Still Positive, but Watch Where You Step
Current Market Outlook
If you look at the weekly charts, the trends of the major indexes and most stocks are pointed up—i.e., this is still a bull market, and the trends and other factors (such as the unusual strength seen two weeks ago) portend higher prices down the road. That said, there’s no question the environment remains extremely news-driven (mostly with vaccine news, but also economic reports and government policy outlooks), with plenty of crosscurrents depending on the day. Encouragingly, today’s vaccine news didn’t dent the growth leaders like it did a week ago, which is a step in the right direction. Net-net, we remain optimistic, but the details remain vital; getting decent entry points and position sizing correctly (not too big so you can handle the swings) is key, as is focusing on stocks (cyclical or growth) that have shown good-volume support of late.
This week’s list has something for everyone, including stocks with fresh growth stories as well as some stodgy, cyclical names. Our Top Pick is Lam Research (LRCX), which looks like a leader in the resilient chip equipment sectors.
| Stock Name | Price | ||
|---|---|---|---|
| Albemarle Corporation (ALB) | 128.90 | ||
| Canopy Growth (CGC) | 24.77 | ||
| Lam Research (LRCX) | 439.40 | ||
| Marvell Technology Group (MRVL) | 43.29 | ||
| Norfolk Southern (NSC) | 247.09 | ||
| ShockWave Medical, Inc. (SWAV) | 94.95 | ||
| Snap Inc. (SNAP) | 39.08 | ||
| STAAR Surgical (STAA) | 79.31 | ||
| The Timken Company (TKR) | 73.04 | ||
| Upwork (UPWK) | 33.08 |
Albemarle Corporation (ALB)
Why the Strength
After this year’s COVID-related supply-chain disruptions, the chemical industry has rebounded strongly and is resuming normal operations, with many producers gaining significant traction as the economy picks up steam. A leader in the chemical space is Albemarle, which manufactures additives and intermediates for plastics, polymers, agricultural chemicals and pharmaceuticals, with major exposure to lithium (37% of revenue). In recent quarters, earnings have been negatively impacted by shutdowns, but the stock is strong today because big investors see things turning up. While the top line was down 15% in Q3, due mainly to lower lithium prices, it still topped estimates by 7%, while earnings topped estimates by a whopping 33-cents per share and came in at their highest figure of the year. There were also encouraging signs on the cost side of the equation, with more than $80 million of costs taken out this year and another $40 million by year-end 2021. Going forward, the optimism surrounds two factors. The first, of course, is the overall economy—as things pick up steam (especially in Asia, which accounts for half of Albemarle’s revenue), demand should rise, with most of that falling to the firm’s bottom line. And longer-term there’s great upside in the lithium business, especially as electric vehicle sales take off all over the globe; lithium demand is expected to double by 2024, mostly thanks to the EV market growth (global EV sales were up 90% in the month of September alone). Analysts see earnings up just a smidge next year, but we think that’ll prove too low. A 1.3% yield also helps the cause.
Technical Analysis
ALB topped in late 2017 near 140 and fell all the way through this year’s Match crash (near 50) before rebounding. Like many cyclical names, the rebound was good-not-great, and the stock ended up stalling out in the summer and spent a couple of months bobbing and weaving below its pre-pandemic highs. But since reporting earnings, ALB has taken flight, moving to multi-year highs on big volume. Yes, it’s extended, but after years in the doghouse, we’re not expecting much of a retreat.
| Market Cap | $12.8B | EPS $ Annual (Dec) | |
| Forward P/E | 29 | FY 2018 | 5.48 |
| Current P/E | 25 | FY 2019 | 6.04 |
| Annual Revenue | $3.24B | FY 2020e | 3.87 |
| Profit Margin | 15.6% | FY 2021e | 4.13 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 747 | -15% | 1.09 | -29% |
| One qtr ago | 764 | -14% | 0.86 | -45% |
| Two qtrs ago | 739 | -11% | 1.00 | -19% |
| Three qtrs ago | 993 | 8% | 1.73 | 13% |
ALB Weekly Chart
ALB Daily Chart
Canopy Growth (CGC)
Why the Strength
The marijuana industry just got a little less “hazy,” as voters approved recreational use in Arizona, Montana, New Jersey and South Dakota, and medicinal use in Mississippi and South Dakota during this month’s elections, leaving just 15 states that still outlaw the product. The industry obviously cheered the news, and the continued move toward legalization should only benefit big players like Canopy Growth. This Canadian company makes cannabis and hemp-based products, including dried flower, hemp, vape pens and cartridges, THC- and CBD-infused beverages, beauty, skincare, wellness, and sleep products, as well as edibles. The company participates in both the medical and recreational segments of the industry, but recreational is its fastest-growing division (up 377% in the most recent quarter). It’s also a plus (especially in terms of investor perception) that beverage giant Constellation owns a big chunk of the company. As for the numbers, Canopy has been sacrificing income for growth (though the loss of nine cents per share in Q3 was miles ahead of estimates), with the company delivering a 77% rise in revenues in the most recent quarter. Canopy is launching a variety of new CBD-infused products, including a CBD Wellness Gummies Sampler with Martha Stewart, and Quatreau, its first CBD-infused beverage line. Moreover, with a Biden win, the future looks rosy for marijuana use in the U.S., including a possible passing of the Secure and Fair Enforcement Banking Act, which would allow financial institutions to legally do business with marijuana companies, as well as potential decriminalization of weed. Canopy is ready for a push into the U.S. partially thanks to its partnership with Constellation, and the recent election results only add fuel to the idea that the weed industry should see boom times for years to come.
Technical Analysis
Marijuana stocks were in a multi-year decline through March of this year, and the bounce was just OK after that, with most (especially the Canadian majors like CGC) still languishing. But there’s no doubt the stock’s character has changed of late; CGC has seen four huge-volume buying weeks since October began, including a terrific liftoff two weeks ago. There’s still a little old overhead to chew through, but we like the power—we’re OK taking a stab at CGC around here.
| Market Cap | $9.04B | EPS $ Annual (Mar) | |
| Forward P/E | N/A | FY 2018 | -2.15 |
| Current P/E | N/A | FY 2019 | -3.07 |
| Annual Revenue | $477M | FY 2020e | -0.79 |
| Profit Margin | N/A | FY 2021e | -0.54 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 102 | 75% | -0.07 | N/A |
| One qtr ago | 81.3 | 17% | -0.22 | N/A |
| Two qtrs ago | 76.7 | 9% | -2.65 | N/A |
| Three qtrs ago | 94.7 | 56% | -0.60 | N/A |
CGC Weekly Chart
CGC Daily Chart
Lam Research (LRCX)
Why the Strength
Work- and learn-from-home trends are driving tremendous growth in several electronic categories, from PCs to storage to networking, giving semiconductor companies like Lam Research a huge boost going forward. Lam supplies wafer fabrication equipment and services to some of the world’s biggest chip companies. Data suggests that growth in PC, notebook and workstation shipments in Q3 set a 10-year record, which had a big hand in pushing Lam’s own quarterly revenue to record levels while boosting margins above the midpoint of the firm’s guidance. Q3 revenue was up a strong 47% from a year ago (and up 14% sequentially), driven by system revenue, which includes sales of new leading-edge etching equipment; revenues in that segment boomed 57% year-on-year. Meanwhile, per-share earnings of $5.67 (up 83%) blew past expectations by 48 cents, inspiring management to predict that 2020 will be Lam’s strongest year ever. Analysts expect even more sales growth ahead, forecasting a 28% top-line increase in each of the next two quarters along with a 35% to 40% gains in the bottom line. Lam remains committed to new product development, and its Sense.i plasma etch platform for chip manufacturing was introduced earlier this year (in Q3, the company saw progress for the product with initial shipments to memory customers). Additionally, Lam is focused on developing equipment and support capabilities to help its customers accelerate the transition of next-generation 3D devices in the high-volume manufacturing space. Throw in a newly declared $5 billion share repurchase program and a decent dividend (1.2% annual yield) and there are many reasons buyers should remain interested.
Technical Analysis
Shares of LRCX more than doubled from their March crash low to its August high of 390. Then came a 23% correction into September, which began a 13-week consolidation and set the stage for the latest pop. Since the Q3 earnings report, LRCX has broken out decisively on the upside, though to be fair, volume has been just so-so. Even so, the path of least resistance is up—we’re OK nabbing shares on here or on any weakness.
| Market Cap | $61.8B | EPS $ Annual (Jun) | |
| Forward P/E | 19 | FY 2019 | 14.55 |
| Current P/E | 23 | FY 2020 | 25.93 |
| Annual Revenue | $11.1B | FY 2021e | 22.13 |
| Profit Margin | 26.3% | FY 2022e | 24.67 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 3.18 | 47% | 5.67 | 78% |
| One qtr ago | 2.79 | 18% | 4.78 | 32% |
| Two qtrs ago | 2.5 | 3% | 3.98 | 8% |
| Three qtrs ago | 2.58 | 2% | 4.00 | 3% |
LRCX Weekly Chart
LRCX Daily Chart
Marvell Technology Group (MRVL)
Why the Strength
No matter what happens with a COVID vaccine, the trend toward greater cloud access, cyber security and improved bandwidth (due to widespread adoption of Wi-Fi 6) is firmly in place, and Marvell is at the front of each of these frontiers. Besides being a leader in fabless chip design, it’s fast becoming a leader in cloud computing and is benefiting from the ongoing 5G rollout. Further, Marvell has been on the leading edge of a wave of M&A taking place in the semiconductor industry. To start, the company has extended its partnership with global foundry Taiwan Semiconductor—a move expected to leverage the chip industry’s most advanced 5-nanometer process technology (enhancing performance with up to 40% lower power compared to the prior technology). Marvell has also recently tied the knot with Inphi, a leader in high-speed data interconnects (especially in and between data centers), a move expected to augment Marvell’s chip portfolio and increase its cloud leadership and 5G position. (The Inphi deal is also expected to increase Marvell’s serviceable addressable market by up to $3 billion annually.) Then there’s the just-completed acquisition of Avera, which will allow Marvell to offer a full spectrum of semiconductor solutions spanning 5G, data center, enterprise and automotive applications. All told, Marvell’s core position and recent buyouts dramatically expand its product line and exposure to fast-growing end markets, and that should be seen in the numbers going forward. When Marvell reports Q3 earnings on December 3, analysts expect to see a 13% increase in the firm’s top line along with a 47% bottom-line bump, and there’s more where that came from, with analysts looking for a 49% earnings leap in 2021. We like it.
Technical Analysis
MRVL broke out from a multi-year base in May and, while it was tedious, it did stair-step higher for the next few months. The growth stock weakness and buyout of Inphi caused the stock to crack support last month, but the action since then has caught our eye—MRVL stormed back to its highs right after that shakeout, and while it’s still getting tossed around a bit, shares aren’t far from virgin turf. We’re OK starting small here and adding if the stock kicks into gear.
| Market Cap | $29.0B | EPS $ Annual (Jan) | |
| Forward P/E | 45 | FY 2019 | 1.19 |
| Current P/E | 57 | FY 2020 | 0.66 |
| Annual Revenue | $2.80B | FY 2021e | 0.92 |
| Profit Margin | 19.3% | FY 2022e | 1.37 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 727 | 11% | 0.21 | 31% |
| One qtr ago | 694 | 5% | 0.18 | 12% |
| Two qtrs ago | 718 | -4% | 0.17 | -32% |
| Three qtrs ago | 663 | -22% | 0.17 | -48% |
MRVL Weekly Chart
MRVL Daily Chart
Norfolk Southern (NSC)
Why the Strength
We wrote up Class 1 railroad company Norfolk Southern in September, noting that although the pandemic was punishing transport-related firms, Norfolk’s efficiency-boosting strategies like precision scheduled railroading, as well as low fuel prices and focus on intermodal traffic, had helped its margins and bottom line in Q2. And the stock is strong today because those trends continued in the third quarter, too. Although revenues of $2.51 billion were impacted by COVID-19, missing estimates by $20 million, the firm improved its operating ratio to 67% and posted EPS of $2.51 (up a smidge from a year ago), handily beating analysts’ estimates of $2.38. (That’s four out of four quarters that Norfolk has now surpassed EPS forecasts.) By segment, Coal revenues declined 38% year over year, Merchandise revenues fell 10% and Intermodal revenues were down 1%. But the market is looking ahead, and the reason for the stock’s strength is that most believe those figures will begin turning up sharply as the economy continues its rebound in the quarters ahead; analysts see sales up nearly 10% and earnings up 22% next year, both of which are likely conservative. Also helping the cause is shareholder-friendly management—Norfolk has stuck with its dividend (1.5% annual yield) and repurchase program, with its share count down a bit more than 3% over the past year. There’s nothing special or sexy here, but Norfolk is a very well managed company and is a direct play on the economy returning to normal, which is a good place to be these days.
Technical Analysis
NSC topped in the middle of last year, was rejected at those highs earlier this year and crashed with everything else in March. The rebound from there was solid, albeit choppy, with a rest near the prior highs of 220 in September and October. But now NSC is getting going—the stock has broken out to all-time highs on solid volume during the past two weeks, which portends a sustained advance. We’re fine taking a position here or on dips.
| Market Cap | $60.5B | EPS $ Annual (Dec) | |
| Forward P/E | 21 | FY 2018 | 9.51 |
| Current P/E | 25 | FY 2019 | 10.25 |
| Annual Revenue | $9.91B | FY 2020e | 8.74 |
| Profit Margin | 25.7% | FY 2021e | 10.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.51 | -12% | 2.51 | 1% |
| One qtr ago | 2.09 | -29% | 1.53 | -43% |
| Two qtrs ago | 2.62 | -8% | 2.58 | 3% |
| Three qtrs ago | 2.69 | -7% | 2.55 | -1% |
NSC Weekly Chart
NSC Daily Chart
ShockWave Medical, Inc. (SWAV)
Why the Strength
Shockwave Medical is a small firm (just $60 million of sales over the past year) but it’s going to get a lot bigger in the near future. The company looks like it has a device destined to become a new standard of care for atherosclerosis (narrowing of arteries via plaque buildup). Currently, standard and specialty balloons or atherectomies run the risk of bad side effects (perforations, tissue damage, etc.), but Shockwave’s device uses intravascular lithotripsy (a proven technique that’s been used to treat kidney stones for 30 years) that projects sonic pressure waves in a localized area that pass through soft tissue (leaving it unharmed) and crack the calcium in the plaque. It works great, backed up by numerous clinical studies (with others ongoing) and, importantly, serves as an add-on to existing products (it improves the effectiveness of stents and balloons) and is easy to learn, so uptake has been rapid. Revenues were growing at triple-digit rates before the pandemic, and while Q2 saw a virus-related slowdown as procedures fell off, Q3 saw a quick snapback (sales up 73% with shrinking losses) and analysts see the top line lifting 91% next year, which is likely conservative. Beyond the next few quarters though is the big-picture potential—calcified plaque buildup is a common issue in a handful of areas (not just coronary, though that’s the biggest market) to the tune of millions of procedures annually, with a total market of $6 billion. Of course, as a small fry, the company has lots of work to do in terms of future studies, new products, reimbursement and the like, but there’s little doubt Shockwave has something special, and big investors are noticing; 298 funds owned shares at the end of September, up from 160 a year ago.
Technical Analysis
SWAV came public in March 2019 and had a nice initial run before suffering two big declines (including the crash in March of this year); even into July of this year, the stock was no great shakes. But the action has been extremely impressive since then, with a persistent run to new highs through mid October, a three-week shakeout with the market and, since Q3 earnings, a strong push to higher highs on excellent volume. SWAV is a bit thin and obviously small, so we advise aiming for dips of a few points to get started.
| Market Cap | $3.15B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.56 |
| Current P/E | N/A | FY 2019 | -1.82 |
| Annual Revenue | $59.4M | FY 2020e | -1.97 |
| Profit Margin | N/A | FY 2021e | -1.24 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 19.6 | 73% | -0.38 | N/A |
| One qtr ago | 10.3 | 3% | -0.56 | N/A |
| Two qtrs ago | 15.2 | 109% | -0.59 | N/A |
| Three qtrs ago | 14.3 | 183% | -0.49 | N/A |
SWAV Weekly Chart
SWAV Daily Chart
Snap Inc. (SNAP)
Why the Strength
We wrote about Snap Inc. in September, noting that 78% of the Gen Z generation (born 1995-2012) were avid users, accounting for 53% of the company’s total users. But that’s not the only generation to love Snap’s mobile messaging app that’s used to share more than three billion photos, videos, texts and drawings every day. Snap says that 53% of millennials (1980-94), 18% of Generation X’s (1965-79) and (surprisingly) 7% of baby boomers (1946-64) also use the app. The rising user base and better ad tools (helping the firm’s revenue per user, which used to be well below industry norms, begin to catch up) has put the firm on a rapid growth track. For its third quarter, Snap saw revenues rise 52%, to $679 million, beating estimates by a giant $127 million, and earnings were $0.01 per share, also beating estimates by $0.06 per share. Its Rest of World users—excluding North America and Europe—climbed 43% to 87 million and now account for 35% of its daily active users. For users, Snap has been expanding its offerings, developing augmented reality (AR) products; Wall Street thinks AR could open up $4 billion of e-commerce opportunities for the company over the next few years. Snap says that its 249 million daily active users (up18% from a year ago) are playing with AR about 30 times per day on average. Interestingly, Snap is also entering the artificial intelligence (AI) voice assistant realm, buying startup Voca.ai, an Israeli-based outfit that’s already processing two million calls/conversations per month for banking, telecoms, insurance, and legal services customers, including Toshiba, FirstClass Capital and Boost Health Insurance, and is growing revenues north of 50%. All in all, the story, numbers and chart are all pointed up for Snap.
Technical Analysis
SNAP began a sharp correction in July after approaching its all-time highs from its IPO back in 2017. Eventually, shares etched a nice cup-shaped base, with the stock actually nosing to new highs ahead of earnings last month. And then came the blastoff—SNAP gapped massively after Q3 earnings on more than 10 times average volume, which is normally a good clue that a sustained run is getting underway. The recent wobbles (including today’s) in the stock have been normal, and we’re OK starting a position here, albeit with a liberal loss limit.
| Market Cap | $59.3B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.47 |
| Current P/E | N/A | FY 2019 | -0.16 |
| Annual Revenue | $2.16B | FY 2020e | -0.65 |
| Profit Margin | 1.7% | FY 2021e | -0.36 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 679 | 52% | 0.01 | N/A |
| One qtr ago | 454 | 17% | -0.09 | N/A |
| Two qtrs ago | 463 | 44% | -0.08 | N/A |
| Three qtrs ago | 561 | 44% | 0.03 | N/A |
SNAP Weekly Chart
SNAP Daily Chart
STAAR Surgical (STAA)
Why the Strength
Nearly three quarters of American adults use some form of vision correction, and with an aging demographic, the market for corrective eyewear and related procedures is expected to significantly expand in the coming years. That plays right into Staar Surgical’s hands, as it designs, manufactures and sells implantable collamer lenses (dubbed ICL) and companion delivery systems for patients. The lenses improve vision while lessening or eliminating the need for glasses or contacts (and with less risk). Staar markets its services globally and has seen an increase in the ICL market in several major countries, including China. In fact, it notes that its Asian markets are moving away from laser surgery and toward the intraocular refractive surgery that Staar serves—a trend that’s likely to accelerate in the U.S., where laser eye surgery has declined for several years. The stock is strong today because business is good and getting better: In Q3, Staar’s top line rose 21%, driven by 25% global ICL unit growth as markets more fully reopened following COVID-related shutdowns; the bottom line was up a solid 17%. Even better, ICL unit growth in Q3 was positive in most of the firm’s regional markets—including China, Japan and South Korea—compared to Q2 (when just three of its top ICL markets grew). The real payoff should come next year, when things more fully return to normal; analysts see revenues up 28% and earnings up 86%, and both could prove conservative as elective procedures pick up steam. Staar has also just rolled out its new EVO Viva lenses in Europe, aimed at patients in their 40s and 50s who struggle with near vision. Management sees a large addressable market for the lenses and is aiming for full global commercialization in the second half of 2021. All in all, this is a solid story that has exposure to both the traditional growth and economic reopening themes.
Technical Analysis
STAA broke out from a two-ish year base in June and looked ready for great things, but it then pulled back (knocking us out in the process) and built a tamer, more proper launching pad for a few months. Now it’s making another go of it—shares have been trending up since Labor Day, lifted to new highs in late October and found good-volume buying after earnings. We’re OK starting a position here or (preferably) on dips.
| Market Cap | $3.67B | EPS $ Annual (Dec) | |
| Forward P/E | 153 | FY 2018 | 0.30 |
| Current P/E | 251 | FY 2019 | 0.49 |
| Annual Revenue | $156M | FY 2020e | 0.29 |
| Profit Margin | 14.2% | FY 2021e | 0.54 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 47.1 | 21% | 0.14 | 17% |
| One qtr ago | 35.2 | -11% | 0.03 | -79% |
| Two qtrs ago | 35.2 | 8% | 0.04 | -56% |
| Three qtrs ago | 38.9 | 25% | 0.12 | 71% |
STAA Weekly Chart
STAA Daily Chart
The Timken Company (TKR)
Why the Strength
If you’re looking for sex appeal, you’re probably not looking at Timken, which is a market leader in a variety of engineered bearings and power transmission products (belts and chains, lubrication systems, drives and gears and all that good stuff). There is a little bit of an underlying growth story here, with things like renewable energy (big opportunities as wind turbines get bigger and solar arrays get more advanced, leading to a long-lasting aftermarket business), expansion in Asia and increasing fuel efficiency creating the need for more specialized power solutions; combined with solid management, that’s kept the company solidly profitable over the years. But, really, the stock is strong today because of the renewed interest in cyclical stocks; as the market looks ahead toward a non-virus (or minimal-virus) economy due to the vaccines and the associated uptick in industrial activity, investors are betting Timken’s numbers will improve markedly. Sales and earnings were headed up nicely heading into 2020 (free cash flow actually totaled nearly $5.50 per share last year), and this year’s damage has been well contained (“only” a 10% decline in earnings, and free cash flow is actually up 37% thanks to greater efficiencies), setting the stage for a nice rebound as things return to normal. Analysts see earnings up 13% next year, but that’s likely conservative, and the company is in excellent position to take advantage of opportunities as they arise (the top brass has a history of pulling the M&A trigger). Throw in a modest dividend (1.6% yield) and potential share buybacks (suspended this year but likely to resume as business picks up) and 2021 could be a big year for the company.
Technical Analysis
TKR is one of many cyclical names that’s acting well today and, what’s better, is leaping out of a longer-term consolidation. Shares had a nice run after the market bottom back in early 2016, getting to all-time highs of 55 in early 2018. But that led to a long period of sideways action, followed by the crash in March; even after the rebound, TKR was still hanging around the upper 50s in September. But shares nosed to new highs in October and have soared on good volume since reporting earnings a couple of weeks ago. Dips of a point or two would mark a fine entry point.
| Market Cap | $5.27B | EPS $ Annual (Dec) | |
| Forward P/E | 15 | FY 2018 | 4.18 |
| Current P/E | 17 | FY 2019 | 4.60 |
| Annual Revenue | $3.52B | FY 2020e | 4.16 |
| Profit Margin | 9.7% | FY 2021e | 4.71 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 895 | -2% | 1.13 | -1% |
| One qtr ago | 804 | -20% | 1.02 | -20% |
| Two qtrs ago | 923 | -6% | 1.11 | -18% |
| Three qtrs ago | 896 | -2% | 0.84 | -16% |
TKR Weekly Chart
TKR Daily Chart
Upwork (UPWK)
Why the Strength
Some 36% of the U.S. workforce freelanced during the pandemic, a 22% increase from last year, and one of the firms heading the charge of this new paradigm (along with Fiverr) is Upwork, which runs an online talent pool where firms can hire skilled freelancers, with a longer-term employment focus (as opposed to Fiverr’s short-term gig focus). Its platform makes it easier for employers to find and collaborate with offsite workers in 180 countries, and it’s clearly offering value; 30% of the Fortune 100 are clients of Upwork. While investors are looking ahead to an economic normalization, there’s little doubt that the work-more-from-home trend is firmly in place, resulting in greater flexibility in hiring a remote workforce, creating a huge addressable market for Upwork. This belief was underscored in Upwork’s latest financial report, which is driving the stock’s recent strength: Q3 featured a 5-cent per-share earnings beat and a 24% revenue increase as its core client base also grew 24% (to 139,000). The company’s overall take-rate (how much it cleared on every hire) was 15%, with a marketplace take-rate virtually unchanged on a sequential basis at 14%. The firm has just announced a collaboration with Zoom to leverage its video sharing tools so that companies can interview candidates, vet opportunities and communicate on projects that drive business. (As well, Upwork has a joint software partnership with Citrix to efficiently manage on-demand talent). For 2021, management is targeting solid revenue growth of 20%, and analysts agree; the bottom line should also remain in the black going forward. Bigger picture, if we’ve really hit a sea change in the desire for a more freelance, mobile workforce, then Upwork should have a long runway of growth ahead of it.
Technical Analysis
UPWK was the dog’s dinner from its IPO in late 2018 to the March 2020 bottom, but it’s been a totally different animal since, with a big rally that had acceptable, sideways corrections along the way. The most recent breakout (above 18) came in late September, and after a brief pullback with the market, UPWK catapulted to new highs after the Q3 report and has continued higher since. We wouldn’t chase it here, but dips of a couple of points would be tempting.
| Market Cap | $3.77B | EPS $ Annual (Dec) | |
| Forward P/E | N/M | FY 2018 | -0.01 |
| Current P/E | N/M | FY 2019 | 0.06 |
| Annual Revenue | $348M | FY 2020e | -0.02 |
| Profit Margin | 5.1% | FY 2021e | 0.02 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 96.7 | 24% | 0.04 | 300% |
| One qtr ago | 87.5 | 19% | -0.03 | N/A |
| Two qtrs ago | 83.2 | 21% | -0.03 | N/A |
| Three qtrs ago | 80.3 | 19% | 0.03 | 0% |
UPWK Weekly Chart
UPWK 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 | |||||
| 10/12/20 | Abercrombie | ANF | 15.5-16.5 | 19 | |
| 10/26/20 | Align Technology | ALGN | ? | 420-440 | 457 |
| 10/19/20 | Avalara | AVLR | 147-152 | 151 | |
| 10/26/20 | Axon Enterprise | AAXN | 99.5-102.5 | 119 | |
| 9/21/20 | Brinker Int’l | EAT | 42-44.5 | 51 | |
| 11/2/20 | Bunge | BG | 56-58.5 | 61 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 41 | |
| 11/2/20 | Cloudflare | NET | 49-52 | 65 | |
| 10/19/20 | Deckers Outdoor | DECK | 238-246 | 250 | |
| 11/9/20 | Enphase Energy | ENPH | 112-118 | 120 | |
| 10/26/20 | Exact Sciences | EXAS | 103-107 | 121 | |
| 11/2/20 | Fine9 | FIVN | 136-140 | 141 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 151 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 21 | |
| 8/10/20 | Freshpet | FRPT | 99-102.5 | 131 | |
| 9/14/20 | Gap Inc. | GPS | 16.5-17.5 | 24 | |
| 10/26/20 | General Motors | GM | 34-36 | 42 | |
| 10/26/20 | GrowGeneration | GRWG | 16.5-18 | 27 | |
| 11/9/20 | HubSpot | HUBS | 335-350 | 348 | |
| 10/19/20 | Invitae | NVTA | 47-49.5 | 46 | |
| 11/9/20 | JD.com | JD | 83-86.5 | 85 | |
| 11/2/20 | Martin Marietta | MLM | 263-273 | 271 | |
| 11/2/20 | Mattel | MAT | 13-13.5 | 14 | |
| 10/26/20 | MercadoLibre, Inc. | MELI | 1180-1240 | 1286 | |
| 8/24/20 | Natera | NTRA | 60-63 | 82 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 120 |
| 10/19/20 | Paycom Software | PAYC | 360-375 | 379 | |
| 8/3/20 | PINS | 33.5-37 | 63 | ||
| 8/3/20 | Qualcomm | QCOM | 106-110 | 149 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 69 |
| 7/13/20 | Roku | ROKU | 147-154 | 233 | |
| 10/5/20 | SeresTherapeutics | MCRB | 27.5-29.5 | 35 | |
| 10/26/20 | Shift4 Payments | FOUR | 51.5-54 | 61 | |
| 9/28/20 | Square | SQ | 157-162 | 179 | |
| 10/5/20 | ST Microelectronics | STM | 32-33.5 | 36 | |
| 10/19/20 | SunPower | SPWR | 16.5-17.5 | 20 | |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 99 | |
| 9/14/20 | Target | TGT | 145-149 | 165 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 279 | |
| 11/9/20 | Uber | UBER | 45-47.5 | 49 | |
| 11/9/20 | Yeti | YETI | 50-53 | 57 | |
| 10/5/20 | Zendesk | ZEN | 101-105 | 122 | |
| 11/9/20 | Zillow | Z | 100-105 | 107 | |
| WAIT | |||||
| 11/9/20 | Amiccus Therapeutics | FOLD | 19.5-20.5 | 23 | |
| SELL RECOMMENDATIONS | |||||
| 10/5/20 | Datadog | DDOG | 103-107 | 86 | |
| 10/19/20 | Monolithic Power | MPWR | 300-310 | 306 | |
| 10/12/20 | Paylocity | PCTY | 178-188 | 184 | |
| 7/27/20 | Sea Ltd | SE | 110-116 | 178 | |
| DROPPED | |||||
| 11/2/20 | Pinduoduo | PDD | ? | 86-90 | 142 |
| 11/2/20 | Ultragenyx Pharm | RARE | 90-94 | 119 | |
The next Cabot Top Ten Trader issue will be published on November 23, 2020.