Encouraging Earnings Season So Far
Current Market Outlook
The market had been a bit wobbly, but last week brought a bunch of good-looking earnings reactions (not just the mega-cap names on Friday), which has put the sellers back on their heels—the Nasdaq actually kissed new high ground today! Of course, earnings season isn’t over, so it’s possible we see some air pockets emerge, and some of the blemishes we’ve been writing about still exist (the number of new highs continue to dry up a bit even as the Nasdaq pushes ahead). Because of all that, we still think picking your stocks and buy points is important; try to avoid chasing any old thing just because it’s going up. But there’s no question most of the evidence remains bullish, so we advise you to stick with a heavily invested position and buy fresh leaders either on initial pullbacks or powerful earnings moves.
This week’s list has a growth-ier feel as we highlight many of the recent earnings winners. Our Top Pick is Qualcomm (QCOM), which won’t be the fastest horse but just emerged from a huge consolidation and has giant earnings estimates thanks to a huge deal and the 5G boom.
| Stock Name | Price | ||
|---|---|---|---|
| Advanced Micro Devices (AMD) | 82.24 | ||
| Fortune Brands Home & Security (FBHS) | 81.02 | ||
| GenMark Diagnostics (GNMK) | 15.47 | ||
| Kirkland Lake Gold (KL) | 51.30 | ||
| Pinduoduo (PDD) | 87.53 | ||
| Penn National Gaming (PENN) | 45.38 | ||
| Pinterest (PINS) | 35.86 | ||
| QUALCOMM Incorporated (QCOM) | 106.36 | ||
| Qorvo (QRVO) | 129.47 | ||
| Scotts Miracle-Gro (SMG) | 155.72 |
Advanced Micro Devices (AMD)
Why the Strength
The pandemic has underscored the importance of chip makers, as semiconductors power the devices and cloud-based servers critical to a mobile, tech-heavy economy. Advanced Micro is an industry leader which develops processors for servers, workstations and personal computers, though it’s the firm’s increasing dominance in the $157 billion graphic processing unit (GPU) market that is its main claim to fame. Indeed, much of AMD’s future growth will come from the booming video game sector as users increasingly switch to gaming laptops. The stock is strong today for a couple of reasons, the first of which is Intel’s repeated delays in getting a 7-nanometer chip out to market, which has led to an ongoing realignment in the sector. That’s led to the second reason for AMD’s strength, as it’s grabbing share and seeing business explode—AMD surpassed Wall Street estimates when it reported 26% revenue growth in Q2 on the back of strong demand for its Ryzen and EPYC processors, while the bottom-line soared 125% (which beat estimates by 13%). The firm delivered its highest client processor revenue in over 12 years due to the work/learn-from-home trend. It also reported record computing and graphics segment revenue in the quarter (+45%), thanks to dramatically increased sales of its latest Ryzen Pro 4000 chip. Looking ahead, AMD expects mobile processor sales to further accelerate in the second half of the year, as HP and Lenovo ramp their first commercial notebooks powered by Ryzen processors (plus the launch of more than 30 ultrathin premium and gaming consumer notebooks from multiple OEMs). The firm sees 32% top-line growth for 2020 based on PC, gaming and data center product sales—well above previous forecasts.
Technical Analysis
AMD was a laggard for most of the rally, remaining range-bound while other leaders got going. But that’s changed over the past two weeks, with the stock exploding to new highs on huge volume, first on Intel’s delays, and then following through to the upside after earnings. We’d aim for dips of a couple of points if you want in.
| Market Cap | $90.2B | EPS $ Annual (Dec) | |
| Forward P/E | 72 | FY 2018 | 0.46 |
| Current P/E | 91 | FY 2019 | 0.64 |
| Annual Revenue | $7.65B | FY 2020e | 1.09 |
| Profit Margin | 11.2% | FY 2021e | 1.63 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.93 | 26% | 0.18 | 125% |
| One qtr ago | 1.79 | 40% | 0.18 | 200% |
| Two qtrs ago | 2.13 | 50% | 0.32 | 300% |
| Three qtrs ago | 1.8 | 9% | 0.18 | 38% |
AMD Weekly Chart
AMD Daily Chart
Fortune Brands Home & Security (FBHS)
Why the Strength
While much of the economy remains in just OK shape, housing is a bright spot, with 776,000 new single family homes sold in June, up nearly 14% from the prior year. And that has been great for Fortune Brands, which makes cabinets, plumbing products, doors and security products; all in, Fortune Brands has the top spot in many of its markets (top faucet maker in North America, top in kitchen and bath products for residential uses, top padlock brand, etc.), so it’s a direct play on the strength of housing. Thus industry backdrop is obviously helping, and management has a long history of pulling the right levers. In last week’s Q2 report, sales and earnings both shrank 9% from a year ago due to the virus-induced slowdown, but they blew away expectations—EPS of 94 cents crushed estimates of 59 cents (!), while revenues beat by a couple of percent. Digging down, there were some other positives—plumbing sales were flat but saw double-digit growth in U.S. retail channels and in China, while Fortune saw a nice hike in demand in value-priced cabinets in this segment, a reflection of the rise in do-it-yourself projects in this ‘new’ economy. For now, the company isn’t offering any future guidance due to the uncertainties that remain, but Wall Street is looking out a few months and likes what it sees. Oerall, given the huge beat, Fortune’s earnings power is likely a lot bigger than most think should the housing sector continue to improve. A 1.2% dividend yield doesn’t hurt, either.
Technical Analysis
FBHS broke out in October and had the look and feel of a steady winner; indeed, shares marched straight up to 73 by February. The March crash was harsh on the stock, but the rebound into May was encouraging, and after a five-week rest, shares got going again—they’re now up five weeks in a row and perched at new highs. We don’t expect a huge retreat, but if you want in, we’d target dips of two or three points.
| Market Cap | $10.4B | EPS $ Annual (Dec) | |
| Forward P/E | 21 | FY 2018 | 3.34 |
| Current P/E | 21 | FY 2019 | 3.60 |
| Annual Revenue | $5.71B | FY 2020e | 3.64 |
| Profit Margin | 9.4% | FY 2021e | 4.06 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.38 | -9% | 0.94 | -9% |
| One qtr ago | 1.4 | 6% | 0.81 | 29% |
| Two qtrs ago | 1.47 | 4% | 1.00 | 16% |
| Three qtrs ago | 1.46 | 6% | 0.95 | 2% |
FBHS Weekly Chart
FBHS Daily Chart
GenMark Diagnostics (GNMK)
Why the Strength
In the scramble to fight COVID-19, relatively few healthcare companies were positioned to immediately begin the battle, but California-based GenMark, a leading provider of automated, multiplex molecular diagnostic testing systems, was foremost among them. GenMark is known for its eSensor XT-8 and ePlex systems, which support a broad range of molecular diagnostic tests with compact, easy-to-use workstations and disposable test cartridges. As early as March, the firm was granted special authorization from the FDA to use its ePlex SARS-CoV-2 test (one of the first rapid-result multiplex panel tests that can identify 21 respiratory pathogens, including SARS-CoV-2). Later that month, the Department of Health and Human Services also provided $749,000 in funding to develop a diagnostic panel that includes the new SARS-CoV-2 viral target into the company’s existing ePlex Respiratory Pathogen panel. Business has accordingly been robust, with Q1 revenue growth accelerating and Q2 was even better; GenMark expects revenue growth of 118% for the June quarter, with gross margin expected to be approximately 38% to 39% (compared to 36% a year ago). For the full year, analysts see revenues rising 45% and are projecting continued top-line growth well into 2022 with losses shrinking in a big way. There’s some risk that this is “just” a virus play, but there’s no question business is exploding right now. Earnings are due tomorrow evening (August 4).
Technical Analysis
Investors mostly overlooked GNMK last year, with shares falling from a high of 8 down to 4 by February 2020. The pandemic’s onset, however, was the turning point for the stock, which has been a sterling performer since. Shares tested their 50-day line in June and roared ahead after that, with an early-July pop after Q2 results were pre-announced. Now shares have chilled out for three weeks as the 25-day line has caught up. Tomorrow’s report is a risk, but given the pre-announcement, we’re OK nibbling here.
| Market Cap | $1.21B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.91 |
| Current P/E | N/A | FY 2019 | -0.82 |
| Annual Revenue | $105M | FY 2020e | -0.42 |
| Profit Margin | N/A | FY 2021e | -0.26 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 38.7 | 80% | -0.04 | N/A |
| One qtr ago | 27.2 | 40% | -0.17 | N/A |
| Two qtrs ago | 20.9 | 32% | -0.20 | N/A |
| Three qtrs ago | 18.4 | 23% | -0.23 | N/A |
GNMK Weekly Chart
GNMK Daily Chart
Kirkland Lake Gold (KL)
Why the Strength
Kirkland Lake was the leading gold stock through early 2019, and after going through the wringer and consolidating for nearly a year, it’s back in gear following an estimate-beating report. The company operates a handful of mines in Canada and Australia that have a strong record of growth in production and cash flow, including the Macassa mine (215,000 net ounces of production this year, with an expansion to be completed in two years; long-term management thinks output here can double), Fosterville (600,000 ounces of output this year that’s incredibly profitable, with all-in costs of around $300 per ounce!) and Detour, which was acquired last year, is already doing excellently (should do more than half a million ounces at an all-in cost of $620 per ounce) and has lots of expansion potential down the road. Despite lots of temporary mine closures due to COVID, Kirkland had an excellent Q2 (revenues up 107%, earnings up 52%) that topped estimates, with year-to-date all-in costs of a mild $763 per ounce (just $526 per ounce excluding recently acquired Detour). It doesn’t hurt that the company recently boosted the dividend (yield 1.0%) and has been very active on the share buyback front (11 million shares so far this year, or nearly 4% of those outstanding), thanks in part to its pristine balance sheet (no debt). Obviously, if gold prices implode, all bets are off, but Kirkland has some of the highest-margin mines out there and should be printing money with gold at these levels. Analysts see earnings up 22% this year and more in 2021, and we think those figures could prove conservative.
Technical Analysis
As mentioned above, KL had a great run for a few years, but the stock stalled out last summer, got hit when they announced the purchase of Detour in November and plunged into the March low. The recovery was very strong, and KL then spent May and most of June building a tighter, more proper launching pad. And now the buyers are letting loose, driving KL to new highs on solid volume. We think dips of a point or two are buyable.
| Market Cap | $15.0B | EPS $ Annual (Dec) | |
| Forward P/E | 15 | FY 2018 | 1.34 |
| Current P/E | 16 | FY 2019 | 2.72 |
| Annual Revenue | $1.93B | FY 2020e | 3.31 |
| Profit Margin | 37.8% | FY 2021e | 3.80 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 581 | 107% | 0.79 | 52% |
| One qtr ago | 555 | 82% | 0.70 | 30% |
| Two qtrs ago | 412 | 47% | 0.88 | 76% |
| Three qtrs ago | 381 | 71% | 0.80 | 176% |
KL Weekly Chart
KL Daily Chart
Pinduoduo (PDD)
Why the Strength
What do you get when you combine online shopping with social media and games? The answer is Pinduoudou, China’s third-largest e-commerce platform. Founded in 2015 by an ex-Google engineer, the site is unique from other online retailers in that it doesn’t have a visible search bar. Instead of searching for specific items, mobile shoppers often visit Pinduoduo without a clear idea of what they want to purchase. (Items are listed by category, but many visitors simply peruse the suggested items for sale, treating it as a game.) Shoppers also get discounts for bulk purchases made with friends direct from manufacturers. In fact, the platform’s premise is social shopping: it even has a feature that allow shoppers to make personalized product recommendations to friends. The company also uses live streaming to showcase products and help consumers pull the trigger when buying unique items (like high-end jewelry, cars and farming equipment). These unconventional techniques have proven wildly successful, as evidenced by Q1 revenue growth of 44% (to $924 million), gross merchandise volume (GMV) expansion of 108% (to $163 billion), a 68% leap in monthly active users (to 487 million) and a 47% gain in annual spending per active buyer increased (to $260). The pandemic likely boosted business further in Q2 (revenue growth is expected to accelerate to 65%), and analysts see the company as a whole turning profitable next year. The Q2 earnings report is likely out toward the end of August.
Technical Analysis
Unlike most online retail stocks, PDD didn’t have a substantial drop in this year’s first quarter. Instead, shares mostly drifted sideways starting last September, tagged their 40-week line in March and blasted off from there, enjoying an amazing run that stopped just short of the century mark. Shares pulled back from there in an orderly fashion, kissing the 50-day line before bouncing nicely. We’re OK starting small here or on dips and seeing what the quarterly report brings
| Market Cap | $107B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.44 |
| Current P/E | N/A | FY 2019 | -0.55 |
| Annual Revenue | $4.59B | FY 2020e | -0.87 |
| Profit Margin | N/A | FY 2021e | 0.35 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 0.92 | 37% | -0.39 | N/A |
| One qtr ago | 1.55 | 88% | -0.12 | N/A |
| Two qtrs ago | 1.05 | 115% | -0.20 | N/A |
| Three qtrs ago | 1.06 | 160% | -0.05 | N/A |
PDD Weekly Chart
PDD Daily Chart
Penn National Gaming (PENN)
Why the Strength
The global market for online gambling market is already big and is predicted to grow to $103 billion by 2025. Meanwhile, in the gambling-crazy U.S., wagers on sporting events are expected to rise from $1 billion to around $7 billion by 2025. This new leg of growth for the sector is creating some winners, and Penn National Gaming looks likely to be one of them. Penn has the largest number of gambling licenses in the U.S. and is positioning itself to be an online gaming frontrunner. Earlier this year, Penn purchased a 36% stake in sports blog provider Barstool Sports that will give it a bigger presence in the red-hot digital sports gambling realm; when sports fully resume in the U.S., Penn plans to launch a Barstool-branded sports betting app. Penn used the downtime during the shut-in to make upgrades and expand the reach of its “mychoice” loyalty program, as well as continuing development of the Barstool Sports book app. Since then, 90 percent of Penn’s casino and racing properties have reopened (as of last month), and now that many pro sports (including baseball, boxing and MMA) have resumed, Penn’s business should increase appreciably. Revenues are expected to be down around 82% in Q2 (due to the shut-in), but analysts anticipate a strong rebound in the next several quarters, with the top line likely to expand north of 50% in 2021. The company also has a cash position of $730 million, which should cushion the effect of further shutdown-related setbacks. All told, Penn’s aggressive investments in online gaming look to pay off handsomely once the economy is fully reopened. Earnings will be released this Thursday morning, August 6.
Technical Analysis
After bottoming at 5 during the crash in March, PENN ran up to the 40 level in early June, and has now spent the last two months tightening in a sideways range. The stock has managed to stay above its 25-day and 50-day lines, providing a nice potential setup ahead of this week’s earnings report. If you want to roll the dice, you can start a position here; if not, a powerful earnings-induced breakout should be buyable.
| Market Cap | $3.93B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | 0.93 |
| Current P/E | N/A | FY 2019 | 0.37 |
| Annual Revenue | $5.13B | FY 2020e | -7.54 |
| Profit Margin | N/A | FY 2021e | 0.39 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.12 | -13% | -5.26 | N/A |
| One qtr ago | 1.34 | 16% | -0.80 | N/A |
| Two qtrs ago | 1.35 | 72% | 0.38 | 0% |
| Three qtrs ago | 1.32 | 60% | 0.44 | -23% |
PENN Weekly Chart
PENN Daily Chart
Pinterest (PINS)
Why the Strength
Pinterest went through the wringer after coming public early last year, but it looks like it’s joining the market’s leadership ranks after a very bullish earnings report last week. People are flocking to the company’s hobby photo- and video-sharing application, posting pics and videos of their cooking masterpieces, children’s activities, business décor ideas and just about any other creative task you can imagine. And the stock has turned strong thanks to a great Q2 report last week; while the absolute numbers weren’t sexy (revenues up just 4%, while the bottom line was still in the red), those figures easily topped expectations (beat by 8% on the top line and by seven cents per share on the bottom line). Even more important was the the huge increase in monthly active users, to a record 416 million, a 39% rise and clobbering the estimates of 373 million. All of this implied that the new economic reality is beginning to play into Pinterest’s hands; so far in July, ad spending on its platform is up 50% from a year ago, while video views are booming (up 150% in the quarter) and, long-term, some industry gurus think Pinterest will surpass 700 million users. There’s lots of room for the company to grow, too, as the users are considered ‘sticky’; once there, they tend to get caught up in the ideas and stay around. As that group expands, so will advertising. Right now, the company makes about $3 per user per year in ad sales; by comparison, SNAP makes $6.50 and Facebook $30, so the upside looks big. To be fair, management is guiding cautiously given the uncertainties out there (looking for “only” 30% revenue growth in the current quarter despite July’s 50% surge), but big investors are clearly betting on upside.
Technical Analysis
PINS came public last April, had a decent first few months, but then had the typical post-IPO droop, culminating with a plunge to 10 during the crash. The stock bounced with everything else after that, but it was more of a two-steps-forward, one-step-back type of advance as it rode its 10-week line higher. But last week PINS changed character, exploding higher on its heaviest weekly volume ever. There’s some old overhead to chew through, but we’re OK starting a position here or (preferably) on dips.
| Market Cap | $19.6B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.09 |
| Current P/E | N/A | FY 2019 | 0.01 |
| Annual Revenue | $1.22B | FY 2020e | -0.21 |
| Profit Margin | N/A | FY 2021e | 0.06 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 273 | 4% | -0.07 | N/A |
| One qtr ago | 272 | 35% | -0.10 | N/A |
| Two qtrs ago | 400 | 46% | 0.12 | 33% |
| Three qtrs ago | 280 | 47% | 0.01 | N/A |
PINS Weekly Chart
PINS Daily Chart
QUALCOMM Incorporated (QCOM)
Why the Strength
Qualcomm needs no introduction, as it’s one been one of the core players of the wireless and smartphone revolution for the past two decades. The firm operates out of two segments—its QCT operation supplies circuits and software based on CDMA technology for use in smartphones, tablets, laptops, gaming devices and network access points and routers, while its QTL segment grants licenses to firms that want to use portions of Qualcomm’s massive intellectual property portfolio. (QCT makes up the vast majority of revenues, but because of much higher margins, QTL actually cranks out more in earnings.) Business has been solidly profitable for years, though growth has been hit or miss as the smartphone industry has bobbed and weaved. But 2021 looks like a breakout year for a couple of reasons. The first is the general uptake of 5G smartphones; Qualcomm’s chips are being designed into 660 5G devices (up from 375 in March), and it should rake in the money when Apple’s 5G iPhone is released later this year. (Qualcomm inked a huge supply/legal deal with Apple last year that locks it in as a major supplier.) The second catalyst was news regarding giant Huawei, which has also settled a long running legal battle with Qualcomm that will lead to $1.8 billion of catch-up payments in the current quarter and pave the way for huge licensing royalties in the years ahead; the CEO said “with the signing of the Huawei agreement, we are entering a period where we have multi-year licensing agreements with every major handset maker.” Throw in healthy general demand for other wireless wares and analysts see Qualcomm’s earnings booming more than 60% next year to well over $6 per share. Throw in a solid dividend (2.4% yield) and we think this mega-cap stock will do well going forward.
Technical Analysis
QCOM seemed to have a coming out party last April when the firm inked its deal with Apple, but that petered out and the pandemic dampened the outlook for smartphone growth earlier this year. The stock rebounded with everything else from the bottom, and after approaching its old highs, tightened up for much of June and July. Last week’s earnings report (and the Huawei deal) caused a powerful breakout on nearly five times average volume. We’re OK buying some here.
| Market Cap | $119B | EPS $ Annual (Dec) | |
| Forward P/E | 17 | FY 2018 | 3.62 |
| Current P/E | 29 | FY 2019 | 3.09 |
| Annual Revenue | $20.0B | FY 2020e | 3.89 |
| Profit Margin | 20.1% | FY 2021e | 6.32 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 4.89 | -49% | 0.86 | 8% |
| One qtr ago | 5.22 | 5% | 1.09 | 42% |
| Two qtrs ago | 5.08 | 5% | 0.99 | 32% |
| Three qtrs ago | 4.81 | -17% | 0.78 | -12% |
QCOM Weekly Chart
QCOM Daily Chart
Qorvo (QRVO)
Why the Strength
Smartphone sales are down this year (global sales plunged 20% in recent months thanks to COVID disruptions), but the rollout of next generation 5G wireless networks is expected to rekindle consumer interest and get the industry back on the growth path. Qorvo, a leading radio-frequency (RF) chip maker, is one of the firms likely to benefit most from the 5G boom. Qorvo produces components for cell phones and other wireless and broadband devices and is fast becoming a leading player in 5G through its broad range of RF connectivity solutions (which it supplies to leading players like Vivo, Samsun and Xiaomi). The new technology is a key growth driver for Qorvo, which expects 5G base station deployments of over 750,000 this year and growing to more than a million in 2021. Demand for Wi-Fi 6 products, moreover, is strong, driven by work-from-home trends. And sales are robust in its infrastructure business, which supplied more integrated solutions to the defense sector (and which accounted for a record percentage of total revenue in Q1). The firm also plays a role in the healthcare sector through its subsidiary, Qorvo Biotechnologies, recently requesting FDA authorization for COVID-19 antibody testing from a platform which uses unique sensor technology to help clinicians get rapid and accurate results. As for the numbers, the company has been solidly profitable for years, but growth has been hit or miss, though analysts see things picking up after the latest quarterly report; while sales (up 2%) and earnings (up 10%) didn’t explode, they did top estimates, and Qorvo sees a huge jump in the top line in the current quarter (up 19% sequentially). Given its history of topping estimates even that will likely prove conservative as the 5G movement gains steam.
Technical Analysis
QRVO galloped out of a multi-year base last October and looked destined for greatness, but the virus changed that; shares gave back all of their gains during the crash. The recovery from there was solid, but not spectacular, as the stock hit resistance at its prior highs and built a flat-ish base in the 105 to 120 area for most of June and July. Last week’s breakout wasn’t the most powerful we’ve ever seen, but the path of least resistance is now up.
| Market Cap | $14.6B | EPS $ Annual (Mar) | |
| Forward P/E | 20 | FY 2019 | 5.76 |
| Current P/E | 20 | FY 2020e | 6.31 |
| Annual Revenue | $3.25B | FY 2021e | 6.55 |
| Profit Margin | 22.2% | FY 2022e | 7.65 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 788 | 2% | 1.50 | 10% |
| One qtr ago | 788 | 16% | 1.57 | 29% |
| Two qtrs ago | 869 | 4% | 1.86 | 1% |
| Three qtrs ago | 807 | -9% | 1.52 | -13% |
QRVO Weekly Chart
QRVO Daily Chart
Scotts Miracle-Gro (SMG)
Why the Strength
Scotts has become a two-pronged weed business—killing your lawn weeds and providing hydroponic equipment, lighting and nutrient solutions to marijuana growers. And both of those businesses are booming. For its third quarter, Scott’s reported EPS of $3.80, a rise of 22% over last year, and handily beating analysts’ estimates of $3.35. Sales also surpassed forecasts of $1.32 billion, rising 28%, to $1.49 billion. And along with that great report, Scotts rewarded its investors with a 7% quarterly dividend increase, as well as the news that it would give them a special dividend of $5 per share in September. Scotts’ consumer division saw sales rise by 21%, to $1.01 billion, but it’s Hawthorne segment (the marijuana-related business) really blew through forecasts, with revenues growing by 72%, to $303 million, and division profits up 145%, to $41 million. With growth like that, it’s no surprise that cash was up 33%, to $48.3 million. Hence, a good time to do a special dividend. Going forward, Scotts has increased its forecasts, now saying it expects sales growth of 20% to 22% for the fiscal year, double the growth it expected earlier. (It predicts that Hawthorne revenues will rise nearly 60%.) Earnings are now thought to total around $6.75 per share (prior outlook $5.75), up around 50% from last year. A 1.7% dividend yield puts a nice bow on this unique story.
Technical Analysis
SMG broke out in January but immediately ran into the market’s decline, plunging to 76 before quickly rebounding to new highs in April.The five-week decline in May/June was tedious (and knocked us out), but SMG’s recovery the past few weeks has been excellent, highlighted by last week’s earnings gap. We’re OK grabbing shares here, though a pullback of a few points would be more attractive.
| Market Cap | $8.76B | EPS $ Annual (Sep) | |
| Forward P/E | 24 | FY 2018 | 3.71 |
| Current P/E | 18 | FY 2019 | 4.47 |
| Annual Revenue | $3.73B | FY 2020e | 6.63 |
| Profit Margin | 18.4% | FY 2021e | 7.11 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1490 | 28% | 3.80 | 22% |
| One qtr ago | 1383 | 16% | 4.50 | 24% |
| Two qtrs ago | 366 | 23% | -1.12 | N/A |
| Three qtrs ago | 498 | 170% | -0.91 | N/A |
SMG Weekly Chart
SMG 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.
| HOLD | |||||
| 7/20/20 | ANGI Homeservices | ANGI | 14.5-16 | 16 | |
| 7/13/20 | Alibaba | BABA | ? | 244-254 | 258 |
| 7/20/20 | Arconic | ARNC | 15-16.5 | 17 | |
| 5/4/20 | Bandwidth | BAND | ? | 90-94 | 154 |
| 6/22/20 | Big Lots | BIG | 32.5-35 | 41 | |
| 6/1/20 | Bill.com | BILL | 69-73 | 97 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 28 | |
| 5/11/20 | Chegg | CHGG | ? | 58-62 | 86 |
| 3/23/20 | Cloudflare | NET | 19-21 | 43 | |
| 3/23/20 | Coupa Software | COUP | 124-132 | 313 | |
| 6/29/20 | Crispr Therapeutics | CRSP | 71.5-75 | 93 | |
| 4/20/20 | CrowdStrike | CRWD | 65-67.5 | 115 | |
| 6/8/20 | Datadog | DDOG | 72.5-77 | 96 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 444 | |
| 9/9/19 | DocuSign | DOCU | ? | 55-58 | 226 |
| 7/20/20 | DR Horton | DHI | 61.5-64 | 68 | |
| 5/18/20 | Fastly | FSLY | 36-39 | 112 | |
| 7/27/20 | Floor & Décor | FND | 69-72 | 68 | |
| 7/20/20 | GDS Holdings | GDS | 78-82 | 81 | |
| 7/27/20 | GSX Techedu | GSX | 85-88 | 97 | |
| 5/26/20 | Horizon Therapeutics | HZNP | 45.5-48 | 63 | |
| 4/20/20 | Immunomedics | IMMU | 20.5-22 | 44 | |
| 3/16/20 | Inphi | IPHI | ? | 62.5-66 | 135 |
| 7/27/20 | Invitae | NVTA | 30-32.5 | 32 | |
| 7/13/20 | Kinross Gold | KGC | 7.2-7.6 | 9 | |
| 6/22/20 | LGI Homes | LGIH | 84-87 | 118 | |
| 6/15/20 | Lululemon | LULU | ? | 291-301 | 329 |
| 6/8/20 | Marvell Tech | MRVL | 32.5-34 | 37 | |
| 6/29/20 | Meritage Homes | MTH | 71.5-74 | 102 | |
| 6/15/20 | Novovax | NVAX | 47-50.5 | 156 | |
| 7/6/20 | Nu Skin Enterprises | NUS | 42.5-45 | 46 | |
| 3/30/20 | Nvidia | NVDA | 250-270 | 440 | |
| 3/30/20 | Okta | OKTA | ? | 118-126 | 222 |
| 7/27/20 | Owens & Minor | OMI | ? | 15-16 | 17 |
| 7/13/20 | Pacira Pharmaceuticals | PCRX | 54-56 | 55 | |
| 6/1/20 | Pan American Silver | PAAS | 27-29 | 37 | |
| 4/27/20 | PayPal | PYPL | ? | 117-122 | 197 |
| 4/6/20 | Peloton | PTON | 27-29 | 73 | |
| 7/20/20 | Plug Power | PLUG | ? | 8.0-8.7 | 9 |
| 7/13/20 | Redfin | RDFN | 34.5-36.5 | 41 | |
| 7/13/20 | Roku | ROKU | 147-154 | 162 | |
| 7/20/20 | SAIA Inc | SAIA | 120-125 | 122 | |
| 7/27/20 | Sailpoint Tech | SAIL | 30-32 | 32 | |
| 7/27/20 | Sea Ltd | SE | 110-116 | 133 | |
| 3/2/20 | Seattle Genetics | SGEN | ? | 107-111 | 169 |
| 5/26/20 | Spotify | SPOT | ? | 184-191 | 254 |
| 6/29/20 | Staar Surgical | STAA | 56-59 | 61 | |
| 7/13/20 | Sunrun | RUN | 27.5-29.5 | 40 | |
| 10/28/19 | Teladoc | TDOC | 69-72 | 237 | |
| 11/11/19 | Tesla | TSLA | 320-335 | 1485 | |
| 6/8/20 | Thor Industries | THO | 101-106 | 121 | |
| 6/8/20 | Trade Desk | TTD | 338-358 | 475 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 286 | |
| 7/6/20 | Ultragenyx Pharm. | RARE | ? | 83-88 | 84 |
| 7/20/20 | Vapotherm | VAPO | 44-47 | 53 | |
| 7/27/20 | Watsco | WSO | 220-230 | 237 | |
| 5/11/20 | Wingstop | WING | 116-122 | 163 | |
| 7/27/20 | Wix.com | WIX | 262-275 | 303 | |
| 7/13/20 | XP Inc. | XP | 43-46 | 47 | |
| 2/24/20 | Zoom Video | ZM | ? | 96-104 | 268 |
| 4/6/20 | Zscaler | ZS | 61-64 | 133 | |
| WAIT | |||||
| None this week | |||||
| SELL RECOMMENDATIONS | |||||
| 7/6/20 | Biohaven Pharm. | BHVN | 68-72 | 66 | |
| 7/20/20 | Bloom Energy | BE | 15-16.5 | 14 | |
| 6/29/20 | Farfetch | FTCH | 16-17.5 | 26 | |
| 6/22/20 | Restoration Hardware | RH | ? | 240-255 | 294 |
| 7/13/20 | Splunk | SPLK | 192-198 | 214 | |
| DROPPED | |||||
| None this week | |||||
The next Cabot Top Ten Trader issue will be published on August 10, 2020.