February 18, 2020

Evidence Remains Mostly Bullish

Current Market Outlook

Nothing much changed with the market’s evidence last week: The trends of the major indexes and most leading stocks remain strongly up, and there’s been very little in the way of intermediate-term abnormal selling action out there. On the other hand, many indexes have yet to hit new post-virus highs, fewer stocks are hitting new highs and the leading big-cap indexes are extended to the upside. As always, we put most of our emphasis on the primary evidence, which is why we remain mostly bullish; in fact, we’re nudging our Market Monitor up to a level 7 this week. But, while we still favor holding your strong, resilient performers, we also think it’s best to be choosy on the buy side, looking for names that have shown some recent power on earnings or have been running for a few months but have dipped to support.

Happily, this week’s list features many of names that have one of those two chart characteristics. Our Top Pick is Redfin (RDFN), which has been mostly a bust since coming public two years ago but showed overwhelming buying after earnings last week. As with most names, try to enter on some weakness.

Acceleron Pharma (XLRN)

acceleronpharma.com/

Why the Strength

Acceleron Pharma is a development stage biotech that’s turned super-strong thanks to the results of its mid-stage study on its pipeline candidate, dubbed sotatercept. The drug treats patients with pulmonary arterial hypertension (PAH), a disease that involves high blood pressure affecting the arteries in the lungs and the right side of the heart. In the double-blind test, 106 patients were randomized to receive a placebo or sotatercept subcutaneously, every 21 days, in combination with stable background PAH-specific therapies, over a 24-week treatment period. The results showed that sotatercept outperformed the placebo, significantly reducing pulmonary vascular resistance (the resistance that the heart must overcome to pump blood through the pulmonary circulatory system), the trial’s primary endpoint. Additionally, there were major improvements in the key secondary endpoints, including six-minute walk distance. Although somewhat rare (less than 200,000 new cases yearly), the condition worsens over time, often leading to blood clots in the lungs and irregular heartbeats (arrhythmias). Accleron also has ownership in Reblozyl for the treatment of anemia in adult patients with beta thalassemia, who require regular red blood cell (RBC) transfusions. Reblozyl was developed in conjunction with Celgene (now part of Bristol-Myers), and was approved by the FDA last November. The next quarterly report is due February 26.

Technical Analysis

XLRN topped in late 2018 around 60 and built a big launching pad after that, falling as low as 37 in the middle of last year but picking up steam with the market starting in mid November of last year. But the real event came in late January, when the stock was instantly revalued after the trial results. Impressively, XLRN ran higher for a few days and has traded tightly since. If you’re game, small positions on weakness are advised.

XLRN Weekly Chart

XLRN Daily Chart

Alteryx (AYX)

www.alteryx.com

Why the Strength

Alteryx is a leader in the burgeoning field of big data. The company is known for its platform that allows users to acquire, blend and analyze business data from diverse sources. Its analytic software is creating waves in the data science field by automating manual tasks and making it easier for analysts to acquire the info they need to generate sales-related insights and discover actionable revenue opportunities. The growing list of Alteryx’s clients is a who’s who list of blue-chip customers, including Caesars Entertainment, Canadian Pacific Railway, Halliburton and NASDAQ just to name a few. And the stock has returned to new high ground as growth continues to pick up steam. Last week, Alteryx raised eyebrows by easily beating consensus estimates in its Q4 earnings report, with sales (up 75%) and earnings (doubling from a year ago) looking great, and with many sub-metrics like total customer growth (up 30% to 6.087, including 474 added in Q4 alone) and same-customer growth rate (up 30% in Q4!) also wowing investors. The company also increased its machine learnings capabilities by acquiring Feature Labs in October and recently announced a partnership with tax consultancy PwC U.S. With an elite list of clients that includes 36% of Forbes Global 2000 companies, analysts see no end to the company’s growth—sales are expected to rise north of 30% both this year and next.

Technical Analysis

AYX is one of the many cloud software stocks that’s already had a big run, but after a tough correction and consolidation in the second half of last year, is now back in gear. Shares really changed character near the start of 2020, pushing persistently higher, with the breakout finally coming last Friday after earnings. It was a solid move, though we still favor entering on dips given that the stock is extended.

AYX Weekly Chart

AYX Daily Chart

Amazon.com (AMZN)

www.amazon.com

Why the Strength

A true Cinderella story, Amazon began its life in 1994 as an online bookseller and has evolved into one of the largest retailers, logistic powers, and web services providers in the world. Its reach keeps expanding, and now Amazon has announced a new line of software services targeting small businesses. The company is spending $15 billion to create new tools that will help these businesses manage pricing and inventory, and use brand analytics software to help them better leverage their images. With more than 1.9 million small businesses in operation, that spells a lot of opportunity, and will, no doubt, be the base for many more products to come. Amazon also got a boost last week when a federal judge agreed with Amazon’s challenge of the $10 billion Pentagon/Microsoft JEDI (Joint Enterprise Defense Infrastructure) cloud contract, suspending the work, until the contract’s bidding process (deemed by Amazon to be full of ‘egregious errors’ as well as meddling by President Trump.) Industry experts seem to think the contract will ultimately end up in Microsoft’s court, but, in the meantime, it doesn’t hurt to remind consumers and industry about the offerings of Amazon’s Web Services (AWS). All of this was to the good, but the main reason the stock is strong was the fourth quarter earnings report, which easily topped expectations— a 21% increase in holiday sales and 34% growth in AWS helped AMZN earn $6.47 per share on $87.4 billion in revenues, walloping analysts’ $4.30 estimate and sales forecasts of $86.0 billion. It’s obviously not a new story, but Amazon has re-emerged as a mega-cap growth leader.

Technical Analysis

AMZN topped out in September 2018 and went on to build a deep, long consolidation; before the Q4 report in January, the stock was still sitting nearly 10% below its high from 17 months before. But earnings has changed that, and one thing we’ve learned is to never underestimate a mega-cap growth stock that reacts very well to earnings. AMZN isn’t likely to be a super-fast mover, but the odds strongly favor higher prices ahead.

AMZN Weekly Chart

AMZN Daily Chart

Appian (APPN)

www.appian.com

Why the Strength

When you think of the need for speed in the technology world, most think of bandwidth, networking and data centers (and indeed, that is a solid growth area). But there’s also a need for speed in application development so that companies can continually improve service and business processes, and that’s where Appian is making hay—the firm has developed what it dubs as a low-code, cloud-based platform that makes it easier and faster for IT workers to develop apps (even mission-critical ones). And this isn’t just a marginal improvement—development is usually 20 times faster than using Java! Moreover, as part of the firm’s guarantee, Appian says any tech worker can learn the platform in just two weeks, and once developed, Appian makes it easy to use the new app on a variety of platforms (mobile, standard, etc.). While total revenue growth is solid (up 26% in Q3), the real action is in subscriptions, where revenues rose 38% and made up 58% of total revenue. Also helping the cause is a 19% same-customer growth rate (Appian targets 10% to 20% growth in this metric), up from 17% the prior quarter. As subscriptions become a larger piece of the total pie, gross margins will improve and the firm’s outlook should be steadier and more dependable, which is just what big investors like to see. The next big event comes this Thursday (February 20), when Appian reports Q4 results. Analysts are looking for just 16% total revenue growth, though given the trends here, we’d be surprised if that wasn’t conservative. All told, this looks like a new, unique growth story.

Technical Analysis

APPN came public in mid 2017 and went on to build a huge launching pad over a year and a half before breaking out in early August of last year. But the timing was off, as many in the group topped out around then, and shares were pulled back down. The correction was tough (about 41%), but the stock found huge-volume support early this year, and last week, pushed back to multi-month highs. You can either wait for earnings or, if you’re aggressive, nibble on pullbacks ahead of the report.

APPN Weekly Chart

APPN Daily Chart

Envestnet (ENV)

www.envestnet.com/

Why the Strength

Envestnet is a new name to us, but it looks like a Bull Market stock with a unique potential catalyst in the months ahead. The company doesn’t manage a dime, but it’s a key technology provider to advisors and institutions—it’s leveling the playing field by offering analytics, advice, research and the like to all of its clients. Moreover, for investors in the stock, most of Envestnet’s business is recurring in nature, and as the firm has broadened out into other information services (insurance, identity protection, managing credit, etc.), it’s potential has expanded, especially with its Yodlee (a data aggregation platform that provides snapshots of a person’s financial data on one screen) segment. Growth here isn’t off the charts, but it’s been solidly in the mid-teens for a long time, and analysts see the bottom line growing north of 20% in 2020 (probably conservative). However, the real catalyst here could be that Envestnet may be considering a sale for Yodlee—given the sale of one of its competitors for $5.3 billion, some believe $4 billion to $6 billion could be fetched for Yodlee. And with Envestnet’s total market cap being $4.5 billion, that would be a massive deal! Long story short, this is a steady grower with the wind at its back, and any Yodlee sale (or partial sale) could be big.

Technical Analysis

ENV has made solid progress over time, but with lots of multi-month corrections and consolidations along the way. The good news is that the stock now appears to be emerging from one of those rest periods—ENV built a nine-month launching pad, tightened up in December and January, broke out nicely above 76 and has run higher since. The stock is a bit thin and can be choppy, so if you’re game, try to snag some shares on dips.

ENV Weekly Chart

ENV Daily Chart

Invitae (NVTA)

invitae.com

Why the Strength

Invitae has always had a huge story, and after a year in the wilderness, the stock is now showing signs of real power. The company’s goal has been to take genetic testing to the masses—instead of super expensive tests done on a case-by-case basis, the company is steadily driving down the price of tests and running them in bunches, bringing the benefit to hundreds of thousands of patients. Yet there is still a ton of room for growth—just 25% of new breast cancer patients receive genetic testing, for instance, while 95% of new colorectal cancer patients don’t, either, and those are just two of dozens of examples where patients could benefit from knowing what they’re predisposed to. As costs come down ($249 per test in Q3, down about two-thirds from three years ago) and insurance coverage expands (295 million people are now covered), Invitae has been getting bigger in a hurry—in 2016, it ran 59,000 tests and brought in $25 million in revenue, but 2020 should see 725,000 tests and more than $330 million in revenue! (It’s seen 26 straight quarters of double-digit quarter-over-quarter testing growth, which is mind-boggling.) And that could be just beginning given the size of the markets and the benefits of genetic testing. The Q4 report (already pre-announced) is due out Wednesday (February 19) after the close.

Technical Analysis

NVTA had a big run from single-digit territory to the mid 20s early-ish last year before a deep and long correction and consolidation—shares were 30% lower at the end of January compared to April of last year. But the action of the past two weeks has been noteworthy: NVTA has exploded higher on its two heaviest-volume weeks ever as it approaches its old high. We wouldn’t dive in with both feet ahead of earnings, but a nibble is OK given the power.

NVTA Weekly Chart

NVTA Daily Chart

iRhythm Technologies (IRTC)

irhythmtech.com

Why the Strength

The ability to diagnose and treat irregular heartbeat is being redefined by iRhythm Technologies, which makes unique, wearable monitoring devices. iRhythm’s devices work with cloud-based data analytics to collect and analyze info obtained from millions of heartbeats. Its proprietary algorithms have the potential to change the way arrhythmia is detected and treated via the ZIO platform, which diagnoses arrhythmias faster than traditional approaches. The ZIO system uses machine learning to become “smarter” as it receives more data, potentially preventing more serious medical problems, including stroke. It’s a big market that’s getting more and more attention (Apple’s Heart Study, which used the Apple Watch to screen 400,000-plus people for atrial fibrillation, got many headlines last year), so there’s no doubt demand for monitoring is heading higher. While iRhythm posted a below-consensus loss of $18.3 million (-0.72 per share) in Q3, analysts see its per-share loss shrinking through 2020. But it’s the future that counts, and we’ll find out more about that on February 27 when Q4 results are revealed—analysts expect revenues rose 35% in the quarter, but just as important will be the outlook (currently see revenues up 33% as losses shrink in 2020) and any further tidbits about partnerships and penetration into sales channels. Big picture, iRhythm has become a leader in first-line heart monitoring for at-risk patients, and if it can continue to make progress the stock should find buyers.

Technical Analysis

Like many stocks, IRTC topped out in mid 2018 and spent a long time out of favor—from a high of 98 back then, shares fell as low as 56 last November and were still under 70 at the start of the year. But shares popped on good volume back to the upper 80s in January, and despite the market’s ups and downs, IRTC has tightened up ahead of earnings. We’re OK starting small here and seeing how the quarterly report is received.

IRTC Weekly Chart

IRTC Daily Chart

Redfin (RDFN)

redfin.com

Why the Strength

Redfin has one of the bigger stories in the housing group, as it attempts to upend the entire real estate brokerage business—the firm gets a ton of natural marketing (33 million visitors to its website each month; smaller than Zillow, but four times as much traffic as the next largest brokerage firm) and attempts to encourage sellers to sign up with Redfin’s own agents, who promise far lower commissions (1% if you sell and buy with Redfin within 12 months; 1.5% otherwise) than the 2.5% most brokerages charge sellers. Most important, the company provides sellers with good results, including faster sales and better prices compared to what you get with the competition, partially because of Redfin’s technology (faster listings, online scheduling of home tours, etc.), which also attracts more agents (who want to sell more homes quicker, too). The firm is expanding rapidly across the country (now in 94 markets that reach 78% of the U.S. population), has ancillary services (mortgages, titles, concierge) and even offers to buy a home itself (similar to Zillow Offers, but on a smaller scale), and all of it is working—in Q4, Redfin’s agents accounted for 0.94% of U.S. existing home sales, up from 0.81% a year ago, helping revenues to boom 88%, which was the fifth straight quarter of accelerating growth. Profits are still a ways off, but the firm is clearly in land-grab mode now. We like it.

Technical Analysis

RDFN came public in mid 2017 and had a few waves of glory in the months afterwards, but it went out of favor for nearly two years and, last October, was sitting 50% off its all-time high. Shares picked up steam from there, riding the improved housing sector, but the eye opener came last week—RDFN went bananas after earnings, soaring two straight days on monstrous volume. Pullbacks are possible, but we don’t expect a huge retreat.

RDFN Weekly Chart

RDFN Daily Chart

Sunrun (RUN)

sunrun.com

Why the Strength

The residential solar market is on a tear, with installations up 23% in just the past year, bringing the installed base to 45.5 GW—enough to power 13.5 million homes. And that growth should continue, with solar capacity forecasted to more than double over the next five years. The impetus behind the stellar growth comes from (a) federal tax credits, (b) a precipitous drop in cost, as an average-sized residential system costs about $18,000 today—a 55% decline from a decade ago (most consumers now save 10% to 40% off their electricity bill), and (c) a general flow of investment money into renewable energy aware investments. All of this plays into the hands of Sunrun, which we wrote about Sunrun last summer: It’s the leading residential solar player (about 16% market share and with 271,000 customers, up 24% from a year ago) that’s benefiting from a contracted income stream (customers ink 20- to 25-year contracts) and still has huge room for growth—about 3% of homes have solar panels today (mostly in sunny states), but that’s projected to grow to 13% by 2029. Solar stocks have turned strong of late and this particular name was helped along by its addition to the S&P SmallCap 600 recently. Still, the long-term story here is solid, and Sunrun is profitable and growing both on an earnings and cash flow basis. The next big event will be earnings, which are due out February 27.

Technical Analysis

RUN appeared to be getting going from a big launching pad in June of last year, but that breakout attempt fell flat, leading to a longer consolidation—net-net, shares made no progress from June 2018 through the end of last year. But RUN is certainly looking peppy today, as the stock has raced back toward its all-time highs on big volume (though some of that was due to the S&P 600 addition). Shares are extended and earnings are coming up, both of which are risks, but it would be unusual for the recent strength to simply up and die, either. We’re fine starting small on weakness.

RUN Weekly Chart

RUN Daily Chart

Survey Monkey (SVMK)

www.surveymonkey.com

Why the Strength

SurveyMonkey has a good, solid story and a stock that appears to finally be kicking into gear after 16 months of post-IPO meandering. As for the story, the big idea here is that SurveyMonkey has become the go-to online survey platform for businesses—combining artificial intelligence, machine learning and a dataset that’s far and away the largest out there (around 50 billion responses!), a market research solution (access to 50 million panelists so clients can quickly get global insights) and key integrations (Salesforce, Microsoft), SurveyMonkey has a defensible business model that’s hard to emulate. The real driver right now is enterprise sales, where the customer count surged 84% in Q4 (including a ton of well known names), driving revenues in that segment up a whopping 145% and pushing average revenue per user to $467, up 10% from last year. (The enterprise segment now makes up a quarter of total revenues, up from 13% a year ago.) The stock is strong today because those Q4 results topped expectations, and because management gave a nice forecast for 2020, with revenues up 23%, positive operating margins and free cash flow solidly in the black once again. The future looks bright.

Technical Analysis

SVMK came public in September 2018, and got as high as 20 in its first week of trading. After a dip to 10 with the market in 2018 and a rebound early last year, the stock has been mostly range bound in the 16 to 20 area. But shares now look like they’re changing character—after a quick shakeout in late January, SVMK boomed last Friday after earnings, clearing old resistance. If you want in, we advise starting small and on dips.

SVMK Weekly Chart

SVMK 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.