingly attractive acquisition target. With Seattle Genetics on track to becoming a multi-product oncology company, there’s massive upside, though obviously new treatment approvals are necessary for the bull case to unfold.
Technical Analysis
SGEN is a streaky stock, but the long-term chart is intriguing here. The last big rally was in 2016 when shares topped out at 75. It dipped as low as 45 last year and was still languishing in the upper 40s in April of this year, but the buyers have been in control in recent months. Since shares broke back above their intermediate- and long-term moving average lines in May the stock has been working beautifully, with scarcely a dip of more than a few points. SGEN is now back near its 2016 high, and we’re OK starting a position here and looking to average up on a decisive push above 75.
SGEN Weekly Chart
SGEN Daily Chart
Teladoc, Inc. (TDOC)
Why the Strength
Teladoc remains one of the market’s strongest stocks because it’s story is not just massive, but it continues to get better. To review, the company is the clear leader in the new industry of virtual care, which lets people (usually employees of big firms that have signed up with Teladoc) get in touch via phone or video with a board-certified doctor in any number of specialties; many people use it to get prescriptions or get common ailments diagnosed, but the company has drastically expanded its offerings over time (mental health, transmitted diseases, etc.). Much of that expansion has come from a couple of acquisitions (Best Doctors last year, Advance Medical this year) that has solidified Teladoc’s place at the head of the sector. It’s a great idea, and now we’re seeing some big outfits latch on—CVS’ MinuteClinic (its retail medical clinic) is leveraging Teladoc’s technology and infrastructure to offer video virtual care through the CVS Pharmacy app. Financial terms weren’t disclosed, but to us, it’s a huge sign of support that a bit outfit like CVS is effectively signing up with Teladoc as opposed to trying to build out its own infrastructure. (We wouldn’t be shocked to see similar deals with other providers in the months ahead.) Growth here has been terrific (though partially boosted by acquisitions), and Wall Street sees plenty of growth ahead as virtual care goes mainstream. We like it.
Technical Analysis
TDOC broke out from a big 10-month base-on-base formation in May and ripped from 47 to 71 or so within just two and a half months! Then came the late-July pullback, which took shares down to their 50-day line—the first test of that key support area since the breakout. Such a dip usually brings in buyers, and TDOC has pushed back to its highs thanks to the quarterly report and the CVS news. It could wiggle in the short term, but we’re OK buying around here or on weakness.
TDOC Weekly Chart
TDOC Daily Chart
Wingstop (WING)
Why the Strength
Wingstop isn’t the fastest-growing company out there, but it’s simple, straightforward, mass-market story is enticing, and the stock is strong because management continues to execute and there’s no reason growth can’t continue for many years. Wingstop operates 1,188 global locations (up 12.5% from a year ago) that offer a very simple menu—wings made three ways with about a dozen seasoning choices, along with fries, drinks and what-not. And it’s been a hit, with same-store sales increasing a total of 50% during the past five years (near the best among its peers), including a 4.3% gain in Q2. And the firm believes it has big potential as it rolls out more national advertising, increases delivery capabilities, increases the share of its orders that come digitally (currently around 25% or so, but possibly 40% within three years) and expands internationally (122 of its locations are overseas, up 37% from a year ago). Longer-term, management’s goal is big: It wants to become a top-10 global restaurant brand, and it expects years of 10%-plus growth in its restaurant count and low single digit same-store sales. (The firm’s store economics, which recoup half the investment in the first two years, are attractive to franchisees.) Q2 results were excellent, thanks in part to lower wing prices that helped to bolster margins and the bottom line. The valuation is up there, but big investors (378 funds own shares, up from 314 a year ago) are willing to pay up as they expect excellent growth for a long time to come.
Technical Analysis
WING initially broke out of a huge post-IPO base last November, which kicked off a steady run through April, when the stock topped around 56. Then the stock formed a beautiful three-month base; note all the tight closes on the weekly, as well as the lack of any meaningful selling volume. The result: WING gapped to new highs on earnings two weeks ago and has held those gains since. You can buy some around here or (preferably) on dips.
WING Weekly Chart
WING Daily Chart
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 green.
