August 5, 2013
The market and leading stocks have shot ahead during the past week or two ... so much so that we are seeing some froth out there. Usually an out-of-nowhere pullback isn’t far behind when investors get this giddy, so it’s important to keep your feet on the ground. That said, sentiment is a secondary indicator; the main trends of the market are certainly up, and we haven’t seen this much strength among growth stocks in many years. It’s a bullish sign when we look out weeks and months ahead.
Some Froth, but Growth Stocks Lead the Way
We haven’t seen this many growth stocks acting well at one time since at least late 2010, and probably more like 2007, which is very encouraging. That said, we are seeing some froth begin to appear—many investors are giddy with their recent gains, and a few smaller-cap, speculative names have gone vertical. Thus, be sure to keep your feet on the ground, and don’t be afraid to book some partial profits here or there. But, in general, the buyers are clearly in control, and the main trends of the market are up, so you should work to get (or remain) heavily invested.
This week’s list has a few of the aforementioned zoomers, but most of the stocks have very solid fundamentals and aren’t far from solid entry points. There are many we like, but our favorite is Concur Technologies (CNQR), one of the many younger Cloud-based software firms that are thriving.
|Pioneer Natural Resources (PXD)||0.00|
|LinkedIn Corporation (LNKD)||0.00|
|Chart Industries (GTLS)||72.05|
|Gilead Sciences (GILD)||75.10|
|Canadian Solar (CSIQ)||0.00|
|Concur Technologies (CNQR)||0.00|
|Aegerion Pharmaceuticals (AEGR)||0.00|
Pioneer Natural Resources (PXD)
Why the Strength
Pioneer Natural Resources is a good-sized energy explorer that’s operating in two of the more exciting plays in the U.S.—the Wolfcamp/Spraberry area, which is one of the largest oil fields in the entire world, and the emerging Eagle Ford Shale, which is liquids-rich and could end up being the most lucrative shale play in all of the U.S. Pioneer’s total production this year is expected to grow “only” 14% to 16%, but investors are focused on the company’s activity in these two areas and liking what they see. In the Wolfcamp/Spraberry play, production increased 7% sequentially in the second quarter as the company moves more of its drilling to horizontal from vertical; this production was strong especially as some output was “rejected” because of low prices. In the Eagle Ford Shale, output was up only a smidge in the second quarter, but should grow 35% to 50% for all of 2013 as Pioneer ramps up the number of wells it’s tapping. Also of note are advancements like pad drilling and cheaper propants, which are saving hundreds of thousands of dollars per well. Obviously, a collapse in oil or liquids prices would be bad, but analysts see earnings up 42% this year (to about $4.90 per share) and another 26% in 2014. It looks like an emerging blue-chip in the energy sector.
PXD started to get going early in the year, but retreated into April, where it tested its long-term 40-week moving average. But since then it’s been a solid winner—it exploded to new highs into May and actually inched higher through the market’s correction, before tightening up during the past couple of weeks. Then earnings came out, and PXD surged to new highs on great volume, closing near its weekly high. We don’t think the stock is likely to move straight up, so if you don’t own any, try to buy on a dip of a few points, with a loose stop near 160.
PXD Weekly Chart
PXD Daily Chart
LinkedIn Corporation (LNKD)
Why the Strength
LinkedIn is again one of the strongest stocks in the market because it’s revolutionizing the gigantic recruiting industry, and because the firm’s quarterly report last week affirmed its capability of getting much, much bigger. In the second quarter, sales (up 59%) and earnings (up 138%) were both well ahead of expectations, and while management’s guidance for the third quarter looked a bit sour, most big investors believe the company is providing guidance the way Apple used to (lowballing it). But it’s not just blind faith in management that is causing institutions to buy; below the surface, many of LinkedIn’s metrics point to healthy growth going forward. For instance, membership growth slightly accelerated in the quarter (the first time that’s occurred since 2011), thanks mainly to big sign-ups from Brazil and India; two-thirds of LinkedIn’s members are now outside the U.S. And, while the company’s marketing segment continues to decelerate (up “only” 36%) because of a switch to a more mobile-friendly ad system, all signs point to re-acceleration in 2014—unique visitors to its sites and total page views have exploded higher this year, so it’s just a matter of time until advertising revs up again. This remains a big idea.
LNKD built a nearly two-year base, then broke out after first-quarter earnings in February; shares ran from around 125 to 200 before a cautious outlook in early May caused the stock to begin building a new base. The stock fell about 21% in six weeks before starting to rebound, found renewed strength after the market’s bottom in late-June, and then exploded to new price and RP highs after earnings last week. Our advice here is much the same as with Facebook last week; if you don’t own any, you can start with a small position here and look to add shares if (and only if) LNKD continues higher.
LNKD Weekly Chart
LNKD Daily Chart
Chart Industries (GTLS)
Why the Strength
While names like Cabot Oil & Gas and EQT Corp. are leading the way in natural gas exploration, Chart Industries is leading the way in liquefied natural gas (LNG) infrastructure and liquefaction equipment—a huge growth opportunity during the next few years, especially as the shale drilling revolution continues in the U.S. The stock is strong today because of yet another great quarterly report—not only are sales and earnings continuing their steady expansion, but new orders for the firm’s distribution and storage operation totaled a whopping $222 million (led by LNG demand), while Chart’s overall backlog surged to a record $664 million, up 13% from just three months ago. And there’s more where that came from! In fact, management announced a new $50 million LNG equipment project from PetroChina, the third large contract it’s inked with that behemoth during the past year. China in general is emerging as a huge player in the LNG field all by itself, but the U.S. is coming along as well; Chart also announced a deal with Noble Energy to build an LNG liquefaction facility in Northern Colorado that will produce about 100,000 gallons of LNG per day. All told, if you believe that natural gas’ place in the world’s energy equation will expand, then Chart’s should be a good investment. Earnings are estimated to rise 28% this year and boom 39% in 2014.
GTLS began building a big base in March 2012 and finally broke out on the upside in May of this year, a long 14 months of consolidation. And since then, the stock’s action has been great—it spurted up toward 100 in May, then futzed around for a few weeks, all while remaining above its 50-day line. And then it spurted higher on earnings last week and has acted nicely since. You could nibble here, though a dip of two or three points wouldn’t be unusual.
GTLS Weekly Chart
GTLS Daily Chart
Gilead Sciences (GILD)
Why the Strength
Gilead Sciences has seen lots of activity since it last appeared in Top Ten in early June. Gilead, which specializes in developing and marketing HIV/AIDS treatments, reported second-quarter earnings on July 25, blowing past Wall Street’s expectations. For the quarter, the company posted a 15% year-over-year rise in revenue due to strong sales gains for its core anti-viral HIV treatments. Digging into the report shows that product sales grew 14%, driven by a 20% surge in U.S. sales and a 4% rise in European sales. Outside of the strong quarterly figures, Gilead was also bolstered by news that the FDA placed a partial clinical hold on Vertex Pharmaceuticals’ hepatitis C drug, VX-135. The setback was seen by investors as a boon for Gilead’s competing medication, sofosbuvir, which the company gained control over in 2012 after purchasing Pharmasset for $11.1 billion. Sofosbuvir has shown great promise in Phase II trials, curing 95% of all cases when combined in treatment with ledipasvir. Because of this, the FDA granted sofosbuvir’s New Drug Application priority review, placing the hepatitis C treatment on a fast track market. Gilead filed its NDA for sofosbuvir on April 8, and the FDA has set a target review date of December 8, though there is an advisory committee hearing for the drug slated for October 25.
After gaining more than 100% in 2012, GILD is again powering ahead this year. The stock rallied steadily along support at its 10-day and 25-day moving averages through May, topping out just shy of the 60 level. Succumbing to broad market weakness, GILD retreated to support at its 25-week moving average in June, and quickly recovered. Shares have since bested former resistance at 60, driven by strong second-quarter sales growth. GILD is currently consolidating into support at its 10-day moving average in the 60 region. It looks buyable around here.
GILD Weekly Chart
GILD Daily Chart
Canadian Solar (CSIQ)
Why the Strength
Canadian Solar is one of the four largest solar companies in the world, a vertically integrated Chinese manufacturer of silicon ingots, wafers, solar cells, solar modules, solar power systems and specialized solar products. The company has delivered more than five gigawatts of solar modules to more than 50 countries worldwide. The company has just announced an agreement to build five utility scale solar power plants in Ontario, Canada, for $277 million. European buyers are the largest segment by geography, with over 40% of sales. The U.S. contributes 20%, with Japan (9%), China (7%) and Canada (7%) the other large buyers. Canadian Solar offers a wide range of products, including small arrays to power traffic lights and car batteries and arrays for residential and industrial rooftop installations. The company is working toward greater revenue from integrated, turnkey installations, which provide a higher profit margin than straight module sales. The company has been caught up in a dispute between the European Union and China over alleged dumping of solar products at below cost. A late-July accord between China and the EU set a minimum price for imports into Europe and avoided the threatened imposition of tariffs that would have been as high as 68%. Earnings are due out during the week of August 12, and from the movement of the company’s stock, investors appear to be anticipating a return to profitability.
CSIQ has been way up and way down, following the fortunes of solar power. After a monumentally bad year in 2011, the stock traded under 4 for most of 2012. But starting in November 2012, the stock began a run from 2 to 5 in February 2013. After another correction to near 3 in March, CSIQ began a run in April that has now pushed it above 15. Despite this powerful rally, the stock isn’t hugely extended, as the 25-day has been paralleling the stock’s progress. After three weeks of sticking very close to 14, CSIQ looks ready to run again. We think a small buy anywhere under 15 represents a good risk-reward proposition, with a stop at 12, but keep positions small ahead of earnings.
CSIQ Weekly Chart
CSIQ Daily Chart
Concur Technologies (CNQR)
Why the Strength
Corporations are always sensitive to the need to control costs, and Concur Technologies provides travel procurement and expense-report management software that can make a big difference. By automating expense reporting and controlling travel expenses, Concur helps its more than 9,000 corporate clients to keep a lid on expenses. The company just strengthened its offering in the travel management area by acquiring TRX Inc., a leading provider of travel data and mid-office technology for travel management companies. Revenue growth has been strengthening for the past four years, growing from 15% in 2009 to 28% in 2012. The company’s Q2 earnings report on August 1 featured a sizable beat on earnings, with 39 cents per share in earnings when the Street expected just 24 cents. While revenue was a tad less than analysts had forecast, investors heard the news that the quarter featured a rapid rate of new customer deployments as a promise of future revenue growth. Most of Concur’s revenue comes from the U.S. (85% in 2012), but opportunities in Europe and beyond are seen as sizable.
CNQR has been a steady grower over the long run, but short-term trends have been quite volatile. The stock rocketed from 62.5 in April to 85 in the middle of May, then drifted to 75 in late June. A rally that began on June 4 hit resistance at 90 in the middle of July. And the reaction to the August 1 earnings report kicked the stock from 90 to over 100 in one day. CNQR is digesting that gap up now, and is still hanging above 100. It looks like a good buy on any dip below 100 with a stop at the bottom of its gap at 90.
CNQR Weekly Chart
CNQR Daily Chart
Why the Strength
Con-way provides trucking and shipping logistic services. The company is divided into three units: Con-way Freight, a less-than-truckload shipping unit with a fleet of about 9,300 tractors and some 26,000 trailers; Con-way Truckload, a full truckload subsidiary that sports a fleet of 2,700 tractors and more than 8,000 trailers; and Con-way Menlo Worldwide, which provides contract logistics, freight brokerage, warehousing and supply chain management services. The company has been on many investors’ radars due to rising demand for shipping services amid the growing economic recovery, but Con-way really took the Street by storm late last week. The firm posted second-quarter earnings of 67 cents per share, besting the Wall Street consensus estimate by eight cents. The company cited solid performance by its less-than-truckload unit for the earnings beat, which Con-way executives attributed to improved lane-based pricing and line-haul optimization. In fact, in a statement to shareholders, Con-way said that improved yield and network efficiencies helped the company overcome a slight decline in tonnage, boosting operating income on the quarter. If this trend continues, it could mean increased revenues and improved margins for the second half of the year.
CNW was already performing nicely ahead of last week’s quarterly report, rallying steadily along its 10-week and 25-week moving averages since early December. Shares hit a snag in mid-March, topping out just shy of 40 and pulling back to trendline support in the 30 area by April. Following a short basing period, CNW resumed its uptrend and bested the 40 level in early July. The stock was in the process of building a base above 40 when shares rocketed higher in the wake of a strong second-quarter report. CNW is clearly a bit overextended, so we recommend buying any dips, with a target below 45.
CNW Weekly Chart
CNW Daily Chart
Why the Strength
Increasing demand for higher bandwidth is changing the shape of network architecture, and Ciena has positioned itself to take the reins at the forefront of this shift. The shift we are talking about is the move to fiber optic networks, which allow for orders of magnitude increases in network speed. While Google’s push to open high-speed fiber optic networks across the country has garnered the most attention, wireless providers are likely to be the biggest players due to rising demand for data-intensive smartphones. This acceleration in enterprise spending holds great promise for Ciena, which specializes in optical networking equipment, software and support services. The company is already seeing the early effects of the fiber revolution, as nearly all of Ciena’s product and service lines saw year-over-year improvement in the second quarter. More recently, Ciena has benefited from a string of partnerships; in late July, Southern Cross Cable announced the successful implementation of Ciena’s 100G transmission equipment across its entire network in Australia and New Zealand. The company also scored a win with PLDT, the leading telecom provider in the Philippines, which has deployed Ciena’s OneConnect software and 5410 switch systems across its global network.
CIEN spent the first half of 2013 chopping around between support near 15 and resistance at 18. That all changed in early June, when a stronger-than-expected second-quarter earnings report sparked a sharp rally. Following the report, shares broke out above resistance at 18 and proceeded to consolidate into support near 20. After a month-long basing period, CIEN once again jumped higher, as investors cheered the PLDT news. After tagging a high near 23.50 last week, CIEN appears to be in consolidation mode once again, creating a decent entry point.
CIEN Weekly Chart
CIEN Daily Chart
Why the Strength
Athenahealth has made 11 appearances in Cabot Top Ten Trader since it debuted in December 2008. The stock’s appeal has always been its billing, collections and records management software to the medical practices it serves. By automating many jobs previously handled by hand, Athenahealth’s Cloud-based software brings in faster payments, increases collections on late accounts and speeds the transition of medical records to digital form. Revenue growth has been steady, with 30% annual growth (or more) for at least the past nine years. Investors were impressed with the July 12 news that Athenahealth’s software had been selected by Clinical Holding Corp., a physician services arm of Ascension Health Alliance to provide software services. Ascension is one of the largest nonprofit health-care organizations in the U.S., and represented a 10% jump in Athenahealth’s size. The company’s software-as-a-service model ensures that revenue will keep flowing from prior sales, creating an additive revenue flow. The company’s Q2 earnings report on July 1 was met with a small amount of buying, but the Ascension deal more than made up for the early May lowering of guidance that turned investors off the company. With Q2 earnings on tap for the middle of August, investors are backing the company now.
ATHN has been in a long-term rally since the middle of 2010, but there has been plenty of ups and downs during the stock’s advance. After topping 97 in August 2012, the stock plummeted to 56 in November. But it took just four months to regain 97 again. The lowered guidance in early May caused a drop below 90 that lasted through July and was only made up on July 12. Since that gap up from 92 to 115, ATHN has traded pretty quietly sideways with support at 110 as investors await Q2 results later his month. We think ATHN looks like a good bet for its long-term prospects. A buy at around 110 is prudent, with a stop at 95.
ATHN Weekly Chart
ATHN Daily Chart
Aegerion Pharmaceuticals (AEGR)
Why the Strength
Aegerion Pharmaceuticals is an unusual candidate for Cabot Top Ten Trader, mostly because it has only two quarters of revenue history. The company specializes in orphan drugs (drugs that have been created specifically to treat a rare medical condition). The company’s one marketed product is Juxtapid, a treatment for Homozygous Familial Hypercholesterolemia (HoFH), a blood condition characterized by high levels of low-density lipoprotein (bad cholesterol) that results when both parents have a genetic disorder. Juxtapid was approved by the FDA last December, allowing the company to reap its first revenue in Q1, taking in $1.2 million. Q2 revenue showed a jump in revenue to $6.5 million and management nearly doubled its revenue estimates for the year. There are now 215 patients taking Juxtapid, and 463 prescriptions have been written, according to Aegerion. With the European Union regulatory agency expected to approve the drug for entry into the European market in this month, there is considerable upside to the future of both the company and the drug. The U.S. has granted a seven-year exclusive patent on Juxtapid and the company has already applied for an extension of that protection period, which is a reward commonly offered to developers of orphan drugs. Analysts see revenue of $40 million this year and $177 million in 2014, as well as a $1.30 per share profit!
AEGR came public in late 2010 at 9.5 and was trading around 15 last October when the first good news about Juxtapid began to break. The stock has rocketed higher ever since, with only a few sideways consolidations and only one significant pullback during the June market dip. Trading near 92, the stock is extended above its 25-day moving average, now at 78. There is enough volatility in AEGR that a little patience should allow you to buy in on a dip of at least a couple of points. Use a loose stop at 80 for protection.
AEGR Weekly Chart
AEGR 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.
|First||Stock||Symbol||Top Pick||Original Buy Range||Price as of August 5, 2013|
|6/17/13||Delta Air Lines||DAL||18-19||22|
|7/15/13||Krispy Kreme Doughnuts||KKD||19-20||21|
|3/18/13||Lion’s Gate Entertainment||LGF||21-22.5||34|
|5/28/13||Old Dominion Freight||ODFL||42-43||45|
|6/10/13||Pioneer Natural Resources||PXD||139-144||180|
|WAIT FOR BUY RANGE|
|DROPPED: Did not fall into suggested buy range within two weeks of recommendation.|
|7/22/13||Nu Skin Enterprises||NUS||78-80||88|