Still Strong, Still Exuberant
Current Market Outlook
The first week of the year was extremely volatile, but all in all the action ended up positive, with major indexes kissing fresh all-time highs and many leading stocks ending up nicely on the week. Overall, then, not much has changed—the primary evidence remains positive, so we’re content to ride things higher, but there’s little doubt the environment is hot and heavy (basically the opposite of what we saw 10 months ago), so you should continue to keep your feet on the ground (trail stops, take partial profits when available) and be discerning with your buys (aiming to enter after a bit of rest or some sharp shakeouts to support areas).
Because of this, most of our buy ranges are a bit below current prices (looking for pullbacks), though we still see some solid setups. One is Snap (SNAP), which is a clear leader in the internet space and has just returned to its highs after its first test of the 10-week line since its October blastoff.
| Stock Name | Price | ||
|---|---|---|---|
| 8x8, Inc. (EGHT) | 35.5 | ||
| LPL Financial Holdings (LPLA) | 116.8 | ||
| The Mosaic Company (MOS) | 26.8 | ||
| Palo Alto Networks (PANW) | 364.6 | ||
| Progyny (PGNY) | 44.9 | ||
| Snap Inc. (SNAP) | 54.4 | ||
| Spotify (SPOT) | 344.2 | ||
| Sunrun (RUN) | 95.8 | ||
| Vale S.A. (VALE) | 18.6 | ||
| Zillow (Z) | 143.2 |
8x8, Inc. (EGHT)
Why the Strength
8x8 is a leading cloud provider of voice, video, chat, contact center and enterprise-class solutions (including real-time analytics and intelligence), taking aim at the large and growing cloud communications market for businesses—indeed, some see a whopping $60 billion or more of legacy business communications systems migrating to the cloud in the years to come, with the overall installed base of cloud communications systems expected to triple over the next couple of years. Back to 8x8, the company’s single technology platform that integrates all communications was built up over 20 years, with the company awarded over 240 patents since inception—it’s effectively a play on the new, mobile workforce, helping clients to collaborate anywhere with any device, and importantly, letting them manage it all via one vendor instead of a web of providers. Growth has been reliable in recent years, though not exactly rapid—sales rose 18% in Q3 and analysts see mid-teens top-line growth this year, too, as the bottom line noses into the black. All of that is good, but what’s kicked the stock into gear is the top brass—8x8 plucked the COO of RingCentral (Dave Sipes) way from that company and installed him as their CEO, and many are thinking Mr. Sipes can narrow the gap between these two firms (RingCentral has been historically successful in recent years) down the road—basically, the bet here is that the move will result in operational improvements that will accelerate growth given 8x8’s top-notch products. Of course, there’s the risk that things don’t go as planned, but the upside for sales and earnings is huge if the new CEO pulls the right levers.
Technical Analysis
Despite EGHT’s solid growth, the stock has languished for years, dipping as low as 11 last year and still hovering in the 16 area late last summer. But the stock began to pick up steam at that point, and staged a massive-volume breakout in December on the CEO acquisition. The quick shakeout from 36 to 31 was handled well, too, though we’ll set our buy range down a bit, thinking further digestion is likely near term.
| Market Cap | $3.76B | EPS $ Annual (Mar) | |
| Forward P/E | N/M | FY 2019 | -0.22 |
| Current P/E | N/A | FY 2020 | -0.59 |
| Annual Revenue | $492M | FY 2021e | -0.16 |
| Profit Margin | N/A | FY 2022e | 0.03 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 129 | 18% | -0.03 | N/A |
| One qtr ago | 122 | 26% | -0.07 | N/A |
| Two qtrs ago | 122 | 30% | -0.12 | N/A |
| Three qtrs ago | 119 | 32% | -0.17 | N/A |
EGHT Weekly Chart
EGHT Daily Chart
LPL Financial Holdings (LPLA)
Why the Strength
Interest in the stock market is on the rise as the bull market pushes higher, and this has brought in lots of new customers for financial advisors and broker-dealers, which plays right into the hands of LPL Financial, the nation’s largest independent broker-dealer and a provider of investment and business solutions for independent financial advisors. Investors’ demand for equities has kept total advisory and brokerage assets growing for LPL—after reaching a new high of just over $800 billion in Q3, LPL reported the total had risen to $873 billion in assets served for November, a hefty 8% sequential monthly increase. Meanwhile, total organic net new assets for November saw an inflow of nearly $5 billion (a 7% annualized growth rate). Customer retention, meanwhile, was a solid 98% for the first three quarters of 2020 (up 2% from a year ago). Management sees the growing demand for advice continuing and believes the firm is well positioned to compete for additional market share in 2021. One of its strategies is to recruit larger financial firms, while increasing market leadership in the third-party bank channel. Last July, for instance, M&T Bank agreed to move its retail brokerage and advisory business to LPL’s platform, and in October, LPL partnered with BMO Harris Bank (whose retail brokerage and advisory business plans to transfer around $14 billion in assets and 115 financial advisors onto LPL’s platform this year). Bigger picture, we’re now eight years into this secular bull market, and given that they tend to run for a dozen or more years, we may have hit an inflection point in terms of individuals’ interest in equities. As for the here and now, LPL looks like a solid bull market stock.
Technical Analysis
LPLA plunged from around 100 to a low near 30 during last year’s crash, but it snapped back to 85 within a couple of months and built a tightening four-month consolidation. The blastoff came with the rest of the broad market in early November and the run since then has been excellent, with LPLA rising eight of nine weeks. As with most extended names, we favor targeting entries on dips of a few points after last week’s straight-up action.
| Market Cap | $8.99B | EPS $ Annual (Dec) | |
| Forward P/E | 17 | FY 2018 | 5.33 |
| Current P/E | 17 | FY 2019 | 7.17 |
| Annual Revenue | $5.74B | FY 2020e | 6.24 |
| Profit Margin | 11.3% | FY 2021e | 6.54 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.46 | 3% | 1.44 | -16% |
| One qtr ago | 1.37 | -2% | 1.42 | -23% |
| Two qtrs ago | 1.46 | 7% | 2.06 | 7% |
| Three qtrs ago | 1.45 | 10% | 1.68 | 13% |
LPLA Weekly Chart
LPLA Daily Chart
The Mosaic Company (MOS)
Why the Strength
After years of crop surpluses and falling prices, America’s farmers are rejoicing over the much-improved grain market outlook—in fact, there’s something of an agricultural boom going on as lower supplies due to adverse weather and rising exports (mainly due to the return of China as a big buyer) help out. This is benefiting companies that cater to farmers, including fertilizer producers. Mosaic (covered in the September 14 issue) is the nation’s largest phosphate and potash fertilizer producer, with mines in Florida, Canada, New Mexico and Brazil. Fertilizer demand has gotten a boost from better fundamentals for grains like corn, wheat and soybeans, but also from strong consumer demand for ag produce during the pandemic. Shipments for potash and particularly phosphate have been strong in recent months, with domestic potash inventories depleting due to unprecedented demand; some producers were sold out through the end of Q4 and beyond! Another reason for the recent strength is the Commerce Department’s ruling in Mosaic’s favor over alleged price dumping of phosphate by Moroccan and Russian exporters. The ruling set preliminary duties of between 24% and 73% on both countries to bring export prices to the U.S. up to market levels. Analysts view this as a positive for Mosaic, as it should prevent exporters from undercutting the firm’s prices when selling to U.S. farmers, as well as allowing Mosaic to charge higher prices. Looking ahead, Mosaic expects global supply to remain tight throughout 2021 and sees continued significant cash flow generation ($341 million in Q3) in the quarters to come. Analysts see the bottom line more than tripling this year.
Technical Analysis
After its slide to a lifetime low of 6.5 in March, MOS has sprung back to life as ag commodity plays are back in fashion. After breaking above its 200-day line in August, the action in the last few months has been constructive, with alternating periods of tightening followed by powerful rallies. MOS is a bit stretched after the latest upmove, but we’re OK starting small here or aiming for dips of a couple of points.
| Market Cap | $10.0B | EPS $ Annual (Dec) | |
| Forward P/E | 18 | FY 2018 | 2.12 |
| Current P/E | N/A | FY 2019 | 0.18 |
| Annual Revenue | $8.30B | FY 2020e | 0.43 |
| Profit Margin | 3.6% | FY 2021e | 1.45 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.38 | -14% | 0.23 | 188% |
| One qtr ago | 2.04 | -6% | 0.11 | -8% |
| Two qtrs ago | 1.8 | -5% | -0.06 | N/A |
| Three qtrs ago | 2.08 | -18% | -0.29 | N/A |
MOS Weekly Chart
MOS Daily Chart
Palo Alto Networks (PANW)
Why the Strength
While it’s not the fastest-growing name in the cybersecurity sector, Palo Alto has positioned itself as the prime player in the field. The company has been quite busy of late, starting with the acquisition of attack surface management leader Expanse (expected to contribute $73 million of annual recurring revenue in the current fiscal year). Palo also just launched the industry’s first 5G-native security product, featuring containerized 5G security, real-time correlation of threats and 5G network slice security. Another reason for the strength was Palo’s strong showing in fiscal Q1 (reported in mid November): It sailed past estimates with a 23% top-line bump, driven by strength in its cloud-based subscription and support revenue businesses. Cash flow was also impressive, as the firm continues to churn out new innovations in its firewall business, while focusing on the next generation of cloud and artificial intelligence products. Further, it more than doubled its Prisma security suite customer base and delivered strong billings of $1.08 billion (up 21%), with solid growth across the board driven by continued strength in next-generation security (NGS) billings (up 53%). Looking ahead, management has expressed confidence over the year-ahead outlook, guiding for sales to increase just north of 20% this year and for free cash flow to come in at a whopping 29% of revenue. As we wrote above, Palo Alto isn’t the top dog in the cybersecurity field anymore, but it’s still seeing solid, dependable growth that should attract buyers.
Technical Analysis
PANW has an outstanding long-term chart that should carry it higher. Shares topped out in March 2019 and the 260 level ended up being a wall into mid November of last year. But the stock broke out on earnings and the action since then has been pristine, with eight weeks up in a row, an orderly pullback and a nice recovery late last week. We’re not ruling out further short-term volatility, but dips are likely buyable.
| Market Cap | $34.8B | EPS $ Annual (Jul) | |
| Forward P/E | 63 | FY 2019 | 5.45 |
| Current P/E | 67 | FY 2020 | 4.88 |
| Annual Revenue | $3.58B | FY 2021e | 5.77 |
| Profit Margin | 16.7% | FY 2022e | 6.91 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 946 | 23% | 1.62 | 54% |
| One qtr ago | 950 | 18% | 1.48 | 1% |
| Two qtrs ago | 869 | 20% | 1.17 | -11% |
| Three qtrs ago | 817 | 15% | 1.19 | -21% |
PANW Weekly Chart
PANW Daily Chart
Progyny (PGNY)
Why the Strength
Progyny’s story is all about babies, and the challenge many couples have in conceiving—a challenge that’s becoming steadily harder as people are waiting longer to start families (fertility decreases with age). Indeed, some estimates say that one in eight couples experience infertility, with the market in the $7 to $12 billion range and growing at a double-digit pace. Progyny is actually a managed care operation that’s upending how people and companies cover fertility-related procedures; current solutions lead to huge costs to employers (higher absenteeism, stress, more pre-term births) and, of course, individuals, who often have to make tough financial decisions with regard to fertility treatments. Progyny, on the other hand, has a benefits plan design that includes a select network of fertility specialists (800 specialists, 600 clinic locations), all-inclusive treatment bundles, integrated pharmacy offerings and even personalized, unlimited concierge-style support services. Interestingly, the firm offers “Smart Cycle” options, where users can pick and choose from a variety of offerings (freezing, embryo transfer, donor eggs). All in all the results have been terrific: Compared to the national average, Progyny users have a 14% improvement in pregnancy rates, 30% few miscarriages and healthier babies (80% fewer twins or triplets). Not surprisingly, Progyny has seen a huge uptick from big companies that want to offer its services (135 employer clients, up from 84 a year ago), with near 100% retention, which has driven massive growth—sales are picking up steam after a brief virus-indued slowdown (analysts see the top line booming 57% this year) and earnings are in the black and are expected to triple next year. FYI, the firm will present tomorrow afternoon at the JP Morgan healthcare conference. We like this story a lot.
Technical Analysis
PGNY came public in late 2019 and had a good first few months of action before falling into a typical post-IPO droop. The correction was sharp, but the stock steadied itself and built a more controlled launching pad in August, September and October before breaking out nicely in November and enjoying a solid, persistent advance. PGNY is a bit thin ($40 million of volume per day), but a dip toward the 25-day line would look buyable to us.
| Market Cap | $3.78B | EPS $ Annual (Dec) | |
| Forward P/E | 102 | FY 2018 | -0.06 |
| Current P/E | 999 | FY 2019 | -0.12 |
| Annual Revenue | $111M | FY 2020e | 0.14 |
| Profit Margin | 7.1% | FY 2021e | 0.43 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 98.9 | 62% | 0.07 | 999% |
| One qtr ago | 64.6 | 15% | -0.01 | N/A |
| Two qtrs ago | 81 | 72% | 0.04 | N/A |
| Three qtrs ago | 65.1 | 123% | -0.07 | N/A |
PGNY Weekly Chart
PGNY Daily Chart
Snap Inc. (SNAP)
Why the Strength
For many in the 13-to-34-year-old demographic, Snapchat has replaced texting as their preferred communication tool. The social media app’s popularity can be seen in its growing daily active user count, which rose 18% to 249 million in Q3. Snap saw strong retention in the latest quarter and its reach has been stellar—over 90% of the Gen Z population and 75% of Gen Z and millennials in the U.S., the U.K. and France use the app! (Users also increasingly use Snap to watch premium sports content online, including the NBA.) Average revenue per user, meanwhile, increased 28% to $2.73 in Q3, which is a big part of the story—despite recent upticks, Snap’s revenue per user remains far lower than other social sites, so the potential monetization upside is big. All in all, sales growth re-accelerated in a big way in Q3 (up 52%, the fastest growth seen in a long time), and while the bottom line is still in the red, Snap saw Q3 EBITDA come in at $56 million (up around $100 million from the year-ago figure). When Snap’s Q4 results are reported on February 9, analysts expect revenue to be around 51% higher, along with a seven cent per share profit. Snap is in good position no matter what happens with the pandemic, as more stay-at-home activity should continue to goose user growth while a return to economic normalcy should have advertisers opening up their wallets. Big picture, advertisers are looking for other avenues besides Facebook and Google to capture buyers, and Snap is one of the main beneficiaries.
Technical Analysis
SNAP rebounded back nicely from March’s crash, but it was the stock’s earnings gap in October (up 28% on 13 times average volume) that was the real coming out party, with shares busting loose from a three-month rest. Since then, SNAP has done decently, albeit with some pullbacks along the way, but the recent action looks buyable—the stock tagged its 10-week line for the first time last week, and it’s bounced nicely since. We’re OK taking a swing at the stock here or on weakness.
| Market Cap | $78.0B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.47 |
| Current P/E | N/A | FY 2019 | -0.16 |
| Annual Revenue | $2.16B | FY 2020e | -0.64 |
| Profit Margin | 1.7% | FY 2021e | -0.34 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 679 | 52% | 0.01 | N/A |
| One qtr ago | 454 | 17% | -0.09 | N/A |
| Two qtrs ago | 463 | 44% | -0.08 | N/A |
| Three qtrs ago | 561 | 44% | 0.03 | N/A |
SNAP Weekly Chart
SNAP Daily Chart
Spotify (SPOT)
Why the Strength
We go back and forth with Spotify (based in Luxembourg) a bit for reasons we’ll touch on in a minute, but the stock is strong today because it’s becoming the odds-on favorite to win the streaming music and podcast wars. Indeed, the firm has been the global leader for a while (keeping ahead of Apple Music and others), operating in 92 countries, offering over 60 million tracks and (importantly) a growing line-up of podcasts—all in, the company ended Q3 with 144 million premium subscribers ($10 per month, no ads, full selection, downloads available, unlimited skips—total was up 27% from a year ago) with another 185 million free users (supported by ads, limited selection and skips—up 31% from a year ago). Really, this is a story beyond just listening to music, as Spotify aims to be the voice in your ear whether you’re working out, on a ride, making dinner, whatever, and the move into podcasts (22% of users now listen to some of the 1.9 million podcasts on its platform) and other areas (sports commentary, etc.) should only help make the firm’s offerings more attractive (larger and stickier user base). The question here has always been competition and whether Spotify will be like Netflix (lots of other offerings but known as the king of the hill) or whether massive content spending by Apple and others will keep profits under wraps. Right now, Wall Street is betting on the former—after some virus-related hiccups (advertising and such), sales growth re-accelerated in Q3, analysts see low/mid 20% top-line growth in 2021 and free cash flow is in the black. All told, Spotify looks like a potential liquid leader. Earnings are due February 3.
Technical Analysis
Chart-wise, SPOT’s action in recent months is right out of a textbook—a massive-volume breakout from a huge post-IPO base in June, a four-month sideways consolidation into December, another breakout on good volume after that, followed by a test of the top of that base and a nice rebound last week. Expect volatility, but this latest pop after testing the 10-week line looks buyable.
| Market Cap | $65.3B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -3.07 |
| Current P/E | N/A | FY 2019 | -2.26 |
| Annual Revenue | $8.55B | FY 2020e | -3.73 |
| Profit Margin | N/A | FY 2021e | -1.43 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.31 | 23% | -0.68 | N/A |
| One qtr ago | 2.12 | 12% | -2.15 | N/A |
| Two qtrs ago | 2.04 | 20% | -0.22 | N/A |
| Three qtrs ago | 2.08 | 22% | -1.28 | N/A |
SPOT Weekly Chart
SPOT Daily Chart
Sunrun (RUN)
Why the Strength
Solar demand is heating up due to several trends set in motion by the pandemic, including booming home construction, lower interest rates, a consumer trend toward energy independence and a two-year extension by Congress of the Investment Tax Credit for solar power. Sunrun is a leading home solar panel and battery storage outfit: It installs and owns around 20% of all solar systems in U.S. homes, making it the leading player in the residential market and one of the top three owners of solar assets in the nation. Sunrun also finances installations of its panels, providing customers significant energy bill savings in exchange for little or no cash up front (in return, Sunrun receives cash flows from long-term monthly contracts). The success of this model was highlighted in Q3: Though revenue slipped 3%, consensus-beating per-share earnings of 28 cents were up 22% and the customer base grew 20% to 326,000. Those numbers certainly helped bring along buyers, but so did the firm’s decisive move to expand its leadership position—Sunrun bought out Vivint Solar, lifting its customer count to half a million, and the move should provide lots of synergies going ahead. Beyond just solar, cash flow per installation is also growing thanks to Sunrun’s 2019 launch of its Brightbox home battery product (the storage segment increased 45% in Q3); management expects to double its battery attach rate next year. Perception-wise, of course, investors think the new Congress and White House could goose investments in solar (and other alternative energies). Analysts see a strong 2021 for sales and earnings, with upside if the Vivint acquisition progresses well.
Technical Analysis
RUN busted to all-time highs in July and enjoyed a fantastic run, more than tripling as the market recovered, as installation growth resumed and on optimism surrounding the Vivint acquisition. Shares finally corrected sharply in October (40%!) and crawled higher for the next couple of months. Then came last week’s upmove, with the stock gapping to new highs as the industry took off. Our advice is to enter on pullbacks.
| Market Cap | $18.6B | EPS $ Annual (Dec) | |
| Forward P/E | 253 | FY 2018 | 0.23 |
| Current P/E | 427 | FY 2019 | 0.21 |
| Annual Revenue | $846M | FY 2020e | -0.07 |
| Profit Margin | 17.9% | FY 2021e | 0.22 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 210 | -3% | 0.28 | N/A |
| One qtr ago | 181 | -11% | -0.11 | N/A |
| Two qtrs ago | 211 | 8% | -0.23 | N/A |
| Three qtrs ago | 244 | 2% | 0.10 | N/A |
RUN Weekly Chart
RUN Daily Chart
Vale S.A. (VALE)
Why the Strength
Vale is the world’s largest iron ore miner and a key supplier to the global steel industry. It’s highly leveraged to Chinese raw materials demand, which is accelerating after the pandemic-induced global recession. Earnings are dominated by Vale’s bulk materials division, primarily iron ore and iron ore pellets, with minor contributions from iron ore proxies, including manganese and coal. The base metals division is a much smaller part of the company’s operations and primarily consists of nickel mines and smelters with a small contribution from copper. A strong rebound in iron ore pricing recently, combined with improved efficiencies at Vale’s operations have translated to robust profit growth of late (earnings up from 5 cents to 19 cents to 57 cents per share over the past three quarters). Indeed, weak first-half 2020 production for iron ore was offset by higher prices, and the Chinese government again appears to be stimulating fixed asset investment, particularly large infrastructure projects, which in turn means demand for steel and iron ore is surging—spot iron ore prices averaged just $85 during the month of April 2020, the pandemic low point, but climbed to $124 by the end of November. Vale has benefited from some of that—in Q3, it saw a 26% increase in iron ore prices—while it’s boosting output as the virus lockdowns ease (production was up 20%). Financially, debt has been reduced by $3.5 billion to $13.4 billion; Vale’s net debt of $4.5 billion is down to the lowest level in 12 years. Analysts see earnings of nearly $3 per share this year, and even that could prove conservative as the world turns right side up.
Technical Analysis
After years of poor performance and months of post-low bottoming action, VALE broke out in early November with most cyclical stocks and it’s been a star performer, zooming from 12 to 19 before pulling back the last couple of days. Volume on the advance has been excellent, too, and given the long period in the doghouse, we see VALE heading higher over time. Still, getting a good buy point is important, too, so we suggest aiming for modest weakness before pulling the trigger.
| Market Cap | $95.7B | EPS $ Annual (Dec) | |
| Forward P/E | 7 | FY 2018 | 1.86 |
| Current P/E | 37 | FY 2019 | -0.33 |
| Annual Revenue | $35.2B | FY 2020e | 1.84 |
| Profit Margin | 27.0% | FY 2021e | 2.86 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 10.7 | 5% | 0.57 | 78% |
| One qtr ago | 7.52 | -18% | 0.19 | N/A |
| Two qtrs ago | 6.97 | -15% | 0.05 | N/A |
| Three qtrs ago | 9.96 | 2% | -0.30 | N/A |
VALE Weekly Chart
VALE Daily Chart
Zillow (Z)
Why the Strength
Many housing- and construction-related stocks are acting well (including Floor & Décor, written about in late December), and Zillow continues to look like the favorite way (883 funds own shares, up from 628 a year ago) of institutions to play the new housing boom. The reason: It has a good position in just about all areas of real estate. First off, the company remains one of the top lead generators for agents thanks to its popular website (a whopping 236 million monthly unique users in September, up 21% from a year ago); after some virus hiccups, Zillow’s Premier Agent segment grew 24% in Q3 and saw cash flow surge. Then there’s Zillow’s collection of advertising, rental listings and technology solutions for real estate professionals, which saw revenues lift 23% in Q3. There’s Zillow’s Homes business, where it buys homes (now up and running in 25 markets), fixes them up a bit and generally resells them a few months later. The company suspended buys during the initial stages of the pandemic, which is why Homes revenue was cut in half in Q3, but that’s already rebounding (bought 808 homes in Q3 and sold 583; now has 665 in its inventory). There’s also ancillary services (mortgages, titles, etc.) that have thrived in recent months. The obvious risk to the story in 2021 is interest rates, which picked up a bit last week, and if that continues, it could crimp the housing market. But we think there are bigger factors at work these days, such as the recovering economy and, most important, the fact that people are rethinking what they need in a house (more space, office) and where they want to live (away from cities), which should keep business in high gear.
Technical Analysis
Z built a two-year base from June 2018 through the middle of last year and broke out around 70. It’s had a great run since, though it hasn’t been without a few potholes, including a nine-week, up-and-down rest in October and November. Now Z is pushing higher again, with a strong rebound last week on a pickup in volume. To be clear, the stock isn’t in the first inning of its advance (six months of up action without a “real” correction), but the buyers are clearly in control. Dips to the 25-day line would be tempting.
| Market Cap | $32.9B | EPS $ Annual (Dec) | |
| Forward P/E | 320 | FY 2018 | 0.39 |
| Current P/E | N/A | FY 2019 | -0.54 |
| Annual Revenue | $3.50B | FY 2020e | 0.27 |
| Profit Margin | 13.5% | FY 2021e | 0.45 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 657 | -12% | 0.37 | N/A |
| One qtr ago | 768 | 28% | -0.17 | N/A |
| Two qtrs ago | 1126 | 148% | -0.25 | N/A |
| Three qtrs ago | 944 | 158% | -0.26 | N/A |
Z Weekly Chart
Z 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 | 37 | |
| 1/4/21 | AGCO Corp | AGCO | 99-103 | 114 | |
| 12/21/20 | Alcoa | AA | 21-22.5 | 25 | |
| 11/16/20 | Albemarle | ALB | 121-126 | 177 | |
| 10/26/20 | Align Technology | ALGN | ? | 420-440 | 557 |
| 12/14/20 | Ambarella | AMBA | 84-88 | 106 | |
| 12/7/20 | Applied Materials | AMAT | ? | 85-90 | 98 |
| 1/4/21 | Arvinas | ARVN | 74-78 | 81 | |
| 12/14/20 | Baker Hughes | BKR | 20.8-21.8 | 23 | |
| 1/4/21 | Bill.com | BILL | 133-138 | 133 | |
| 1/4/21 | BridgeBio | BBIO | 61-64 | 69 | |
| 11/16/20 | Canopy Growth | CGC | 23.5-25 | 31 | |
| 12/21/20 | Cardlytics | CDLX | 135-141 | 141 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 42 | |
| 11/23/20 | Celsius Holdings | CELH | 31.5-34 | 57 | |
| 11/2/20 | Cloudflare | NET | 49-52 | 77 | |
| 12/21/20 | Coeur Mining | CDE | 9.5-10.0 | 9 | |
| 1/4/21 | CrowdStrike | CRWD | 194-202 | 232 | |
| 12/21/20 | Elastic | ESTC | 147-153 | 150 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 189 | |
| 12/21/20 | Floor & Décor | FND | 95-98 | 102 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 30 | |
| 10/26/20 | General Motors | GM | 34-36 | 45 | |
| 10/26/20 | GrowGeneration | GRWG | 16.5-18 | 52 | |
| 11/23/20 | Halozyme | HALO | ? | 38.5-41 | 43 |
| 11/9/20 | HubSpot | HUBS | 335-350 | 402 | |
| 1/4/21 | Inari Medical | NARI | 81-85 | 85 | |
| 11/23/20 | Inspire Medical | INSP | 172-182 | 194 | |
| 12/21/20 | Kodiak Sciences | KOD | 136-142 | 151 | |
| 1/4/21 | Kohl’s | KSS | 37.5-39.5 | 42 | |
| 11/16/20 | Lam Research | LRCX | ? | 415-435 | 516 |
| 11/16/20 | Marvell Tech | MRVL | 41.5-43.5 | 50 | |
| 12/14/20 | Michaels Co. | MIK | 10.9-11.8 | 14 | |
| 1/4/21 | MongoDB | MDB | 342-352 | 361 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 170 |
| 12/14/20 | PagerDuty | PD | 41.5-43.5 | 44 | |
| 12/21/20 | PayPal | PYPL | 232-238 | 238 | |
| 12/7/20 | Pinduoduo | PDD | 140-147 | 172 | |
| 8/3/20 | PINS | 33.5-37 | 72 | ||
| 12/7/20 | Qorvo | QRVO | 158-163 | 183 | |
| 8/3/20 | Qualcomm | QCOM | 106-110 | 156 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 75 |
| 12/21/20 | Redfin | RDFN | 72-75.5 | 77 | |
| 7/13/20 | Roku | ROKU | 147-154 | 403 | |
| 12/21/20 | Smartsheet | SMAR | 70-73 | 69 | |
| 11/16/20 | Snap | SNAP | 37.5-39.5 | 54 | |
| 11/23/20 | Sonos | SONO | 20.5-22 | 26 | |
| 12/7/20 | Tapestry | TPR | 27-28.5 | 35 | |
| 11/16/20 | Timken | TKR | 69-72 | 84 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 362 | |
| 11/9/20 | Uber | UBER | 45-47.5 | 55 | |
| 12/7/20 | U.S. Steel | X | 15.3-16.3 | 23 | |
| 12/21/20 | Wesco | WCC | 72-75.5 | 84 | |
| 11/9/20 | Yeti | YETI | 50-53 | 76 | |
| 11/9/20 | Zillow | Z | 100-105 | 143 | |
| 12/7/20 | Zscaler | ZS | 174-180 | 199 | |
| WAIT | |||||
| 1/4/21 | Lemonade | LMND | 106-113 | 183 | |
| SELL RECOMMENDATIONS | |||||
| 11/2/20 | Bunge | BG | 56-58.5 | 70 | |
| 10/26/20 | Exact Sciences | EXAS | 103-107 | 144 | |
| 10/19/20 | Paycom Software | PAYC | 360-375 | 427 | |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 123 | |
| DROPPED | |||||
| None this week | |||||
The next Cabot Top Ten Trader issue will be published on January 19, 2021.