Not Unexpected
Current Market Outlook
News of travel restrictions due to a new strain of the virus over in Europe hit the major indexes early today, but when it comes to our analysis, the reason for the initial selloff is secondary—the setup for an air pocket has been around for a couple of weeks as sentiment was elevated and most stocks and indexes were extended to the upside. Thus, today’s hiccups weren’t totally unexpected, but the damage was limited; at day’s end, the major indexes held up well and remain in intermediate-term uptrends, as do most stocks. Near term, further reverberations are likely, so we still think it best to pick your spots and stocks carefully, but with the major evidence still positive, we are too.
This week’s list has a nice mix of stocks benefiting from different trends (growth, reopening, cyclical, etc.). Our Top Pick is Elastic (ESTC), which has finally, decisively gotten going from a long 20-month IPO base.
| Stock Name | Price | ||
|---|---|---|---|
| Alcoa (AA) | 22.12 | ||
| Cardlytics (CDLX) | 146.04 | ||
| Coeur Mining (CDE) | 9.88 | ||
| Elastic (ESTC) | 155.91 | ||
| Floor & Décor (FND) | 99.10 | ||
| Kodiak Sciences (KOD) | 149.51 | ||
| PayPal (PYPL) | 237.79 | ||
| Redfin (RDFN) | 78.54 | ||
| Smartsheet (SMAR) | 72.00 | ||
| WESCO International (WCC) | 75.16 |
Alcoa (AA)
Why the Strength
After staging an impressive comeback from a multi-year low this spring, aluminum prices are still on the upswing—up over 40% since May—as China’s demand for the industrial metal shows no sign of abating while supplies keep shrinking. And, more important, analysts anticipate even more strength in 2021, as aluminum is also benefiting from the boom in the global electric vehicle (EV) market, where it’s now the fastest growing automotive material. Alcoa is benefiting from the growth in aluminum consumption and is looking forward to a huge turnaround next year, including from higher anticipated demand in U.S. residential construction. In Q3, higher alumina and aluminum pricing pushed revenue up 10% sequentially; in fact, the firm’s alumina segment set a record for metric tons produced per day in the quarter, while the aluminum segment improved operational stability, driving increased output. But the driver behind Alcoa’s latest strength was the news that it will sell its Indiana rolling mill business to Kaiser Aluminum for $670 million. The deal, which is expected to close in Q1, will allow Alcoa to focus on its core markets while generating additional cash for the company and strengthen its balance sheet. (The move is part of Alcoa’s bigger strategy of raising up to $1 billion in cash from the sale of non-core assets.) Looking ahead, Wall Street expects the company’s bottom line to turn around next year as China’s economy continues to grow, while the U.S. and Europe are predicted to consume more aluminum; indeed, next year’s earnings estimates have gone from a loss of 23 cents per share three months ago to a profit of 73 cents today—and there are many reasons to think those estimates will continue to move higher in the weeks to come.
Technical Analysis
AA’s post-election blast-off took the stock to its highest level in over a year. We missed our entry point when we wrote the stock up around a month ago, but now, after a powerful upmove when it rose nine of 10 weeks (a sign of persistent strength), AA has pulled back calmly for two weeks on reasonable volume, tagging its 25-day line this morning. We think taking a swing at the stock on this initial retreat should work.
| Market Cap | $4.12B | EPS $ Annual (Dec) | |
| Forward P/E | 32 | FY 2018 | 3.70 |
| Current P/E | N/A | FY 2019 | -0.99 |
| Annual Revenue | $9.34B | FY 2020e | -1.42 |
| Profit Margin | N/A | FY 2021e | 0.70 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.37 | -8% | -1.17 | N/A |
| One qtr ago | 2.15 | -21% | -0.02 | N/A |
| Two qtrs ago | 2.38 | -12% | -0.23 | N/A |
| Three qtrs ago | 2.44 | -27% | -0.31 | N/A |
AA Weekly Chart
AA Daily Chart
Cardlytics (CDLX)
Why the Strength
The field of computer-based data analytics, or Big Data, is one of today’s fastest-growing industries, affording powerful new marketing channels for advertisers. Cardlytics’ digital, fee-based marketing platform gleans purchasing info from credit card users and brings it to marketers, who then tailor online and mobile rewards programs based on customers’ shopping patterns. With many of the company’s hotel and travel partners suffering due to COVID, Cardlytics was a rare technology stock that was actually hurt by the virus, but the stock is strong today because big investors generally think the turnaround has begun; while billings decreased 25% in Q3 and revenue decreased 18% from a year ago, sequential billings and revenue were up 57% and 63%, respectively, beating estimates. The firm also completed a $230 million convertible note offering in the quarter to boost its cash position to a very hefty $288 million, which provides plenty of liquidity to keep it running through even the most challenging economic environments. Cardlytics also expressed confidence about the financial strength of a growing number of their business clients going forward (including a national full-scale recovery campaign with one of its airline partners). Management guided for Q4 billings in the $84 million range (down 16% from last year, but up 35% sequentially). It also predicted revenue of $58 million (down 14%, but up 28% sequentially). More important, Wall Street sees Cardlytics’ revenue barreling ahead by 41% in 2021. While there are renewed virus worries today, there’s little doubt business should continue to improve markedly from here.
Technical Analysis
The COVID crash for CDLX was starker than for most companies due to the virus-sensitive nature of its customers. But the rebound off the March low was equally sharp, with shares rising from 30 to 85 in less than three months. CDLX then chopped around between June and October before going bananas starting in November (now up seven weeks in a row) on consensus-beating earnings. Impressively, CDLX pushed higher today, too. Minor weakness should offer a solid entry point.
| Market Cap | $3.83B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.72 |
| Current P/E | N/A | FY 2019 | -0.08 |
| Annual Revenue | $189M | FY 2020e | -2.14 |
| Profit Margin | N/A | FY 2021e | -1.44 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 46.1 | -18% | -0.16 | 200% |
| One qtr ago | 28.2 | -42% | -0.38 | 9% |
| Two qtrs ago | 45.5 | 26% | -0.26 | 57% |
| Three qtrs ago | 69.3 | 45% | -0.18 | N/A |
CDLX Weekly Chart
CDLX Daily Chart
Coeur Mining (CDE)
Why the Strength
After peaking in August and consolidating for the last few months, both gold and silver are once again showing signs of life—this time driven mainly by a weaker U.S. dollar (driving gold higher), while rising industrial demand is strengthening silver’s prospects, especially in the red-hot solar and automotive industries where the white metal is widely used. Coeur Mining, the world’s sixth-largest silver miner by revenue, explores, develops and operates silver and gold mining properties throughout North and South America. Analysts expect the company’s exposure to both precious metals to benefit the bottom line next year as production picks up and prices remain elevated. Coeur is a cash-generating machine, and the stock’s recent strength was driven by the expansion of its Rochester silver-gold mine in Nevada, which managements said offers “significant reserve growth and the benefits of a larger-scale expansion project.” Coeur also said the latest technical report shows an 18-year reserve life with annual production expected to exceed eight million ounces of silver and 80,000 ounces of gold for the first 10 years after the expansion, which should result in $104 million of annual free cash flow. Elsewhere, its Wharf (South Dakota) and Palmarejo (Mexico) mines produced record free cash flows of $40 million and $45 million, respectively, in Q3. Overall, revenue was 15% higher in the quarter while per-share earnings of 16 cents beat the consensus by 6 cents. Going forward, management guided for higher production and lower costs in Q4, while analysts see a 22% top-line bump and a 126% EPS increase in 2021.
Technical Analysis
CDE fell from 8 to 2 during the COVID panic, but shares quickly rebounded from the March low as safe-haven demand for precious metals and the companies that mine them picked up. By August, CDE had recovered to 9 where it then spent the next four months consolidating mostly sideways, refusing to give up much of its rebound. Now the stock has lifted off on good volume, and while volatility is high (Friday’s dip was a good example of that), we think the stock is buyable around here.
| Market Cap | $2.51B | EPS $ Annual (Dec) | |
| Forward P/E | 16 | FY 2018 | -0.01 |
| Current P/E | 74 | FY 2019 | -0.25 |
| Annual Revenue | $752M | FY 2020e | 0.27 |
| Profit Margin | 16.6% | FY 2021e | 0.65 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 230 | 15% | 0.16 | N/A |
| One qtr ago | 154 | -5% | 0.01 | N/A |
| Two qtrs ago | 173 | 12% | -0.01 | N/A |
| Three qtrs ago | 195 | 36% | -0.01 | N/A |
CDE Weekly Chart
CDE Daily Chart
Elastic (ESTC)
Why the Strength
Elastic is a unique outfit, as it doesn’t really fit into a standard industry or sector; the company effectively straddles the line between search (not like Google, more for enterprises) and Big Data, helping clients improve internally (gaining knowledge into customer experiences, logistics, costs and IT performance) as well as powering many consumer-facing apps (like Match.com and Uber). The firm’s Elasticsearch and Kibana programs allow clients to ingest any type of data (structured and unstructured data from logs, metrics, apps, devices, etc.), find matches to searches in milliseconds no matter how huge the database and thus get actionable insights across a range of departments. Indeed, that’s always been one of the big attractions here, as basically any decently-sized firm has a use for Elastic’s software, which is the reason 46% of the Fortune 500 are customers, including at least seven of the top 10 players in a variety of industries (computer services, software, aerospace, auto makers, cable, insurance, telecom and pharmaceutical). The firm is transitioning more to the cloud, although 92% of its business is already subscription-based. While the bottom line is still in the red, sales growth has been rapid and reliable for many quarters (43% growth in Q3 was actually the slowest in a while), with its sub-metrics very impressive, including repeated 30%-plus same-customer revenue growth (the average customer pays Elastic twice as much after two years). We think it’s a big idea that will drive the company to great heights down the road.
Technical Analysis
ESTC topped in July 2019 around 100, crashed to 40 during this year’s March panic, and returned to the 100 area in July of this year. There were a couple of breakout attempts after that, but shares couldn’t quite get going; in early November, the stock was still hanging around the century mark. But now ESTC is up and out, with a powerful move after earnings three weeks ago and solid follow-through since. Modest pullbacks would offer a good entry point.
| Market Cap | $13.3B | EPS $ Annual (Apr) | |
| Forward P/E | N/A | FY 2019 | -0.86 |
| Current P/E | N/A | FY 2020 | -0.93 |
| Annual Revenue | $511M | FY 2021e | -0.34 |
| Profit Margin | N/A | FY 2022e | -0.52 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 145 | 43% | -0.03 | N/A |
| One qtr ago | 129 | 44% | 0.06 | N/A |
| Two qtrs ago | 124 | 53% | -0.12 | N/A |
| Three qtrs ago | 113 | 60% | -0.28 | N/A |
ESTC Weekly Chart
ESTC Daily Chart
Floor & Décor (FND)
Why the Strength
After a few weeks of rest, we’re beginning to see many growth-oriented housing names push higher (Redfin is also in today’s issue) as they resume their major uptrends. Floor & Décor is a name we’ve liked for a while, as it combines leverage to the new housing boom with a fantastic cookie-cutter story. The company offers the best selection of flooring and accessories via 130 or so warehouse-style stores, with tile, laminate, wood, natural stone and more; its stores have 1,400 products in-stock, which is far more than competing flooring firms. (Customers are both do-it-yourselfers and professionals.) The company’s store count will expand “only” 11% this year due to virus issues, but the growth rate should be back up to 20% starting next year; long term, management sees room for 400 of its warehouses in the U.S. Thanks to the surging housing industry and the fact that hard flooring and surfaces continue to take share from carpeting, Floor & Décor has been on a great growth trend for many years (earnings up eight years in a row), and that growth has actually accelerated of late, with sales (up 31%), same-store sales (up 18%) and earnings (up 107%) soaring in Q3 after the prior quarter’s virus-related pothole. Analysts see the bottom line up 28% this year and 24% in 2021, but even those could prove low as the housing market continues to outpace all expectations. It’s not as fast moving as some other outfits, but Floor & Décor has the dependable growth many big investors seek (488 funds own shares, up from 403 a year ago).
Technical Analysis
FND emerged from a 26-month post-IPO base in June of this year as the housing market’s recovery blew away predictions. FND finally topped in mid October, but while the stock did get yanked lower, the seven-week consolidation was more than reasonable given the prior advance, and now FND has stretched to a clear new price and relative performance highs. We think dips are buyable.
| Market Cap | $10.4B | EPS $ Annual (Dec) | |
| Forward P/E | 55 | FY 2018 | 0.97 |
| Current P/E | 76 | FY 2019 | 1.15 |
| Annual Revenue | $2.13B | FY 2020e | 1.47 |
| Profit Margin | 8.7% | FY 2021e | 1.82 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 685 | 31% | 0.56 | 107% |
| One qtr ago | 462 | -11% | 0.13 | -62% |
| Two qtrs ago | 555 | 16% | 0.34 | 17% |
| Three qtrs ago | 427 | 21% | 0.26 | 30% |
FND Weekly Chart
FND Daily Chart
Kodiak Sciences (KOD)
Why the Strength
As the world’s population ages, age-related macular degeneration (AMD for short) and diabetes cases are up, increasing the prevalence of related retinal diseases in many countries. However, effective treatments are in short supply, which is where Kodiak comes in. It specializes in developing Generation 2.0 therapies against common retinal diseases using cutting-edge antibody biopolymer conjugates technology (enables better durability, bioavailability and stability of the drug). Kodiak boasts a robust pipeline, featuring KSI-301, a Generation 2.0 anti-VEGF biopolymer conjugate treatment. (Anti-VEGF medicines stop the growth of new blood vessels, which prevents damage to the retina.) Kodiak believes it can lower the frequency of this treatment from the current three doses per month to once every five to six months—if it happens, this would be a boon for patients who use competing Eylea and Lucentis drugs, and offer greater safety, too. KSI-301 is currently undergoing four Phase III trials (for AMD, diabetic macular edema, retinal vein occlusion and diabetic retinopathy), plus a Phase II trial for KSI-501 (retinal vascular diseases) and Phase I for KSI-601 (AMD). The company’s progress on KSI-301 is the reason for the latest strength; in October it announced that the first three patients in its trials were successfully treated with the drug. With the market opportunity for retinal disease-related anti-VEGF therapies expected to reach $17 billion a year by 2024, Kodiak sees a huge runway for future growth.
Technical Analysis
KOD came public in October 2018 at 10 and spent the next year establishing a launching pad below 15. Shares took off in exciting fashion in late 2019, quickly reaching 75. The stock sputtered after that, spending the next nine months digesting the previous year’s gains, but all the while building a new base for the recent rocket ride to 140. The recent action looks normal, though we prefer to enter on weakness.
| Market Cap | $6.98B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.97 |
| Current P/E | N/A | FY 2019 | -1.25 |
| Annual Revenue | N/M | FY 2020e | -2.35 |
| Profit Margin | N/M | FY 2021e | -4.25 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | N/M | N/M | -0.80 | N/A |
| One qtr ago | N/M | N/M | -0.58 | N/A |
| Two qtrs ago | N/M | N/M | -0.54 | N/A |
| Three qtrs ago | N/M | N/M | -0.40 | N/A |
KOD Weekly Chart
KOD Daily Chart
PayPal (PYPL)
Why the Strength
Fintech, or financial technology, is a groundbreaking new category of stocks for investors to consider and PayPal is obviously one of the top names in the area. The company is a leading online payment portal for goods and services, with a reputation for safety and security that makes it a popular choice for many businesses that need to accept online payments. Whether you buy or sell goods using PayPal, the platform provides protections for you as a buyer or seller; as a buyer, you can lodge a dispute within six months of a transaction for a refund (and also choose to pay over time via a new feature), and if you’re a seller, PayPal will resolve disputes on your behalf and won’t charge you if you can provide proof of delivery for a disputed item. The big idea here is that the company has the looks of another MasterCard or Visa, with the mega-trend toward online payments (a trend that has clearly accelerated with the pandemic) and money transfers (via its Venmo offering) still in the early innings. Indeed, growth has picked up this year as more people have become very comfortable doing their payments and money moves online; in Q3, revenues (up 25%) grew at their fastest pace in at least a couple of years while earnings (up 41%) easily topped expectations and all the sub-metrics pointed to further great things ahead (36% growth in total payment volume, 22% hike in active accounts to 361 million total). Analysts see another 20%-ish gain in sales, earnings and free cash flow next year, but we suspect big investors are thinking that will prove conservative as this year’s sea change in online purchasing attitudes carries on.
Technical Analysis
PYPL’s comeback from the March low was impressive as investors figured the firm would be a beneficiary of the pandemic. After tagging 212 in early September, the stock began to etch what turned out to be a well-contained (19% deep), 15-week double bottom consolidation. The stock has now lifted nicely to new price and relative performance highs, and it held up excellently today. We’re OK starting a position here or on dips.
| Market Cap | $274B | EPS $ Annual (Dec) | |
| Forward P/E | 52 | FY 2018 | 2.42 |
| Current P/E | 65 | FY 2019 | 2.96 |
| Annual Revenue | $20.3B | FY 2020e | 3.79 |
| Profit Margin | 23.4% | FY 2021e | 4.53 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 5.46 | 25% | 1.07 | 41% |
| One qtr ago | 5.26 | 22% | 1.07 | 51% |
| Two qtrs ago | 4.62 | 12% | 0.66 | 0% |
| Three qtrs ago | 4.96 | 17% | 0.83 | 20% |
PYPL Weekly Chart
PYPL Daily Chart
Redfin (RDFN)
Why the Strength
Redfin is revolutionizing the residential real estate market in favor of the little guy. The company is a one-stop-shop for buyers and sellers, providing brokerage, online buying, mortgage and title services, and also runs one of the top real estate brokerage search site in the U.S., which offers a variety of online tools to prospective home buyers (and brings in lots of leads). The key to Redfin’s success is its fully integrated home buying and selling process powered by the company’s proprietary technology, which results in faster sells for sellers at a much lower cost (commission rates a percentage point or more lower than traditional real estate brokers). Redfin operates in over 90 markets in the U.S. and Canada; since its launch in 2006, Redfin has closed more than 235,000 home transactions worth more than $115 billion, saving customers over $800 million in the process. While the firm’s brokerage business hit a pothole with the virus, all future indications now look encouraging; last week, Redfin said pending home sales were up 32% year-over-year during the four-week period ended Dec. 13, thanks in large part to record-low mortgage rates. What’s more, 54% of home buying offers written by Redfin agents nationwide faced bidding wars in November (!), which led to higher sales prices and greater sales commissions for the company. In Q3, while sales were still down a bit from a year ago, they were up huge from the prior two quarters while earnings surged and easily topped expectations. Analysts see next year’s top line rising north of 40% as the new housing boom continues.
Technical Analysis
RDFN actually got going before the pandemic hit, and after that bottom was hit the stock roared right back on track. Granted, the stock tends to be choppy (lots of wild weekly moves), and the recent correction (34% drop in five weeks!) was sharp. But the stock has been a moonshot in recent weeks, soaring as housing names come back in favor. We wouldn’t chase it here, but a shakeout during the next couple of weeks would be tempting.
| Market Cap | $7.78B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.49 |
| Current P/E | N/A | FY 2019 | -0.88 |
| Annual Revenue | $875M | FY 2020e | -0.35 |
| Profit Margin | 14.4% | FY 2021e | -0.06 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 237 | -1% | 0.32 | N/A |
| One qtr ago | 214 | 8% | -0.02 | N/A |
| Two qtrs ago | 191 | 73% | -0.64 | N/A |
| Three qtrs ago | 233 | 88% | -0.08 | N/A |
RDFN Weekly Chart
RDFN Daily Chart
Smartsheet (SMAR)
Why the Strength
Smartsheet has always had a good story, and after a great Q3 report, it looks like big investors are beginning to pay up for it. This cloud software firm is all about productivity, and like many that are thriving, its solution is increasingly needed in today’s mobile, work-from-anywhere environment: Instead of everyone meeting in a conference room every week to discuss the status of a project (big or small), Smartsheet’s connected workflow tools make it easier to plan, automate, share (through customized portals), edit and report (often via dashboards) on the progress of any project. Dubbed Collaborative Work Management, the result is fewer things falling through the cracks, especially as the software can connect different departments, and we like how it offers value to firms of all sizes (Cabot uses Smartshseet for scheduling and other purposes). The virus threw a few curveballs at the company as potential clients cut back on spending (billings growth slipped from 58% in Q4 of last year to 22% in Q2 of 2020), but it’s looking like a re-acceleration has already arrived; in Q3, billings growth picked up to 35% as revenues (up 38%) easily topped expectations and current customers expanded their usage (same-customer revenue growth of 25%; six-figure clients up 81%), and all sorts of secondary engagement metrics (submissions grew 128%, dashboard creation up 64%) tell a clear story of a product being increasingly relied upon at thousands of firms. Analysts see revenues up nearly 30% next year, but many are thinking that could prove conservative as business spending roars back to life.
Technical Analysis
SMAR topped out with most cloud software names in the middle of last year, and it spent the next 17 months mostly chopping sideways, swinging around with the market. Admittedly, the consolidation wasn’t pristine (worries over growth caused some abnormal selloffs in June and September), but it finally settled down a bit in recent weeks and then the Q3 report prompted a breakout to new highs. SMAR has held up fairly well since, too—we’re OK nabbing some here or on dips.
| Market Cap | $8.85B | EPS $ Annual (Jan) | |
| Forward P/E | N/A | FY 2019 | -0.36 |
| Current P/E | N/A | FY 2020 | -0.49 |
| Annual Revenue | $354M | FY 2021e | -0.42 |
| Profit Margin | N/A | FY 2022e | -0.42 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 98.9 | 38% | -0.12 | N/A |
| One qtr ago | 91.2 | 41% | -0.06 | N/A |
| Two qtrs ago | 85.5 | 52% | -0.11 | N/A |
| Three qtrs ago | 78.5 | 51% | -0.13 | N/A |
SMAR Weekly Chart
SMAR Daily Chart
WESCO International (WCC)
Why the Strength
It’s not the most glamorous story, but 100-year-old electrical products distributor Wesco has doubled its size thanks to a major acquisition while also seeing improved industrial production and construction demand in North America. The firm is a global supply chain solutions provider of electrical supplies (wiring devices, fuses, tools and testers, etc.), with top-notch logistical expertise, and it’s also surfing the wave in the white-hot communications sector, too. After acquiring Anixter International in June, Wesco now has a vastly expanded reach—estimated at 13% market share—in the $114 billion North American electrical distribution industry. Thanks largely to the merger, third-quarter revenue was up 93%, while per-share earnings of $1.66 rose 9% and were a whopping 34 cents above estimates. Following the merger, Wesco’s business structure now has three reporting units: Electrical and Electronic Solutions (EES), Communication and Security Solutions (CSS) and Utility and Broadband Solutions (UBS). UBS segment revenue was 66% higher in the quarter, EES revenue was up 32% and CSS revenue was up an eye-popping 488%. Importantly, this is also a free cash flow story: For the first nine months of the year, free cash flow totaled $462 million, nearly quadruple reported net income and coming in around $9 per share! The future looks even brighter, with analysts seeing earnings up 19% next year while free cash flow increases further.
Technical Analysis
WCC hit rock bottom at this year’s March panic low at 14, and the recovery was quick but jagged, with shares finally settling into a choppy base-on-base formation from June through October. The strength seen since Q3 earnings has been excellent, with WCC rallying seven weeks in a row before today’s drop. Given the persistence of the move, we’re OK taking a swing at WCC here or on further weakness.
| Market Cap | $3.78B | EPS $ Annual (Dec) | |
| Forward P/E | 12 | FY 2018 | 4.82 |
| Current P/E | 15 | FY 2019 | 5.14 |
| Annual Revenue | $10.3B | FY 2020e | 5.33 |
| Profit Margin | 2.4% | FY 2021e | 6.35 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 4.14 | 93% | 1.66 | 9% |
| One qtr ago | 2.09 | -3% | 1.36 | -6% |
| Two qtrs ago | 1.97 | 0% | 0.91 | -2% |
| Three qtrs ago | 2.1 | 4% | 1.26 | 0% |
WCC Weekly Chart
WCC 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 | |||||
| 12/14/20 | Adient | ADNT | 32.5-34.5 | 35 | |
| 11/16/20 | Albemarle | ALB | 121-126 | 142 | |
| 10/26/20 | Align Technology | ALGN | ? | 420-440 | 531 |
| 12/14/20 | Ambarella | AMBA | 84-88 | 89 | |
| 12/7/20 | Applied Materials | AMAT | ? | 85-90 | 86 |
| 10/19/20 | Avalara | AVLR | 147-152 | 180 | |
| 10/26/20 | Axon Enterprise | AAXN | 99.5-102.5 | 128 | |
| 12/14/20 | Baker Hughes | BKR | 84-88 | 21 | |
| 11/2/20 | Bunge | BG | 56-58.5 | 65 | |
| 11/16/20 | Canopy Growth | CGC | 23.5-25 | 26 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 39 | |
| 11/23/20 | Celsius Holdings | CELH | 31.5-34 | 41 | |
| 11/2/20 | Cloudflare | NET | 49-52 | 86 | |
| 10/26/20 | Exact Sciences | EXAS | 103-107 | 141 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 156 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 25 | |
| 12/14/20 | FuboTV | FUBO | 24.5-26.5 | 49 | |
| 10/26/20 | General Motors | GM | 34-36 | 41 | |
| 10/26/20 | GrowGeneration | GRWG | 16.5-18 | 41 | |
| 11/23/20 | Halozyme | HALO | ? | 38.5-41 | 44 |
| 11/23/20 | Huazhu Group | HTHT | 49.5-51 | 47 | |
| 11/9/20 | HubSpot | HUBS | 335-350 | 410 | |
| 11/23/20 | Inspire Medical | INSP | 172-182 | 191 | |
| 11/16/20 | Lam Research | LRCX | ? | 415-435 | 483 |
| 11/16/20 | Marvell Tech | MRVL | 41.5-43.5 | 47 | |
| 10/26/20 | MercadoLibre, Inc. | MELI | 1180-1240 | 1698 | |
| 12/14/20 | Michaels Co. | MIK | 10.9-11.8 | 12 | |
| 11/23/20 | Moderna | MRNA | 95-98 | 138 | |
| 11/16/20 | Norfolk Southern | NSC | 235-245 | 230 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 169 |
| 10/19/20 | Paycom Software | PAYC | 360-375 | 446 | |
| 12/7/20 | Pinduoduo | PDD | 140-147 | 147 | |
| 8/3/20 | PINS | 33.5-37 | 70 | ||
| 12/7/20 | Qorvo | QRVO | 158-163 | 161 | |
| 8/3/20 | Qualcomm | QCOM | 106-110 | 147 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 69 |
| 7/13/20 | Roku | ROKU | 147-154 | 354 | |
| 11/16/20 | Snap | SNAP | 37.5-39.5 | 53 | |
| 12/7/20 | Snowflake | SNOW | 360-380 | 350 | |
| 11/23/20 | Sonos | SONO | 20.5-22 | 25 | |
| 10/19/20 | SunPower | SPWR | 16.5-17.5 | 28 | |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 105 | |
| 12/7/20 | Tapestry | TPR | 27-28.5 | 29 | |
| 9/14/20 | Target | TGT | 145-149 | 172 | |
| 11/16/20 | Timken | TKR | 69-72 | 77 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 367 | |
| 11/9/20 | Uber | UBER | 45-47.5 | 52 | |
| 12/7/20 | U.S. Steel | X | 15.3-16.3 | 17 | |
| 11/9/20 | Yeti | YETI | 50-53 | 72 | |
| 11/9/20 | Zillow | Z | 100-105 | 136 | |
| 12/7/20 | Zscaler | ZS | 174-180 | 136 | |
| WAIT | |||||
| 12/14/20 | Micron Tech | MU | 66-69 | 71 | |
| 12/14/20 | PagerDuty | PD | 41.5-43.5 | 45 | |
| 12/14/20 | StitchFix | SFIX | 57-61 | 71 | |
| SELL RECOMMENDATIONS | |||||
| 11/9/20 | Enphase Energy | ENPH | 112-118 | 171 | |
| 10/19/20 | Invitae | NVTA | 47-49.5 | 50 | |
| 11/2/20 | Mattel | MAT | 13-13.5 | 18 | |
| 10/26/20 | Shift4 Payments | FOUR | 51.5-54 | 70 | |
| 9/28/20 | Square | SQ | 157-162 | 234 | |
| 10/5/20 | Zendesk | ZEN | 101-105 | 141 | |
| DROPPED | |||||
| 12/7/20 | Cleveland-Cliffs | CLF | 11.5-12.3 | 14 | |
| 12/7/20 | Vale S.A. | VALE | 14.7-15.7 | 17 | |
The next Cabot Top Ten Trader issue will be published on January 4, 2021.