Bulls Remain in Control
Current Market Outlook
Last week saw some vicious rotation early in the week, with the super-strong growth names coming down to earth while money gushed into cyclical sectors, but the leaders stabilized as the week wore on and the broad market remains positive, too. From a big-picture perspective, the 90% Blastoff signal last week (90% of NYSE stocks above their 50-day lines) bodes well for the overall market, and the fact that few (if any) leading stocks have cracked is a good sign. All in all, further potholes, rotations and shakeouts are relatively likely given the big run over the past two months and the divergent environment, but until proven otherwise, we continue to think the path of least resistance is pointed up. We’re moving our Market Monitor up another notch to a level 8.
This week’s list has a good mix of setups, with some recent earnings winners, some that have pulled back and others that are in persistent uptrends. Our Top Pick is Arconic (ARNC), which is one of the few cyclical stocks to appear in Top Ten since the uptrend got underway.
| Stock Name | Price | ||
|---|---|---|---|
| Adaptive Biotechnologies Corporation (ADPT) | 39.41 | ||
| Arconic (ARNC) | 17.00 | ||
| Bill.com Holdings (BILL) | 88.76 | ||
| Dynatrace (DT) | 36.59 | ||
| II-VI Incorporated (IIVI) | 48.64 | ||
| LiveRamp Holdings (RAMP) | 46.54 | ||
| Pan American Silver (PAAS) | 27.28 | ||
| Seattle Genetics (SGEN) | 150.85 | ||
| Tractor Supply Company (TSCO) | 122.24 | ||
| Zscaler (ZS) | 126.22 |
Adaptive Biotechnologies Corporation (ADPT)
Why the Strength
Adaptive Biotech uses human genomes to create therapeutics that treat and prevent diseases. Investor excitement is building on the company’s collaboration with Amgen that aims to use antibody therapies for coronavirus patients; by isolating antibodies from people who have recovered from COVID-19 and then artificially reproducing them, the companies are developing treatments that could minimize symptoms and speed recovery from the disease. (These therapies are not the same as the convalescent plasma treatments that have received a lot of recent press.) Antibody therapies have been successfully used in treating cancer, HIV infection and respiratory diseases, so there’s a strong basis for the idea. Additionally, Adaptive has entered an agreement with Microsoft to map the immune responses of individuals who have either contracted COVID-19 or are likely to have done so. However, there’s more to the story than just COVID as the recent quarterly report showed—investors cheered the company’s 65% revenue increase from $12.7 million to $20.9 million. For the quarter, ADPT’s sequencing revenue was up 56% and clinical tests using its clonoSEO system for detecting minimum residual disease (MRD) in the bone marrow of patients with multiple myeloma and B-cell acute lymphoblastic leukemia increased by 75%. Meanwhile, sales from its immune medicine platform soared 74%. The bottom line is still in the red, but there should be major growth ahead—the firm sees its addressable market booming manyfold over the next few years as its platforms get approvals for new indications, and analysts see revenues up 32% this year and accelerating to 68% growth in 2021. Adaptive has both near-term catalysts and a good long-term growth story.
Technical Analysis
ADPT came public last June, had the typical post-IPO boost and then the even more typical droop—it eventually fell from a high of 55 back then to a low of 15 in March. But it’s a totally different animal now, with shares rising 10 weeks in a row right off that bottom and holding above its 25-day line the whole time. The recent rest looks buyable to us.
| Market Cap | $4.91B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.38 |
| Current P/E | N/A | FY 2019 | -0.56 |
| Annual Revenue | $93M | FY 2020e | -1.04 |
| Profit Margin | N/A | FY 2021e | -1.09 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 20.9 | 65% | -0.25 | N/A |
| One qtr ago | 24.2 | 41% | -0.17 | N/A |
| Two qtrs ago | 26.1 | 52% | -0.11 | N/A |
| Three qtrs ago | 22.1 | 91% | -0.13 | N/A |
ADPT Weekly Chart
ADPT Daily Chart
Arconic (ARNC)
Why the Strength
Today’s cars require a lot of aluminum, with automotive use of the metal expected to grow 40 percent by 2028, and Arconic (formerly Alcoa) will play a leading role in this transition. The company makes specialty parts that play into the transportation, aerospace, electronics, oil/gas and construction markets, deriving most of its profits from rolled aluminum. But it’s the auto industry where Arconic could make the biggest impact. Aluminum has revolutionized auto production by making cars and trucks lighter and more fuel efficient, and the firm’s products are found bumper-to-bumper in several facets of auto assembly—from doors and hoods to heat exchangers. Auto production has plunged with everything else recently, but with states re-opening, output is expected to ramp and some analysts predict global car sales will rise at a solid pace in the coming years as consumers avoid mass transit due to public health concerns. While the firm expects Q1 revenue to be down 12% from last year due to COVID-related disruptions, it sees higher segment operating profit (+26%) thanks to net cost reductions (it saved $213 million in 2019 from lower prices). It’s also worth mentioning that Credit Suisse analysts see Q3 as a potential turning point for the company in terms of increased auto-related orders; a recovery in the aerospace industry could also help. With the “lightweighting” trend in several industries still growing, Arconic should be the go-to player in rolled aluminum. It’s not sexy, but it looks like a leading cyclical name in the current environment.
Technical Analysis
ARNC is the result of a spinoff between it and Howmet Aerospace, so the “new” ARNC doesn’t have much of a trading history. But what we’ve seen so far has been impressive. The newly launched ARNC fell to 6 in April, but has gone nuts since mid May, rallying on big volume into the low teens. If you want in, you can buy here or (preferably) on dips.
| Market Cap | $1.58B | EPS $ Annual (Dec) | |
| Forward P/E | 9 | FY 2018 | 1.57 |
| Current P/E | 6 | FY 2019 | 2.07 |
| Annual Revenue | $7.05B | FY 2020e | 1.64 |
| Profit Margin | 3.7% | FY 2021e | 2.20 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.61 | -12% | 0.55 | 45% |
| One qtr ago | 1.71 | -6% | 1.71 | 88% |
| Two qtrs ago | 1.81 | -4% | -0.06 | N/A |
| Three qtrs ago | 1.92 | 0% | 0.05 | -44% |
ARNC Weekly Chart
ARNC Daily Chart
Bill.com Holdings (BILL)
Why the Strength
Bill.com is a name that keeps catching our eye, partly because of the chart (we think the recent dip could be providing a reasonable entry point—more on that below), but mostly because of its straightforward growth story. The company’s claim to fame is its platform that allows the six million U.S. outfits that have between 2 and 500 employees (small businesses excluding sole proprietorships) do away with paper-based invoices, bills and contracts (90% of the target market still uses paper forms!), which isn’t just inefficient but extremely error-prone. Instead, Bill.com’s cloud platform takes care of these forms electronically and syncs to accounting systems and financial institutions, saving clients time and money. While Bill.com does make money on the float (12% of revenue, though that’s falling as interest rates are near zero), investors are focused on “core” revenue from subscriptions and transactions, and growth there has been fantastic—in the March quarter, growth in the firm’s customer count (91,000, up 28% from a year ago) and transactions (value up 35% from a year ago) pushed core revenue up 63% from a year ago. (The same customer revenue growth rate was a solid 20%, which accelerated from prior quarters.) The virus shut-in will likely dampen that growth in the near-term (less spending from its clients, more attrition as small businesses take financial hits), but new customer growth should remain strong as Bill’s platform plays into the do-more-online theme and its sales process involves mostly online marketing and partnerships (the platform will be integrated into Wells Fargo’s electronic office online portal). Big picture, it’s a great story.
Technical Analysis
BILL came public in December, rallied nicely into February, then crashed with the market in March. But the roller coaster then turned back up, with a huge rise starting in mid April and a moonshot after earnings in early May. The pullback since then has been a bit deep percentage-wise, but has started to find support near the 25-day line and the February high. If you want in, we think you can start a position here.
| Market Cap | $5.05B | 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
Dynatrace (DT)
Why the Strength
As the world turns increasingly to the cloud, the need to identify and troubleshoot problems with a firm’s various new apps and cloud-related hardware is becoming increasingly important … and difficult. Similar to Datadog, Dynatrace’s infrastructure and application monitoring offerings solve these problems with real-time analytics of every aspect of a firm’s tech assets, reducing the need and complexity of using multiple analytic tools. Its single platform observes everything in an app environment by consolidating several metrics into one dashboard and optimizing workloads. The firm is transitioning to a subscription model and the latest quarterly results point to its success, with a 37% increase in subscription and services revenue in the March quarter. Dynatrace also attracted 165 new customers (up 7.5% from the prior quarter, bringing the total to 2,373), while the key annual recurring revenue metric grew 42%, partially thanks to continued buying among current customers (the same-customer revenue growth rate has been north of 20% for eight straight quarters). Plus, in contrast to many tech plays out there, Dynatrace is solidly profitable (11 cents per share beat estimates by three cents), with analysts expecting the bottom line to grow nicely in the quarters to come. Bigger picture, the company estimates its total market at $18 billion, so if management continues to pull the right levers, there’s no reason Dynatrace won’t get a lot bigger (and attract a lot more institutional investors) going forward.
Technical Analysis
DT came public last July and had a nice breakout in January, but the nascent uptrend was crushed during the market’s crash. Like everything else, shares began to recover from the lows, and it’s been fairly persistent during that time, getting above its 50-day line in April, tightening up a bit in early May and lifting to new price highs two weeks ago. Encouragingly, a non-dilutive share offering today didn’t dent the stock much. If you’re game, we advise entering on dips of a point or two.
| Market Cap | $10.8B | EPS $ Annual (Mar) | |
| Forward P/E | 96 | FY 2018 | 0.13 |
| Current P/E | 126 | FY 2019e | 0.31 |
| Annual Revenue | $546M | FY 2020e | 0.40 |
| Profit Margin | 19.8% | FY 2021e | 0.49 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 151 | 30% | 0.11 | 267% |
| One qtr ago | 143 | 25% | 0.10 | 900% |
| Two qtrs ago | 129 | 27% | 0.06 | 100% |
| Three qtrs ago | 123 | 25% | 0.03 | -40% |
DT Weekly Chart
DT Daily Chart
II-VI Incorporated (IIVI)
Why the Strength
Investors familiar with II-VI likely associate the company with lasers—its name refers to semiconductor compounds from groups 2 and 6 of the periodic table which, when combined, form the infrared optical compounds used in lasers. While the company’s precision optical components for lasers used in industrial, medical, defense and telecom applications (as well as semiconductor equipment and electronic devices) help the cause, the stock is strong today thanks mostly to optimism around its exposure to 3D sensing and 5G wireless. The 5G transceivers market in particular looks to be a major opportunity, as the firm ramps up new 5G products while carriers redesign their networks to handle the billions of mobile users now migrating to the new standard. (In the recent quarter, 68% of revenue came from communications end markets.) II-VI is in one of the best positions to take advantage of these trends thanks to its broad product offerings, partly due to myriad acquisitions, including its buyout of Finisar late last year, effectively making it the top optical firm in a variety of fields. The numbers confirm the growth story, as fiscal Q3 revenue rose 83% (about 12% organic growth, the rest from the Finisar acquisition), well above analyst expectations. Bookings, meanwhile, hit a record $840 million with a record backlog of $893 million, and most important of all, earnings of 47 cents blew past estimates of 14 cents. Of course, on a quarter-to-quarter basis, results can be lumpy, but it looks like II-VI has the right products in the right markets at the right time, which should help growth going forward.
Technical Analysis
IIVI had been bumping downhill for a couple of years, finally bottoming with everything else in March at 19. Frankly, the initial rebound wasn’t that great—shares were still below most moving averages in mid April—but then the buyers showed up. IIVI perked up to 36 in May, gapped up to 44 on earnings, and after a quick shakeout, has tightened up nicely. We’re OK grabbing some here or (preferably) on dips.
| Market Cap | $4.34B | EPS $ Annual (Jun) | |
| Forward P/E | 16 | FY 2018 | 1.99 |
| Current P/E | 22 | FY 2019e | 2.53 |
| Annual Revenue | $2.00B | FY 2020e | 2.05 |
| Profit Margin | 7.0% | FY 2021e | 2.89 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 627 | 83% | 0.47 | -22% |
| One qtr ago | 666 | 94% | 0.40 | -44% |
| Two qtrs ago | 340 | 8% | 0.53 | -5% |
| Three qtrs ago | 363 | 13% | 0.67 | 29% |
IIVI Weekly Chart
IIVI Daily Chart
LiveRamp Holdings (RAMP)
Why the Strength
Identifying your target market is the critical element in a company’s marketing plan, and LiveRamp (formerly Acxiom Holdings) is an expert in data onboarding—sifting through databases, weeding out bad data and identifying the most likely buyers of your products, which is a service that will always be in big demand. The company got Wall Street’s attention when it announced its fourth quarter results two weeks ago, showing sales rising 35%, to $106 million, beating Wall Street’s forecast of $102.5 million. While LiveRamp is not yet making money, its loss of -$0.05 was also better than the estimates of -$0.14. For the full year, sales were up 33% and recurring subscription revenue (about 79% of sales) jumped 29%. During the quarter, the firm increased the number of customers on subscription by 17% (it now counts 22% of Fortune 500 companies as clients), including 53 firms with contracts of more than $1 million annually. The company uses 18 supply-side and 35 demand-side platforms built on a database of personal records going back 60-plus years, including names, postal addresses, emails and phone numbers. And it sells its services to a diversified group of industries, including retail, media, telecom, finance, information technology, travel, hospitality, automotive, government, and healthcare. Its newly-launched LiveRamp Safe Haven, a platform that enables secure, permission-enabled data collaboration for brands and their partners, has been adopted by two of the top five largest U.S. retailers. It’s a good story that should produce steady growth; analysts see 25%-ish revenue growth in the quarters ahead with shrinking losses.
Technical Analysis
From a high of 63 in early 2019, RAMP bumped downhill for months, finally crashing with the market to 23 in March. The rebound during the next few weeks was OK, but it was still sitting below its 200-day line two weeks ago when earnings changed the landscape—RAMP gapped up on big volume to 48 and has built on those gains since. We’re OK taking a stab at the stock around here or on dips.
| Market Cap | $3.40B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.29 |
| Current P/E | N/A | FY 2019 | -0.55 |
| Annual Revenue | $381M | FY 2020e | -0.27 |
| Profit Margin | N/A | FY 2021e | 0.18 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 106 | 35% | -0.05 | N/A |
| One qtr ago | 102 | 28% | -0.03 | N/A |
| Two qtrs ago | 90.1 | 39% | -0.23 | N/A |
| Three qtrs ago | 82.5 | 32% | -0.24 | N/A |
RAMP Weekly Chart
RAMP Daily Chart
Pan American Silver (PAAS)
Why the Strength
Precious metal stocks have become mixed of late as economic optimism has increased, but some are still strong, and Pan American Silver is one of them. Despite the name, the company’s purchase of Tahoe Resources in early 2019 has made it a diversified play—the company is one of the largest silver plays out there, but it’s actually doing more business in gold these days simply because gold prices have trended up over time while some silver mines have shuttered. The company has nine mining operations in the U.S., central and south America, including the giant Escobal mine in Guatemala, which is a giant, already-built silver reserve that could come back online down the road. In Q1, silver production actually slipped 9% across the company has a whole, but gold production nearly doubled even as costs per ounce eased. Combined with rising prices, that sent revenues up more than 40%, while cash flow from operations came in at $114 million (more than 50 cents per share). And the future looks even brighter—while gold prices have leveled off some, they remain elevated at north of $1,600 per ounce, and silver prices are now nearing $17 per ounce, up from $11 at the March crash lows. Throw in expanding production levels as some mines re-open as the virus clears up and analysts see 37% earnings growth this year and a near-tripling of the bottom line in 2021. There’s nothing revolutionary here, but should silver continue its rise (it’s more economically sensitive than gold), even those figures should prove conservative.
Technical Analysis
PAAS had a long downtrend end in May 2019, and then enjoyed a solid uptrend to 26 in February. Like most precious metals stocks, PAAS got hammered during the crash but immediately snapped back and hasn’t stopped for breath—shares have lifted eight of the past nine weeks, with big-volume buying up during the past three. We advise aiming for dips of a point or so to get started.
| Market Cap | $6.15B | EPS $ Annual (Dec) | |
| Forward P/E | 51 | FY 2018 | 0.39 |
| Current P/E | 71 | FY 2019 | 0.41 |
| Annual Revenue | $1.46B | FY 2020e | 0.56 |
| Profit Margin | N/A | FY 2021e | 1.62 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 358 | 41% | -0.04 | N/A |
| One qtr ago | 404 | 133% | 0.33 | N/A |
| Two qtrs ago | 352 | 88% | 0.07 | N/A |
| Three qtrs ago | 341 | 57% | 0.02 | -91% |
PAAS Weekly Chart
PAAS Daily Chart
Seattle Genetics (SGEN)
Why the Strength
Seattle Genetics will probably never be on the lips of most investors, but it continues to show all the signs of being an emerging blue chip in the biotech and oncology space. Its Adcertis drug (which it markets on its own here and Canada, but collects royalties from Takeda for overseas sales) has been the growth driver for years; after a few label expansions, it’s now the front-line treatment for a couple of types of lymphoma (in concert with chemo) and brought in $628 million of product revenue last year, along with north of $100 million of royalties. But the reason the stock has really gotten going is that it now has two more legs to its growth stool. The first is Padcev, which was approved late last year for urothelial cancer; the launch is off to a great start, with sales of $34.5 million in Q1, way above expectations, and there are likely label expansions coming that will expand its addressable market. And then there’s Tukysa, approved in April in the U.S., and it appears to have huge potential, as a possible best-in-class solution for certain kinds of HER2 breast cancer—the launch so far is all digital, so it hasn’t hit the ground running, but early feedback from physicians has been extremely positive. Throw in further upside from Adcertis (management sees sales up 10% or so this year) and the next few years should be boom times—product revenues are expected to rise nearly 30% this year, with another 50% gain in 2021 as Padcev and Tukysa ramp up. The bottom line is still in the red, but analysts are quickly boosting estimates, and $2 to $3 per share is possible in 2022—which, frankly, we think could be conservative as initial launch and new trial costs ease. All in all, Seattle has a de-risked biotech story with huge growth potential going forward.
Technical Analysis
SGEN has been in Top Ten a couple of times in recent months, and it appears to be presenting a decent entry point here. It was one of the first stocks to hit new highs (early April) after the crash, stretching as high as 168 in early May before pulling back for three weeks. After dipping as low as 144 last Wednesday, it’s begun to rebound on solid volume—it looks like an early-stage pullback opportunity. We’re OK taking a stab at SGEN here.
| Market Cap | $27.2B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.56 |
| Current P/E | N/A | FY 2019 | -0.96 |
| Annual Revenue | $956M | FY 2020e | -2.85 |
| Profit Margin | N/A | FY 2021e | -0.73 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 235 | 20% | -0.98 | N/A |
| One qtr ago | 290 | 66% | 0.14 | N/A |
| Two qtrs ago | 213 | 26% | -0.55 | N/A |
| Three qtrs ago | 218 | 28% | -0.49 | N/A |
SGEN Weekly Chart
SGEN Daily Chart
Tractor Supply Company (TSCO)
Why the Strength
Tractor Supply was founded as a mail-order tractor parts business in 1938, and it’s now ‘the place to go’ for farm equipment, feed, clothing, mowers, lawn and garden supplies, and just about anything else you might need for your rural lifestyle. It operates more than 1,800 of its namesake stores (spread across 49 states), and also runs 180 Petsense stores in 26 states. What has Wall Street so excited is that this is one of the few non-tech companies that’s boasting big earnings growth since the coronavirus pandemic hit. Tractor Supply just announced that it expects sales to expand 24% to 29% in the second quarter, same-store sales to rise a whopping 20% to 25%, and EPS to come in at $2.55 or so, soundly walloping forecasts of 21%, 19%, and $2.32, respectively. Stay-at-home orders have significantly boosted the company’s fortunes, as consumers have been spending more time outside with their gardens and outdoor activities, and rural areas in the U.S. have not been affected nearly as much as urban locations during the pandemic. Employee loyalty is growing, as the firm gave frontline workers a $2 per hour bonus (through June 27), awarded $1,000 to managers, added $1 an hour, permanently, to wages, starting June 28, and created a new package of medical and dental benefits for part-time workers. And with a rebuilt website (this quarter) as well as its first mobile app (by the end of June), Tractor Supply has some addition catalysts going forward. The 1.1% dividend yield provides a nice cherry on top to this solid, steady story.
Technical Analysis
TSCO topped in July of last year, fell hard into the fall and then crashed with the market in March. But it’s been all up since then, and what’s most impressive isn’t just the upmove but the persistence, with shares now up eight weeks in a row, including last week’s pop to new highs. The first pullback in this trend should be buyable, so we’ll set our buy range down a bit from here.
| Market Cap | $14.1B | EPS $ Annual (Dec) | |
| Forward P/E | 22 | FY 2018 | 4.31 |
| Current P/E | 25 | FY 2019 | 4.68 |
| Annual Revenue | $8.49B | FY 2020e | 5.43 |
| Profit Margin | 4.3% | FY 2021e | 5.67 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.96 | 8% | 0.71 | 13% |
| One qtr ago | 2.19 | 3% | 1.21 | 9% |
| Two qtrs ago | 1.98 | 5% | 1.04 | 9% |
| Three qtrs ago | 2.35 | 6% | 1.80 | 7% |
TSCO Weekly Chart
TSCO Daily Chart
Zscaler (ZS)
Why the Strength
Zscaler offers cloud-based cybersecurity and has a very bright present and future as millions of Americans work from home and as the cloud becomes the norm in the business world. In our write-up on the stock in April, we noted revenues had been growing rapidly but were beginning to decelerate a bit. And while it was expected that shutdowns would be good for business, Zscaler shocked everyone when it announced gangbuster Q3 numbers that were well above estimates; a new cloud security contract with the U.S. Defense Dept. (potentially adding 500,000 users to its tally) also helped. In the quarter, revenue grew 40% and earnings came in at seven cents per share, though more important, the forward-looking billings figure was up 55%. The firm also had a higher same-customer revenue growth of 19%, reflecting a solid retention rate, though it cautioned there could be some COVID-related downward pressure on renewals in the next 12 to 18 months. Moreover, Zscaler isn’t resting on its laurels, using some of its growing cash position in recent purchases of early stage companies Cloudneeti and Edgewise. Meanwhile, the firm’s Zscaler Private Access product—which is rapidly replacing traditional firewalls and VPNs in the cloud era—was a key growth engine, contributing 43% of new and add-on business (versus 20% in the two prior quarters) as hundreds of thousands of new Access users went live at big clients. Looking ahead, Zscaler sees Q4 revenue growth of around 37% and analysts are looking for 30%-ish growth for the coming (starting in August) fiscal year, with earnings also moving higher. The mobile and cloud movements have pushed cybersecurity into a new era, and Zscaler is one of the new-age leaders in the field.
Technical Analysis
ZS topped back in July of last year and was cut in half by October, with an even deeper plunge to 35 during the market’s March crash. But the stock was one of the first to rip back to its February levels after the bottom, and it stair-stepped higher into last week’s quarterly report. The reaction was a beauty, with ZS soaring on six times average volume as it moved to new highs. Yes, it’s extended, but we don’t expect a major retreat following the earnings gap.
| Market Cap | $12.7B | EPS $ Annual (Jul) | |
| Forward P/E | 426 | FY 2018 | -0.23 |
| Current P/E | 292 | FY 2019 | 0.24 |
| Annual Revenue | $391M | FY 2020e | 0.20 |
| Profit Margin | 8.2% | FY 2021e | 0.26 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 111 | 40% | 0.07 | 40% |
| One qtr ago | 101 | 36% | 0.09 | 0% |
| Two qtrs ago | 93.6 | 48% | 0.03 | 50% |
| Three qtrs ago | 86.1 | 53% | 0.07 | N/A |
ZS Weekly Chart
ZS 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.
| Date | Stock | Symbol | Top Pick | Original Buy Range | 6/1/2020 |
| HOLD | |||||
| 4/20/20 | Acadia Pharma | ACAD | 48-51 | 49 | |
| 5/26/20 | Allogene Thereapeutics | ALLO | 46-48.5 | 49 | |
| 3/16/20 | Apple | AAPL | 238-248 | 322 | |
| 4/20/20 | ASML Holdings | ASML | 285-295 | 327 | |
| 5/11/20 | Atlas Air Worldwide | AAWW | 36.5-38.5 | 41 | |
| 5/18/20 | Avalara | AVLR | 97-100 | 109 | |
| 5/4/20 | Bandwidth | BAND | ? | 90-94 | 112 |
| 5/18/20 | Beyond Meat | BYND | 122-128 | 139 | |
| 5/26/20 | BJ’s Wholesale | BJ | 34-36.5 | 37 | |
| 5/11/20 | Chegg | CHGG | ? | 58-62 | 62 |
| 3/23/20 | Chewy | CHWY | ? | 29-32 | 45 |
| 4/13/20 | Ciena | CIEN | 42.5-44 | 56 | |
| 3/23/20 | Cloudflare | NET | 19-21 | 30 | |
| 3/23/20 | Coupa Software | COUP | 124-132 | 234 | |
| 4/20/20 | CrowdStrike | CRWD | 65-67.5 | 95 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 379 | |
| 9/9/19 | DocuSign | DOCU | ? | 55-58 | 147 |
| 5/4/20 | DraftKings | DKNG | 19.5-21.5 | 44 | |
| 5/18/20 | Fastly | FSLY | 36-39 | 47 | |
| 4/6/20 | Five9 | FIVN | 74.5-78 | 107 | |
| 5/18/20 | Fortinet | FTNT | 137-143 | 145 | |
| 4/20/20 | Franco Nevada | FNV | 122-126 | 140 | |
| 4/27/20 | Freshpet | FRPT | 74-78 | 84 | |
| 5/26/20 | Guardant Health | GH | 87.5-91.5 | 88 | |
| 5/4/20 | Halozyme | HALO | 22.5-24 | 24 | |
| 5/26/20 | Horizon Therapeutics | HZNP | 45.5-48 | 50 | |
| 4/20/20 | Immunomedics | IMMU | 20.5-22 | 33 | |
| 3/16/20 | Inphi | IPHI | ? | 62.5-66 | 125 |
| 5/11/20 | MercadoLibre | MELI | 750-790 | 844 | |
| 5/18/20 | MyoKardia | MYOK | 106-110 | 103 | |
| 5/26/20 | Neurocrine Bio | NBIX | 114-119 | 123 | |
| 3/9/20 | Newmont Corp | NEM | 46.5-48.5 | 60 | |
| 3/30/20 | Nvidia | NVDA | 250-270 | 352 | |
| 3/30/20 | Okta | OKTA | ? | 118-126 | 205 |
| 5/18/20 | Ollie’s Bargain Outlet | OLLI | 73-77 | 92 | |
| 5/26/20 | 1Life Healthcare | ONEM | 32.5-35 | 34 | |
| 4/27/20 | PayPal | PYPL | ? | 117-122 | 155 |
| 4/6/20 | Pelaton | PTON | 27-29 | 46 | |
| 4/27/20 | Pinduoduo | PDD | ? | 48-51.5 | 66 |
| 5/11/20 | Schrodinger | SDGR | 53-56 | 70 | |
| 5/18/20 | Scotts Miracle Gro | SMG | 139-145 | 143 | |
| 3/2/20 | Seattle Genetics | SGEN | ? | 107-111 | 159 |
| 4/20/20 | Shopify | SHOP | 575-615 | 758 | |
| 5/26/20 | Spotify | SPOT | ? | 184-191 | 183 |
| 10/28/19 | Teladoc | TDOC | 69-72 | 174 | |
| 11/11/19 | Tesla | TSLA | 320-335 | 898 | |
| 5/11/20 | TG Therapeutics | TGTX | 17.5-19 | 18 | |
| 4/20/20 | Tradeweb Markets | TW | 50-52 | 67 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 199 | |
| 10/28/19 | Vertex Pharm. | VRTX | ? | 191-196 | 287 |
| 5/26/20 | Wayfair | W | 152-162 | 167 | |
| 4/13/20 | Wheaton Precious Metals | WPM | 31-32.5 | 44 | |
| 5/11/20 | Wingstop | WING | 116-122 | 122 | |
| 5/26/20 | Wix.com | WIX | 195-205 | 221 | |
| 2/24/20 | Zoom Video | ZM | ? | 96-104 | 204 |
| 4/6/20 | Zscaler | ZS | 61-64 | 110 | |
| WAIT | |||||
| 5/26/20 | Big Lots | BIG | 31-33 | 37 | |
| SELL RECOMMENDATIONS | |||||
| 2/18/20 | Acceleron Pharma | XLRN | 88-92 | 97 | |
| 4/20/20 | Advanced Micro Devices | AMD | 53-56 | 54 | |
| 4/27/20 | Alnylam Pharm | ALNY | 136-141 | 134 | |
| 3/30/20 | Atlassian | TEAM | 139-144 | 188 | |
| 3/30/20 | Barrick Gold | GOLD | 18-19.5 | 25 | |
| 4/27/20 | MarketAxess | MKTX | 420-440 | 98 | |
| 3/23/20 | Moderna | MRNA | 25.5-28 | 62 | |
| DROPPED | |||||
| None This Week | |||||
The next Cabot Top Ten Trader issue will be published on June 8, 2020.