Nothing Much To Do
Current Market Outlook
While the major indexes remain above their October lows and a good number of recent earnings winners (many of which have been featured in Top Ten) are still holding up well, the fact is that the intermediate-term trend for the market remains down and, even if you own the best stocks, no money is being made. Thus, we continue to recommend a defensive stance—preserving capital and confidence will pay off in spades when the next sustained advance gets underway. On a scheduling note, there will be no Friday update this week (holiday), and there is no issue next week (one of our two weeks off all year). But I do plan to send a brief update Monday, November 26 just to keep in touch.
Back to this week’s list, we have another batch of resilient stocks, which are providing a ray of light. Our Top Pick is Canada Goose (GOOS), which we think can be an institutional favorite once this market downturn ends.
| Stock Name | Price | ||
|---|---|---|---|
| Acacia Communications (ACIA) | 51.83 | ||
| Amedisys (AMED) | 174.06 | ||
| Canada Goose Holdings (GOOS) | 46.21 | ||
| Crocs (CROX) | 0.00 | ||
| Elastic (ESTC) | 86.17 | ||
| Planet Fitness (PLNT) | 0.00 | ||
| Repligen (RGEN) | 91.34 | ||
| Tableau Software (DATA) | 126.42 | ||
| TripAdvisor (TRIP) | 55.14 | ||
| Zebra Technologies (ZBRA) | 154.94 |
Acacia Communications (ACIA)
Why the Strength
Voice, data and video communications are gluttons for bandwidth, with demand for higher capacity growing all the time. Acacia Communications makes modules that interconnect cloud and database operations, with signal processors and silicon photonic integrated circuits that maximize throughput while using less energy than those of competitors. The company is getting attention from investors because of a strong Q3 earnings report on November 2 that exceeded its own guidance. Revenue came in at $94.8 million, above the high end of management’s guidance of $86 million to $94 million. Earnings of 42 cents per share beat guidance of 10 to 22 cents per share by a huge margin. Investors also liked it that much of the growth came from newer customers and from a Tier 1 customer. Management also raised Q4 guidance to $98 million to $106 million. Acacia is just emerging from a rough patch caused by quality issues that adversely affected its revenue and earnings starting in the second quarter of 2017, but it appears that investors are now looking ahead, with analysts expecting revenues to surge 28% next year as earnings boom 81%. The company’s rebound looks to be on solid ground, with some bona fide competitive features in its products that should continue to support growth. Acacia is another good-looking play on the bandwidth infrastructure buildout.
Technical Analysis
ACIA came public in May 2016, and shot from 27 to 129 by September 2016. The stock corrected sharply on October 2016 and kept falling, with the bottom coming at 25 in April 2018. The stock rebounded quickly to above 40, but slipped into the low 30s ahead of earnings. On November 2, ACIA jumped to 45 on four times its average volume and has been holding those gains for the past couple of weeks. A nibble here or on dips could pay off.
ACIA Weekly Chart
ACIA Daily Chart
Amedisys (AMED)
Why the Strength
Amedisys bills itself as a leader in the growing “healthcare at home” business, providing personal care, recovery and rehabilitation after operations or injuries, chronic disease management and hospice care. The Louisiana-based company operates 421 care centers in 34 states and has partnerships with more than 3,000 hospitals and 59,000 physicians nationwide. Growth isn’t rapid—6% in 2015, 12% in 2016, 6% in 2017—but has accelerated from 9% in Q1 2018 to 12% in Q3. Investors see the company’s $340 million acquisition of Compassionate Care Hospice as a positive move, elevating Amedisys to the third-largest hospice provider in the U.S. Earnings growth has been excellent, with the bottom line averaging 66% growth over the first three quarters of the year. Amedisys is a Big Story stock, one that’s poised to capitalize on the aging of the giant Baby Boomer population. This is one aspect of Amedisys that has attracted more sponsorship from institutional investors; the number of funds that own shares has lifted from 349 in Q3 2017 to 491 at the end of September. While earnings growth is expected to slow next year, those figures are likely conservative, especially considering its outstanding quarterly report on October 30 that beat consensus estimates handily (earnings of 95 cents per share were 18 cents above expectations).
Technical Analysis
AMED has been a long-term winner since it came out of a long correction in April 2013. The stock has been through five sizable corrections since then, but has always gotten moving again without taking out its previous correction lows. AMED started a strong rally at 51 in February 2018 that topped at 126 in late August. The stock was dragged lower by the market in October, dipping to 97 on October 26, but rebounded after its October 30 earnings report on substantial volume. The stock is knocking on the door of its August–September resistance at 127. AMED is a steady name for your watch list; if you want in, look for dips.
AMED Weekly Chart
AMED Daily Chart
Canada Goose Holdings (GOOS)
Why the Strength
Canada Goose has reminded us of a young Michael Kors during the past year—a newer, high-end apparel brand (in Goose’s case, mostly durable winter wear that’s both stylish and functional) that’s branching out into a few new areas, executing brilliantly and driving massive, estimate-beating growth along the way. That trend continued in Q3, which is why the stock is back on the list of potential leaders of the next advance. Numbers-wise, the quarter was a blowout, with local currency sales (up 34%), EBITDA (up 53%) and earnings per share (up 59%) easily topping expectations, leading management to hike expectations for the current fiscal year ending in March (revenues up at least 30%, earnings up at least 40%). Wholesale revenues did very well (up 18%), but it’s Goose’s move into e-commerce and the opening of its own retail stores that is boosting growth, with direct-to-consumer revenue up around 150% and making up 22% of revenues. Beyond its signature jackets, winter hats, scarfs and the like, the company has moved into springwear and knitwear, and its purchase of Baffin earlier this month, has moved into the performance outdoor (hunting, hiking, camping, snowshoeing, etc.) footwear category as well. Throw in increased margins and some commentary about its increasing penetration in China, and big investors snapped up shares after the report. We like the story.
Technical Analysis
GOOS originally broke out last November around 22 and, with one notable hiccup along the way, zoomed as high as 69 in June of this year. But that run needed to be consolidated, and that’s what the stock did during the next four months, eventually sagging to its 40-week line in the October market wipeout. The bounce off that line was very strong, and last week, GOOS soared to new highs on nearly quadruple its average weekly volume. We love the power, but would aim for dips to start a position.
GOOS Weekly Chart
GOOS Daily Chart
Crocs (CROX)
Why the Strength
Everybody knows Crocs, the distinctive (some would say “ugly”) plastic footwear beloved of children and beach-going adults. The Crocs company makes clogs, sandals, flip-flops, slides, shoes and boots, all using its proprietary Croslite resin material. The company made seven appearances in Cabot Top Ten Trader in 2006 and 2007, but its stock took a slide from 2011 through May 2017. After four years of flat or negative revenue growth from 2014 through 2017 (including earnings losses in 2015 and 2016), the company has ridden a rebound that started in Q4 2017 to four straight quarters of mid-single digit growth. The earnings picture is much stronger, with nine straight quarters of growth and three quarters in 2018 with positive results, including 15% in Q1, 30% in Q2 and 250% in Q3. The shoes are still ugly, but management has gotten the company growing again, and analysts are forecasting 119% earnings growth this year and 134% in 2019. In raising its guidance for the rest of 2018, management cited a greater reliance on e-commerce as a catalyst for continuing growth. It looks like having a footwear product that’s lightweight, won’t mark up your floors, loves the water and won’t get stinky is the right thing right now.
Technical Analysis
Since bottoming at 6 in May 2017, CROX has been on a powerful roll. The stock reached 20 in June and 22 in September before dipping to 18 in the weeks leading up to earnings on November 8. After that great quarterly report, investors kicked the stock to 28 on nearly six times average volume. CROX has held onto almost all of those gains, trading under resistance between 27 and 28 with rising lows. Short sellers had about 17% of CROX shorted at the end of October, which might strengthen any rally should the stock head higher. If you want in, nibble on weakness.
CROX Weekly Chart
CROX Daily Chart
Elastic (ESTC)
Why the Strength
Here’s a recent IPO that has held its ground very well during the market’s mayhem, with rapid sales growth and a big idea that could take it very far. Elastic looks like it could be the next big thing in the Big Data field—the company’s Elastic Stack software takes in and stores data from different formats and different sources, combines them, and then can perform search, analysis and visualization in seconds, delivering relevant information to whoever needs it. Whether it’s powering the systems that locate nearby riders and drivers for Uber, helping guide the algorithms to find a match on Tinder, monitoring thousands of servers for SoftBank or helping people search to find the right photo in an Adobe database, Elastic’s platform powers it all. Its flexibility is a key, too, able to run on site, in the cloud or anything in between. Elastic operates a freemium-type business model (can use many features for free, but others only come via a paid subscription and include support), and as you can see in the table below, most are expanding their use of Elastic’s offerings—revenues have been ramping up in the 80% range as it signs up new subscriptions (5,500 at the end of July, up from 2,800 the year before) and current clients expand their usage. The valuation is huge, but some analysts think Elastic could be a $1 billion revenue company five to seven years down the road. It’s a big idea. The next data point will come via earnings on December 4.
Technical Analysis
ESTC just came public in early October, but despite the market’s horror show, shares have handled themselves very well—they found support at 60 a handful of times, briefly zoomed to new highs in early November and are back to within a few points of virgin turf. It even hung in there well today! You can nibble in this trading range, or wait for a decisive breakout above 76 to grab a few shares.
ESTC Weekly Chart
ESTC Daily Chart
Planet Fitness (PLNT)
Why the Strength
It’s not thought of as a retail firm, but Planet Fitness’ superb cookie-cutter story continues to crank out excellent growth, which is keeping big investors interested. The company’s low-key exercise locations are proving a hit for the mass market, with few muscle heads, cheap memberships (starting at $10) and lots of benefits for Black Card members ($22 per month, can bring a friend for free, use any Planet location, unlimited hydro-massages, etc.). The firm ended September with 1,646 locations (up 41 from the prior quarter; more than 95% of the total are franchised), but there’s a huge runway from here, as management think there’s room for 4,000 locations in the years ahead. The growth numbers in the table below are a bit inflated due to some accounting customs (the money raised from franchisees for a national ad campaign counts as revenue) and the recent equipment upgrades at a couple hundred locations, but there’s no question the underlying business is very strong—same-store sales rose 9.7% in Q3, membership of 12.2 million was up 16.2% from the year before, and Black Card membership is now more than 60% of the total despite a $2 price hike last year. For the year, EBITDA is expected to rise 19%, and there’s no reason Planet Fitness can’t continue to crank out 15% to 20% growth for many years to come. A recent $300 million accelerated repurchase plan (buying back 6% of shares in one fell swoop) also helps the cause.
Technical Analysis
PLNT has been rising nicely since the middle of 2017, running from 22 to as high as 55 in September, albeit with plenty of pauses and shakeouts along the way. The dip in October was the sharpest during this uptrend, with the stock nearly tagging its 40-week line. But it held support near 45 and then, after earnings, briefly gapped to new highs earlier this month. The dip last week was sharp, but held support. Expect volatility, but if you want in, you can nibble here.
PLNT Weekly Chart
PLNT Daily Chart
Repligen (RGEN)
Why the Strength
Repligen sells bioprocessing supplies to life sciences and biopharmaceutical companies around the world. Its clarification, purification and filtration equipment make it more efficient for clients to manufacture biologic drugs, while ensuring high quality and safety standards. And a near-monopoly on proteins (95% market share) and growth factors, which are used to purify antibody-based drugs and stimulate cell growth, means Repligen’s customers tend to stick around for a long time. It’s a highly specialized field, and with the trends pointing toward more personalized medicine and small batch drug production, Repligen’s equipment is more critical to customers’ success than ever. The stock blasted higher after reporting Q3 results on November mainly because revenue growth of 35% beat expectations, as did EPS of $0.20. Analysts liked hearing about strong trends in Repligen’s single-use technologies, which are much more efficient for customers (no equipment cleaning is required). And management’s focus on acquiring and developing the best technologies in niche markets means Repligen enjoys a leading position as a key supplier of mission-critical equipment. It’s a good growth story in an under-the-radar field. Sales and earnings are expected to rise 15%-ish next year, though that’s likely conservative given Repligen’s history of topping estimates.
Technical Analysis
RGEN was strong from 2013 through mid-2015 and then built what essentially was one giant, multi-year base through May of this year. After some excellent tightness, the stock broke out on earnings and began what’s been a relatively steady advance since—the stock rose to 59 in September, built a flat-ish base during the market meltdown, then soared on earnings at the start of November. The action since then has been just fine—we’re OK nibbling here if you want in.
RGEN Weekly Chart
RGEN Daily Chart
Tableau Software (DATA)
Why the Strength
Tableau is a business intelligence and big data company with software solutions that let users engage with their data, ask questions, solve problems and create value. It has five main software products, some of which are sold on-premise and others that are sold on a subscription basis. The company is transitioning to the cloud and shares have been grinding their way higher as things seem to be going smoothly. We think the rally still has legs given how well Tableau’s business did in the third quarter (reported on November 6). Revenue growth of 11.5% wasn’t huge, but EPS of $0.07 beat by $0.18. And management called for 20% growth in 2019, which was well above expectations. Tableau said it’s seeing momentum with role-based subscription offerings and within large U.S. companies, both of which stem from a build-out of enterprise-level capabilities in new products. That’s drawing attention from big customers with thousands of potential users, and the inking of Tableau’s biggest deal yet (over 10,000 employees) is validation that the plan is working. Big picture, the trends suggest Tableau has potential to be a big player in the widespread adoption of business intelligence solutions (along with Elastic, written about earlier in this issue). That’s huge since the traditional players (IBM, Cognos, SAP, Microsoft, Oracle, etc.) haven’t broken the code yet.
Technical Analysis
DATA’s uptrend dates back to the beginning of 2017. There have been a few sharp corrections since, most notably in November 2017 and June, August and October of this year. But none pulled the stock below its 200-day line, and within a month of each retreat the stock made a new high. The most recent dip to 95 was right before Q3 earnings came out, which ended up driving the stock as high as 125 before. Because of today’s dip, we’re going to set our buy range higher, as some strength from here would confirm support under the stock.
DATA Weekly Chart
DATA Daily Chart
TripAdvisor (TRIP)
Why the Strength
TripAdvisor is the largest travel platform on the Internet—it attracts 490 million unique users per month, has collected more than 700 million reviews (and 153 million photos) on more than 1.2 million hotels, 4.8 million restaurants, one million “experiences” (such as tours) and 880 thousand rental properties. The problem, frankly, has been its financial results, with sales stalling and earnings plunging in recent years, both of which forced management to invest heavily in revamping its site and marketing platform. The good news is that those investments now look to be paying off, which has caused the stock to turn strong—revenue per hotel shopper grew 5% in Q3, the first positive reading for that metric since 2016 (thanks mostly to improved monetization of mobile users, which has been lagging badly; mobile click-based revenue was up 40% in the quarter), while experiences and restaurants drove the non-hotel revenue up 20% in Q3. More important, with the investment spree easing, cash flow is picking up in a big way, with EBITDA booming 54% in the quarter, and best of all, management sees all these trends (accelerating growth, surging cash flow) continuing in the quarters to come. All in all, TripAdvisor looks like an intriguing turnaround—a firm that dominates its market and is getting its act together when it comes to marketing and cost controls.
Technical Analysis
From 111 in 2014 to 30 last November, it was a long time in the wilderness for TRIP. A couple of healthy earnings reactions eventually took the stock to as high as 62 this summer before another tedious retreat took place. Interestingly, TRIP found support in early October and began zooming later that month despite the weak market. And then it gapped to new highs on Q3 earnings! The pullback since then has been reasonable; if you’re game, you can nibble on dips.
TRIP Weekly Chart
TRIP Daily Chart
Zebra Technologies (ZBRA)
Why the Strength
Zebra Technologies is an industrial technology company that makes and sells automatic ID and data capture products for the retail/ecommerce, manufacturing, transportation, logistics and healthcare industries. There are a ton of use cases for its solutions, ranging from patient identification in hospitals to inventory management in retail stores. In all situations, Zebra’s technologies help customers keep track of stuff and analyze flows so users can make the best next move. The stock is doing well now because Q3 results beat expectations on both the top (revenue up 17%) and bottom line, while guidance for Q4 was better than expected too. Management flagged an extended Android upgrade cycle as fueling growth in the transportation and logistics, manufacturing and healthcare markets where Zebra is not fully penetrated yet. But even in retail, where it has a bigger presence, upgrades are pouring in. It’s not a rapid-growth story—analysts see upper single-digit growth next year, though that’s probably conservative—but big investors like the firm’s steadiness, reasonable valuation (15 times this year’s earnings), healthy free cash flow (about matching reported earnings) and the potential to break into new markets, like public safety and machine vision, either through acquisitions or internal development. It’s a solid story.
Technical Analysis
ZBRA has been in an uptrend since mid-2016 when it began to regroup after a nasty 12-month correction. The breakout to new highs came early in 2018 when shares traded well above 120 following strong Q4 2017 results. ZBRA has stair-stepped higher since then, with repeated gaps up on earnings and many shakeouts and consolidations, too. With the stock near it’s 50-day line, we’re OK grabbing a few shares if you want in.
ZBRA Weekly Chart
ZBRA 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.
