Rinse and Repeat
Current Market Outlook
The market’s story has remained the same since the new year began—the major indexes and most leading stocks are in firm uptrends, with many longer-term indicators and studies pointing to higher prices in the months ahead. That said, most stocks are extended to the upside (and, now, earnings season is getting underway), so be sure to keep your feet on the ground and look for good entry points. Right now, we’re mostly looking for pullback entries; if the market does relax, the odds are good that there will be opportunities in stocks that have recently gotten going. All in all, we remain bullish and heavily invested.
This week’s list again contains a wide mix of stocks (big, small, growth, commodity, turnarounds, etc.), which isn’t surprising given the market’s broad advance. Our Top Pick is ASML Holding (ASML), which was one of the first chip stocks to re-emerge following a great earnings report.
| Stock Name | Price | ||
|---|---|---|---|
| ASML Holding (ASML) | 350.01 | ||
| Canada Goose Holdings (GOOS) | 46.21 | ||
| Continental Resources (CLR) | 66.19 | ||
| Corcept Therapeutics (CORT) | 16.06 | ||
| Global Blood Therapeutics (GBT) | 0.00 | ||
| Kohl’s (KSS) | 70.62 | ||
| Lowe’s Companies (LOW) | 98.15 | ||
| ON Semiconductor (ON) | 24.07 | ||
| Teck Resources Limited (TECK) | 26.07 | ||
| Wynn Resorts (WYNN) | 121.08 |
ASML Holding (ASML)
Why the Strength
ASML Holding is a Dutch manufacturer of lithography systems, the equipment that actually etches the paths on silicon wafers to make microcircuits. ASML is a big company (market cap is $86.4 billion) and has a dominant market share with around 60% of the global lithography market. It’s also a technology leader, and is leading the charge from its current 7 nanometer optical technology to ultraviolet lithography that will enable chips to continue to shrink and hold more circuits. The company enjoyed a 39% increase in revenue in 2017, reporting a Q4 revenue jump of 53% and a 39% bump in earnings. That’s the sixth consecutive quarter of double-digit revenue and earnings growth. As part of its Q4 earnings report, ASML announced a share buyback program of up to $3 billion and a proposed dividend of $1.70 per share. Semiconductors are a notoriously cyclical industry, and the current rally has been going on for a while (and has become thinner of late, with some peers acting funky), which raises risk. But the trend remains up for the sector’s leading stocks, which ASML fits in—the company has plenty of barriers to entry, and it’s not letting up on its technological leadership.
Technical Analysis
ASML traded flat from October 2013 to December 2016, but 2017 was a very strong year, with the stock up from 110 in January to 186 in November. The stock corrected to support at 170 in late November and had recovered to 181 when the good earnings news hit. ASML is now trading above 200 on spiking volume. A little patience may offer a chance to get started under 200, or maybe not. This is a big story from a strong company in a hot industry, so you might also consider taking a small position and averaging up. Use a stop in the mid-180s.
ASML Weekly Chart
ASML Daily Chart
Canada Goose Holdings (GOOS)
Why the Strength
Canada Goose is making its third Top Ten appearance in three months because the stock continues to act strong and because, fundamentally, it has great potential as a high-end retail juggernaut. The company makes all sorts of high-quality, high-priced (often $500 or more) winter outerwear, including jackets and parkas, though it’s branched out into some spring wear, accessories and even knitwear with great success. The real secret sauce here is that Goose’s products combine luxury and functionality that few have done before—the company got its start in 1957 and its outerwear has been used to hike Mount Everest and worn in other brutally cold locations. The CEO says it’s a function-first brand, though it clearly translates into urban settings (high fashion) as well. Longer-term, Goose has plenty of room to grow both in North America and internationally, especially in direct-to-consumer sales (both online and via some new flagship stores), which make up less than 10% of revenue but more than tripled in the third quarter. So far, management has executed to a T, with revenues, earnings and cash flow growing consistently for many years. (Most of the firm’s business comes in the second half of the calendar year.) And that is expected to have continued in Q4, with earnings up an estimated 147%. There’s always the potential that the company’s products will lose their luster, and we’d note that Bain Capital still owns a significant chunk. But we think the odds are high that Goose has years of 20% to 30% growth coming. We like it. Earnings are likely out mid-February.
Technical Analysis
GOOS broke out of a great post-IPO base on earnings in mid-November and the action after that was outstanding—shares catapulted from 25 the day of the breakout to 34 nine weeks later, and now it’s finally started to catch its breath. The upcoming earnings report is a risk, but our guess is that GOOS has begun a sustained uptrend. Dips are buyable.
GOOS Weekly Chart
GOOS Daily Chart
Continental Resources (CLR)
Why the Strength
When an industry turns up, we like to hone in on what we think are the two or three big-cap leaders of the group. Among energy stocks, one is Diamondback Energy (FANG), which we wrote up in the first issue of the New Year. And another is Continental Resources, which, unlike most of the fastest growing energy firms, does its business outside of the Permian Basin—Continental is the top operator in the Bakken (in Montana and North Dakota, accounting for about 60% of total production) and also has a lucrative business in the Scoop and Stack areas of Oklahoma (40% of output). Returns on the wells on its acreage are as good as any—80% to 100% in the Bakken (assuming $50 oil and $3.25 natural gas), more than 100% in parts of Stack and about 70% in Scoop. With about 58% of total output oil, the company is obviously in a great position to benefit from the recent upturn in prices; the company has quickly ramped up output lately, and believes 2017’s ending production was likely up around 35% from the end of 2016. Analysts see earnings of $1.30 this year, but that’s up from an estimate of 96 cents per share one month ago! Continental Resources should do very well as long as energy prices remain elevated and investor perception of the sector continues to improve.
Technical Analysis
CLR fell from a late-2016 high of 60 to a July 2017 low of 29 and fought its way back to the upper 30s by late-October. Since then, it’s been a star performer, zooming to 47 in early November, catching its breath for a few weeks, and then surging to 59 soon after the New Year. The pullback since could go further, but looks normal and should give way to higher prices in the weeks ahead.
CLR Weekly Chart
CLR Daily Chart
Corcept Therapeutics (CORT)
Why the Strength
Corcept is a biotech company focused on treatments to limit the negative effects of excess cortisol. Cortisol is a steroid hormone, and low-potency formulations are available over-the-counter (hydrocortisone) to treat rashes and eczema. But cortisol is also produced by the human adrenal gland, and is released in response to stress and low blood-glucose levels. Some bodies produce too much, leading to a variety of metabolic, oncological and psychiatric diseases. This is where Corcept comes in. Mifepristone (Korlym) was approved in early 2012 for Cushing’s Syndrome (i.e., hypercortisolism), and drove 2016 revenue and EPS growth of 62% and 650% (to $0.15), respectively. Even better, analysts expect 2017 revenue to be up almost 100%, and EPS growth of 500% (to $0.42) when Q4 results come out near the beginning of February! Corcept is a cash machine, recently became debt-free, and believes it has plenty of money to fund its pipeline. On that note, in 2018, investors should receive updates on a Korlym successor (relacorilant), which in a Phase 2 trial (data due by Q2 2018), as well as updates on candidates for metastatic castration-resistant prostate cancer (clinical trial), pancreatic cancer (Phase 1/2), triple-negative breast cancer (Phase 2), and metabolic disorders, including antipsychotic-induced weight gain and non-alcoholic fatty liver disease (Phase 1). Analysts see the good times continuing, with earnings expected to more than double this year.
Technical Analysis
CORT has been gaining ground since early 2016, and with revenue and EPS growth off the charts, it’s not hard to understand why. Last year (2017) was characterized by higher highs and higher lows, with the stock reliably jumping off its 50-day line. The stock finally started a correction in October, falling from 21 to 15 over a couple of months, but the buyers have since stepped up, with CORT zooming to new price and RP highs this month on good volume. A dip of a point or two would offer a nice entry point.
CORT Weekly Chart
CORT Daily Chart
Global Blood Therapeutics (GBT)
Why the Strength
We covered Global Blood Therapeutics on December 11 and we’re going back to the name after more positive developments (and a super-powerful upmove in the stock). To refresh your memory, Global Blood is a clinical-stage biotech with a late-stage candidate for sickle cell disease (SCD), an inherited blood disorder that represents a roughly $5 billion market. Global Blood’s candidate, voxelotor (GBT440), has the potential to grab 30% of the market due to its oral dosing and potentially disease-modifying capabilities. The stock has been gaining momentum since October on compelling data that show reduction in sickle cells and improvement in red blood cell markers. Then, two weeks ago, shares broke out on news GBT440 received Breakthrough Designation for SCD. Investors are now looking ahead to data readouts, which will undoubtedly move the stock. HOPE Phase 3 Part A data should be out in the first half of 2018, HOPE-KIDS Phase 2a top line data should be out in the second half of 2018, and HOPE Phase 3 Part B top line data is expected in the first half of 2019. Management is taking the long view (i.e., product launch in 2019), which should help pricing and reimbursement rates, saying it will seek approval once Part B data is in. It’s clearly a speculative situation—any bad data readouts would probably nail the stock—but there’s upside should investors become more convinced voxelotor will hit the market and grab a ton of market share.
Technical Analysis
GBT rose early last year as HOPE Phase 3 trial enrolled, then things cooled off in April. The stock consolidated in a very tight range for five months, then spent November and December trading around its March high of 40, with a few pops to 45 and drops to 35 mixed in. The breakout came on January 9 when GBT440 received Breakthrough Therapy Designation from the FDA. Shares shot up as high as 58, before pulling back into the 52 to 56 range last week. This looks like a buyable dip, though you should keep positions on the small side and expect volatility.
GBT Weekly Chart
GBT Daily Chart
Kohl’s (KSS)
Why the Strength
Department stores were the dog’s dinner in 2017, with the group suffering poor results (and crashing investor perception) due to the e-commerce threat. But it looks like Kohl’s was the baby that was thrown out with the sector’s bathwater—the stock has turned extremely strong because the holiday season was much better than anticipated and investors are encouraged by many recent and potential moves. At a conference a couple of weeks ago, the top brass said that holiday sales (for November and December) rose nearly 7%, with all lines and regions showing growth, and traffic trends perking up. Then, last week, an analyst pounded the bullish table for the stock, citing the company’s working relationship with Amazon (it sells Amazon’s smart home products, and accepts online returns at some of its U.S. stores, with a national rollout expected). Beyond Amazon, investors are optimistic about the firm’s emphasis on athletic apparel, the firm’s testing of smaller store formats and the possibility (raised by the CEO two weeks ago) that it could lease part of its big stores to other tenants (think of small grocery or convenience stores), bringing in money and extra traffic. Kohl’s is not going to be a great growth story anytime soon, but analysts have ratcheted up their earnings numbers (now $4.45 per share this year, up from an estimate of $3.73 a month ago), and despite the advance, the stock trades at 15 times estimates and has a dividend yield of 3.4%. It’s an interesting turnaround play.
Technical Analysis
KSS peaked at 80 in mid-2015, fell to 34 in May 2016 and began a long bottoming process, with a ton of successful tests of the mid- to upper-30 range last year. However, ever since an earnings shakeout in November, KSS has been going bananas, with shares ripping to 57 near year-end, and after a brief pullback to its 25-day line, going vertical over the past two weeks! We wouldn’t chase the stock here, but given the long bottom and powerful action, we aren’t expecting a huge pullback, either.
KSS Weekly Chart
KSS Daily Chart
Lowe’s Companies (LOW)
Why the Strength
Lowe’s needs no introduction—it’s one of the largest construction supply and home improvement retailers in the world, operating more than 2,100 stores that cranked out about $69 billion in revenue last year. Business has been good for a while thanks to the recovering housing and construction markets; earnings have been cranking ahead 15% to 25% a year for the past few years, and the third quarter (ending October) was another good one, with same-store sales up nearly 6% and earnings topping expectations. However, despite solid results and shareholder-friendly management (LOW’s dividend yields 1.6% annually and its share count was down 4.8% year-over-year in Q3), the stock hadn’t been doing much since mid-2015. That’s changed recently, partly because of the lift in many retail stocks, but in Lowe’s case, mostly because news has leaked that investor D.E. Shaw & Co. is building an activist stake with the idea of unlocking shareholder value. And it’s already working—Lowe’s management agreed to appoint three independent board members last week after discussions with D.E. Shaw. The exact changes that might come are unknown, but even without them, analysts see earnings up 23% this year as the economy picks up steam. Earnings aren’t due out until February 28.
Technical Analysis
LOW made no progress from March 2015 through mid-November 2017—two and a half years of mostly trading-range action. But the stock has been trending higher ever since, hitting new highs in December, and then, when the D.E. Shaw news was leaked, LOW surged from 96 to 105 within a few days. We love the big base and breakout action, but odds favor a pause or pullback once the recent buying lets up.
LOW Weekly Chart
LOW Daily Chart
ON Semiconductor (ON)
Why the Strength
ON Semiconductor is a mid-cap semiconductor stock that’s benefiting from cyclical tailwinds and well-timed acquisitions, including Aptina (2014) and Fairchild (2016). Aptina added exposure to CMOS image sensors for Advanced Driver Assistance Systems (ADAS) and autonomous driving applications. It’s proven to be a good move given that all things autonomous driving are hot right now, and it’s one of the main drivers of ON Semi’s value. ON Semiconductor has roughly 70% market share in CMOS image sensors in ADAS, far ahead of competitors Sony and Omnivision. There are, on average, 1.6 cameras per car today (up to nine in a Tesla, Audi, and other luxury cars) and 3.6 per car expected by 2020, so the firm can grow both by more cars with cameras and more cameras per car. And ON is gaining ground in electric vehicles (EVs), too, providing another growth angle. Results from Q3 (delivered in early November) put the company on pace for full-year revenue growth of 38%, and EPS growth of 58% (to $1.44). But the final tally won’t go into the books until Q4 results come out on February 5. Analysts see loads of opportunities in autos (30% of sales) and consumer (14% of sales), with wireless and fast charging solutions likely to drive growth. It’s also anticipated that the company will pay down debt and begin stock buybacks by mid-2018, which is always a plus.
Technical Analysis
Shares of ON climbed out of an extended base last September and steady buying drove the stock up to 22 in November before demand cooled off. Good-not-great Q3 results on November 6 sparked a selloff, but that was arrested at 19 and buyers came back to the name quickly. The breakout came in early January and the buyers have kept at it, driving ON north of 25 last week. Like most leaders, you could nibble here, though dips would provide better opportunities.
ON Weekly Chart
ON Daily Chart
Teck Resources Limited (TECK)
Why the Strength
Teck Resources is a British Columbia-based mining company with projects in Canada, Chile, Peru, the U.S. and Turkey. Teck is the second largest ocean exporter of steelmaking coal, the third largest producer of zinc concentrate and a significant copper producer. The company is also dipping into the energy business with an eye toward diversification. The company’s financial performance over the last five quarters has been impressive, with double-digit revenue growth culminating in a 36% jump in Q3 2017. Earnings growth was a gaudy 315% in Q3, after three quarters of quadruple-digit percentage growth. Investors are eagerly awaiting the company’s Q4 results on February 14 before the market opens, with analysts calling for $2.57 billion in revenue and earnings of 97 cents per share. Teck has been getting the benefit of strong zinc demand from China, increased prices for oil that boosts the value of its oil sands operations and a general rebound in commodity prices. The company’s stock pays a dividend with a forward yield of 0.54%. Bottom line, it’s a big-cap ($16.5 billion market cap) play on the commodity turnaround.
Technical Analysis
TECK began 2016 in the grip of a five-year pullback that had dragged it from 54 at the start of 2011 to 2.5 in January 2016. The stock rebounded sharply in 2016, hitting a high of 26 in late November. Since that high, TECK has been mostly range-bound, with support in the 20 area (except for a few bad weeks in the middle of last year) and resistance in the 25 to 28 range. But after tightening up from September through mid-December, the stock has caught fire, lifting as high as 31 two weeks ago before pulling back a couple of points. We’re fine buying here or on dips toward the 25-day line (now at 27 and rising rapidly), with a stop in the mid-20s.
TECK Weekly Chart
TECK Daily Chart
Wynn Resorts (WYNN)
Why the Strength
Wynn Resorts, which has made 25 appearances in Top Ten Trader since its debut in 2003, is the brainchild of Steve Wynn, a man with 45 years in the casino resort business. Over the years, Wynn’s focus has shifted from Las Vegas and its Wynn Las Vegas and Encore casinos to Macau, the legal gambling capital of China. The company’s Macau properties—Wynn Macau and Wynn Palace—are now the biggest source of revenue by far. In this morning’s Q4 earnings report, the two Macau properties reported net income of $1.3 billion, while Las Vegas operations’ net income was $377 million. While the 45% increase in quarterly revenue was impressive, the 105% jump in earnings, resulting from Wynn’s approximately $340 million in tax benefit resulting from U.S. tax reform, was the big news. Wynn’s future also seems bright as construction is underway on the Wynn Boston Harbor project, a $2.4 billion integrated resort that’s expected to open in mid-2019. The company has also acquired 38 acres of land on the Las Vegas strip just across from Wynn Las Vegas. In its quarterly report, the company also announced a 50 cents-per-share cash dividend to be paid on February 27 to holders as of February 15. Wynn’s stock has been in a general uptrend for many months, and the good earnings news should keep big investors interested.
Technical Analysis
WYNN went through a long flat patch under resistance at 100 that lasted from March 2016 to February 2017, but when the stock finally took off in late February, it had a nice base to build on. A seven-week correction from late June to early August and a consolidation around 145 in September and October kept things from getting overheated. WYNN finished 2017 at 169, then pulled back to its 10-week line, but started a strong run on January 11 that vaulted the stock to 180 last Friday. Today’s earnings news has also been well received. It may make sense to wait until the dust settles before initiating a position. Look for a selloff of a few points to get started.
WYNN Weekly Chart
WYNN 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.
