The Rotation Continues
Current Market Outlook
From a top-down perspective, there’s not much to complain about when it comes to the current market—the intermediate-term trend of the major indexes is firmly pointed up, and the broad market has come alive in a big way, with two major blastoff indicators turning green in the past two weeks. Thus, for the overall market, the outlook is mostly sunny, though there’s always the chance of a passing shower. However, leading growth stocks are now on the run a little bit; it’s been two weeks of on-and-off selling, and many are beginning to approach key support areas. As we’ve written lately, the good news is that breakdowns have been few and far between; the pullbacks have been normal thus far, but the next few days should be telling to see if growth names are in for a deeper retreat or whether everything can get in gear with the broad market on the upside.
As you’d expect, this week’s list is heavier in names that have more recently come to life, including a few cyclical-related names. Our Top Pick is Autodesk (ADSK), a growth-y name that should also get a boost from the economic recovery, and the stock has leapt nicely to new highs.
| Stock Name | Price | ||
|---|---|---|---|
| ASML Holding (ASML) | 350.01 | ||
| Autodesk (ADSK) | 229.00 | ||
| Carrier Global Corporation (CARR) | 26.23 | ||
| Datadog (DDOG) | 81.52 | ||
| Elastic (ESTC) | 86.17 | ||
| Marvell Technology Group (MRVL) | 36.88 | ||
| Square, Inc. (SQ) | 91.04 | ||
| Thor Industries (THO) | 104.76 | ||
| Trade Desk (TTD) | 468.02 | ||
| Trex Company (TREX) | 117.56 |
ASML Holding (ASML)
Why the Strength
It has been called “the most important tech company you’ve never heard of” due to its significance to the chip industry, which in turn plays on outsized role in today’s tech-based economy. ASML specializes in making machines for semiconductor lithography, using lasers to etch tiny circuits onto silicon wafers that are ubiquitous in electronic devices. Despite supply chain difficulties, demand for ASML products remained strong during the COVID shutdowns, and the company was able to work around any disruptions that popped up. And now that economies are reopening worldwide, the company expects to see increased orders and shipments, and the tailwind from a greater reliance on mobile work (more bandwidth, higher networking demands, etc.) environment bodes well for chip demand. The company certainly wasn’t idle during lockdowns: for instance, in late May, it completed testing of and shipped its first-generation multibeam inspection eScan1000 system, which detects defects in the chip-making process. Its next earnings report isn’t due until July, but even with COVID-related impacts, analysts expect the firm’s Q2 revenue to be 33% higher than a year ago, with earnings up a big 73%. And while the firm paused its $6.7 billion buyback program in Q1 due to pandemic-related uncertainties, it indicated buybacks would likely resume in Q3. Analysts see earnings up 15% this year and really lifting off in 2021. It’s a solid, straightforward growth story.
Technical Analysis
Chip equipment stocks have come to life of late, and ASML looks like the leader of the pack. Like everything else, shares nose-dived in March, but they quickly rebounded back to the 300 level before thrashing around for a month. The action since mid May has been terrific, with ASML hitting new highs and seeing plenty of follow-on buying last week. Given the good-not-great volume on the push, we think it’s best to set our buy range down a bit from here.
| Market Cap | $150B | EPS $ Annual (Dec) | |
| Forward P/E | 46 | FY 2018 | 6.95 |
| Current P/E | 51 | FY 2019 | 6.90 |
| Annual Revenue | $13.4B | FY 2020e | 8.01 |
| Profit Margin | 16.0% | FY 2021e | 11.21 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.69 | 8% | 1.03 | 10% |
| One qtr ago | 4.53 | 26% | 3.03 | 42% |
| Two qtrs ago | 3.26 | 1% | 1.62 | -13% |
| Three qtrs ago | 2.92 | -9% | 1.29 | -19% |
ASML Weekly Chart
ASML Daily Chart
Autodesk (ADSK)
Why the Strength
Autodesk’s computer-aided graphic design tools (AutoCAD) make complicated tasks simple. Its software has been used in architecture, engineering and construction, as well as for creating 3D graphics used in films and video games; it counts some of the world’s largest companies as its customers. With a growing pipeline of products, Autodesk serves the complete value chain of several key industries, providing a little insulation against economic downturns. (For instance, as more workers move to cloud solutions in the wake of the shut-in, the firm predicts dramatic growth for its BIM 360 construction management software.) Following in the footsteps of firms like Adobe, a few years ago Autodesk began a transition from one-time licenses to a cloud- and subscription-based business model, and that’s really showing up in the numbers these days. In its latest quarter, the company reported 20% revenue growth and 35% subscription growth, along with free cash flow of $307 million (about $1.40 per share). Its same-customer revenue growth rate remains in the double digits while subscription renewals remained strong, too. While it expects Q2 results to be impacted by COVID, it anticipates a swift recovery in new business after that. Beyond this year’s figures, though, is management’s intermediate-term outlook; as its transition to the cloud and subscriptions continue, it sees free cash flow totaling $2.4 billion in 2022, which would be just north of $10 per share, up a total of 76% from last year’s tally. Throw in a recovering economy and there are plenty of reasons for the stock’s strength.
Technical Analysis
ADSK has made good progress over time, but it’s been lumpy, with lots of downturns and consolidations along the way. But right now the buyers are clearly in control; after crashing in March, the stock bounced nicely into April before resting in the 180 area for about a month. But ADSK has been super-strong since mid May, easily ratcheting to new highs, with volume picking up over the past couple of weeks. If you want in, aim for dips of a few points.
| Market Cap | $51.3B | EPS $ Annual (Jan) | |
| Forward P/E | 62 | FY 2019 | 1.01 |
| Current P/E | 70 | FY 2020 | 2.79 |
| Annual Revenue | $3.42B | FY 2021e | 3.80 |
| Profit Margin | 21.3% | FY 2022e | 5.38 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 886 | 20% | 0.85 | 89% |
| One qtr ago | 899 | 22% | 0.92 | 100% |
| Two qtrs ago | 843 | 28% | 0.78 | 169% |
| Three qtrs ago | 797 | 30% | 0.65 | 242% |
ADSK Weekly Chart
ADSK Daily Chart
Carrier Global Corporation (CARR)
Why the Strength
Willis Haviland Carrier designed the first modern air-conditioning system in 1902. His company was acquired by United Technologies in 1979, but was spun off right before United merged with Raytheon in April of this year so that Raytheon could focus on defense and in hopes that as its own entity, Carrier could maximize its profitability. The company does have a few newer offerings that could add to business; for example, the coronavirus epidemic has renewed the focus on clean air, and Carrier has responded with a new Healthy Buildings Program, offering microscopic filtration systems, touchless building controls, safe start services (after shutdowns), air quality testing and remote air monitoring and energy management. But a lot of the stock’s strength is simply because of the apparent faster-than-expected economic recovery. Today, Carrier owns almost 18% of the HVAC market, and the company claims it’s #1 or #2 in every segment in which it operates, so as building/retrofitting picks up, so will this firm’s business. Plus, as a stand-alone company, it has the potential to grab far more investor attention compared to being buried in a conglomerate’s heap of companies. Chief Executive David Gitlin—who added or was awarded over $1 million of Carrier shares during the past month—thinks the company can grow sales at mid-single digit rates, higher than the average 2.5% annual growth it saw under United Technologies, with earnings expanding at a faster clip. He expects 2020 revenues of $15 billion to $17 billion, and operating profit of $1.7 billion to $2 billion, and those could prove conservative as building-related trends improve.
Technical Analysis
CARR did OK in April and early May after being spun off, but as cyclical stocks have picked up steam, so has this name, hitting new highs above 19 late last month and continuing a few points higher since. Given that it’s such a big, new name, there aren’t a lot of potential sellers out there, so we’re not expecting a major retreat. But we still think the odds favor a little shaking and baking near-term, so we’ll put our range a bit below the current price.
| Market Cap | $20.4B | EPS $ Annual (Dec) | |
| Forward P/E | 18 | FY 2018 | 3.16 |
| Current P/E | 8 | FY 2019 | 2.81 |
| Annual Revenue | $18.2B | FY 2020e | 1.34 |
| Profit Margin | 7.9% | FY 2021e | 1.61 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 3.89 | -10% | 0.35 | -27% |
| One qtr ago | 4.76 | 1% | 0.78 | -1% |
| Two qtrs ago | 4.76 | 1% | 0.78 | -1% |
| Three qtrs ago | 4.76 | 1% | 0.78 | -1% |
CARR Weekly Chart
CARR Daily Chart
Datadog (DDOG)
Why the Strength
Datadog is one of our favorite stories in the application performance management (APM) sector, as it’s likely to capture a big chunk of the $37 billion in APM spending from companies of all sizes through 2023. The firm’s platform provides real-time analytics of a client’s technology assets, enabling faster problem solving and boosting the customer service experience; this has become mission-critical as firms move to the cloud (resulting in varied technology stacks) and in turn adopt a bunch of different apps. Datadog has many different offerings, and customers keep snapping up more and more of them. Its latest quarter saw strength across all segments of its business, beating estimates with $131 million in revenue (+87%), with EPS of 6 cents per share. The same-customer growth rate was fantastic (+30%) as clients increased their usage and adopted new products. Customer growth was further helped by cloud migration, and the firm ended the quarter with 11,5000 clients (+40%), including 960 customers who give Datadog $100,000 or more (up 89% from a year ago)—a group which accounts for three-fourths of its annual recurring revenue. The firm expects second quarter revenue growth of 62% and full-year growth of 55% (though it usually underpromises and overdelivers), and in contrast to many leading technology firms these days, Datadog’s bottom line has leapt into the black. More important than the next quarter or two, though, is the overall story—there’s unlikely to be anything that prevents the APM market from booming for many years, and Datadog is and should remain one of the real leaders in the field. We like it.
Technical Analysis
After its post-IPO rally in January and early February, DDOG fell to lifetime lows in March. But the recovery since then has been jaw-dropping. After two big-volume support weeks near the lows, DDOG rallied six straight weeks on so-so volume before catapulting to new highs after last month’s strong earnings report. Perhaps more impressive is the recent action--while growth stocks have been hit, DDOG has held up well and tested new-high ground today. It’s extended and very volatile, but we’re OK starting small here or (preferably) on dips, albeit with a generous loss limit.
| Market Cap | $21.2B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.04 |
| Current P/E | N/A | FY 2019 | -0.03 |
| Annual Revenue | $424M | FY 2020e | 0.05 |
| Profit Margin | 14.3% | FY 2021e | 0.07 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 131 | 87% | 0.06 | N/A |
| One qtr ago | 114 | 84% | 0.01 | N/A |
| Two qtrs ago | 95.9 | 88% | -0.01 | N/A |
| Three qtrs ago | 83.2 | 82% | -0.01 | N/A |
DDOG Weekly Chart
DDOG Daily Chart
Elastic (ESTC)
Why the Strength
Elastic has always had a great story, and after a long, tedious post-IPO droop lasting more than a year, it looks like it may have finally turned a corner. Fundamentally, the company looks like one of the next big things in Big Data; at its core, the company’s platform allows businesses to more quickly and more easily get information from all the data they now collect (logs, metrics, application performance management data, you name it), including the ability to automatically search for and grab certain sets of data and present it (graphs, tables, etc.) in any way desired. The attraction here has always been the wide variety of use cases for the offering, with customers such as Match.com (finds potential dating partners), Bayer (analytics on patient data), T-Mobile (saving time to ID network problems), Proctor & Gamble (unifying reams of disparate data), John Deere (farming data to help customers maximize yield), Grubhub and General Mills (more accurate search results for consumers), NCIS Cybersecurity (quicker actionable insights), Fastenal (index/store their 500,000 products)—just about every decent-sized company in every industry is a potential customer. All in, Elastic had 11,300 customers (up nearly 40% from a year ago) at the end of April, most of which are on subscription, while same-customer revenue growth is north of 30% as customers expand their usage. The virus has had some impact, but new customer sign-ups have overwhelmed any negative impact, and most sub-metrics (remaining performance obligations up 52%) are surging. The bottom line is still in the red, but there’s no question the near- and long-term potential here is enormous.
Technical Analysis
ESTC came public in late 2018 and had a good first few months, but it topped at 100, bumped downhill for many months and then crashed in March, falling as low as 39. The recovery from there didn’t set any records, but the advance has been persistent since early April and has gathered stream in recent weeks—the stock leapt to multi-month highs on a pickup in volume early last week, followed by a normal retreat over the past few days. We’re OK grabbing a few shares here.
| Market Cap | $7.10B | EPS $ Annual (Apr) | |
| Forward P/E | N/A | FY 2019 | -0.86 |
| Current P/E | N/A | FY 2020 | -0.93 |
| Annual Revenue | $428M | FY 2021e | -0.97 |
| Profit Margin | N/A | FY 2022e | -0.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 124 | 53% | -0.12 | N/A |
| One qtr ago | 113 | 60% | -0.28 | N/A |
| Two qtrs ago | 101 | 59% | -0.22 | N/A |
| Three qtrs ago | 89.7 | 58% | -0.32 | N/A |
ESTC Weekly Chart
ESTC Daily Chart
Marvell Technology Group (MRVL)
Why the Strength
Marvell Technology is a chip stock that’s been around for a while which in recent years has transformed itself into a data infrastructure outfit, with chips that play into a variety of major growth trends like advanced automotive products, data center solutions, enterprise networking, wireless connectivity (including 5G) as well as various storage networking offerings. Business has been so-so for a while, but it looks like the firm’s gradual transition to infrastructure (sped up by acquisitions, including that of Cavium in 2018) is about to pay off in a big way; the shut-in has boosted demand for its cloud data center and 5G products, a trend that should continue even as economies reopen, while chips for ARM servers are another growth driver. The stock is strong today because the Q1 report of a couple of weeks ago easily topped expectations (sales up 5%, earnings up 13%), but far more important is that analysts see that as the first of many quarters of accelerating growth—cloud revenue topped 10% of Marvell’s total for the first time in history (sure to go much higher going forward), with overall networking revenue leaping more than 10% from the prior quarter. Meanwhile, wireless infrastructure benefited from a pickup in 5G demand despite some industry hiccups, with management saying its wares are designed into the latest generation of base stations for multiple suppliers. (“We are still at the very beginning of the industry transition from 4G to 5G and look forward to driving significant revenue growth from this end market” per the CEO.) Throw in optimism about connected auto end markets and Wall Street is excited—analysts see earnings up 44% this year and 48% next as business picks up steam. We think the future is bright.
Technical Analysis
MRVL had a big run through early 2018, but after topping at 24.5, it had a tough go of it—it hit slightly higher highs in 2019 and much lower lows along the way, but as of a month ago it was still hanging around the mid 20s. But now MRVL has completely changed character, not only breaking out but following through beautifully over the past couple of weeks. We think a dip of a point or two would be an opportunity to start a position.
| Market Cap | $23.9B | EPS $ Annual (Jan) | |
| Forward P/E | 38 | FY 2019 | 1.19 |
| Current P/E | 53 | FY 2020 | 0.66 |
| Annual Revenue | $2.73B | FY 2021e | 0.95 |
| Profit Margin | 17.0% | FY 2022e | 1.41 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($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
Square, Inc. (SQ)
Why the Strength
Square has always had a great story, and the stock is strong today as growth continues unabated despite the recent economic wobbles. In the first quarter, the firm’s revenues were up 44%, to $1.38 billion, about 6% higher than analysts’ estimates. Its gross profits doubled, though it lost $0.02 per share due to higher reserves for loan losses in the wake of coronavirus. Backing out to the story, Square is growing fast in two ecosystems: payments and lending. On the payments side of things, the core merchant business remains strong—Square now has 30 million businesses using its services, with a growing contingent of larger firms that contributed 52% of the company’s gross payment volume in Q1. But there’s even greater excitement surrounding its Cash App, the company’s peer-to-peer payment service (similar to Venmo for PayPal); Cash App users have grown from seven million in 2017 to more than 24 million at the end of last year, and the product contributed $528 million to revenues for the first quarter, up 197% over last year. Cash App works like a debit card, allowing deposits, transfers of money, investments in stocks and even purchases of bitcoin. As for Square’s lending platform, it facilitated 75,000 loans in Q1 worth $548 million, up just 8% from last year (slow growth due to virus effects), though the company was approved to handle the PPP loans arising from the coronavirus stimulus. Interestingly, the company has just received approval to open its own bank, which should vastly extend its lending potential. All in all, the story is still top-notch, and after a very long rest, the stock is kicking into gear.
Technical Analysis
SQ topped out around 100 back in October 2018 and could never really get going for the next year and a half, before finally going over the falls during this year’s crash. But that looks like it was the final shakeout to the stock’s long consolidation—SQ’s initial rally was great, and it has refused to let up, with the stock stair-stepping higher and pushing to new highs last week. You can get in here or (preferably) on weakness.
| Market Cap | $39.5B | EPS $ Annual (Dec) | |
| Forward P/E | 333 | FY 2018 | 0.47 |
| Current P/E | 131 | FY 2019 | 0.80 |
| Annual Revenue | $5.13B | FY 2020e | 0.27 |
| Profit Margin | N/A | FY 2021e | 0.95 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.38 | 44% | -0.02 | N/A |
| One qtr ago | 1.31 | 41% | 0.23 | 64% |
| Two qtrs ago | 1.27 | 44% | 0.25 | 92% |
| Three qtrs ago | 1.17 | 44% | 0.21 | 62% |
SQ Weekly Chart
SQ Daily Chart
Thor Industries (THO)
Why the Strength
Coronavirus has made camping hot again! The biggest RV retailer, Camping World, reported that the first weekend in May was its best ever. Thor is the world’s largest RV manufacturer, with brands include Airstream, CrossRoads, Cruiser RV, Dutchmen, Jayco, Starcraft and Motor Coach. And business looks good—just this morning, Thor reported EPS of $0.43 per share, soundly beating the Street’s estimate of a loss of that exact amount. Revenues came in at $1.68 billion, 18% higher than analysts had estimated. Of course the revenue figure was down handily from a year ago because the company suspended global production in March and April, but Thor restarted production on May 5 and now has most of its operations back up and running. With campgrounds and national parks reopening, the potential for RV’ing is growing; the company just released its North American RV Consumer Survey Report (with 20,000 respondents), showing that 56% of those who intend to vacation in a RV plan to utilize it for weekend trips, 53% are planning at least one week-long trip and 79% said they plan on using their RV at least as much this year as they did in 2019. With folks still wary of booking cruises and travel tour packages, RV’ing is catching on with potential new customers, too. Another piece of bullish evidence comes from online peer-to-peer rental service RVshare—the recreational vehicle version of Airbnb—which is seeing a big boom in business in its 100,000 listings across the country; in the Midwest alone, bookings in the second week of May rose 30%. All told, the RV industry looks set for an outstanding rebound in the quarters ahead.
Technical Analysis
After a long decline, THO had gotten its act together during the second half of last year, but the virus then got in the way, causing shares to drop like a rock. But now the trend has reasserted itself—THO has enjoyed a stunning recovery, with gains actually accelerating in recent weeks (just one down day since May 14!) as investors see an earnings boom around the corner. We advise entering on dips.
| Market Cap | $5.92B | EPS $ Annual (Jul) | |
| Forward P/E | 22 | FY 2018 | 8.55 |
| Current P/E | 19 | FY 2019 | 6.48 |
| Annual Revenue | $8.15B | FY 2020e | 2.25 |
| Profit Margin | 1.4% | FY 2021e | 4.60 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.68 | -33% | 0.43 | -74% |
| One qtr ago | 2 | 55% | 0.67 | 3% |
| Two qtrs ago | 2.16 | 23% | 1.50 | 17% |
| Three qtrs ago | 2.31 | 23% | 2.55 | 53% |
THO Weekly Chart
THO Daily Chart
Trade Desk (TTD)
Why the Strength
The decline of linear TV (live TV that’s watched as scheduled, as opposed to pre-recorded or on-demand content) has hurt traditional advertisers but has brought new growth opportunities for digital advertisers. Trade Desk caters to the latter group, with what most believe is the best platform to help clients manage data-driven digital advertising campaigns across various devices. It’s also now in the streaming space and is the largest aggregator of internet-connected TV (so-called CTV) ad impressions across every major content provider, including having partnerships with Amazon and Disney. The firm believes the recent shutdowns have rapidly accelerated the transition to CTV, changing the media landscape forever and shifting more advertising to that medium; this year, it expects to surpass traditional TV in reach. Combine that with a big move toward programmatic ad buying (done online vs. handshake deals) and Trade Desk has been expanding at a fast clip for years. In Q1, sales (up 33%) and earnings per share (up 84%) continued their rapid growth trends; while COVID reduced ad spending for certain categories (auto, fashion and travel), the company reported stronger verticals for fitness, technology, gardening and education, with political ad spending also picking up. Q2 will probably reflect a virus-related pullback in ad buying, but Trade Desk’s growth story should reaccelerate soon after, and there’s no question the long-term outlook is bright.
Technical Analysis
TTD had a huge, huge run through the middle of last year, finally losing some steam around 280; shares did hit new highs earlier this year, but without much power, and of course the stock crashed to new lows in March with everything else. The stock’s off-the-bottom rally (up six of seven weeks) was solid, as was the relatively tight consolidation for much of May. Now TTD has lifted off, breaking out on good volume last week. We’re OK taking a swing at it around here.
| Market Cap | $16.3B | EPS $ Annual (Dec) | |
| Forward P/E | 133 | FY 2018 | 2.70 |
| Current P/E | 82 | FY 2019 | 3.69 |
| Annual Revenue | $701M | FY 2020e | 2.66 |
| Profit Margin | 27.0% | FY 2021e | 3.79 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 161 | 33% | 0.90 | 84% |
| One qtr ago | 216 | 35% | 1.49 | 37% |
| Two qtrs ago | 164 | 38% | 0.75 | 15% |
| Three qtrs ago | 160 | 42% | 0.95 | 58% |
TTD Weekly Chart
TTD Daily Chart
Trex Company (TREX)
Why the Strength
Two months ago, as the global economy was shutting down, the “smart” bet was that anything construction-related was going to be toast for many months if not longer. But that perception was wrong, with most investors now anticipating a quicker-than-expected recovery toward normal times. Trex is lined up to be one of the better plays on that front; the composite wood sector (2x to 5x the upfront cost, but far less cost over time) is gaining share overall, and Trex is the top dog in the engineered wood sector thanks to its reach and brand name. There’s a long way to go in the move to composites, which have just 20% of the market, with “regular” wood making up 80%; every 1% increase in market share equals $50 million of composite sales, so there’s big potential in the years ahead. Trex is doing its part, coming out with new outdoor products, moving into non-residential areas (stadium railings, commercial sales, etc.) and expanding internationally, all while keeping costs in check. But right now, the stock is moving on expectations for a quicker-than-expected economic revival. Q1 results were solid (sales up 12%, earnings up 35%), and while Q2 will almost surely suffer (earnings are expected to fall 12% in the current quarter as the shut-in affected things), investors are clearly thinking Trex is likely to resume its excellent long-term record of growth (sales and earnings up each of the past five years, margins expanding, etc.). It should do well if economically-sensitive stocks continue their recent upmove.
Technical Analysis
TREX had a great uptrend from 2015 through late 2018, consolidated for a year, and then managed to hit new highs earlier this year before crashing with the market in March. What’s impressive is that, despite hesitant action in the construction sector, TREX actually recovered to its old high by early May and it remains in good shape today, holding north of its 25-day line. We’re OK picking up shares here.
| Market Cap | $7.23B | EPS $ Annual (Dec) | |
| Forward P/E | 50 | FY 2018 | 2.35 |
| Current P/E | 42 | FY 2019 | 2.51 |
| Annual Revenue | $766M | FY 2020e | 2.50 |
| Profit Margin | 21.1% | FY 2021e | 2.88 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 200 | 12% | 0.73 | 35% |
| One qtr ago | 165 | 18% | 0.61 | 42% |
| Two qtrs ago | 195 | 17% | 0.72 | 26% |
| Three qtrs ago | 206 | 0% | 0.64 | -12% |
TREX Weekly Chart
TREX 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 | |||||
| 6/1/20 | Adaptive Bio | ADPT | 37.5-39.5 | 39 | |
| 5/26/20 | Allogene Thereapeutics | ALLO | 46-48.5 | 43 | |
| 3/16/20 | Apple | AAPL | 238-248 | 334 | |
| 4/20/20 | ASML Holdings | ASML | 285-295 | 349 | |
| 5/11/20 | Atlas Air Worldwide | AAWW | 36.5-38.5 | 41 | |
| 5/18/20 | Avalara | AVLR | 97-100 | 100 | |
| 5/4/20 | Bandwidth | BAND | ? | 90-94 | 112 |
| 5/18/20 | Beyond Meat | BYND | 122-128 | 162 | |
| 6/1/20 | Bill.com | BILL | 69-73 | 68 | |
| 5/26/20 | BJ’s Wholesale | BJ | 34-36.5 | 34 | |
| 5/11/20 | Chegg | CHGG | ? | 58-62 | 58 |
| 3/23/20 | Chewy | CHWY | ? | 29-32 | 49 |
| 4/13/20 | Ciena | CIEN | 42.5-44 | 55 | |
| 3/23/20 | Cloudflare | NET | 19-21 | 29 | |
| 3/23/20 | Coupa Software | COUP | 124-132 | 221 | |
| 4/20/20 | CrowdStrike | CRWD | 65-67.5 | 95 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 369 | |
| 9/9/19 | DocuSign | DOCU | ? | 55-58 | 147 |
| 5/4/20 | DraftKings | DKNG | 19.5-21.5 | 38 | |
| 6/1/20 | Dynatrace | DT | 35-37 | 37 | |
| 5/18/20 | Fastly | FSLY | 36-39 | 48 | |
| 4/6/20 | Five9 | FIVN | 74.5-78 | 97 | |
| 5/18/20 | Fortinet | FTNT | 137-143 | 138 | |
| 5/26/20 | Guardant Health | GH | 87.5-91.5 | 80 | |
| 5/4/20 | Halozyme | HALO | 22.5-24 | 24 | |
| 5/26/20 | Horizon Therapeutics | HZNP | 45.5-48 | 49 | |
| 6/1/20 | II-VI | IIVI | 45.5-48 | 49 | |
| 4/20/20 | Immunomedics | IMMU | 20.5-22 | 32 | |
| 3/16/20 | Inphi | IPHI | ? | 62.5-66 | 111 |
| 6/1/20 | LiveRamp | RAMP | 48-50 | 47 | |
| 5/11/20 | MercadoLibre | MELI | 750-790 | 859 | |
| 5/18/20 | MyoKardia | MYOK | 106-110 | 101 | |
| 5/26/20 | Neurocrine Bio | NBIX | 114-119 | 119 | |
| 3/30/20 | Nvidia | NVDA | 250-270 | 352 | |
| 3/30/20 | Okta | OKTA | ? | 118-126 | 185 |
| 5/26/20 | 1Life Healthcare | ONEM | 32.5-35 | 32 | |
| 6/1/120 | Pan American Silver | PAAS | 27-29 | 27 | |
| 4/27/20 | PayPal | PYPL | ? | 117-122 | 156 |
| 4/6/20 | Pelaton | PTON | 27-29 | 45 | |
| 4/27/20 | Pinduoduo | PDD | ? | 48-51.5 | 68 |
| 5/11/20 | Schrodinger | SDGR | 53-56 | 65 | |
| 3/2/20 | Seattle Genetics | SGEN | ? | 107-111 | 151 |
| 4/20/20 | Shopify | SHOP | 575-615 | 731 | |
| 5/26/20 | Spotify | SPOT | ? | 184-191 | 187 |
| 10/28/19 | Teladoc | TDOC | 69-72 | 166 | |
| 11/11/19 | Tesla | TSLA | 320-335 | 950 | |
| 5/11/20 | TG Therapeutics | TGTX | 17.5-19 | 18 | |
| 4/20/20 | Tradeweb Markets | TW | 50-52 | 63 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 197 | |
| 10/28/19 | Vertex Pharm. | VRTX | ? | 191-196 | 265 |
| 5/26/20 | Wayfair | W | 152-162 | 176 | |
| 4/13/20 | Wheaton Precious Metals | WPM | 31-32.5 | 38 | |
| 5/11/20 | Wingstop | WING | 116-122 | 116 | |
| 5/26/20 | Wix.com | WIX | 195-205 | 215 | |
| 2/24/20 | Zoom Video | ZM | ? | 96-104 | 210 |
| 4/6/20 | Zscaler | ZS | 61-64 | 103 | |
| WAIT | |||||
| 6/1/20 | Arconic | ARNC | ? | 14-15 | 19 |
| 6/1/20 | Tractor Suppy | TSCO | 115-119 | 122 | |
| SELL RECOMMENDATIONS | |||||
| 4/20/20 | Acadia Pharma | ACAD | 48-51 | 47 | |
| 4/20/20 | Franco Nevada | FNV | 122-126 | 129 | |
| 4/27/20 | Freshpet | FRPT | 74-78 | 82 | |
| 3/9/20 | Newmont Corp | NEM | 46.5-48.5 | 56 | |
| 5/18/20 | Ollie’s Bargain Outlet | OLLI | 73-77 | 99 | |
| 5/18/20 | Scotts Miracle Gro | SMG | 139-145 | 139 | |
| DROPPED | |||||
| 5/26/20 | Big Lots | BIG | 31-33 | 35 | |
The next Cabot Top Ten Trader issue will be published on June 15, 2020.