Another Shot Across the Bow
Current Market Outlook
The Nasdaq and leading stocks had a huge reversal today, with many names that had gone vertical suffering some heavy-volume selling, representing another shot across the bow. Still, as we’ve written before, one day does not a trend make; the trend of the Nasdaq and growth stocks remain up, while the broader indexes and cyclical sectors are positive but mostly range-bound. As has been the case earlier in the rally, what happens from here will be key--continued distribution would be a sign that the current run could be ending, likely followed by a well-deserved digestion phase, but strong support in the near future would likely tell us this was just another brief stumble on the way to higher prices. Stepping back, most of the evidence remains positive, so we’re still bullish, but the next few days will be key.
As opposed to the last two weeks, this week’s list is back to having a leadership, growth-ier feel to it. Our Top Pick is Alibaba (BABA), which has always had the makings of a liquid leader, and is helping to lead the group rally in Chinese stocks as it lifts out of a two-year rest.
| Stock Name | Price | ||
|---|---|---|---|
| Alibaba (BABA) | 254.81 | ||
| Bill.com Holdings (BILL) | 88.76 | ||
| Kinross Gold (KGC) | 8.19 | ||
| Marvell Technology Group (MRVL) | 36.88 | ||
| Pacira Biosiences (PCRX) | 54.85 | ||
| Redfin (RDFN) | 40.40 | ||
| Roku, Inc. (ROKU) | 150.46 | ||
| Splunk (SPLK) | 207.67 | ||
| Sunrun (RUN) | 38.40 | ||
| XP Inc. (XP) | 44.59 |
Alibaba (BABA)
Why the Strength
Alibaba is a stranger to no one, being one of the biggest e-commerce outfits in the world thanks to a variety of online stores including Taobao, Tmall, AliExpress and Kaola, as well as some brick-and-mortar stores and a stake in Cainiao logistics. The firm also has a booming cloud computing business (not much different than Amazon’s Web Services division) and online streaming platform. Growth has been outstanding for years, and while there were likely to be some virus-related slowdowns, big investors think there’s plenty of upside ahead. In Q1, Alibaba’s total core commerce revenue was up 19% despite pandemic-related disruptions, with 29% sales growth expected in Q2. And the firm’s cloud segment is growing at a much faster clip, expanding 58% in Q1 after averaging triple-digit growth over the past five years. Indeed, cloud computing has been a major growth engine, with plans to spend $28 billion in upgrading its cloud infrastructure (operating systems, servers, chips and networks) over the next three years as part of an increased focus on the digital economy, which is going bananas in the wake of COVID. Among other strategic goals is to serve more than a billion consumers through its China consumer business (up from 780 million in Q1) and facilitate over RMB10 trillion (US$1.4 trillion) in annual consumption across its platforms by 2024. It also plans to increase its presence in China’s less-developed areas (which account for about 40% of its shoppers). Despite a quarter or two of expected slowdown from the virus, analysts see earnings up this fiscal year and expanding at 20% to 30% clips in the years following. Fundamentally, Alibaba’s size, growth and potential make it rare merchandise.
Technical Analysis
Frankly, we’re not usually huge on buying breakouts 15-plus weeks into a market advance (they’re often failure prone), but being part of a group move makes it much more likely to succeed; indeed, Chinese stocks have gone bananas over the past couple of weeks. And BABA has led the charge, breaking out of a two-year consolidation on its second-heaviest weekly volume since late 2018. We’re fine grabbing shares on today’s weakness or any further dips
| Market Cap | $683B | EPS $ Annual (Mar) | |
| Forward P/E | 30 | FY 2019 | 5.71 |
| Current P/E | 35 | FY 2020 | 7.48 |
| Annual Revenue | $72.7B | FY 2021e | 8.82 |
| Profit Margin | 19.5% | FY 2022e | 10.91 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 16.1 | 16% | 1.30 | 2% |
| One qtr ago | 23.2 | 36% | 2.61 | 47% |
| Two qtrs ago | 16.7 | 35% | 1.84 | 31% |
| Three qtrs ago | 16.7 | 37% | 1.83 | 51% |
BABA Weekly Chart
BABA Daily Chart
Bill.com Holdings (BILL)
Why the Strength
We’ve written up Bill.com a few times this year, and we’re doing so again because the firm has the makings of a sustained winner, with a great, easy-to-understand story that should attract a lot of big investors, excellent core growth numbers and a chart that appears to be “growing up” (more on that below). As for the story, Bill.com is bringing thousands of small businesses (those from 2 to 500 employees—i.e., not sole proprietorships) into the modern age by getting rid of these firm’s paper-based bills, invoices, contracts and more, replacing them with its efficient platform that handles everything electronically and automatically syncs to various accounting systems and financial outfits. The result: Huge time and money savings, not to mention a far lower error rate. Sales growth has been excellent for many quarters, and the sub-metrics have been just as encouraging, with customer count (up 28% in Q1 from a year ago), transaction value (up 35%) and same-customer revenue growth (up 20%) all impressing. While it’s true that growth is projected to slow, a lot of that has to do with a drop in its float revenue (0% interest rates = not much revenue there), but the core business of subscription- and transaction-based revenue should continue to expand nicely (up a huge 63% in Q1). Of course, given that Bill.com deals with many small firms, there’s likely some virus vulnerability here; some customers could go up in smoke or simply see business dry up markedly. But, on the other hand, the virus should also be a good thing, as it accelerates the need to get everything online. More important to us is the bigger picture, as Bill.com has just a couple percent of its target market in the U.S. alone. We like it.
Technical Analysis
BILL came public last December, and its newness, thin trading volume and the market’s volatility caused some exaggerated moves both down (64 to 24), back up (to 98!) and down again after Q1 earnings (62). The company then did a good-sized convertible share offering, but that may have helped, by increasing liquidity (it now trades ~$140 million per day) and allowing some bigger players to enter. The stock itself has been steadily marching higher on solid volume since late May, though it sold off with everything else today, though on light volume. If you want in, you can start a position around here.
| Market Cap | $6.91B | EPS $ Annual (Jun) | |
| Forward P/E | N/A | FY 2018 | -0.10 |
| Current P/E | N/A | FY 2019 | -0.07 |
| Annual Revenue | $141M | FY 2020e | -0.26 |
| Profit Margin | N/A | FY 2021e | -0.34 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 41.2 | 46% | -0.04 | N/A |
| One qtr ago | 39.1 | 50% | -0.05 | N/A |
| Two qtrs ago | 35.2 | 57% | -0.04 | N/A |
| Three qtrs ago | 25.2 | 54% | -0.06 | N/A |
BILL Weekly Chart
BILL Daily Chart
Kinross Gold (KGC)
Why the Strength
In a gold bull market, miners typically outperform the physical metal, so it’s no surprise that gold stocks have caught Wall Street’s attention. Kinross is a senior mining firm that acquires, explores and develops gold properties in the U.S., Russia, Brazil, Chile, Ghana and Mauritania. It recently reached an agreement with the latter country, which will provide Kinross with a 30-year exploitation license for Tasiast Sud. Its Paracatu project in Brazil, meanwhile, is expected to average a whopping 540,000 ounces of gold production annually over 12 years. In Q1, Kinross produced 567,000 gold equivalent ounces at an average sales cost of $754/ounce, with all-in sustaining cost of $993 per ounce—nearly half the current gold price. Analysts expect the top line to grow 20% in Q2 and Q3, earnings to total 12 cents per share in Q2 (+100%) and full-year revenue of $3.7 billion (+50%). Miners don’t always have solid fundamentals, but Kinross boasts a strong balance sheet compared to most of its peers, including $2 billion in available liquidity; its forward P/E ratio of 12 is also below the industry average of 27. Other factors are also favorable, with energy costs low and gold at all-time highs in both the Brazilian and Russian currencies (which will have a powerful impact on the firm’s margins if it persists). With these tailwinds, Kinross looks like a leader of the group move in gold.
Technical Analysis
KGC bottomed at the 3.50 level in March, several days before the major averages, an early clue to its potential. It was also one of the first stocks to hit a new high when it broke above the 6.2 level in mid-April. As with the entire gold group, it pulled back in May and rested in early June, but KGC is already back to its multi-year high. It’s low priced, but very liquid ($140 million per day of volume), too. We’re OK snagging shares here or on minor weakness.
| Market Cap | $9.54B | EPS $ Annual (Dec) | |
| Forward P/E | 14 | FY 2018 | 0.10 |
| Current P/E | 21 | FY 2019 | 0.34 |
| Annual Revenue | $3.59B | FY 2020e | 0.55 |
| Profit Margin | 14.5% | FY 2021e | 0.64 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 880 | 12% | 0.10 | 43% |
| One qtr ago | 996 | 27% | 0.13 | 1200% |
| Two qtrs ago | 877 | 16% | 0.08 | N/A |
| Three qtrs ago | 838 | 8% | 0.06 | 100% |
KGC Weekly Chart
KGC Daily Chart
Marvell Technology Group (MRVL)
Why the Strength
Chip stocks are in an interesting place, as they have a foot in both the growth areas of the world economy (data centers, AI, etc.) but also are tied to an economic resurgence (automobiles, aerospace, etc.). Marvell Technology is one of our favorite plays in the group, with hands in many lucrative cookie jars. Over the past few years, it’s reoriented itself to more growth-ier markets, like data center and cloud-related solutions, wireless connectivity (like many others, the top brass sees 5G as a long-term tailwind for business), advanced automotive systems and more, helped along by its purchase of Cavium back in 2018. The focus on data centers and networking is helping now, as the shut-in accelerates everyone working/playing/learning from home, while 5G infrastructure is also goosing results and there’s high hopes that the automotive and storage portions of the business will ramp in the second half of 2020. Translation: The reorienting work of the past couple of years is paying off, with Q1 sales and earnings both lifting for the first time in many quarters, and Marvell is one of the few firms out there expecting accelerating growth from here—Q2 earnings are expected to rise 31%, while 2020 as a whole (up 44%) and 2021 (up 47%) look promising. Of course, chip stocks can come and go quickly, so any major economic retrenchment could hinder the bullish outlook. But there’s no sign of that now; in fact, we think expectations could be conservative if things go well.
Technical Analysis
MRVL has a beautiful chart, with a nice post-crash recovery, some tightness into mid May, a terrific three-week, big-volume breakout of a two-year base, followed by another tidy pullback, this one four weeks long. Last week saw the buyers return, with shares tagging new highs on a pickup in volume. We think MRVL heads higher, though likely not in a straight line.
| Market Cap | $25.4B | EPS $ Annual (Jan) | |
| Forward P/E | 40 | FY 2019 | 1.19 |
| Current P/E | 56 | FY 2020 | 0.66 |
| Annual Revenue | $2.73B | FY 2021e | 0.95 |
| Profit Margin | 17.0% | FY 2022e | 1.40 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 694 | 5% | 0.18 | 13% |
| One qtr ago | 718 | -4% | 0.17 | -32% |
| Two qtrs ago | 663 | -22% | 0.17 | -48% |
| Three qtrs ago | 657 | -1% | 0.16 | -43% |
MRVL Weekly Chart
MRVL Daily Chart
Pacira Biosiences (PCRX)
Why the Strength
It’s no surprise that the opioid crisis has deepened with the onset of COVID-19. In 2018 (the last year for full statistics), an estimated 10.3 million Americans aged 12 and older misused opioids. But in March, April, and May of this year, opioid overdoses spiked 18%, 29%, and 42%, respectively. That’s one of the battles that Pacira is waging via its non-opioid pain management and regenerative health solutions. The company’s local analgesic (pain reliever) EXPAREL uses DepoFoam®, a unique and proprietary product delivery technology that encapsulates drugs without altering their molecular structure and releases them over a desired period of time. Pacira’s other major product, the iovera system, is a handheld cryoanalgesia device used to deliver precise, controlled doses of freezing cold temperature only to targeted nerves. The company just reported preliminary second quarter results, showing revenues hurt by the coronavirus’ delay of elective surgical procedures, but still coming in at $75.5 million, down meaningfully compared to $102.6 million for the year-ago period. However, the future looks brighter. Competitor Heron Therapeutics suffered some bad news from the FDA in regard to its own drug for post-operative pain, which should lead to a pickup in demand for Pacira’s products. Analysts see sales flat this year due to virus-related issues, but think the top line will grow 33% and earnings will rise nearly 80% in 2021.
Technical Analysis
PCRX topped at 55 in late 2018 and chopped sideways for months until plunging as low as 27 during the March crash. The recovery from there was great, but given the size of the prior plunge, wasn’t overly noteworthy. But the Heron news has changed PCRX’s character—the stock gapped up in late June and has marched higher since as volume has picked up. Dips of a point or two would be tempting.
| Market Cap | $2.42B | EPS $ Annual (Dec) | |
| Forward P/E | 31 | FY 2018 | 1.04 |
| Current P/E | 29 | FY 2019 | 1.67 |
| Annual Revenue | $435M | FY 2020e | 1.84 |
| Profit Margin | 21.6% | FY 2021e | 3.42 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 106 | 16% | 0.53 | 141% |
| One qtr ago | 122 | 29% | 0.56 | 19% |
| Two qtrs ago | 105 | 25% | 0.48 | 55% |
| Three qtrs ago | 103 | 22% | 0.41 | 71% |
PCRX Weekly Chart
PCRX Daily Chart
Redfin (RDFN)
Why the Strength
Probably the biggest economic surprise this year has been housing; many observers thought it would be left for dead, but while real estate took a hit with everything else, housing has boomed back. Redfin’s own Homebuyer Demand Index actually leapt above its pre-COVID levels in early May, and while there are virus uncertainties in some markets, any pullback in demand at this point has been modest. (Nearly half of all listings are selling within two weeks, the fastest pace since at least 2012!) All of that is a good thing for the industry, of course, but Redfin is more than just a sector play: As we’ve written before, the company is aiming to be the next big national brokerage, hiring its own agents and using technology (its website/app attracts more than 30 million unique users per month and generates massive amounts of data) to produce better results for customers (a higher percent of Redfin listings sold within 90 days vs. others, and they earn higher sales prices, too). Oh, and it doesn’t hurt that Redfin is undercutting other brokers, charging a 1.5% sellers’ commission (usually 2.5%), which can be cut to 1% if you both sell and buy with Redfin. The company also offers an array of other services (mortgages, titles, even concierge services to fix up your house), and like Zillow, it’s moving into direct buying. Dubbed RedfinNow, this service is back up in seven markets (it briefly suspended purchases during the plunge), allowing customers to get a quick offer for their home right from Redfin, which will then spruce it up and look to re-sell it in the months after. All in all, Redfin sold 0.93% of existing homes in the U.S. during Q1, up from 0.83% the year before, and there’s no reason that percentage can’t increase steadily in the quarters and years ahead.
Technical Analysis
We wrote up RDFN in mid June when the stock began pulling back after tagging new highs, but we missed our entry point and the stock rallied further from there. But now it appears to be setting up a new buyable opportunity; after a persistent, powerful run over two months, the recent dip has been sharp, but reasonable, as the 50-day line chugs higher. We’re OK taking a stab at RDFN here with a stop just under the 50-day.
| Market Cap | $3.61B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.49 |
| Current P/E | N/A | FY 2019 | -0.88 |
| Annual Revenue | $861M | FY 2020e | -1.00 |
| Profit Margin | N/A | FY 2021e | -0.70 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 191 | 73% | -0.64 | N/A |
| One qtr ago | 233 | 88% | -0.08 | N/A |
| Two qtrs ago | 239 | 70% | 0.07 | 75% |
| Three qtrs ago | 198 | 39% | -0.14 | N/A |
RDFN Weekly Chart
RDFN Daily Chart
Roku, Inc. (ROKU)
Why the Strength
While staying at home the last few months has hurt countless industries, video streaming has exploded—in fact, some 56% of Americans are now streaming, and last year, the global market amounted to $42.6 billion. By 2027, that is expected to grow by 20.4%, with the OTT (over-the-top) portion rising by 40%. OTT means getting your film and TV content via the internet, without having a contract with a traditional cable or satellite pay-TV service. And that’s what Roku is all about. It’s one of the pioneers of the streaming movement, with a neutral platform that serves as the gateway to various streaming services—thus, it’s not competing with Netflix or Disney or HBO, but in fact benefits from the expansion of streaming in general. Its plug-in devices and Roku-enabled TVs give viewers access to a huge array of free channels as well as streaming channels that you can watch/listen to via subscription, including Hulu, Disney+, Netflix, Amazon Prime, YouTube, HBO Go, Vudu, Sling, AppleTV and Pandora. It’s the new way to watch TV and Roku has been a big beneficiary of the trend. The company has seen year over year new account growth rise more than 70%, and streaming hours increase 80%. Interestingly, viewers of its health and fitness programs rose 130% in May, which bodes well for Roku’s new agreement to bring the Peloton app on board in the U.S., Canada, and soon, the U.K. It’s not all good news of course, with ad sales down due to the virus, but bigger picture, Roku currently has just 1% of the $70 billion TV ad market, yet the company serves a huge chunk of the connected TV market, so the potential for growth is enormous. Earnings are likely out in early August.
Technical Analysis
ROKU has made some huge moves up and down during the past few years (more up than down for sure), but interestingly, it’s been a laggard so far in this rally. But that may be changing; shares did plunge in March and bounced nicely for the first few weeks, but then immediately began construction of a base in the 100 to 140 area over the past two-plus months. The breakout came last week, and while today’s reversal was ugly, the upmove is still intact. Aim for dips if you want in.
| Market Cap | $18.6B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.08 |
| Current P/E | N/A | FY 2019 | -0.52 |
| Annual Revenue | $1.24B | FY 2020e | -1.72 |
| Profit Margin | N/A | FY 2021e | -1.34 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 321 | 55% | -0.45 | N/A |
| One qtr ago | 411 | 49% | -0.13 | N/A |
| Two qtrs ago | 261 | 50% | -0.22 | N/A |
| Three qtrs ago | 250 | 59% | -0.08 | N/A |
ROKU Weekly Chart
ROKU Daily Chart
Splunk (SPLK)
Why the Strength
Cybersecurity and analytics have acquired renewed importance during the explosive development of work-from-home, and Splunk is a big player in both through its Data-to-Everything platform, making it easier for businesses to harness machine data while protecting against cyberattacks. Its software is widely used in the private and public sectors, including 92 of Fortune 100 companies. And, similar to Adobe and Autodesk in the past, Splunk’s move to a more subscription-based offering (that hits results short-term, but benefits long-term) is being viewed favorably by analysts. The company’s annualized recurring revenue (ARR) grew 52% last quarter and management predicts full-year ARR growth in the mid-40% range. It also said revenues are rising 10 times above the industry average, and it expects 20% annualized top line growth in the coming three years from its various initiatives. Still, for the next few quarters at least, ARR should be the key metric: One recent analyst report predicts 40% annual ARR growth through 2023 based on Splunk’s expanding product portfolio that moves it into the fast-growing segments of the IT market. In Q1, 44% of its software booking came from the cloud, and it hopes to achieve at least a 60% booking rate by 2023—a realizable goal based on the current trajectory. Analysts predict $2.4 billion in revenue this year, and with an addressable market estimated likely north of $50 billion, there’s a long runway of potential expansion ahead.
Technical Analysis
SPLK hasn’t caught a lot of attention in recent weeks, but it looks just as strong as many leaders. After a lot of ups and downs in 2018 and 2019 and a crash in March, SPLK got going in April and, except for a brief four-week rest in the 185 area, has been rising ever since. We advise aiming to enter near the 25-day line.
| Market Cap | $33.6B | EPS $ Annual (Jan) | |
| Forward P/E | N/A | FY 2019 | 1.33 |
| Current P/E | 160 | FY 2020 | 1.88 |
| Annual Revenue | $2.37B | FY 2021e | -0.29 |
| Profit Margin | N/A | FY 2022e | 1.00 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 434 | 2% | -0.56 | N/A |
| One qtr ago | 791 | 27% | 0.96 | 3% |
| Two qtrs ago | 626 | 30% | 0.58 | 53% |
| Three qtrs ago | 517 | 33% | 0.30 | 275% |
SPLK Weekly Chart
SPLK Daily Chart
Sunrun (RUN)
Why the Strength
Some 100 gigawatts of solar power projects were completed last year, and after some virus-related issues, there’s every reason to expect even faster deployment of solar in the future. That should help Sunrun, a provider of residential solar electricity via solar panels and battery storage. Wall Street jumped on board last week after the company released some major news: Sunrun announced that it was paying $3.2 billion to take over Vivint Solar, the #2 company in U.S. solar market, which will increase Sunrun’s customer base to 495,000. In the solar world, residential power is mostly sold door-to-door, but Vivant mitigated the COVID affect by reformatting its sales process with telesales, which cut its cost of acquiring customers and reduced the price of the average system to 22% of its former $18,000 price, to around $4,000. Those efforts resulted in a sales decline of just 30% in May, much better than the 60% decline that occurred in early COVID days. That strategy fits in well with Sunrun, which had to take its salespeople out of Costco and Home Depot during the shutdown, where those sales accounted for about a third of its revenues. But the bigger focus is not on the here and now but on what this combination will achieve; the merger will transform Sunrun’s business almost completely to a self-installation focus, which keeps costs down, and it should result in $90 million of annual synergies, much of which could be passed on to customers, further bolstering demand. Wall Street clearly likes the idea.
Technical Analysis
RUN hit 21 last July, inched out above that level in February (near 24) and then knifed as low as 8 in March. The recovery since then has been strong and persistent, but the acquisition changed everything—RUN has exploded to new highs on record volume and has continued higher without taking a breath. We don’t advise chasing it here, but we’re also not expecting a huge retreat given the news and power.
| Market Cap | $3.39B | EPS $ Annual (Dec) | |
| Forward P/E | 253 | FY 2018 | 0.23 |
| Current P/E | 309 | FY 2019 | 0.21 |
| Annual Revenue | $875M | FY 2020e | 0.11 |
| Profit Margin | N/A | FY 2021e | 0.59 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 211 | 8% | -0.23 | N/A |
| One qtr ago | 244 | 2% | 0.10 | N/A |
| Two qtrs ago | 216 | 5% | 0.23 | N/A |
| Three qtrs ago | 205 | 20% | -0.01 | N/A |
RUN Weekly Chart
RUN Daily Chart
XP Inc. (XP)
Why the Strength
Brazil’s financial market is heavily concentrated, with just five large banks controlling more than 90% of the country’s investment assets. XP was founded in 2001 as a way to serve retail investors who feel their needs aren’t being met by the bulky institutions. It provides an open platform with over 600 products, including equities, fixed income, pension plans, life insurance and wealth management services. XP’s focus on providing free investor education has rewarded it with loyal long-term clients, and its tech-heavy focus on low-cost services is also paying off. The customer base is expanding at a rapid pace, with over two million active clients at the end of March (+90% from a year ago) and a 103% leap in assets under custody last year. The firm also saw top line growth of 84% in Q1 (in local currency), including issuer services and digital content revenue growth of 137% and 70%, respectively. Analysts see this trend continuing, with revenue expected to rise 24% in 2020 and 41% in 2021. XP’s addressable market is big and should get a lot bigger given how relatively few Brazilians are exposed to the financial market compared to more developed nations. What’s more, with the country’s currency now at $0.19 to the dollar, the need for Brazilians to hedge against local currency weakness by owning financial assets has never been greater. It’s a good story, with good growth numbers and (as we write below) an enticing chart.
Technical Analysis
XP came public last December and didn’t make much progress before going over the falls with everything else in February and March. The initial bounce wasn’t anything to get excited about, but shares picked up steam in May and then staged a persistent, accelerating advance into late June, reaching 50 before finally pulling back. The action since then has been normal, with the dip to the 25-day line finding big-volume buying. You can grab shares here or on dips.
| Market Cap | $25.9B | EPS $ Annual (Dec) | |
| Forward P/E | 100 | FY 2018 | 0.22 |
| Current P/E | 54 | FY 2019 | 0.77 |
| Annual Revenue | $1.38B | FY 2020e | 0.47 |
| Profit Margin | 23.9% | FY 2021e | 0.63 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 333 | 39% | 0.23 | 92% |
| One qtr ago | 421 | 84% | 0.30 | 500% |
| Two qtrs ago | 326 | 84% | 0.18 | 260% |
| Three qtrs ago | 299 | 44% | 0.17 | 240% |
XP Weekly Chart
XP 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 | |||||
| 5/4/20 | Bandwidth | BAND | ? | 90-94 | 128 |
| 6/22/20 | Big Lots | BIG | 32.5-35 | 37 | |
| 6/1/20 | Bill.com | BILL | 69-73 | 83 | |
| 7/6/20 | Biohaven Pharm. | BHVN | 68-72 | 70 | |
| 5/26/20 | BJ’s Wholesale | BJ | 34-36.5 | 39 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 24 | |
| 5/11/20 | Chegg | CHGG | ? | 58-62 | 70 |
| 3/23/20 | Cloudflare | NET | 19-21 | 37 | |
| 3/23/20 | Coupa Software | COUP | 124-132 | 283 | |
| 6/29/20 | Crispr Therapeutics | CRSP | 71.5-75 | 86 | |
| 4/20/20 | CrowdStrike | CRWD | 65-67.5 | 106 | |
| 6/8/20 | Datadog | DDOG | 72.5-77 | 87 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 404 | |
| 9/9/19 | DocuSign | DOCU | ? | 55-58 | 190 |
| 6/29/20 | Farfetch | FTCH | 16-17.5 | 20 | |
| 5/18/20 | Fastly | FSLY | 36-39 | 83 | |
| 5/26/20 | Horizon Therapeutics | HZNP | 45.5-48 | 56 | |
| 4/20/20 | Immunomedics | IMMU | 20.5-22 | 40 | |
| 3/16/20 | Inphi | IPHI | ? | 62.5-66 | 122 |
| 6/22/20 | LGI Homes | LGIH | 84-87 | 97 | |
| 6/15/20 | Lululemon | LULU | ? | 291-301 | 305 |
| 6/8/20 | Marvell Tech | MRVL | 32.5-34 | 37 | |
| 5/11/20 | MercadoLibre | MELI | 750-790 | 982 | |
| 6/29/20 | Meritage Homes | MTH | 71.5-74 | 77 | |
| 6/22/20 | Mersana Therapeutics | MRSN | 20-22 | 21 | |
| 6/15/20 | Novovax | NVAX | 47-50.5 | 104 | |
| 6/22/20 | Nuance Communications | NUAN | 23.5-25 | 25 | |
| 7/6/20 | Nu Skin Enterprises | NUS | 42.5-45 | 45 | |
| 3/30/20 | Nvidia | NVDA | 250-270 | 402 | |
| 3/30/20 | Okta | OKTA | ? | 118-126 | 200 |
| 6/22/20 | PagSeguro | PAGS | 33.5-35.5 | 35 | |
| 6/1/20 | Pan American Silver | PAAS | 27-29 | 31 | |
| 4/27/20 | PayPal | PYPL | ? | 117-122 | 172 |
| 4/6/20 | Peloton | PTON | 27-29 | 62 | |
| 6/22/20 | Restoration Hardware | RH | ? | 240-255 | 258 |
| 3/2/20 | Seattle Genetics | SGEN | ? | 107-111 | 169 |
| 5/26/20 | Spotify | SPOT | ? | 184-191 | 261 |
| 6/29/20 | Staar Surgical | STAA | 56-59 | 57 | |
| 10/28/19 | Teladoc | TDOC | 69-72 | 218 | |
| 11/11/19 | Tesla | TSLA | 320-335 | 1497 | |
| 6/8/20 | Thor Industries | THO | 101-106 | 101 | |
| 6/8/20 | Trade Desk | TTD | 338-358 | 431 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 225 | |
| 7/6/20 | Ultragenyx Pharm. | RARE | ? | 83-88 | 82 |
| 10/28/19 | Vertex Pharm. | VRTX | ? | 191-196 | 285 |
| 5/11/20 | Wingstop | WING | 116-122 | 130 | |
| 2/24/20 | Zoom Video | ZM | ? | 96-104 | 260 |
| 4/6/20 | Zscaler | ZS | 61-64 | 120 | |
| WAIT | |||||
| 7/6/20 | Alarm.com | ALRM | 64-67 | 68 | |
| 7/6/20 | Upwork | UPWK | 13-14 | 15 | |
| SELL RECOMMENDATIONS | |||||
| 3/16/20 | Apple | AAPL | 238-248 | 382 | |
| 6/8/20 | Autodesk | ADSK | ? | 220-230 | 232 |
| 4/13/20 | Ciena | CIEN | 42.5-44 | 52 | |
| 6/8/20 | Elastic | ESTC | 78.5-82.5 | 90 | |
| 6/15/20 | Fiverr Int’l | FVRR | 60-64 | 79 | |
| 5/26/20 | Neurocrine Bio | NBIX | 114-119 | 126 | |
| 6/22/20 | Teradyne | TER | 78-81 | 87 | |
| DROPPED | |||||
| 6/29/20 | Etsy | ETSY | ? | 97-102 | 105 |
| 6/29/20 | GenMark Diagnostics | GNMK | 12.3-13 | 17 | |
| 6/29/20 | HubSpot | HUBS | 207-212 | 218 | |
| 6/29/20 | Invitae | NVTA | 26-27.5 | 33 | |
| 6/29/20 | Plug Power | PLUG | 7.2-7.6 | 8 | |
The next Cabot Top Ten Trader issue will be published on July 20, 2020.