Earnings Season Dead Ahead
Current Market Outlook
The most bullish thing the stock market can do is go up, so by that measure, the market looks pretty bullish right here—most major indexes, advance-decline lines and a bunch of leading stocks have hit new highs in recent days, keeping the major trends pointed up. Short-term, things are a bit too quiet, so some wobbles wouldn’t shock us, but the next two or three weeks will likely see stocks being pushed and pulled by earnings season, which is getting underway now. All in all, our advice remains the same: Hold your strong stocks (though booking partial profits on the way up makes sense) and remain mostly invested, but for new buying, focus on stocks that have shown strong recent accumulation and look for decent entry points, especially if the firm is reporting earnings soon.
This week’s list has a bevy of potential leaders, including a few names that are trying to emerge from multi-month rest periods. Our Top Pick is Elastic (ESTC), an IPO from last year that’s racing up the right-hand side of a four-month consolidation. Start small and look for dips.
| Stock Name | Price | ||
|---|---|---|---|
| Beyond Meat (BYND) | 132.87 | ||
| Blackstone Group (BX) | 49.12 | ||
| Boston Beer Company (SAM) | 459.16 | ||
| Carvana (CVNA) | 82.90 | ||
| Cornerstone OnDemand (CSOD) | 51.01 | ||
| Dexcom (DXCM) | 421.36 | ||
| Elastic (ESTC) | 86.17 | ||
| Haemonetics (HAE) | 136.59 | ||
| Sarepta Therapeutics (SRPT) | 120.93 | ||
| Yeti Holdings (YETI) | 42.80 |
Beyond Meat (BYND)
Why the Strength
Quick: How many industries out there are relatively small today but could grow to $140 billion within a decade? Not many, but one is the plant-based meat sector, and that’s the reason why—despite so much skepticism from investors due to its valuation ($10 billion!) and other factors—Beyond Meat remains a very strong stock. There is current and future competition to be sure, but Beyond has a leg up on most of them due to its unique products (specially designed to have the look, texture and taste of a meat burger; we’ve tried them and thought they were solid), massive distribution at grocery outlets (sold at 30,000 retail locations in the meat (not plant) section) and restaurants (Famous Dave’s, PizzaRev, Del Taco, Tim Horton’s, etc.) as well as continuing to innovate (it recently launched its plant-based ground beef nationwide; no GMOs, soy or gluten). Given the trends seen so far, it seems likely that most if not all major U.S. burger joints will be offering a plant-based alternative within a year or two, if not sooner, and the Holy Grail here is if a huge outfit inks a supply deal with Beyond. But even without that, the company has huge potential—Q1 revenues boomed 215% (retail up 111%, while foodservice sales rose nearly six-fold!), and with the firm expanding internationally as well (new distribution agreement with Zandbergan, a leading international protein distributor), growth should remain rapid for a long time to come. Even better, cash flow should approach breakeven this year, with profits coming in 2020. Is there risk? Of course. But there’s plenty to like in this story.
Technical Analysis
BYND has been the star of a star-studded IPO class in 2019, soaring from a first-day close of 66 in April to as high as 200 after Q1 earnings blew away estimates. The correction after that mid-June high was quick but well contained, and BYND actually crawled to new closing highs last Thursday before backing off. If you want in, we advise starting small on dips and using a loose leash.
BYND Weekly Chart
BYND Daily Chart
Blackstone Group (BX)
Why the Strength
Blackstone remains our pick of the litter when it comes to Bull Market stocks, a group that (not surprisingly) is picking up steam as the major indexes carve out new all-time highs. The attraction here is straightforward—most alternative investment categories are growing nicely both short- and long-term (crazy low worldwide interest rates have more big funds looking elsewhere for higher returns), and Blackstone is the hands-down leader in many of those businesses (real estate and private equity make up most of its distributable cash flow, and it does good business in credit and hedge fund solutions as well). And the firm is growing faster than the market as a whole and has executed brilliantly; cash flow has grown at a 19% annual rate for the past 10 years, while assets under management are up seven-fold from its IPO in 2007. Yet, despite that and a higher percentage of fee-based (more reliable) earnings, the stock has generally traded at a discount to the market based on cash flow and dividends (Blackstone pays an irregular dividend based on cash flow, totaling $2.17 over the past year). Enter the firm’s C-Corp conversion, which took effect on July 1, opening the door to many more institutional buyers. Long story short, you have a best-in-class franchise that is benefiting from both a booming investment environment and the company-specific catalyst. The trick here is the upcoming earnings report, which is due out Thursday morning (July 18), but barring a complete surprise, the path of least resistance should remain up.
Technical Analysis
BX changed character after the C-Corp announcement in April, rallying as high as 41 before chopping around during the market’s month-long correction. But it’s exploded higher since then on huge volume, easily pushing to new highs. We think the next big move is up, but short-term, an earnings-induced wobble isn’t out of the question. We’re not opposed to nibbling here, but aiming to enter on a shakeout is fine as well.
BX Weekly Chart
BX Daily Chart
Boston Beer Company (SAM)
Why the Strength
Those of us living in the northeast, and especially around Boston, know Boston Beer well. Since it was founded in 1984, the company has grown to become the largest of the micro-brewers, and has a wide assortment of beers, flavored malt beverages, hard cider, hard teas and kombucha offerings under the Samuel Adams, Twisted Tea, Angry Orchard, Truly Spiked & Sparkling, Marathon Brewing, Tura and Wild Leaf Craft Hard Tea brands. The stock’s doing well now because after a couple of down years (revenue fell by 5% in both 2016 and 2017) growth is coming back due to a few initiatives, most of which center around new product offerings like the sparkling drinks, ciders and teas. In 2018 revenue jumped by 16%, while earnings leapt 23% to $7.46 per share. The more recent catalyst just came this month—as of July 3, Boston Beer has merged with Dogfish Head (another beer maker specializing in hoppy beverages) in a $300 million deal that brings a number of IPAs and session sour brands, as well as around $115 million in annual sales, under the Boston Beer umbrella. Wall Street’s estimates will likely change after the first quarterly report with Dogfish Head is in the books, but as of now analysts are looking for 19% revenue growth in 2019 and 13% in 2020. Earnings growth should also accelerate this year, by 27% to $9.46. We like the beer, and the stock.
Technical Analysis
SAM catapulted from 130 in mid 2017 to as high as 330 last summer as the firm’s results turned up following a tough couple of years when the craft beer market was saturated. The correction with the market was deep (down to 230 in December), but the rebound was solid, with SAM pushing to new highs in early May. The market again brought the stock down, but shares have done very well since the market’s June low. If you want in, we advise aiming for dips.
SAM Weekly Chart
SAM Daily Chart
Carvana (CVNA)
Why the Strength
When earning season approaches we like to include a few names that have etched multi-month launching pads—if earnings are well received, these stocks could kick off sustained advances. Carvana is one that matches that description, as the stock has rested for 10 weeks and the fundamental story is about as big as there is: The company is revolutionizing the gigantic used car business ($760 billion) in the U.S. by selling online, providing not just better prices ($1,000 average savings per vehicle), but a ton of selection (more than 18,000 choices, gotten from auctions, off-lease and off-rental, etc.), a user-friendly, photo- and video-rich website and app (360 degree views of the car; purchases can be completed in as little as 10 minutes), ancillary services (buying trade-ins, providing financing) and offering important guarantees (no car it sells has ever been in a reported accident; most have a seven-day “test drive” period after purchase). From an investment point of view, the main attractions here are the rapid revenue growth and still-huge expansion potential (selling in 85 markets at year-end 2018, rising to 140-plus by end of 2019, bolstered by a huge and growing logistics network) but also the very encouraging sub-metrics—while earnings remain deep in the red, gross margin per car sold is rising nicely (expected to rise 20% this year to $2,550), and most new markets are producing steady market share gains (its oldest markets have achieved near 2% share). Analysts see revenues up 85% this year and another 53% next, both of which are likely low. Earnings are due August 7.
Technical Analysis
As mentioned above, CVNA has rested for the past 10 weeks, but that is really part of a 10-month consolidation—shares topped out last September, fell by 60% during the market’s implosion, but then rallied all the way back to new highs by late April. Super-deep corrections usually lead to a shallower consolidation, and that’s what we’ve seen since the start of May. If you’re game, you could nibble here with a loose stop and see if a breakout comes before or after earnings.
CVNA Weekly Chart
CVNA Daily Chart
Cornerstone OnDemand (CSOD)
Why the Strength
Cornerstone is one of several human capital management software stocks out there that are looking good. The underlying reason is the persistent growth drivers in workforce and demographic trends that are pushing companies (from huge enterprises all the way down to firms with just a few dozen employees) to invest in more robust and efficient human resource systems to better track and execute things like recruiting, hiring, onboarding, time management, compensation and compliance. As a cloud-based provider, Cornerstone generates over 85% of revenue from subscriptions today and has recently been working to grow its Content business to better help clients train their employees and drive organizational growth. There have been ongoing reports that Cornerstone is reviewing its strategic options, and that’s driven waves of speculation that the company could sell to any number of legacy HR software vendors that could benefit from its cloud-first business model. But Cornerstone doesn’t appear to be sitting around and waiting for an offer. Analysts see management working to offload service-centric business lines to partners in an effort to move even further toward recurring, subscription-based revenue streams. This effort should ultimately improve growth and profitability. Look for revenue to be up a modest 6% this year, then 14% in 2020, with EPS growth around 40% in both years.
Technical Analysis
CSOD had a nice run for much of last year, but peaked around 59 in September and, like most every stock, got nailed into year-end. But shares snapped right back to their highs in February, though they again stalled out, this time etching a longer, more mild correction. Now, after a late-May shakeout, CSOD has rallied strongly, taking out its prior highs. You can buy some here or (preferably) on weakness.
CSOD Weekly Chart
CSOD Daily Chart
Dexcom (DXCM)
Why the Strength
Diabetes is a massive problem, affecting roughly 60 million people in the U.S. and European Union; around six million of them are on intensive insulin therapy. DexCom helps these people manage their condition with continuous glucose monitoring (CGM) devices. The company’s G5 CGM was approved for Type 1 diabetes back in 2016, but the real excitement over the last year or so is around the new G6 CGM system, which was extremely quick to receive FDA approval and is the first to send continuous blood-glucose data to compatible medical devices and electronic interfaces, including automatic insulin injection systems. The G6 sensor can stream uninterrupted data for 10 days before needing replacement and it eliminates the need for twice-daily finger-sticks for calibration. Depending on the source, the G6 is also more accurate than the competition, which helped it establish Medicare reimbursement. And Dexcom has alliances with Tandem Diabetes (TNDM), and Google’s healthcare incubator, Verily, which adds a bit of allure to the stock. The product hit the market last year, helping to spur 43% revenue growth (to $1.03 billion) and 165% EPS growth (to $0.32). We see expected revenue growth of 25% this year and 19% in 2020, along with 138% EPS growth this year and 58% next, as being ample enough to keep big investors at the table. Earnings are due out July 31.
Technical Analysis
DXCM went on a huge, multi-year run from 2008 through late-2015 then stalled out for a couple of years as shares digested their gains. Momentum picked up again in 2018 and DXCM broke out to new highs above 100 after a big earnings report in August. The stock’s been trading up and down between 105 and 155 since, but it could be changing character—shares leapt back toward their highs on their heaviest volume in months during June and have since tightened up. We’re OK starting a position here and seeing what earnings brings.
DXCM Weekly Chart
DXCM Daily Chart
Elastic (ESTC)
Why the Strength
Elastic came public last October, and it has the makings to be the next big thing in the big data field. The company bills itself as a search company, but this isn’t Internet search like Google—it’s referring to being able to quickly and efficiently find and get value from the mountains of data organizations now collect no matter the type or format. The key products include Elasticsearch (search and analytics engine for a apps, logs, maps, websites, you name it), Kibana (charts and graphs the data) and Beats and Logstash (both of which quickly take in data from specific sources and stashes them regardless of format), and the firm is continually releasing updates (15 alone last year) to boost speed and usefulness. We’ve always like the pervasiveness of the solution, with consumer apps using to it to match love seekers (Match.com) and riders/drivers (for Uber), infrastructure providers using it to monitor and forecast server and networking performance and capacity, a variety of outfits using it for cybersecurity applications and retail sites using it to monitor application performance as a customer goes through the order process. Not surprisingly, Elastic’s platform has been a hit—in the quarter ending April, currency-neutral revenues lifted 68%, billings rose 63% and same-customer revenue growth topped 30% for the 10th consecutive quarter! Earnings are still a ways off, but big investors are buying into the fact that Elastic is likely to grow many-fold over time.
Technical Analysis
ESTC held up well during the Q4 meltdown last year and pushed as high as 100 in late February before earnings caused the stock to pull in. And that pullback lasted a while—shares dipped to 80, gyrated between 80 and 90 for a couple of months and eventually dipped to the low 70s late last month. But ESTC found some big-volume support near the lows and now the buyers have arrived, with the stock zooming back toward its old highs. It’s due for a rest, and we think starting a position on a shakeout makes sense.
ESTC Weekly Chart
ESTC Daily Chart
Haemonetics (HAE)
Why the Strength
We just featured Haemonetics in June when the stock was on the verge of breaking out to multi-year highs. That move has since been confirmed and, while we missed our entry point back then, we like the continued strength, and the fundamentals, and so are going back to the well again. If you’re new to the story, Haemonetics is a mid-cap company that specializes in blood management solutions, delivering devices, consulting services and information to hospital and plasma and blood collectors. It’s been around for 45 years and has mostly been growing in the single digits, so it doesn’t look exciting on the surface. But new management, including CEO Christopher Simon, who joined Haemonetics from McKinsey & Company in 2016, has been cutting debt, improving working capital and rolling out new products. (We’ve seen many of these operational improvement-type stocks enjoy good runs in recent years, boding well for Haemonetics.) On the product front, the company is currently focused on NexSys, a platform that makes plasma collection more productive and efficient, and the TEG6s Hemostasis Analyzer System, which is the first cartridge-based system in the U.S. for use in adult trauma settings. Revenue was up 8% to $970 million last year (fiscal 2019) when EPS was up 28%, to $2.39. Revenue growth will likely remain in the single digits, but with margins expanding in a big way, analysts see earnings up 23% both this year and next. Earnings are due out August 6.
Technical Analysis
HAE broke out in 2017, kicking off an advance from 45 to 117 last September. Shares retreated at the end of the year and kept slipping despite a strong market in 2019, falling to 80 in April. After a short pause around 100 in late May, HAE has been a sterling performer, rallying six weeks in a row with no real pullbacks along the way. We’re going to stick our buy range down near the rising 25-day moving average.
HAE Weekly Chart
HAE Daily Chart
Sarepta Therapeutics (SRPT)
Why the Strength
Sarepta Therapeutics develops treatments for Duchenne muscular dystrophy (DMD), a very rare (one in 3,500 to 5,000 males) and fatal neuromuscular disease caused by gene mutation. DMD is typically diagnosed around age four and often means life in a wheelchair starting near age 12. Expected life span is 20 to 25 years. Fortunately, newer treatments from both Sarepta and Pfizer should help. Some data even shows Sarepta could eventually have a curative treatment for certain boys. The most recent update on the competitive front show Sarepta’s AAVrh74 DMD gene therapy should hit the market first, take an estimated 65% market share of a $20 billion market (in the U.S., international to follow), and be effective at a much smaller dose. This could reduce adverse effects, even at higher doses, when compared to Pfizer’s potential treatment. Dosing for Sarepta’s solution is underway in a pivotal trial, and it’s fair for investors to believe all is good if no negative impacts are released by mid to late-August. Stepping back to the big picture, Sarepta is well-positioned to be a major player in the high potential, albeit risky gene therapy market. Beyond its first DMD treatment, Exondys 51, which is driving 30%-plus revenue growth right now, Sarepta has a large and diverse pipeline of treatments, including potential expansion into Limb-Girdle Muscular Dystrophy (LGMD) through a partnership with Myonexus. It’s an intriguing speculation.
Technical Analysis
SRPT enjoyed a steady advance from September 2017 through June of last year, when the stock went vertical on good news. That marked a top, though, with shares falling to 95 late last year (with the market) and bottoming out repeatedly in the 110 area from March through May of this year. But some good news on the competitive front in late June spiked SRPT back toward its highs. If you’re game, you can nibble on dips and use a loose stop.
SRPT Weekly Chart
SRPT Daily Chart
Yeti Holdings (YETI)
Why the Strength
Many big winners of the past took niche products and, though marketing, brand development and innovation, brought them to the masses. That’s a big reason why Yeti, the leader in high-end hard and soft coolers, bags and drinkware that keeps products colder for longer, remains on a solid growth path. A few years ago, Yeti was selling mainly to guys (91% of customers in 2015) and hunters (69%) that wanted to keep waters/beers/supplies cool for days out on the trail. But now it’s hard not to find its tumblers and coolers at the beach, campfires, at work (they work great for iced or hot coffee, etc.) or at the neighborhood BBQ. Yes, there are rip-off products, but Yeti’s brand name and best-in-class distribution (nearly 40% of sales are direct to consumers instead of wholesale) have kept buyers coming back. (We’d also opine that Yeti’s products simply work better, too, so saving a few bucks on a rip-off makes less sense.) Of course, these products aren’t changing the world, but they’re playing in huge markets, and Yeti has only scratched the surface of its opportunity, especially internationally (only 4% of revenues), yet it’s already cranking out impressive metrics (50% gross margins and 20% EBITDA margins). Going forward, analysts see sales growing in the low teens and earnings faster than that—paces that, while not rapid, could go on for many years as the firm attempts to become a top consumer brand name. Earnings are due out August 1.
Technical Analysis
YETI came public in October of last year, built a fine post-IPO base during the market’s downturn and broke out in early February near 20. And the run from there was excellent, with the stock rising to 37 in April before topping out. YETI did pull back sharply but is now 11 weeks into a new launching pad—earnings are a risk, but we’re OK nibbling on today’s dip and then seeing how earnings received at the start of August.
YETI Weekly Chart
YETI Daily Chart
Previously Recommended Stocks
Below you’ll find Cabot Top Ten Trader recommended stocks. Those rated HOLD are stocks that traded within our suggested buy range within two weeks of appearing in the Top Ten and still look good; hold if you own them. Stocks rated WAIT have yet to dip into our suggested buy range … but can be bought if they do so within the next week.
Those stocks rated SELL should be sold if you own them; they will no longer be listed here. Finally, Stocks in the DROPPED category are those that failed to trade within our buy range within two weeks of our recommendation; that’s not a bad thing, we just never got the price we wanted. Please use this list to keep up with our latest thinking, and don’t hesitate to call or email us with any questions you may have. New recommendations each week are in green.
