Chop, Chop, Chop ...
The market continues to chop around, with forays into new-high ground inviting plenty of sellers and sharp dips quickly attracting bargain-hunting buyers. We are seeing more set-ups out there, which is a good sign—if the market does kick into gear, there should be some solid leadership. However, until then, this is about as neutral and choppy an environment as we can remember. That doesn’t mean you shouldn’t take any action (this isn’t 2008!), but it’s best to wait for the market to show some bullish action before getting heavily invested. Patience and cash are your allies today.
This week’s list is the first in a while that has a growth tilt to it; there are still some cheap, stable-type stocks, but also some real potential leaders of the next advance. Our favorite is Arris Group (ARRS), which has excellent growth prospects, a huge backlog and a nice-looking launching pad.
| Stock Name | Price | ||
|---|---|---|---|
| WhiteWave Foods (WWAV) | 0.00 | ||
| Vipshop Holdings (VIPS) | 14.25 | ||
| Trinity Industries (TRN) | 0.00 | ||
| Rice Energy (RICE) | 0.00 | ||
| Pacira Biosiences (PCRX) | 54.85 | ||
| InterMune (ITMN) | 0.00 | ||
| Gilead Sciences (GILD) | 75.10 | ||
| CBRE Group (CBG) | 0.00 | ||
| Arris Group (ARRS) | 0.00 | ||
| Apple (AAPL) | 248.94 |
WhiteWave Foods (WWAV)
Why the Strength
WhiteWave Foods was spun off from Dean Foods in October 2012, and that opened up a great investment opportunity—the company is a big player in the organic food space, with Horizon (the largest organic dairy brand), alpro (a leading non-genetically modified organism, or GMO, brand in Europe) and Silk, the #1 plant-based (almond, soy, etc.) beverage brand in the U.S. And possibly best of all, WhiteWave acquired Earthbound Farms in January, the largest organic produce brand in the U.S. with a 55% market share of the organic packaged salad market. Put it together and you have a ton of leading brands in an industry that should enjoy solid growth (13% expected growth in non-GMO foods) in the years ahead. Throw in some expansion overseas (WhiteWave is just beginning a push into China, via a joint venture) and the company should be able grow earnings at a 15% to 25% clip for many years. The firm’s first-quarter report was spectacular, partially thanks to the highly accretive buyout of Earthbound Farms; analysts see earnings up 32% this year and 17% next, though our guess is that those figures are conservative. All told, it’s not revolutionary, but this is a solid long-term growth story.
Technical Analysis
WWAV didn’t do much for the first year after being spun-off; the stock was still meandering around its IPO price late last year. But an uptrend kicked off in November, bringing the stock north of 30 before the market’s weakness caused the stock to form a new base. And thus far, that base looks terrific—WWAV fell just 15% before finding support, and the last two weeks have seen the stock come alive on good volume following the quarterly report. If you want in, you could nibble here with a stop around 27.
WWAV Weekly Chart
WWAV Daily Chart
Vipshop Holdings (VIPS)
Why the Strength
While there has been a steady rotation out of Chinese stocks in general and e-commerce/tech stocks in particular, Vipshop Holdings has been an exception to the general decline. Vipshop is an online retailer that specializes in high quality branded goods from well-known manufacturers. Vipshop obtains its merchandise through its partnerships with over 6,000 Chinese and international brands, then offers steeply discounted goods via flash sales—limited-time offerings that go on for periods from a few days to a few hours. While giants like Alibaba sell all kinds of merchandise, Vipshop is focused on trendy, fashionable items that appeal to China’s young, image-conscious shoppers, which is one reason that top brands are willing to cut the company such good deals. The company’s quarterly report on May 14 was a complete blowout, with revenue up 126% and earnings up 271%. And the persistent rumors that Vipshop might become a target of a bidding war between Alibaba and JD.com (another Chinese e-commerce giant), with Amazon also mentioned as a possible suitor, don’t hurt a bit. Until Alibaba comes public later this summer, Vipshop Holdings is everyone’s favorite way to play Chinese retail.
Technical Analysis
VIPS began to streak higher in August 2012 and began to trade on significant volume in February 2013 when the stock was trading in the 20s. After gapping up to 182 in early March, VIPS began to correct on moderate volume. But while many Chinese stocks have continued to decline, VIPS has found support at 130 multiple times; it really stopped declining in late March. Two high-volume up days followed the company’s quarterly report and VIPS has surged back above 160. We think it’s buyable on any weakness, with a stop at 140.
VIPS Weekly Chart
VIPS Daily Chart
Trinity Industries (TRN)
Why the Strength
Trinity Industries is the largest railcar manufacturer in the U.S., manufacturing auto carriers, box cars, gondola cars, hopper cars, intermodal cars and tank cars. The company also leases and manages railcar fleets, while its Inland Barge unit builds barges used to transport coal, grain and other commodities. With its market dominance, and the energy industry’s lack of sufficient pipelines, Trinity has become an excellent way to play the booming shale oil production the U.S. The company has positioned itself to take advantage of the coming industry upgrades due to new railcar standards and the inevitable build-out related to growth in shale oil production. In fact, revenue projections place Trinity’s 2014 earnings at $7.48 per share, up 60% year-over-year. And while earnings are expected to dip a bit in 2015, current projections may be overly pessimistic given Trinity’s record backlog of railcar orders, which are currently valued at $5.2 billion. Lastly, the company is bending over backward to return cash to its investors, announcing a 2-for-1 stock split and a 33% increase in its quarterly dividend (to 0.5% annually). All in all, there is a lot to like about Trinity.
Technical Analysis
After spending most of 2013 bouncing around support in the 40 region, TRN shares caught fire heading into 2014. On November 1, TRN flared higher in the wake of a solid quarterly report, extending the stock’s rally along its 10-week moving average. The stock rode this trendline higher, breaking out above the 60 region in mid-February and shares eventually digested those gains before heading higher once again following the earnings report. Currently, volume remains strong for TRN, with shares eclipsing the 80-level last week. You can nibble here or on weakness.
TRN Weekly Chart
TRN Daily Chart
Rice Energy (RICE)
Why the Strength
There are lots of strong energy stocks these days, but when you dig into the details, Rice Energy might have the best story of them all. The company has 90,000 acres in some of the most lucrative spots in the two most lucrative shales in the U.S., the Marcellus and Utica. And, thanks to a differentiated drilling approach (they’re very accurate when placing the lateral), well results are generating triple-digit returns; despite all of the production being lower-priced natural gas, the company’s upfront drilling costs are recouped in 12 to 15 months, and the rest is all gravy! In fact, when you adjust for how few wells Rice has online (around 50), the company is miles ahead of its peers at the same stage. Also unique is that Rice is investing heavily in its own transportation infrastructure, which supports its rapid production growth. And rapid it is—in the just-reported first quarter, the company’s output surged 135% from the year before (and up 36% from the prior quarter!), and some wells it brought online in April are performing lights out. Moreover, like most shale companies, Rice has years and years of drilling inventory. All told, analysts see revenue exploding to $440 million this year and $775 million in 2015, but we think these figures could prove very conservative if gas prices remain elevated. We like it.
Technical Analysis
RICE is so new it’s easy to evaluate the chart. It came public, rallied for a few days, and then tightened up at 24 for about six weeks, before rallying to 32 by late-April. The pullback after that looked orderly (testing the 10-week line for the first time since coming public), and shares have moved higher on the heels of the superb quarterly report. If you’re game, you can buy some here, but use a stop around 28 in case the market has another leg lower.
RICE Weekly Chart
RICE Daily Chart
Pacira Biosiences (PCRX)
Why the Strength
Pacira Pharmaceuticals has carved out a niche for itself by developing a unique injection therapy technology. The company’s DepoFoam technology is an injection-based product delivery platform that allows for both immediate and sustained release of injected therapies. While DepoFoam has considerable licensing potential, Pacira currently has three drugs on the market designed around the technology: EXPAREL, a local analgesic that reduces the need for post-operative opioids; DepoCyte, a treatment for lymphomatous meningitis, a life-threatening complication of lymphoma; and DepoDur, a treatment for post-operative pain. Pacira has considerable growth potential, as EXPAREL remains in clinical trials for additional uses. In fact, the biggest news for Pacira lately has been the company’s New Drug Application for a nerve block indication for EXPAREL. The move is based on positive data from a pair of Phase III studies assessing the drug’s safety and efficacy in femoral nerve block and intercostal nerve blocks. Lastly, revenue growth has been impressive, averaging 162% per quarter during the past year (about half from product sales and half from research deals), and analysts see earnings surging into the black next year.
Technical Analysis
PCRX has come a long way since going public at 7 in January 2011. After bouncing around in the single digits in 2011, PCRX has been on fire, making a run for the teens in 2012, and eclipsing 50 by the end of 2013. In January, PCRX vaulted past 60 and spent the past several months bouncing between support in the area and overhead resistance near 80. The stock currently has support at its 10- and 25-week moving averages, with the latter providing a springboard in early April. Currently, PCRX appears to be headed back toward a test of the 80 level, with support building near 70.
PCRX Weekly Chart
PCRX Daily Chart
InterMune (ITMN)
Why the Strength
InterMune is a California-based drug company that has never shown a profit, but that keeps going primarily on the strength of its one marketed product, a drug called Esbriet, a treatment for idiopathic pulmonary fibrosis (IPF), a condition that causes thickening and scarring deep in the lungs, interfering with oxygen transfer. Esbriet is approved for sale in the EU and Canada (which has been driving revenue growth), and recent clinical studies in the U.S. have confirmed that the drug slows damage to lungs. The news of the positive clinical results gave InterMune’s stock a huge boost in late February. The company is expected to submit Esbriet (generic name: pirfenidone) for FDA approval in a few weeks. If the drug is approved for sale in the U.S., which is widely expected, the effect on InterMune’s bottom line will be substantial. There are about 70,000 cases of IPF in the U.S., a number that InterMune anticipates will increase by 15,000 to 20,000 each year as diagnosis techniques improve. The outlook for InterMune is bright indeed.
Technical Analysis
ITMN made some huge gains in 2010 from earlier attempts to gain approval for Esbriet, but declined through much of 2011 and 2012 and was trading pancake flat in June 2013 when a bit of good news kicked it to 16 in just four weeks. After more flat trading, ITMN got a massive 171% blastoff on February 25 after the good clinical news. The stock traded under resistance at 38 for two-and-a-half months before news of the submission for marketing kicked it past 38 today. The good news is out on ITMN and there don’t appear to be any other near-term catalysts for big gains until the actual approval happens. But ITMN has a new multi-year high and the attention of investors at its back. We think it’s a reasonable speculative buy on dips, with a tight stop at 34.
ITMN Weekly Chart
ITMN Daily Chart
Gilead Sciences (GILD)
Why the Strength
Gilead Sciences has always done good business in HIV treatment, where it has a dominant franchise of drugs, but that business, while very profitable, isn’t growing much anymore. Today, Gilead’s stock is moving due to its revolutionary Sovaldi drug for Hepatitis C, which effectively eradicates the disease via a once-per-day pill taken over 12 to 24 weeks! There is controversy surrounding the price, which is north of $80,000 for the full treatment; some politicians even got involved, raising the specter of government interference. But that has died down of late as more understand that the price tag, while steep, is far lower than the cost of years of maintenance treatment (the prior standard). There’s also some competition coming in the months ahead, but Sovaldi looks like the clear leader in terms of results. Speaking of results, Gilead’s first full quarter of Sovaldi sales produced jaw-dropping revenues and earnings, and analysts see the bottom line soaring north of $6 per share this year and growing steadily from there. That makes the valuation relatively cheap, and management has responded by pledging to buy back nearly $3 billion of its shares through September, and then another $5 billion in the years that follow. It’s a unique story.
Technical Analysis
GILD was a huge, huge winner in 2012 and 2013, so its stalling action in February, combined with a 25% haircut through mid-April, raised the odds that a major top was in. But since that low, the stock has pushed persistently higher, including rising 13 of 14 days right off the bottom, a sign of institutional support. You could nibble around here with a stop around 76, or just keep it near the top of your watch list.
GILD Weekly Chart
GILD Daily Chart
CBRE Group (CBG)
Why the Strength
Growth stocks aren’t exactly the flavor of the month on Wall Street, but CBRE Group, a commercial real estate giant, has been a modest gainer despite all the worries about sector rotation. CBRE Group is a global operation that advises owners, investors and occupiers of commercial facilities about buying, selling and leasing properties, including financial analysis, loan origination, assessment and property management. In other words, CBRE Group can do everything from finding a site and arranging the loan to cleaning out the wastebaskets and washing the windows. The gradual improvement in global economic conditions has provided steady support for the company, and annual earnings have increased every year from 2009, the trough of the Great Recession, when EPS was just 39 cents to 2013 when EPS was $1.42. And estimates for 2014 and 2015 are each up 15%, with 2014 at $1.63 and 2015 at $1.87. A great earnings report on May 1 featured revenue growth of 26% and excellent earnings growth of 56%, catching investors’ attention. It’s not all that common for Fortune 500 and S&P 500 companies to qualify for coverage in Cabot Top Ten Trader, but CBRE Group, a 44,000-employee powerhouse with strong connections to global commercial real estate trends, is a consistent grower in a dicey market.
Technical Analysis
CBG was hit by a huge correction in 2011 that sank it from 30 to 12 in just five months. But the stock began its rebound immediately and pushed back above 28 in March of this year. After correcting to 26 in late April, the stock was boosted to 29 by the company’s May 1 earnings report. After a week or so of digesting that gain, CBG is pushing back out to new multi-year highs, with that old 2011 high at 30 clearly in its sights. CBG looks like a good long-term buy on any weakness, with a stop around the bottom of its earnings gap at 26.5.
CBG Weekly Chart
CBG Daily Chart
Arris Group (ARRS)
Why the Strength
The transformation in broadband hardware maker Arris Group since the company’s acquisition of Motorola Mobility’s Home business has been astounding. The company, which is now the leading video client provider (i.e., set-top boxes) has seen revenue spike from an average of $351 million per quarter prior to the acquisition to more than $1.12 billion during the four quarters since. In fact, Arris has seen its revenue grow 220% and earnings grow 92% since the acquisition. The company has drawn most of its revenue from U.S. operations, which accounted for roughly 74% of total revenue. Comcast, Time Warner Cable, Charter Communications and AT&T constituted about 52% of total first-quarter 2014 revenue. Additionally, Arris stated in its most recently quarterly report that at the end of the first quarter, it’s total order backlog was $996 million, compared to just $282 million a year ago. Growth also is expected to continue at an impressive pace, with analysts forecasting earnings to rise 48% in 2014, driven by a domestic push toward IP TV, with results tapering to 18% growth by 2015 as the broadband upgrade cycle slows. Lastly, roughly 3.1 million shares are sold short, or 13% of the stock’s total float, which translates to future buying power.
Technical Analysis
Prior to its acquisition of Motorola Mobility’s Home business, trading was choppy for ARRS. But the stock’s action has since been impressive. ARRS came to life in mid-November after spending several months forming a base near 20. Shares quickly ascended past 25 on strong volume before pulling back to support at their 10-week moving average. ARRS peaked just north of 30 in late February before broad market turmoil forced shares to test support near 25. The stock has since recovered, and is making a run at 30, driven by renewed volume. You can buy here, or wait for a solid break above 30.5.
ARRS Weekly Chart
ARRS Daily Chart
Apple (AAPL)
Why the Strength
Apple is one of the Top Ten All Stars, making 14 appearances here since it was first featured in 2004. The company is now among the most valuable in the world and generates enormous headlines every day from speculation about new products, possible moves in the China market, advice and criticism and, occasionally, actual bits of real information. It’s a well-loved and well-hated company whose iPhones, iPads, iMacs and MacBooks have set the standard for style and tight integration of hardware, software and ancillary services like iTunes and the App Store. The company’s stock hit a high at 675 in 2012, but corrected sharply to a double bottom near 375 in April and June 2013 as analysts saw little chance that the successor to Steve Jobs could keep innovation rapid and produce a new generation of transformative gadgets. In other words, Apple ceased to be a romance stock and was on its way to being a reality stock that would trade just on its revenue and earnings. But the company’s fiscal Q2 report on April 24 was a powerhouse, featuring excellent revenue and earnings growth along with a 7-for-1 stock split, an increase in the company’s share repurchase program and a hike to its quarterly dividend. The company has also had a win in its long-running patent infringement battle with Samsung and a settlement of a wage-fixing conspiracy case that also involved Google. All in all, Apple doesn’t look like it’s ready to settle down and trade like a Dow stock.
Technical Analysis
AAPL rebounded from its 675 to 375 correction with strong price increases through the end of 2013, then settled into a tight band between 510 and 540 in March and April. The stock gapped up on huge volume after its earnings report (and stock split/dividend increase/share buyback increase news). The stock has now climbed back atop 600 on slightly increased volume and looks like a last-ditch focus for growth investors. A buy on a dip below 600 with a stop at 540 looks like a good risk-reward.
AAPL Weekly Chart
AAPL 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.
