Be Patient
Current Market Outlook
As expected, we’re seeing a ton of day-to-day volatility in the market—last week the Nasdaq spiked higher by nearly 300 points in less than three days, only to give it all back since Thursday. But net-net, we really haven’t seen any change in the market’s picture, as the intermediate-term trend is pointed down for most indexes, sectors and individual stocks. The good news is that, as expected, earnings season has revealed a nice crop of potential leaders that are acting resiliently—this week’s list has a bunch of them to consider. But remember that, in a weak market, good-looking stocks can go bad in a hurry, which is why we advise holding a bunch of cash, and if you buy, you should keep positions very small and look to enter on weakness. We’re keeping our Market Monitor at a level 4 in today’s issue.
This week’s list is chock full of earnings winners, which, encouragingly, are generally holding up well despite the market’s latest slide. Our Top Pick is Etsy (ETSY), whose growth is picking up steam and stock is acting great.
| Stock Name | Price | ||
|---|---|---|---|
| Alteryx (AYX) | 132.78 | ||
| BioTelemetry Inc. (BEAT) | 58.58 | ||
| CyberArk (CYBR) | 111.74 | ||
| Dexcom (DXCM) | 421.36 | ||
| Etsy (ETSY) | 112.97 | ||
| Genomic Health (GHDX) | 64.42 | ||
| Horizon Therapeutics (HZNP) | 49.89 | ||
| The Mosaic Company (MOS) | 29.22 | ||
| Twilio (TWLO) | 183.39 | ||
| Ulta Beauty (ULTA) | 331.95 |
Alteryx (AYX)
Why the Strength
Big Data is big business, and Alteryx is carving out a niche in the booming data analytics industry with its “self-service data analytics software platform.” Translated into English, that means that Alteryx’s customers can easily take data from multiple sources, prep it, blend it together with other data and analyze using whatever analytical and reporting software they want, all in record time. The company’s easy-to-use platform is a big reason behind two years of 50%-plus revenue growth in 2016 and 2017 and all three quarters of 2018. While Alteryx hasn’t put together a full year of profitability, it showed profits in Q3 and Q4 2017 and booked a 300% EPS increase in the latest quarter. These are tough times for tech stocks, so investors’ enthusiasm for Alteryx is especially impressive. The company’s Q3 results on November 7 featured highlights like a 41% increase in customers from a year ago, including 375 added during the quarter. Management also raised guidance for Q4 results.
Technical Analysis
AYX was looking like a new leader a couple of months ago, with the stock accelerating higher after earnings in August and reaching as high as 63 in September. Then came the plunge with all other stocks—AYX fell more than 30% by late October. But the snapback since then has been impressive, with shares returning to 59 ahead of earnings and briefly gapping into virgin turf before pulling back in recent days. The action is wild, but the overall picture is intriguing. Keep it on your watch list, or, if you want in, start small here or on dips with a stop in the upper 40s.
AYX Weekly Chart
AYX Daily Chart
BioTelemetry Inc. (BEAT)
Why the Strength
BioTelemetry provides digital population health management (PHM) services within the healthcare system. Its Healthcare segment is the biggest division at 85% of revenue and includes diagnosis and monitoring of cardiac arrhythmias. The Research segment (12% of revenue) provides services for drug and medical device trials, and there is a small Technology segment that makes medical devices. Business is booming due to the acquisition of LifeWatch, which expanded BioTelemetry’s reach globally and took out one of its biggest competitors at the same time. Other growth drivers included the introduction of new monitors in a convenient patch form factor and a very healthy Research division, which expanded by 45% in Q3. Shares are soaring now because BioTelemetry destroyed estimates when it reported quarterly results in late October. Revenue was up 23% to $100 million and beat by almost 2%. But it was the EPS beat of $0.21 (consensus was for $0.32) and rosy outlook that sent the stock to new highs. Management says just about everything is working and lifted full-year revenue guidance by roughly $20 million, to almost $400 million. Bottom line, BioTelemetry has done a great job integrating a major acquisition while its core market remains very healthy.
Technical Analysis
After a big run, BEAT embarked on a big new base-building phase following its LifeWatch acquisition—shares made no net progress for a full year before finally getting going in April of this year. The stock soared as high as 66 in September before a sharp dip to 47 with the market last month. But earnings changed the picture: BEAT rallied seven days in a row on big volume after the quarterly report, a strong sign the buyers are still in control. You can nibble here or on dips or just keep it on your watch list.
BEAT Weekly Chart
BEAT Daily Chart
CyberArk (CYBR)
Why the Strength
Cybersecurity is one of the most stable areas of software spending due to the strategic importance of protecting online assets. CyberArk’s pitch is that it’s especially good at protecting ultra-sensitive and valuable files, such as records of company executives and IT data, even after a hacker has made it past a company’s firewall. The company is based in Israel and in recent quarters has inked a slew of contracts with the U.S. government. That’s contributing to growth in the Americas, which was up 23% in the just-reported third quarter. But the real engine of growth as been investments in the marketing and sales teams and a tweaked go-to-market strategy that resulted in a simpler pricing model. In Q3, those moves helped drive revenue up 42% in EMEA and 52% in Asia. Also contributing to the strength was a lift in revenue from strategic partners like Deloitte and KPMG. All in, revenue growth of 31% to $84 million was well ahead of expectations and EPS of $0.48 beat by an impressive $0.21. Management guided well ahead of consensus too, which promoted a number of analyst price target hikes and a blast off rally that carried CyberArk to fresh highs.
Technical Analysis
CYBR wasn’t a great looking stock until February 2018 when shares came to life at 42 and soared to 70 by mid-July. A slight correction to below 60 in late July preceded an earnings-driven gap up to 69 on August 8. Then CYBR worked its way up to 80 by the end of September. The market pulled it down in October, but it repeatedly found support in the mid 60s before the solid earnings report propelled CYBR to a fresh high last Thursday. Keep it on your watch list, or if you want in, nibble here or on further weakness.
CYBR Weekly Chart
CYBR Daily Chart
Dexcom (DXCM)
Why the Strength
Dexcom has regained its status as a leading growth stock in the market, as it’s one of the top players in the continuous glucose monitor (CGM) market, with its new, advanced G6 CGM launching in recent months and leading to a bunch of new patient additions. Indeed, the G6 is now available in 14 countries, with a further rollout coming in 2019 and with Medicare & Medicaid patients getting access early next year. As has been the case for years, there is competition in this industry, but the G6 is meeting with great demand, which has led to accelerating growth. In Q3, Dexcom’s top line grew 43%, miles ahead of estimates, with 34% growth in the U.S. and 93% growth internationally, while terrific cost controls (revenues grew at twice the rate of expenses in Q3) led to a 17 cent per share profit. Those profits aren’t expected to continue in the near-term, but big investors are focused on the potential top-line growth and earnings leverage down the road—Dexcom significantly hiked its revenue guidance for Q4 and analysts now see 2019 bringing a small profit, though we feel that could be conservative given Q3’s results and the fact that the company has been trouncing earnings estimates all year. This remains a very good story.
Technical Analysis
DXCM has had a big run since March, though that came after a couple of years trending lower—it wasn’t until August that shares decisively punched to new all-time highs. After running to 149, the stock pulled back 22% in early October, but it held together nicely after that, and last week, returned to its highs on great volume following Q3 earnings. As with most resilient names, if you want in, we advise looking for dips given the market’s still-iffy stance.
DXCM Weekly Chart
DXCM Daily Chart
Etsy (ETSY)
Why the Strength
If you want to buy a brand-name something this holiday season, you’re likely to hit up Amazon or a big box retailer. But if you’re looking for a special something that’s homemade, you’re probably going to visit Etsy, whose online marketplace is the biggest destination for buyers (37.1 million in Q3, up 17%) and sellers (two million, up 8%) of homemade goods. It’s that leadership position (as well as some bold moves by management) that continues to drive estimate-beating growth—in Q3, revenues boomed 41%, partly due to a recent price hike, with earnings up 36% and EBITDA rising nearly 50%. Interestingly, though, management isn’t just milking the business; the price hike this year went mostly into investments, including marketing (they’re testing TV ads), shipping improvements, customer support and providing sellers with far more tools to market themselves (which should attract even more sellers to the platform). It’s clearly working, as growth in the total value of goods sold accelerated for the fourth straight quarter (up 21% in Q3), while recurring business is amazing (83% of merchandise sales come from repeat buyers). Analysts see sales up 29% next year, with earnings up 44% and big investors (556 owned shares at the end of September, up from 309 at year-end 2017) are still piling in. We like it.
Technical Analysis
ETSY has had a big run, but we don’t consider it late stage or overly obvious; shares only got going in February and topped in September, for a seven-month run. The October correction was sharp (29%) and brought shares back to where they were in June. But last week’s earnings reaction—not just the initial move, but a strong follow-through on Thursday—was very bullish, briefly taking the stock to new highs. If you want in, dips toward 50 would be tempting.
ETSY Weekly Chart
ETSY Daily Chart
Genomic Health (GHDX)
Why the Strength
Genomic Health looks like an early leader in the move toward personalized medicine—through the firm’s Oncotype IQ genomic platform, the company is the world’s leading provider of genomic-based diagnostic tests (tissue and liquid-biopsy) that give patients information about whether they’d benefit from certain treatments. The main driver (90% of revenue) is its Oncotype Breast Cancer test, which is the only genomic test that’s proven (through a huge Phase III study) to ID those women those won’t benefit from chemo, as well as those for whom chemo could prove life saving. A smaller (10% of revenue) but increasing part of the business is its test for men with low-risk prostate cancer—the Oncotype test can let patients know whether immediate treatment is likely to help, or whether active surveillance is the best path. The overall result is not just better information of treatment options for patients, but a lot of money saved by the healthcare system by avoiding treatment that don’t prove fruitful. Throw in some solid insurance coverage and Genomic Health has been on a steady growth path with great operating leverage—in Q3, breast cancer-related sales were up 24%, while prostate-related revenues rose 28%; tests ordered lifted 10%, though growth was faster in the U.S. While growth isn’t lightning fast, there’s a definite possibility of many years of mid-teens revenue and 20%-plus earnings growth.
Technical Analysis
GHDX meandered between 20 and 35 for the past few years, but things changed this spring, when the stock nosed to new highs in May and then exploded to new highs in June after its long-term study was published, proving the effectiveness of Oncotype’s breast cancer test. Shares soared as high as 73 in September, “only” pulled back to its 50-day line during the October maelstrom and then, last week, GHDX gapped up huge on earnings before pulling back late in the week. Nibbling on dips and using a loose stop makes sense.
GHDX Weekly Chart
GHDX Daily Chart
Horizon Therapeutics (HZNP)
Why the Strength
Horizon Pharma is an Ireland-based biopharmaceutical company that’s focused on treatments for rare and rheumatic diseases. Horizon has a portfolio of 10 compounds approved for sale in the U.S., which is where virtually all of its revenue comes from. Horizon was incorporated just in 2008, and booked a string of triple-digit revenue growth from 2011 through 2015. Sales growth slowed to 30% in 2016 and 8% in 2017, but, while the company achieved profitability in 2014, it ran into a spate of declining earnings from Q1 2017 through Q1 2018. The company is appealing to investors now because revenue growth was back in double digits in Q3 (after three quarters of single-digit advances, or worse). The company’s Q3 report on November 7 also featured a 150% jump in earnings, building on the 17% pop in Q2, which followed five quarters of declines. Management attributed the strong performance to sales growth in orphan and rheumatology drugs and raised full-year guidance. The company also has a pipeline of drugs in clinical trials that include one rare-disease drug in Phase III trials and another in Phase IV for a label expansion. The pipeline also has two rheumatological treatments in Phase IV trials and two in pre-clinical trials. All in all, Horizon Pharma looks to be headed in the right direction after a multi-year rough patch.
Technical Analysis
HZNP bottomed out below 10 in May of last year, but despite a decent rally into January of this year, the stock was still stuck around 13 this spring. But the action improved after that, with shares rallying to 21 on earnings in August and, after a sag with the market through mid-October (which found support near its 200-day line), popped to new highs last week on its Q3 report, and it’s held up well in recent days. If you want in, a small position on dips below 21.5 could work.
HZNP Weekly Chart
HZNP Daily Chart
The Mosaic Company (MOS)
Why the Strength
Mosaic is a fertilizer producer that mines and refines phosphates in Canada and potash in Florida. The refined phosphate and potash fertilizers are distributed worldwide. As the company points out, an increasing global population relies on fertilizers to meet the growing demand for food. It’s worth noting that the uptrend in fertilizer companies qualified Mosaic for an appearance in Top Ten Trader in October and rival CF Industries for appearances in August and September. Mosaic’s strength illustrates the cyclical nature of fertilizer companies, as it went through six quarters of declining revenue and earnings from Q4 2015 through Q1 2017. But the last four quarters have featured double-digit increases in revenue and an average 67% earnings growth. Mosaic’s November 5 earnings report featured estimate-beating performance on both top and bottom lines (revenue up 48% and EPS up 74%), news that the company had retired $400 million in debt and increased guidance for the rest of the year. The company also enjoyed significant synergies from its acquisition of Vale Fertilizantes (which closed in January) for $1.15 billion in cash and 34.2 million shares of Mosaic stock. The global trend toward consolidation in fertilizer companies is strong, and the Vale Fertilizantes deal gives Mosaic some geographic diversification and increased capacity and reserves. It’s a big story, with a small dividend (annual yield is 0.27%) to boot.
Technical Analysis
After years of choppy declines, MOS has been in an uptrend since September 2017. The stock hit a little downdraft (29 to 23) in March and early April, but hit 34 in early October. A dip to 29 during the market’s October slump gave way to a rally to 32 ahead of earnings, and the enthusiastic reaction to the quarterly report on November 6 kicked the stock above 37 last week. Moreover, MOS has barely given back any of that move despite three good-sized days of selling in the market, a positive sign.
MOS Weekly Chart
MOS Daily Chart
Twilio (TWLO)
Why the Strength
Twilio sells cloud-based communications services that let developers add messaging, voice and video into web and mobile applications. J.P. Morgan has called Twilio the Amazon of communications software vendors because of the breadth of solutions that run on Amazon’s cloud. Products are mostly used by organizations to connect with their customers and drive higher satisfaction through digital channels. The key to the platform is Twilio’s Super Network that dynamically routes communications through the most efficient channel. This network means no patchwork infrastructure, individual carrier contract negotiations or custom code to write. Just set up an account and get to work. The company has been growing rapidly (revenue was up 44% in 2017) and after a big Q3 beat last week (revenue exploded 68%) is on pace to grow by at least 56% in 2018, while delivering a profit of $0.10 (up from -$0.19 last year). The story got even better in late October when Twilio announced it would acquire SendGrid (SEND), which brings robust email capabilities into the mix. SendGrid’s SaaS-based platform helps developers and marketers communicate with prospective and existing customers on things like shipping notifications, friend requests and newsletter sign-up confirmations. SendGrid also beat expectations last week. We like the story and the growth potential.
Technical Analysis
TWLO came to life in early 2018 when a quarterly earnings beat sent the stock near its 2017 high of 35. That kicked off a huge run that took the stock to 89 in September without any substantial pullback! The correction in October was sharp (30%) but reasonable given that prior run, and the bounce two weeks ago was a nice start. But last week was the real clue—TWLO soared on earnings, rallying to new highs on seven times average volume. Today’s drop was sharp, but “only” returned the stock to its prior high. You can grab a few shares here or on dips, or just keep it on your watch list.
TWLO Weekly Chart
TWLO Daily Chart
Ulta Beauty (ULTA)
Why the Strength
Ulta Beauty continues to have the look of a stock that’s already gone through the wringer and is ready for a new, sustained uptrend—once the market gets off its duff. You probably know the general story: Ulta is grabbing share in the beauty industry by offering a huge selection of products, from mass market to upscale, and even offering salon services, too. The stock has been resilient as big investors anticipate a halt to the firm’s minor deceleration in growth, and shares have pushed even higher after last week’s encouraging Analyst Day. At the event, the firm nudged up its guidance for the current quarter and, more importantly, issued a solid long-term outlook—it now expects same-store sales growth of 5% to 7% for each of the next three years, which, along with solid new store openings (21% total increase in the store count planned for the next three years), continued e-commerce strength (up 42% in the most recent quarter), cost savings initiatives ($150 million to $200 million) and great new store productivity (payback of the initial investment in two years), should produce earnings growth in the mid- to high-teens per year. Granted, it’s not growing as fast as it was a few years back, but Ulta increasingly looks like an emerging blue chip within the retail field with years of steady growth ahead of it.
Technical Analysis
ULTA’s action during the past two months was a positive—after a big post-earnings breakout in early September, the stock pulled back from 290 to as low as 263, but found support repeatedly in that area despite the market’s meltdown. And now with the long-term outlook in hand, ULTA has burst to new highs on good volume. We’re OK taking a stab at ULTA on dips—it looks like it will be a leader if a new market advance gets underway.
ULTA Weekly Chart
ULTA 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.
