More Yellow Flags
Current Market Outlook
It’s usually hardest to keep things simplest, which is why we put our main emphasis on the trends of the major indexes and action of leading stocks—and with both of those still positive, we’re sticking to a generally bullish stance. However, there’s little doubt we’re seeing some late-in-the-advance happenings (heavily-shorted stocks going to the moon, wild rotation intraday among sectors, etc.) and, chart-wise, nearly everything is sticking straight up in the air (the Nasdaq was about 1,100 points above its 50-day line this morning). We never pick tops, but we also prefer not to leave our brains at the door, and there’s little doubt that the risk/reward for most stocks here isn’t great. Thus, we’re willing to give things some wiggle room, but we’re raising stops and being selective on the buy side, focused mostly on entering on dips.
This week’s list has a wide mix of stocks, and most have been either setting up during the past few months or staging initial pullbacks after huge runs. Our Top Pick is Cleveland-Cliffs (CLF), which is finally beginning to pull in after a big run—further dips would be tempting.
| Stock Name | Price | ||
|---|---|---|---|
| 10X Genomics (TXG) | 183 | ||
| 1Life Healthcare (ONEM) | 51 | ||
| Cleveland-Cliffs (CLF) | 17 | ||
| Cronos Group (CRON) | 10 | ||
| Goldman Sachs Group, Inc. (GS) | 283 | ||
| Inseego (INSG) | 21 | ||
| Peloton (PTON) | 157 | ||
| Schrodinger, Inc. (SDGR) | 96 | ||
| Shopify (SHOP) | 1206 | ||
| Unity Software (U) | 151 |
10X Genomics (TXG)
Why the Strength
One opportunity created by the pandemic is in viral genome sequencing, which uses sophisticated tools to track a virus’s entire genomic history and evolution, and 10X Genomics (covered in the September 14 issue) is poised to benefit from this trend. The firm designs and manufactures gene sequencing tools and software that facilitate the study of cells and systems at an unprecedented level of resolution—its technology suite has helped researchers discover previously unrecognized cell types, including those linked to cystic fibrosis, melanoma, breast cancer and kidney disease. 10X’s single-cell analysis platform, Chromium, has given it a dominant position in the single-cell genomics landscape. Visium, 10X’s next-generation molecular technology, is used for classifying tissue based on total mRNA. And in Q3 of last year, the company launched an immune profiling solution and gene expression + ATAC-seq Multiome solution. To further boost demand, 10X also recently provided free, limited access to its cloud analysis platform so that existing customers can run analysis for gene expression and immune profiling. The company’s Q3 results were encouraging, with total revenue increasing 17% from a year ago, rebounding from Q2’s pandemic-induced shrinkage. Service revenue rose 46%, driven by growth in its instrument installed base (but partially offset by Covid-related lab closures). By early November, however, 10X estimated 85% of its customers’ labs were open for general research, with a return to full capacity this year. Wall Street thinks Q4 sales will increase 33%, with a 45% top-line bump predicted for Q1 2020. Given 10X’s bulging product portfolio, this could prove conservative.
Technical Analysis
TXG peaked at 108 last January before falling back to earth in March. It bottomed at 50 and steadily gained ground through most of last year before peaking at 165 in October. From there, TXG spent the next three months consolidating sideways (between 130 and 160 or so), wearing out the weak hands, and now the buyers are back in control—shares changed character soon after year-end, bolting to new highs. You can snag some here or (preferably) on weakness.
| Market Cap | $20.0B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.18 |
| Current P/E | N/A | FY 2019 | -0.32 |
| Annual Revenue | $262M | FY 2020e | -1.25 |
| Profit Margin | N/A | FY 2021e | -0.34 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 71.8 | 17% | -0.65 | N/A |
| One qtr ago | 42.9 | -23% | -0.41 | N/A |
| Two qtrs ago | 71.9 | 34% | -0.22 | N/A |
| Three qtrs ago | 75.3 | 49% | -0.07 | N/A |
TXG Weekly Chart
TXG Daily Chart
1Life Healthcare (ONEM)
Why the Strength
What if you could spend $199 per year for a membership that would give you faster and easier access to primary care doctors, be it in-person or virtually, with same- or next-day appointments that start on time, 24/7 virtual care, on-site lab services and no feeling of being rushed? That’s the big idea with One Medical, which thanks to this offering (as well as some newer, more specialized services for kids, behavior health and more) is an up-and-comer in the medical world—at the end of September, the firm had 511,000 paying customers (up 29% from a year ago), thanks not just to the convenience for users but also the cost savings it provides employers thanks to a healthier, more productive workforce. (Employers renew at 90%-plus rates.) And it’s just scratching the surface of its potential; it was in just 13 U.S. markets last year and is opening up in another four in 2021, so it has a huge runway of growth. Obviously, there’s always some competition in the health field, but this market is so huge ($159 billion of non-governmental primary care spend in the U.S. each year!) that there’s plenty of room for many players—by boosting the number of markets it plays in and expanding services, there’s no reason One Medical can’t grow rapidly for a long time to come. Growth slowed down a bit during the pandemic but rebounded nicely in Q3 (up 46%), and analysts see 30% top-line growth in 2021. The bottom line is still in the red, but longer-term, the company believes it can crank out a 20% cash flow profit margin. It’s a simple, solid story.
Technical Analysis
ONEM came public about a year ago, and after getting hit during the crash, rallied nicely into the 40 area as anything telehealth-related performed well. Then came the post-IPO droop, which morphed into a 43% deep, six-month base-building effort. Like many stocks, the action since the election has been excellent, with eight of nine weeks up, a tight consolidation and a big-volume breakout last week. ONEM can be a bit squirrely, so try to get in on some wobbles.
| Market Cap | $6.56B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.36 |
| Current P/E | N/A | FY 2019 | -0.42 |
| Annual Revenue | $336M | FY 2020e | -0.85 |
| Profit Margin | N/A | FY 2021e | -0.51 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 102 | 46% | -0.13 | N/A |
| One qtr ago | 78 | 18% | -0.24 | N/A |
| Two qtrs ago | 78.8 | 25% | -0.27 | N/A |
| Three qtrs ago | 77.4 | 33% | -0.16 | N/A |
ONEM Weekly Chart
ONEM Daily Chart
Cleveland-Cliffs (CLF)
Why the Strength
Cleveland-Cliffs, founded in 1847, is the largest and oldest independent iron ore mining company in the U.S. The company is a major supplier of iron ore pellets to the North American steel making industry. In March 2020, Cleveland-Cliffs completed its acquisition of AK Steel, a leading producer of flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure, and manufacturing markets. Also last year, Cleveland-Cliffs closed its acquisition of ArcelorMittal USA, effectively boosting its iron ore pellet supply capacity to 28 million tons, up from 20 million previously, and increases inter-company sales of pellets from 45% to 90%. The combination of these two deals to buy out its largest customers should lower the volatility of the company’s earnings and it makes Cleveland-Cliffs a vertically-integrated powerhouse in the U.S. steel industry. With iron ore prices up 34% in 2020 through November, Cleveland-Cliffs has increasing pricing power that’s set to flow to the bottom line in a big way—earnings already returned to the black in Q3 (following the June quarter loss due to the pandemic), and this morning, management said it expects Q4 revenues to more than quadruple from a year ago (mostly thanks to the aforementioned acquisitions), with EBITDA advancing more than 150% and reaching a six-year high. (Full results are due February 25.) Analysts see earnings north of $2 per share this year as demand and pricing remain strong. Commodity plays are always tricky, but Cleveland looks like it’s early in a new upcycle.
Technical Analysis
CLF was a dog for years, crashed below 3 last March and was still meandering around 6 through September. But then it began to go bananas, not just posting huge gains (effectively tripling during the next few months), but doing so in a persistent fashion (rising 13 of 15 weeks), which is a plus. Now CLF is finally pulling in, though weekly volume has eased and the stock was actually up today despite the market’s woes. If you really want in you could nibble here, but we’ll officially set our buy range down a bit.
| Market Cap | $6.41B | EPS $ Annual (Dec) | |
| Forward P/E | 7 | FY 2018 | 3.63 |
| Current P/E | 816 | FY 2019 | 1.12 |
| Annual Revenue | $3.63B | FY 2020e | -0.13 |
| Profit Margin | 0.7% | FY 2021e | 2.32 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1646 | 196% | 0.04 | -88% |
| One qtr ago | 1093 | 47% | -0.31 | N/A |
| Two qtrs ago | 359 | 129% | 0.04 | N/A |
| Three qtrs ago | 534 | -23% | 0.25 | -88% |
CLF Weekly Chart
CLF Daily Chart
Cronos Group (CRON)
Why the Strength
After a rough couple of years, cannabis companies are back in favor on expectations that marijuana might be federally legalized under the new Washington power structure. An up-and-coming player in this field is Cronos, which offers a variety of cannabis-related products, including dried cannabis, cannabidiol (CBD) and even vape pen formulations. The company also has medical marijuana licenses around the world along with an extensive line of cannabis-infused wellness products (including the just-launched Happy Dance, a new CBD skincare brand). Cronos came to prominence in 2019 when tobacco stalwart Altria Group bought a 45% stake in the Canadian company for $1.8 billion. The deal gave Cronos a huge war chest, and the firm still has $1.3 billion in cash on the sideline left over with no debt. It plans to use some of that cash to achieve its goal of having a commercialized scale of cannabinoids by this September, which would allow fermented cannabinoids to be used in future products. While the firm is very small (just $11 million in revenue in Q3), revenue growth has been consistently strong, including a 96% sales gain in Q3, a big acceleration from the Q2 slowdown last year. The results were driven by continued growth in the adult-use Canadian cannabis market, plus sales of the firm’s Peace Naturals-branded cannabis products to the Israeli medical market. Looking ahead, the market expects sales to jump between 80% and 100% in each of the coming three quarters. Management, meanwhile, is encouraged with the expansion of new retail locations in Canada. And if the U.S. Congress legalizes cannabis as many expect, the company should be in great position to take advantage of it.
Technical Analysis
CRON reached a peak of 24 in 2018 before the long marijuana bear market took hold; shares crashed as low as 4 last March and were still hanging around five through October. But the action since the election has been solid, with an initial pop in November, a sharp-but-reasonable four-week decline around year-end and a boom higher following the Georgia elections. If you’re game, you can take a swing at CRON around here.
| Market Cap | $3.78B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.13 |
| Current P/E | 25 | FY 2019 | 3.33 |
| Annual Revenue | $37.0M | FY 2020e | 0.03 |
| Profit Margin | N/A | FY 2021e | -0.24 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 11.4 | 187% | 0.19 | -88% |
| One qtr ago | 9.9 | 430% | -0.17 | N/A |
| Two qtrs ago | 8.4 | 478% | 0.24 | -27% |
| Three qtrs ago | 7.3 | 274% | 0.17 | N/A |
CRON Weekly Chart
CRON Daily Chart
Goldman Sachs Group, Inc. (GS)
Why the Strength
The Goldman Sachs name has brand recognition that gives it a very strong competitive advantage for winning investment banking business, attracting managed assets and recruiting top talent to its ranks. The firm’s global reach also provides the ability to win large deals and land sizeable accounts that smaller brokerages can’t match. The company’s relatively stable and high-return-on-capital asset-management business is well diversified by both asset type and distribution channel. Of the company’s $2.15 trillion of assets under supervision at the end of 2020, approximately 40% are in fixed income, 25% in equities, 25% in liquidity products and 10% are in alternative investments. Fees related to the investment management business (more stable than one-time deal revenue) have risen to 17% of net revenue compared with 11%-to-12% before 2008. Put it all together and the numbers are starting to pick up—while revenues fell off the past two quarters, earnings boomed, and analysts (who are notoriously way off on their estimates for big brokerage houses) see earnings up another 10% this year to $32 per share. Beyond the business’s nuts and bolts and recent numbers is the fact that Goldman is one of the top institutional quality Bull Market stocks out there, a group that hasn’t done much for years but has finally broken out on the upside on a longer-term basis due to valuation (this stock is less than 10 times 2021’s estimated earnings and sports a 1.7% yield) and as more of the public finally dabbles in the market. We think Goldman is a leader of this new turnaround and has a great chance to surprise on the upside over time.
Technical Analysis
GS hasn’t done much for years, like most financial and brokerage stocks; in fact, in October, the stock wasn’t much changed from where it sat back in 2007! But now the stock looks like a different animal—GS gapped up in early November and embarked on a stunning run to new highs (up 11 weeks in a row with no sign of weakness), a show of strength that rarely just ups and dies. Now the stock has pulled back toward its 25-day line—yes, further dips are possible, but we like the risk/reward here.
| Market Cap | $99.0B | EPS $ Annual (Dec) | |
| Forward P/E | 9 | FY 2019 | 21.03 |
| Current P/E | 11 | FY 2020 | 27.29 |
| Annual Revenue | $9.34B | FY 2021e | 28.65 |
| Profit Margin | 33.9% | FY 2022e | 31.75 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 13.3 | -4% | 12.08 | 158% |
| One qtr ago | 12.6 | -1% | 8.98 | 87% |
| Two qtrs ago | 15.4 | 9% | 3.13 | -46% |
| Three qtrs ago | 12.2 | -8% | 3.11 | -46% |
GS Weekly Chart
GS Daily Chart
Inseego (INSG)
Why the Strength
The rollout of next-generation 5G wireless networks is underway, with billions of customers expected to upgrade wireless devices from 3G and 4G to 5G in the coming years. Small cap outfit Inseego (~$2 billion market cap), a maker of mobile 5G hotspots and other networking devices, has reported “unprecedented demand” for its mobile products in the pandemic’s wake and sees itself “at the top of the first inning” in a decade-long cycle. The strength started last month when T-Mobile selected Inseego’s 5G MiFi M2000 for its first mobile hotspot. This was followed by a 5G partnership in Japan with Grape One, which is a subsidiary of Sumitomo. Next was the announced expansion of a previous relationship with Vodafone Qatar to launch the M2000. Aside from this string of contract wins, future growth is expected in the auto market, as Inseego already has an established presence in the global vehicle and fleet management market through its Ctrack software product. The company also plans to provide devices for connected cars in the coming years—made possible by new 5G technologies—and analysts see this as a huge potential opportunity. On the financial front, revenue growth has accelerated nicely of late, growing 44% in each of the past two quarters, with Q3 also bringing Inseego’s first profit and positive free cash flow. Interestingly, the firm also has a recurring revenue component; one cloud offering called Subscribe helps service providers and big enterprises better handle their purchasing, billing and reporting of connected devices, and it’s growing like mad, with revenues up 65% sequentially in Q3. Analysts see the bottom line reaching further into the black this year while revenues are likely to rise 60% in Q4 and 50% in Q1. It’s a hot potato, but we like this story.
Technical Analysis
For much of last year, INSG lagged the telecom industry and spent several months bouncing around in a range between 8 and 14. But the string of contract wins in December was the catalyst the stock needed to attract some big fish—shares exploded as high as 17 in December on massive volume, and after pulling back for three weeks, saw another round of huge-volume accumulation last week and today. INSG is sure to be super volatile, but a small position on a pullback would be fine by us.
| Market Cap | $1.84B | EPS $ Annual (Dec) | |
| Forward P/E | 110 | FY 2018 | -0.04 |
| Current P/E | N/A | FY 2019 | -0.21 |
| Annual Revenue | $280M | FY 2020e | -0.06 |
| Profit Margin | 1.5% | FY 2021e | 0.17 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 90.2 | 44% | 0.01 | N/A |
| One qtr ago | 80.7 | 44% | -0.01 | N/A |
| Two qtrs ago | 56.8 | 17% | -0.06 | N/A |
| Three qtrs ago | 52.3 | -7% | -0.10 | N/A |
INSG Weekly Chart
INSG Daily Chart
Peloton (PTON)
Why the Strength
While many investors see Peloton as simply another “Covid” stock whose business got a goose during the stay-at-home movement, we see it as much more—there’s no question the pandemic helped business (Q3 workouts grew a mind-boggling 332%, users of 1.33 million rose 137%), but at its heart, Peloton has pioneered an entirely new industry (connected fitness) that should continue to grow even after the world turns right side up. Yes, the firm’s bikes and treadmills are nice, but like many other firms in this era, it’s the software (processing five thousand real-time requests per second) and content that counts, with Peloton having thousands of on-demand recordings (bike, tread mill, running, yoga, stretching, you name it) and 30 hours of live video streamed per day, which really forms its competitive advantage. And, of course, to get access to that, users have to pay on a regular basis (~$40 per month for the full boat or $13 per month if you just want to use the app), creating a stream of recurring revenue that will only build. (Indeed, the latest 12-month retention rate was 92%, so nearly everyone that signs up sticks around.) Sure, some will return to the gym once the virus exits stage right and not everyone is going to fork over $2,000-plus for a bike plus $40 per month for a subscription, but fitness is looking like the next industry to be disrupted by the mobile/online movement—there are 36,500 gyms/clubs/fitness operators out there with millions of members that would rather have the convenience of working out at home with a high-quality instructor. Growth here is ridiculous (triple-digit sales and exploding earnings), and with demand remaining super-strong, Peloton’s December buyout of Precor (brings with it 625,000 of manufacturing capacity) should shorten backlogs. It’s not the first inning of this story, but we think there’s more upside to come.
Technical Analysis
PTON originally broke out at 38 in April, so expectations (risk) are clearly elevated. But honestly, we’ve been impressed with how it’s acted in recent months even after its huge run—after a sharp 34% correction in October/November, PTON leapt back to new highs, and has since chopped straight sideways for four weeks, even holding firm during today’s wild action. Near-term wobbles aren’t out of the question, but we think starting a position here (or on weakness) can work.
| Market Cap | $46.0B | EPS $ Annual (Jun) | |
| Forward P/E | 451 | FY 2019 | -0.69 |
| Current P/E | 999 | FY 2020 | -0.32 |
| Annual Revenue | $2.36B | FY 2021e | 0.35 |
| Profit Margin | 9.1% | FY 2022e | 0.76 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 758 | 232% | 0.20 | N/A |
| One qtr ago | 607 | 172% | 0.27 | N/A |
| Two qtrs ago | 525 | 66% | -0.20 | N/A |
| Three qtrs ago | 466 | 77% | -0.20 | N/A |
PTON Weekly Chart
PTON Daily Chart
Schrodinger, Inc. (SDGR)
Why the Strength
Among growth sectors, medical (biotech, medical products, etc.) remains one of the strongest, and Schrondinger looks like an early-stage name that is setting up for a sustained run. The company’s story revolves around the massive cost, time and low hit rate surrounding the development of new therapeutics—these drugs are actually “designed,” but when they are, designers must balance a ton of competing factors (toxicity and efficacy, of course, but also interactions with other medications). The result is that two-thirds of all programs never even get off the ground (and of course more fail in clinical trials). Schrondinger, at its heart, is really a med-tech outfit, using physics-based machine learning and artificial intelligence to allow for large-scale research of molecules, effectively boosting success rates of these programs. While the firm is still small ($104 million revenue run rate), it’s not really an upstart—the top 20 pharmaceutical firms are all customers, including Squibb for its technology, which inked a contract with Schrodinger in November that brought in $55 million in cash immediately and has potential to bring in a whopping $2.7 billion in milestone and royalty payments (if any drugs developed using Schrondinger’s technology hit the market) down the road! (For smaller deals, the company often also gets a small chunk of equity, which can pay off if these firms go public or are bought out.) The pandemic slowed business early last year, but it’s already beginning to re-accelerate: In Q3, revenue was up 29% (software revenue was up 42%), and analysts see the top line booming north of 50% in 2021 while earnings nose into the black. The valuation here is huge for sure (65 times sales!), but intriguingly, big investors don’t seem to care—303 owned shares at year-end (including some smart outfits), up from 142 nine months before.
Technical Analysis
SDGR came public in early 2020, and while it got hit with the market in March, it snapped back beautifully and rallied to 100 in July. Then came the post-IPO correction, which was sharp (more than 50%), but now shares have etched a huge, cup-shaped base, with persistent buying during the past three months. Usually these deep bases see the stock rest for a bit before powering to new highs, so we suggest aiming to enter SDGR on weakness.
| Market Cap | $6.60B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.45 |
| Current P/E | N/A | FY 2019 | -0.39 |
| Annual Revenue | $101M | FY 2020e | -0.24 |
| Profit Margin | 14.9% | FY 2021e | 0.05 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 25.8 | 48% | 0.05 | N/A |
| One qtr ago | 23.1 | 54% | -0.05 | N/A |
| Two qtrs ago | 26.2 | 27% | -0.22 | N/A |
| Three qtrs ago | 25.8 | -2% | -0.11 | N/A |
SDGR Weekly Chart
SDGR Daily Chart
Shopify (SHOP)
Why the Strength
The shop-from-home paradigm that accelerated during the pandemic isn’t expected to abate, even after the economy fully reopens. Not surprisingly, firms that make it easier for businesses to sell online are thriving, and Shopify (America’s second-largest e-commerce play) is one of the kings of that movement. The company’s platform allows anyone to quickly create a scalable online store without hiring a web designer (and for less than $50 a month). Moreover, through its Merchant e-Solutions, the firm provides global payment processing, while Shopify Capital provides easy-to-obtain customer loans and cash advances. Shopify also makes it easy for clients to manage inventory, process orders and schedule shipping. Its core business is subscription-based, and it posted a record number of subscribers in Q3. Monthly recurring revenue across all Shopify’s offerings reached a record $74 million in Q3—47% higher from a year ago and up a whopping 30% sequentially. Gross merchandise volume (GMV), meanwhile, saw jaw-dropping growth of 118% to hit a new high of $30 billion, driving the overall top line to its second straight quarter of 95%-plus growth. The company provided a sneak peak for Q4 last month when it revealed that Black Friday-to-Cyber Monday sales were up by more than 76% to top $5 billion. Plus, more than 44 million consumers globally bought from stores powered by Shopify—a 50% increase from last year. (The Q4 report is due out February 17.) Further out, the company’s total market opportunity is expected to reach $255 billion by 2025, though a big question will be whether 2021 sees further growth or whether the pandemic “pulled forward” a lot of business—analysts see earnings up just 3% this year, but that could prove to be very conservative.
Technical Analysis
SHOP is not early in its overall run, as it’s already had a massive advance not just over many years but in 2020, too. Even so, the stock looks like it’s setting up here—shares etched a five-month base (July through November), and after moving to new price (not relative performance) highs in December, it’s tightened up over the past four weeks. You can start small here and look to add should SHOP show some decisive strength.
| Market Cap | $145B | EPS $ Annual (Dec) | |
| Forward P/E | 330 | FY 2018 | 0.38 |
| Current P/E | 428 | FY 2019 | 0.30 |
| Annual Revenue | $2.46B | FY 2020e | 3.51 |
| Profit Margin | 18.3% | FY 2021e | 3.61 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 767 | 96% | 1.13 | N/A |
| One qtr ago | 714 | 97% | 1.05 | 950% |
| Two qtrs ago | 470 | 47% | 0.19 | 217% |
| Three qtrs ago | 505 | 47% | 0.43 | 65% |
SHOP Weekly Chart
SHOP Daily Chart
Unity Software (U)
Why the Strength
The popular video game industry is growing like gangbusters, and Covid-related tailwinds have only increased game consumption. Unity, which helps developers create and monetize games through its licensed game engine, is benefiting from these tailwinds—the company’s Unity Engine is a set of software tools made with the idea of democratizing game design by making it freely accessible to smaller developers (subscriptions are based on revenues generated by the games produced using Unity’s offering). The attraction here is Unity’s ability to bundle cross-platform interface tools, such as lighting, sound and animation, into a single package, which provides huge time and cost savings compared to the days when developers had to render those features individually across multiple platforms (as of last year, over 50% of all console, mobile and PC games ran on Unity). Around three-quarters of Unity’s sales are from enterprise customers (those that deliver over $100,000 of revenue per year), and it serves over 1.5 million monthly active creators, a figure that’s grew 34% in the third quarter. Unity also demonstrated strength in Q3 by growing the top line 53%, while generating 44% more revenue from existing customers (up from 32% a year ago). For 2020, total sales are expected to top $757 million, a 40% increase. Management didn’t guide for 2021, but analysts expect its revenue to rise 26% to $955 million next year. While most of its revenue comes from gaming developers, it has recently expanded into other markets, including 3D industrial design, automotive, animation, film and virtual reality. With just 8% of its clients currently in non-gaming industries and a best-in-class offering, the potential for future growth is huge.
Technical Analysis
U came public last September at 75, and the market’s appetite for the shares has been voracious. The stock rose persistently after the IPO, reaching 175 last month before pulling back to 135 and finding support at the 50-day line. Shares have have been wild at times (including today’s huge reversal), but the stock continues to respect the 50-day line. You can nibble here, or wait for U to calm down; either way, have a stop in place under support.
| Market Cap | $40.6B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.49 |
| Current P/E | N/A | FY 2019 | -0.57 |
| Annual Revenue | $846M | FY 2020e | -0.37 |
| Profit Margin | N/A | FY 2021e | -0.28 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 201 | 53% | -0.05 | N/A |
| One qtr ago | 184 | 42% | -0.10 | N/A |
| Two qtrs ago | 167 | 35% | -0.10 | N/A |
| Three qtrs ago | 158 | 36% | -0.19 | N/A |
U Weekly Chart
U 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 | 34 | |
| 1/4/21 | AGCO Corp | AGCO | 99-103 | 112 | |
| 11/16/20 | Albemarle | ALB | 121-126 | 177 | |
| 10/26/20 | Align Technology | ALGN | ? | 420-440 | 539 |
| 12/7/20 | Applied Materials | AMAT | ? | 85-90 | 108 |
| 1/4/21 | Arvinas | ARVN | 74-78 | 83 | |
| 1/4/21 | Bill.com | BILL | 133-138 | 128 | |
| 1/4/21 | BridgeBio | BBIO | 61-64 | 66 | |
| 11/16/20 | Canopy Growth | CGC | 23.5-25 | 33 | |
| 1/19/21 | Cimarex Energy | XEC | 44.5-47.5 | 45 | |
| 11/2/20 | Cloudflare | NET | 49-52 | 83 | |
| 1/4/21 | CrowdStrike | CRWD | 194-202 | 217 | |
| 12/21/20 | Elastic | ESTC | 147-153 | 164 | |
| 1/19/21 | Enterprise Pdct Ptnrs | EPD | 22-23.5 | 21 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 187 | |
| 12/21/20 | Floor & Décor | FND | 95-98 | 99 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 29 | |
| 10/26/20 | General Motors | GM | 34-36 | 53 | |
| 10/26/20 | GrowGeneration | GRWG | 16.5-18 | 48 | |
| 1/19/21 | Guardant Health | GH | 152-162 | 157 | |
| 11/23/20 | Halozyme | HALO | ? | 38.5-41 | 49 |
| 1/4/21 | Inari Medical | NARI | 81-85 | 109 | |
| 12/21/20 | Kodiak Sciences | KOD | 136-142 | 156 | |
| 11/16/20 | Lam Research | LRCX | ? | 415-435 | 568 |
| 1/11/21 | LPL Financial | LPLA | 108-112 | 113 | |
| 11/16/20 | Marvell Tech | MRVL | 41.5-43.5 | 54 | |
| 12/14/20 | Michaels Co. | MIK | 10.9-11.8 | 15 | |
| 1/4/21 | MongoDB | MDB | 342-352 | 369 | |
| 1/11/21 | Mosaic | MOS | 25-27 | 29 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 167 |
| 12/14/20 | PagerDuty | PD | 41.5-43.5 | 48 | |
| 1/11/21 | Palo Alto Networks | PANW | 345-360 | 361 | |
| 12/21/20 | PayPal | PYPL | 232-238 | 248 | |
| 12/7/20 | Pinduoduo | PDD | 140-147 | 180 | |
| 8/3/20 | PINS | 33.5-37 | 73 | ||
| 12/7/20 | Qorvo | QRVO | 158-163 | 181 | |
| 8/3/20 | Qualcomm | QCOM | 106-110 | 164 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 76 |
| 12/21/20 | Redfin | RDFN | 72-75.5 | 79 | |
| 7/13/20 | Roku | ROKU | 147-154 | 427 | |
| 1/19/21 | Shake Shack | SHAK | 106-110 | 111 | |
| 11/16/20 | Snap | SNAP | 37.5-39.5 | 54 | |
| 11/23/20 | Sonos | SONO | 20.5-22 | 28 | |
| 1/11/21 | Spotify | SPOT | 335-347 | 334 | |
| 1/11/21 | Sunrun | RUN | 87-91 | 79 | |
| 12/7/20 | Tapestry | TPR | 27-28.5 | 34 | |
| 1/19/21 | TG Therapeutics | TGTX | 46.5-49.5 | 50 | |
| 11/16/20 | Timken | TKR | 69-72 | 79 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 380 | |
| 11/9/20 | Uber | UBER | 45-47.5 | 54 | |
| 1/19/21 | Upwork | UPWK | 37.5-40 | 44 | |
| 12/7/20 | U.S. Steel | X | 15.3-16.3 | 19 | |
| 1/11/21 | Vale S.A. | VALE | 17.4-18.2 | 17 | |
| 12/21/20 | Wesco | WCC | 72-75.5 | 82 | |
| 11/9/20 | Zillow | Z | 100-105 | 147 | |
| 12/7/20 | Zscaler | ZS | 174-180 | 208 | |
| WAIT | |||||
| 1/19/21 | Farfetch | FTCH | 56-58.5 | 61 | |
| SELL RECOMMENDATIONS | |||||
| 12/21/20 | Alcoa | AA | 21-22.5 | 19 | |
| 12/14/20 | Ambarella | AMBA | 84-88 | 105 | |
| 12/14/20 | Baker Hughes | BKR | 20.8-21.8 | 21 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 39 | |
| 11/9/20 | HubSpot | HUBS | 335-350 | 385 | |
| 11/23/20 | Inspire Medical | INSP | 172-182 | 215 | |
| 1/4/21 | Kohl’s | KSS | 37.5-39.5 | 45 | |
| 12/21/20 | Smartsheet | SMAR | 70-73 | 71 | |
| DROPPED | |||||
| 1/11/21 | 8x8 Inc | EGHT | 32.5-34.5 | 38 | |
| 1/11/21 | Progyny | PGNY | 40.5-43 | 48 | |
The next Cabot Top Ten Trader issue will be published on February 1, 2021.