Constructive Week
Current Market Outlook
Not much happened last week, with the major indexes up a fraction of a percent and most leading stocks in a similar boat. But to us, that was a good thing—the fact that stocks held up following the prior week’s romp higher and a bunch of bad news (Iran tensions) and upcoming uncertainties (Fed meeting and G20 powwow) at least shows sellers didn’t pounce on the opportunity to bail. As we wrote last week, there’s more positive evidence than negative evidence, which is why we’re leaning bullish—but the intermediate-term trend of the major indexes and many stocks and sectors has yet to turn positive, so we’re also not pounding the bullish drums. Holding your strong stocks and nibbling on some good-looking charts is fine by us, but we also advise sitting with a chunk of cash and patiently waiting to see if the market can follow through on its recent strength.
This week’s list is a bit broader than those we’ve seen recently, with a lot of good charts and growth stories. Our Top Pick is Blackstone (BX), which has shown great power of late.
| Stock Name | Price | ||
|---|---|---|---|
| AngloGold Ashanti (AU) | 20.45 | ||
| Blackstone Group (BX) | 49.12 | ||
| Boot Barn (BOOT) | 43.24 | ||
| Casey’s General Store (CASY) | 165.73 | ||
| Haemonetics (HAE) | 136.59 | ||
| Innovative Industrial Properties (IIPR) | 214.38 | ||
| Mirati Therapeutics (MRTX) | 104.98 | ||
| Penumbra Inc. (PEN) | 173.25 | ||
| Trade Desk (TTD) | 468.02 | ||
| Universal Display (OLED) | 187.54 |
AngloGold Ashanti (AU)
Why the Strength
Last week we wrote about Kirkland Lake (KL), which, to us, still looks like the top dog in the gold sector. But while it’s not nearly as growth oriented, Anglogold should be another beneficiary as gold prices potentially get going. Anglogold operates a bunch of mines in South America, Africa and Australia; all told, this year should see the firm mine around 3.3 million ounces of the yellow metal. And it’s also busy doing a ton of exploration and development activity, the most promising of which is its Obuasi project in Ghana, which should begin production by year-end and, when it’s fully up and running, crank out nearly 400,000 ounces annually at a very low cost (sub $800 per ounce). But part of this story is also about cutting back, via belt tightening, shaping up the balance sheet (debt is down 43% during the past few years) and via asset sales (it’s looking to exit its South African operations and is also looking at unloading a mine in Argentina). Really, though, this is mostly about the price of gold—any sustained increase will fall right to the company’s bottom line and likely increase the attractiveness of some of the mines it’s trying to sell. After a rough few years, analysts see earnings bouncing back strongly this year and next, and that could prove conservative if the yellow metal keeps rising.
Technical Analysis
AU had a nice rally in 2016, but from 23 that summer to 7 last August, it was a long, slow bleed. However, the stock actually did pretty well during the market implosion late last year and rallied all the way back to 16 in February of this year. The pullback after that wasn’t bad at all (low volume, support near the 40-week line, tightness near the bottom), and now AU has pushed back to its old highs on great volume. If you want in, look for pullbacks of a few dimes.
AU Weekly Chart
AU Daily Chart
Blackstone Group (BX)
Why the Strength
Blackstone remains the best looking Bull Market stock out there, with a unique fundamental catalyst that’s attracting a bunch more big investors. The main story hasn’t changed since our writeup a few weeks ago—the company is one of the world’s leading alternative investment firms, with massive holdings of real estate (its largest segment, producing nearly half of distributable income over the past year), private equity, hedge funds and credit assets; in total, the firm had $512 billion of assets under its umbrella at the end of March (up 14% from a year ago). And with the markets relatively healthy, business should continue to grow; the firm just raised $4.5 billion for an energy-focused credit fund, and it also cashed in on 40 million shares of Invitation Homes (about $1 billion worth) earlier this month. Simply put, as asset values rise, so will Blackstone’s earnings power and dividends (it has an irregular payout based on cash flow, which came in at 37 cents per share in Q1). That alone is attractive, but the kicker here is the company’s conversion from a partnership (K-1 tax form) to a C-Corp (qualified dividends for taxes, simpler structure) that’s likely to open the door to many more mutual funds potentially owning shares (420 were in at the end of March), not to mention individuals who are looking for income. Assuming the market remains in relatively good shape, we think Blackstone can do very well. We like it.
Technical Analysis
BX didn’t do much for years, and even after its off-the-bottom bounce early this year, there wasn’t much to get excited about. But Q1 earnings and the C-Corp announcement in April changed that—BX rallied strong to a high of 42, and after a sharp shakeout with the market in late May, has come storming back, ripping to new highs on huge volume. We think it wants to head higher if the market cooperates; we’re OK nibbling here or preferably on dips of a point or two.
BX Weekly Chart
BX Daily Chart
Boot Barn (BOOT)
Why the Strength
We were knocked out of Boot Barn during the market’s first leg lower in May, but while the stock got knocked around further after that, it’s come back to life in a big way, lifting out of a big launching pad. As for the story, it’s a good one: Boot Barn is the leading retailer of western and blue collar work wear, selling rugged footwear, denim, shirts and hats and accessories for both work and leisure. The long-term trends are in the firm’s favor (western, rugged lifestyle is becoming more popular), and the fact that it’s not fashion-centric means fewer discounts and fewer products going out of style. The company operates 239 stores in 33 states and also has a healthy e-commerce business, and the stock is strong today because business is good—in Q1, sales (up 13%) and earnings (up 25%) topped estimates, while comparable store sales rose 8.7%, including a big 9.8% gain from in-store sales. Even better, management said the current quarter was on pace for a 7.5% same-store sales gain in mid-May and had a solid outlook for the year ahead. On the cookie-cutter side of the business, Boot Barn expects to open or acquire another 25 locations this year, boosting the store count by just over 10%. Of course, growth here isn’t out of this world, but we see the potential for many years of 15% to 20% growth as the company captures a larger piece of what it thinks is a $20 billion opportunity. It’s a solid, under-the-radar story.
Technical Analysis
BOOT topped out at 32 last September, plunged to 15 during the market debacle and then rallied right back to 32 by April of this year. Then the stock had some wild gyrations, partly due to market’s May decline, and partly due to the stock’s relatively thinness ($30 million or so of daily volume)—BOOT thrashed around between 25 and 31 for four weeks, but last week, finally pushed above resistance, albeit on light volume. You can buy some here or (preferably) on weakness.
BOOT Weekly Chart
BOOT Daily Chart
Casey’s General Store (CASY)
Why the Strength
Casey’s General Stores is the fourth largest convenience store operation in the U.S., with more than 2,100 locations in 16 states (mostly in the Midwest) that attract more than 600 million customers annually by targeting relatively small population areas (56% of its stores are in areas with fewer than 5,000 people). As you’d expect, Casey’s sells grocery items (39% of gross profit), prepared food and fountain drinks (35%) and gasoline (23%), and while none of that is revolutionary, the firm does have some tricks up its sleeve to drive growth—a new fleet credit card has a couple thousand members and growing, which should boost fuel sales and foot traffic; it recently launched a new e-commerce website and is set to launch a new app soon; is implementing some price optimization tactics that have gone through pilot testing; and is otherwise looking to boost efficiencies with in-store order management systems and the like. And it’s working—the stock is strong today because Casey’s blew away estimates last week, with earnings of 68 cents per share topping expectations by 22 cents! Throw in solid forecasts for same-store sales growth, margins and a decent store expansion plan (adding 85 stores net, or about a 4% hike in the store base) and it’s likely that analysts’ current estimates are too low.
Technical Analysis
CASY has a great long-term chart that looks to be just getting going. Shares enjoyed a very nice multi-year rally to 136 in mid 2016, but then struggled along with business for the past three years—shares fell as low as 90 last June, and even after rallying back, went straight sideways for months in the high 130s. But the quarterly report last week changed that, with CASY surging to new highs on big volume for three straight days. If you want in, we’re fine buying here.
CASY Weekly Chart
CASY Daily Chart
Haemonetics (HAE)
Why the Strength
Haemonetics is a mid-cap medical technology stock that’s on the cusp of breaking out to multi-year highs. The company specializes in blood management solutions, delivering devices, consulting services and information to hospital, plasma and blood collectors. It’s been in the business since the early-1970s, and for most of the last decade has been delivering single-digit growth, and the pace of revenue growth isn’t likely to change much (slow but steady). But new management, which came in under CEO Christopher Simon, who joined Haemonetics from McKinsey & Company in 2016, has been cutting debt, improving working capital and rolling out new products. The current focus is on NexSys, a platform that makes plasma collection more productive and efficient, and the recently-approved expanded use of the TEG6s Hemostasis Analyzer System for use in adult trauma settings (it’s the first cartridge-based system in the U.S.) is another impressive innovation. Analysts also like that EPS growth, which stagnated from 2015 through 2017, is set to accelerate nicely, with analysts see the bottom line rising in the low- to mid-20% range both this year and next. We’ll be the first to admit that operational improvement stories are less than sexy, but when paired with the right company, in the right market, they can drive big gains. That’s what we see happening with Haemonetics.
Technical Analysis
HAE’s trajectory got interesting in 2018 when the stock broke out and advanced from 60 to around 115. Shares retreated at the end of the year but found support around 80 a couple of times in February and April and then began rising again. After a brief pause in 100 area, HAE broke higher again in as soon as the market began to come off its lows, rising back toward its prior peaks. We like the persistency of the move, though with overhead to chew through, you should aim to grab shares on dips.
HAE Weekly Chart
HAE Daily Chart
Innovative Industrial Properties (IIPR)
innovativeindustrialproperties.com
Why the Strength
We don’t usually have many REITs in Top Ten, especially when they’re so small ($19 million in revenue, $1 billion market cap), but Innovative Industrial Properties has a great story and rapid growth. The company bills itself as the leading provider of real estate capital for the medical-use cannabis industry, operating in the 33 states (and D.C.) that have approved that product. The firm doesn’t touch cannabis itself, but instead acquires properties (industrial buildings, including greenhouse facilities, with advanced HVAC, electrical, lighting and security systems) and leases them to long-term growers and providers with annual price hikes to boot. As of May 20, Innovative owned 21 facilities totaling 1.55 million square feet; all of them are leased with an average of 15 years remaining on their deals! The opportunity is obviously huge (medical cannabis sales are projected to grow from $5.9 billion in 2017 to $22 billion in 2022), and the company is busy expanding its portfolio (it’s bought four properties so far this year), which is goosing revenues (triple-digit growth), cash flow (should more than double this year) and dividends (just raised to 60 cents per share, per quarter; payable July 15 to those who own the stock before June 28). The main risk here is customer creditworthiness, as many of its clients are relatively small in a new-ish industry. But if all goes according to plan, this company should get much larger over time.
Technical Analysis
IIPR isn’t early in its overall run, which began near the start of 2018 as the marijuana sector gained steam. (The stock was devilishly thin back then.) But shares could be presenting a good entry point on pullbacks—IIPR rallied strongly into March, and then formed a relatively tight 11-week zone, mostly above the 80 area. And now, with the market acting better and the firm’s latest dividend hike, shares have ripped to new highs. Dips would look tempting.
IIPR Weekly Chart
IIPR Daily Chart
Mirati Therapeutics (MRTX)
Why the Strength
Mirati develops targeted therapies for genetically defined cancers. The company’s treatment strategy is to use genomic tests to identify patients that carry the genetic mutations that cause cancer, then administer treatments that stop the genetic changes in tumor cells that result in uncontrolled tumor growth. Mirati has a stacked pipeline and is working with many of the big names in biotech to bring potential therapies to market. The newest development, and the news behind the stock’s June 3 breakout, is that Amgen recently gave a positive Phase 1 trial update for its AMB150 asset, which is similar to Mirati’s MRTX849. Amgen’s positive dose escalation trial data validates the target for two difficult to treat diseases, NSCLC and colorectal cancer (CRC). This data significantly increases the probability of success for MRTX849, which, thus far, hasn’t factored into price target calculations given that Mirati just dosed the first patient in a Phase 1/2 clinical trial in mid-January. Mirati is also working on sitravatinib, its most advanced candidate (in Phase 2 and 3 trials), which targets a wide range of cancers, including bladder, gastric, and non-small cell lung cancer (NSCLC). With Mirati set to release data on six assets in the second half of this year, including for MRTX849, there are plenty of catalysts for the company coming in the months ahead.
Technical Analysis
MRTX had a great 2018 until getting whacked with everything else near year-end. The stock did recovery quickly, moving to new highs in February before another rest period got underway, this one resulting in a drop from 80 to 55 before some recovery in May. And then came the strong breakout on June 3 and some nice upside follow-through since. It’s speculative, but if you want in, you can target a small buy in the mid 90s.
MRTX Weekly Chart
MRTX Daily Chart
Penumbra Inc. (PEN)
Why the Strength
Penumbra sells minimally invasive medical devices for neuro and peripheral vascular conditions. It has been one of the best-performing small- and mid-cap medical device stocks since it went public in 2015, mostly because of the big potential in the stroke aspiration market. Penumbra’s devices help people suffering from ischemic stroke, brain aneurysm and hemorrhagic stroke by removing clots to restore blood flow, treat aneurysms and occlude vessels. Despite the huge potential, and big move from Penumbra’s IPO price of 30 to the 2018 high of 165, the stock hasn’t advanced over the last 12 months due to competitive concerns, but now those concerns seem to be thawing, and shares are reacting positively. While competition will pick up, concerns have likely been overblown given that Penumbra has defended its market share. Analysts see 20% growth in aspiration market volumes this year, which will mark Penumbra’s first full year with its best products (Jet D, Jet 7 and Engine) on the market. All factors considered, Penumbra is expected to grow 2019 revenue and EPS by 23% and 71%, respectively, and 2020 should be another solid year with growth of 19% (revenue) and 46% (EPS). With specialty products that address huge market needs, we think the path of least resistance is higher.
Technical Analysis
PEN had a couple of big corrections in late 2016 and late 2017 but nevertheless made great progress over time, peaking at 167 last June. That began a huge consolidation phase that included multiple dips toward 120 and even one as low as 111 last December. But now the buyers are back—while volume’s been light, PEN has ripped all the way to new price highs this month and refused to give back any of that move. We’re OK starting a position here or on dips.
PEN Weekly Chart
PEN Daily Chart
Trade Desk (TTD)
Why the Strength
The Trade Desk is the number one company in the programmatic ad buying market, a rapid growth market that’s gradually replacing the normal offline method of booking ads (phone calls and handshakes), allowing customers to book ads online. The California-based company’s self-service and cloud-based platform lets ad agencies and other organizations book data-driven digital advertising campaigns for video, social media and mobile channels. The Trade Desk has been beating expectations lately and Q1 2019 results, which included 41% revenue growth (to $121 million) and an EPS beat of $0.25 (EPS of $0.49), suggests that trend can continue. The company is increasingly seen as the single best stock to play the trend from linear TV engagement to digital advertising, not only in the U.S. but in Asia and Europe as well. Analyst estimates have been rising, with consensus estimates now calling for 35% revenue growth this year and 30% in 2020. One interesting aspect of the company is how it works closely with both Google and Apple on privacy issues, which has been a hot button issue lately (and will continue to be). Management believes The Trade Desk is extremely well positioned to grow its business, in part because of recent API updates with both Google and Apple that address these concerns. It’s a solid long-term growth story.
Technical Analysis
TTD went public at 18 back in 2016 and has been a solid performer ever since, though it’s definitely had some major potholes along the way. From October of last year through mid February of this year, shares built a big launching pad, leading to a big gap up on earnings. TTD had a big shakeout in late April, but actually held firm during the market’s sharp slide and, as the selling pressure has eased, the stock has popped to new highs. Dips of a few points look buyable to us.
TTD Weekly Chart
TTD Daily Chart
Universal Display (OLED)
Why the Strength
Organic Light Emitting Diodes (OLEDs) have become one of the hottest display technologies due to their thinness, efficiency, and flexibility. They’re being used by all the big device manufacturers, including Google, Apple, LG, Samsung, Sharp and many Chinese players, too. And they’re one of the reasons we’re now seeing foldable displays hit the market. Universal Display Corporation has been a market leader for over 25 years and makes money by selling OLED-related materials, and earning royalty and license fees based on its mountain of rock solid intellectual property (5,000 issued and pending patents!). The stock is doing well now because optimism is rising again as device manufacturers are reporting strong sell-through of the first generation of foldable mobile devices. Management recently said it sees OLED manufacturing capacity doubling this year, and that should directly benefit the company. Despite the potential, one of the challenges is that Universal Display is a just-in-time supplier, so it doesn’t have a lot of forward visibility on material sales. That said, in Q1 (reported in early-May), the company smashed expectations and boosted its outlook for the rest of the year. Revenue was up 101% to $88 million and EPS of $0.66 beat by $0.34. That was a huge beat and estimates have gone up since. Current consensus is for revenue to grow 44% this year and EPS to grow by 96%, to $2.43. Those growth numbers will keep big investors at the table.
Technical Analysis
OLED hit a multi-year high of 209 early last year then retreated to 80 by the end of June. The stock kicked around in the 80 to 130 range until the end of February when it got going again after the Q4 report (mostly the outlook) caught people’s attention. Shares rose as high as 175 or so before correction and consolidating, but it’s perked back up with the market in recent days and held tight. We’re OK nibbling here and buying more if the stock and market confirm on the upside.
OLED Weekly Chart
OLED 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.
