Up, Up, Up ...
Current Market Outlook
Last week made it nine weeks in a row for most major indexes, and also brought another bullish “blastoff” signal (90% of NYSE stocks rose above their 50-day line), which portends nicely higher prices three to nine months down the road. As for the question on everyone’s mind (when will we get a pullback?), there is a growing chance of a short-term dip, partially due to lots of good news hitting the wires (such as today’s tariff delay). That said, pinpointing short-term moves is a tough game and rarely helps you make good money over time—the key is sticking with the major trend (up) and focusing on leading stocks and proper setups. Overall, we remain open to anything, but just going with the evidence, you should be mostly bullish.
This week’s list has a mix of stocks and sectors, from retail to medical to Internet. A bunch of the names look good, but for our Top Pick, we’ll go with Trade Desk (TTD), which looks like a real leading glamour stock. Try to buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Avalara (AVLR) | 102.00 | ||
| Boot Barn (BOOT) | 43.24 | ||
| Dine Brands (DIN) | 93.05 | ||
| Invitae (NVTA) | 32.06 | ||
| iRhythm Technologies (IRTC) | 51.15 | ||
| Match (MTCH) | 0.00 | ||
| SS&C Technologies Holdings, Inc. (SSNC) | 63.56 | ||
| Trade Desk (TTD) | 468.02 | ||
| Wayfair (W) | 167.03 | ||
| Yeti Holdings (YETI) | 42.80 |
Avalara (AVLR)
Why the Strength
Avalara is a cloud-based software company that develops solutions for sales and indirect tax compliance. The stock is doing well now because sales tax compliance is becoming increasingly complex, and Avalara’s software can automate the process, making its customers far more efficient and accurate with respect to sales tax calculations, filing returns and remittance. The company is also enjoying a jump in inbound inquiries following a Supreme Court decision (South Dakota vs. Wayfair) in 2018 that allows states to require out-of-state retailers to collect sales tax from customers, even if the retailer lacks a physical presence in the state. With sales tax collections approaching $400 billion a year in the U.S., and over 30 new states having passed economic nexus laws in the wake of the Wayfair decision, Avalara appears to have a long runway for growth. Not that growth has been hard to find: The recently public company (it IPO’d in 2018) grew revenue by 27% in 2017 and 28% in 2018, and smashed expectations when it reported Q4 results on February 12. Revenue of $77 million (up 33%) beat by $5.7 million, which has helped push forward revenue growth estimates up to 21% in both 2019 and 2020. We like the story and the stock’s strength.
Technical Analysis
AVLR went public last June at 24 and spiked as high as 60 a week later. The stock cooled off afterward and trended down until mid-November, then spent the rest of the year trading mostly in the 28 to 32 range. Momentum picked up again in January, with the stock spiking to 42.5 soon after the calendar flipped, tightening up for a couple of weeks and then blasting off after earnings. It’s since cooled off a bit—wobbles are possible but the buyers are clearly in control.
AVLR Weekly Chart
AVLR Daily Chart
Boot Barn (BOOT)
Why the Strength
Boot Barn is a small-cap retailer with a very interesting niche story. The company is a leader in western and so-called blue collar work wear; as its name suggests, footwear is its largest category (53% of revenue), but apparel like denim and rugged shirts (32%) as well as hats/accessories (15%) are also big. (Interestingly, because of low emphasis on fashion, price markdowns are very rare.) Basically, Boot Barn is selling to the mass market that lives outside the U.S.’s major metropolitan areas, and with growing oil, gas and construction-related employment and expanding popularity of western culture (country music, more ranchers, agriculture), the fundamental winds are at the firm’s back. The stock is strong today because, simply put, business is good—many key initiatives (exclusive brands, often partnered with country celebrities) have kept same-store sales growth hot (up 9.2% in Q4), e-commerce makes up nearly one-fifth of sales and is growing at double-digit rates and cost controls are boosting margins, too. As for the store count, the firm has 234 locations in 31 states, sports solid new-store economics (payback of initial opening costs in about three years), has been increasing the store base by about 8% annually and, over time, thinks the store count can at least double from here. If management continues to execute, Boot Barn looks like a multi-year 15% to 20% earnings grower.
Technical Analysis
After years of sour performance, BOOT kicked off a big advance in November 2017, running from around 10 all the way to 31 in September of last year. Then came the big correction (down to 15!) and a strong comeback since the market low, including many days of excellent buying volume. (BOOT is relatively thin, hence the exaggerated moves.) We like the persistent upmove, though with resistance above here, try to buy on dips.
BOOT Weekly Chart
BOOT Daily Chart
Dine Brands (DIN)
Why the Strength
Dine Brands is one of the world’s largest full-service restaurant operations, with around 3,650 IHOP and Applebee’s locations (mostly in the U.S.), and there are two core reasons why the stock is strong today. First, Dine has taken these two iconic brands and made them even better—for IHOP, it’s continued to slowly expand the store base and focus on its younger demographic (49% of guests are 34 or younger, vs. 33% for peers), while Applebee’s has seen most stores remodeled, a new menu and underperforming locations cut loose. All of that has led to solid same-store sales growth for both brands (both were up 3% to 3.5% in Q4). Second, Dine’s business model and focus on shareholder returns is paying off—100% of its restaurants are franchised, which keeps CapEx requirements low (just $14 million last year!) and frees up cash for investment and, of course, for shareholders. Long-term, management sees earnings up in the mid- to high-teens annually, though 2019 should be even better (up 32%). And free cash flow is monstrous, nearly $8 per share last year, funding a healthy dividend (2.8% yield) and share buyback program (a new $200 million plan announced last week). As far as special situations go, we like it.
Technical Analysis
DIN galloped as high as 80 in March of last year, chopped around for a few months and finally moved to the mid 90s by September. The market eventually yanked the stock down to 66 near year-end, and while the initial comeback wasn’t great, the buying pressures have picked up—DIN has now rallied 13 of the past 15 sessions, including last Thursday’s earnings gap to new highs. We’re OK buying here or (preferably) on pullbacks.
DIN Weekly Chart
DIN Daily Chart
Invitae (NVTA)
Why the Strength
Invitae is a genetic information company that’s on a mission to bring comprehensive genetic information into mainstream medical practice. It specializes in genetic diagnostics across all stages of life, and is working to pool the world’s genetic tests into a single service that can offer lower prices and faster turnaround time. Its solutions use an integrated web of lab processes, software and information technology to process genetic diagnostic tests in areas like miscarriage analysis, inherited disorders, neurological disorders, cardiovascular disorders and more. Growth has been off the charts—revenue was up 172% in 2017 and up 117% in 2018, the latter of which was just capped off with Q4 growth of 79% (to $45.4 million). Growth is being driven by test volumes (up 70% to 87,000 in Q4) and ramping biopharma and other partnerships (11 new ones added in Q4). Investments in technology infrastructure are also driving operating efficiencies, with the average cost per sample in Q4 down to $243 from roughly $260 in the previous quarter. Management is bullish on the future (2019 guidance is for over half a million tests and revenue over $220 million, up nearly 50%). And investors like that Invitae expects to introduce patient-initiated testing solutions (mediated by genetic counselors). It’s a big idea.
Technical Analysis
NVTA went public at 16 back in 2015 and was initially a flop, trading below 6 in early 2016, and it never broke above 12 until last August. That event came during a furious rally and NVTA kept climbing until it reached 18 in September. That was the top, and for the next three months NVTA lost ground, eventually landing at 9 in December. The stock rallied in January, gave up a little ground in early-February, then climbed back to 16 before gapping up on Q4 results last week. NVTA is somewhat thinly traded, so try to buy on dips.
NVTA Weekly Chart
NVTA Daily Chart
iRhythm Technologies (IRTC)
Why the Strength
iRhythm is a digital healthcare company that develops solutions for diagnosing cardiac arrhythmias through the use of a wearable ePatch and a cloud-based data analytics and machine-learning platform. Its goal is to be the leading provider of first-line ambulatory electrocardiogram monitoring for patients at risk for arrhythmias—an easy-to-understand (and giant) opportunity. The story revolves around the company’s ZIO service, which was cleared by the FDA in June of 2017. ZIO (the ePatch) is relatively new to the market but has been growing quickly. Revenue was up 54% in 2017, 50% in 2018, and should be up 43% in 2019. Shares are advancing now because iRhythm beat Q4 expectations on revenue (up 53% to $43.2 million) and gave forward guidance of 36% to 40% (analysts’ estimates are higher) that was ahead of consensus at the time. Management flagged better sales rep productivity as helping ZIO break into new territories and deeper into current accounts. IRhythm is also debuting a new solution, ZIO AT, by mid-2019, after a limited release in 2018 was well received. The bottom line here is that the company is becoming a bigger player in a large, and expanding market. It won’t turn a profit for several years (2018 EPS loss was -$1.89), but we like it for the topline growth.
Technical Analysis
IRTC climbed steadily through late-2017 and most of 2018, with a few little dips here and there. Shares topped out at 98 in September, and spent the next three months stair stepping lower with the market, eventually finding support around 60, an area where they had paused for a bit in the spring of 2018. IRTC shot back up in January, hung out in the high 80s for a few weeks, then jumped up to 90 following the Q4 earnings release. There’s still a bit of overhead to chew through, but we’re OK starting a position in its current range.
IRTC Weekly Chart
IRTC Daily Chart
Match (MTCH)
Why the Strength
Match is the world’s leading provider of dating products, with brands like Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs, and Hinge available in 42 different languages to users in more than 190 countries—and the company is still growing at a good clip. In the fourth quarter of last year, revenues grew 21% from the year before, driven by a 17% gain in average subscribers (up from 7.0 million to 8.2 million) and a 4% gain in average revenue per user. Just over half of the company’s users belong to Tinder, which had an average of 4.3 million subscribers, up 39% from the year before. And there’s still plenty of room for growth, as more than half of singles in the U.S. and Europe have never tried online dating products. But even better are the prospects in the rest of the world, where two-thirds of singles have never tried dating products and the population is younger and very mobile-savvy. Match was spun off by InterActive Corp (IAC), the giant internet company that owns more than 150 brands, back in late 2015, and IAC continues to hold roughly 80% of the company—with no apparent plans for selling more in the near future. In fact, IAC bought back $200 million of stock (both Match and IAC) in 2018. Long-term prospects are great.
Technical Analysis
The release of the company’s fourth quarter results on February 6 sparked a wave of high-volume buying that took MTCH to nearly 61, and since then the stock has been consolidating its gains, trading between 56 and 58, while the stock’s 25-day moving average has approached 55. Buying around here should be okay, but bargain-seekers might wait for a pullback to a lower-risk entry point, perhaps 54.
MTCH Weekly Chart
MTCH Daily Chart
SS&C Technologies Holdings, Inc. (SSNC)
Why the Strength
SS&C is yet another cloud software name that’s showing strength, but it appears to be more of a Bull Market stock than anything—the firm provides vital offerings to the financial services industry, including accounting, data management, portfolio measurement and management, reconciliation, risk and compliance and trading and settlement software; nine of the top 10 prime brokers are customers, as are 39 of the top 100 hedge funds, the 20 largest asset managers and a bunch more. The business is a great one to be in, too, with 96% of the firm’s revenues recurring, with after-tax profit margins 20% to 25% and with more than 90% of clients sticking around. A big key to the story was the acquisition of DST Systems last year, which cemented SS&C’s leadership in the investment field, was immediately accretive to earnings and should lead to 60 cents per share of synergies annually starting in 2020. That acquisition (plus two other smaller ones) boosted SS&C’s growth rates in recent quarters; this year, analysts see revenues rising just 4%, though earnings should pop 29% as synergies kick in and increased business falls to the bottom line. Moreover, as the market ramps up, it’s likely more funds will stampede to SS&C’s door. Throw in a reasonable valuation (16 times this year’s earnings estimates) and a token dividend (0.7%) and the odds favor higher prices ahead.
Technical Analysis
SSNC has made decent progress over time, but it’s usually been relatively sleepy, but that may be starting to change as earnings growth accelerates. After falling from 60 to 42 during the market correction, shares began marching back as soon as the calendar flipped, and the past couple of weeks have been excellent, with SSNC moving straight up from 53 to 61 (thanks in part to earnings) before hesitating a bit last week. Since it’s not a go-go stock, we advise entering on weakness.
SSNC Weekly Chart
SSNC Daily Chart
Trade Desk (TTD)
Why the Strength
We covered Trade Desk last week and are going back to the well again because the company just blew analyst estimates out of the water when it reported Q4 results on Thursday, leading to a whopping 30% move! What happened? The company delivered revenue of $160.5 million (up 56%), which beat by $12.8 million. And EPS of $1.09 (up 109%) blew past consensus by $0.30. There was nothing not to like about the report, and analysts are praising the company, saying it’s the stock to own as the world moves from linear TV engagement to digital advertising. With that quarter in the book, forward estimates are likely to be revised way higher so take the current consensus (30% revenue growth and 3% EPS growth in 2019) as being ridiculously conservative. If you’re not familiar with the backstory, Trade Desk is the leader in the programmatic ad buying market, basically offering a self-service and cloud-based platform that lets ad agencies and other organizations design and broadcast data-driven digital advertising campaigns for video, social media and mobile channels. The trends for programmatic advertising have been incredibly strong, and Trade Desk looks like the leader in the field. It’s a monster growth story.
Technical Analysis
TTD had a huge five-month run last year, helped along mostly by two giant earnings gaps in May and August. Like a lot of stocks TTD gave up some ground following last September’s high, but it found support near 100 several times and walked back up to 160 early last week. Shares dipped to 150 just prior to the Q4 earnings announcement, then blasted off to close near 200 on Friday. It’s always tricky to buy these gaps, but history says they tend to work out in a strong market—you can start small here or on minor weakness and use a loose stop.
TTD Weekly Chart
TTD Daily Chart
Wayfair (W)
Why the Strength
We’ve called Wayfair the “Amazon of home furnishings” in the past, and we think there remain a lot of similarities—Wayfair is attempting to revolutionize a gigantic industry ($600 billion worldwide), is focused on building up sales, logistics and distribution but has a bottom line that continues to be stuck deeply in the red, which attracts a ton of shorts (15.4 million shares shorted, 27% of the float!) and makes for a very volatile stock price. However, the stock has turned strong again as the Q4 report reinforced the bulls’ views, with sales growth holding at 40%, many sub-metrics looking great (active customers up 38% to 15.2 million; repeat customers placed two-thirds of all orders; revenue per active customer up 5%) and with free cash flow actually approaching the breakeven line (just -$23 million in Q4). Plus, management remains very bullish on the longer-term, as online sales of home goods are way behind other categories but catching up fast—the firm is targeting EBITDA margins of up to 10% in the long run (up from -3% last year), which, given its rapidly-increasing sales base, could eventually be a huge figure. There’s some competition, of course, but Wayfair’s diverse brands and excellent logistics won’t be easy to match. All of its challenges aren’t in the past, but Wayfair is increasingly looking like a retail winner. And big investors tend to agree—604 mutual funds owned shares at year-end, up from 491 three months prior.
Technical Analysis
W has been all over the place in recent years, with huge upmoves and large corrections over time. It looks now like a new upswing is under way—after plunging from 150 to 80 during the market’s correction, W rebounded to 120 earlier in the month and then gapped to its old highs last Friday following earnings. It’s not a buy-and-hold name, but given that the stock’s rallies tend to last for a few months, we think getting in on modest weakness will pay off.
W Weekly Chart
W Daily Chart
Yeti Holdings (YETI)
Why the Strength
Yeti is an easy story to tell. The company designs, builds and sells premium outdoor equipment. Around 40% of customers self-identify as hunters though that’s down from 70% a few years back, as there are plenty of concrete-loving men and women snapping up Yeti’s products, too—if somebody want an expensive but very well made cooler, coffee mug or water bottle, Yeti is there. In many ways, the Yeti brand is becoming a status symbol, much like Canada Goose (premium outerwear). And while some might think it’s crazy to buy a $300 cooler, there’s no doubt the company makes a better product and has sunk a lot of money into R&D and materials sourcing. Its biggest categories are coolers and equipment (roughly 38% of sales in Q4) and drinkware (roughly 59% of sales). About 37% of sales are generated through the direct-to-consumer (DTC) and corporate channel. Growing corporate sales (roughly 20% of DTC sales) is a priority, and combining the Yeti.com site with YETIcustomshop.com, where shoppers can customize their own products, is another step in this direction. Analysts see the DTC/corporate channel growing to 50% of revenue over the next three years, which would help boost profit margins, which came in around 10% in 2018. Shares jumped after Q4 results beat expectations (revenue up 19% to $242 million, EPS of $0.38 beat by $0.03); analysts see 13% sales and earnings growth this year, though that figure is likely conservative.
Technical Analysis
YETI went public at 18 last October (not great timing!) and traded down near 14 in the first week, then spiked to 21 in late-November before finally retreating to near 12 in December. That was a bottom, and YETI climbed back to 19 in early January where it finally began to settle down for about a month. Shares blasted off after Q4 results were released on February 14, initially jumping to 22, then climbing to 24 by the end of last week. You could nibble here, though we’re more game for entering on weakness.
YETI Weekly Chart
YETI 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.
