Constructive Action
Current Market Outlook
First off, a heads up: Our offices will be closed Thursday and Friday, and next week is one of the two scheduled weeks that we take a break from Top Ten all year. We’re likely to send a brief update this Wednesday with updated stops, but after that, your next update will come Friday, December 4. Have a great long weekend!
As for the market, there remain a couple of flies in the ointment (the Nasdaq still hasn’t reached a new high; sentiment is a bit bubbly), but it’s fair to say the recent action has been constructive, with leading stocks avoiding another bout of selling so far and more individual names perking up. You should still go slow, but we’re increasingly optimistic.
This week’s list has a wide variety of names (big, small, growth, cyclical) that are all finding strength, another good sign for the market. Our Top Pick is Halozyme (HALO), which acts powerfully and has terrific metrics. Try to buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Alcoa (AA) | 19.82 | ||
| Bilibili (BILI) | 63.31 | ||
| Celsius Holdings (CELH) | 33.73 | ||
| Halozyme Therapeutics (HALO) | 40.00 | ||
| Huazhu Group (HTHT) | 51.33 | ||
| II-VI Incorporated (IIVI) | 66.45 | ||
| Inspire Medical Systems (INSP) | 183.30 | ||
| Moderna (MRNA) | 100.92 | ||
| Omnicell (OMCL) | 106.80 | ||
| Sonos (SONO) | 21.41 |
Alcoa (AA)
Why the Strength
After a rough few years and horrid start to 2020, the global aluminum market is in full-on recovery mode, led by a rebound in the automotive and construction industries. Rising demand and tightening supplies are boosting the white metal’s outlook, and Alcoa, one of the world’s largest aluminum producers, should benefit. Its operations include bauxite mining (aluminum ore), alumina refining (for smelting) and aluminum manufacturing. With top user China on the mend, aluminum is expected to be in increasing demand in 2021, driving higher output and pricing; Alcoa reports that China’s net imports of the metal have risen steadily in the last two quarters in what the company calls an “unusual reversal” of normal trade flows (in July and August alone, the firm reported a 75% sequential increase of net aluminum imports to China—a good sign for the global demand outlook). Management saw additional green shoots in Q3, led by its bauxite segment, where mining hit a record pace. Alcoa’s alumina segment, meanwhile, also broke a record for metric tons produced per day, while the aluminum segment improved as well. While revenue in Q3 was 8% lower from a year ago, it was 10% higher sequentially thanks to gains from better aluminum pricing and increased sales of value-added aluminum products. Meanwhile, its cash balance increased to more than $1.7 billion, giving the firm some flexibility going forward. Looking ahead, Alcoa sees commercial construction (where more aluminum is used) proceeding at a slower pace due to lower office space demand, but also expects higher demand from residential construction and improving vehicle production in North America and Europe. If the economy continues to rebound, next year’s estimates of a near-breakeven bottom line are likely very conservative.
Technical Analysis
AA was in a long-term downtrend for a while and the pandemic really caused the stock to give up the ghost—it took until August just for shares to get back above their 40-week line. Shares then settled down to etch a legitimate launching pad (13 weeks long, 32% deep), and the post-election market rally has enabled a good-looking breakout. We’re OK nibbling here, though we’d prefer to get in on dips of a few dimes.
| Market Cap | $3.49B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | 3.70 |
| Current P/E | N/A | FY 2019 | -0.99 |
| Annual Revenue | $9.33B | FY 2020e | -1.55 |
| Profit Margin | N/A | FY 2021e | -0.03 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.36 | -8% | -1.17 | N/A |
| One qtr ago | 2.14 | -21% | -0.02 | N/A |
| Two qtrs ago | 2.38 | -12% | -0.23 | N/A |
| Three qtrs ago | 2.43 | -27% | -0.31 | N/A |
AA Weekly Chart
AA Daily Chart
Bilibili (BILI)
Why the Strength
China’s online streaming market is worth an estimated $16 billion and is growing by an average 11% per year, and Bilibili is one of the main beneficiaries. With more than 200 million users, the firm has one of the most popular video sharing websites in China, with content revolving around animation (or anime), comics and gaming culture, and users are invited to submit content or add commentary on existing videos. (Think of it as the Chinese YouTube, only more interactive and mainly for younger people.) The site also serves as a mobile gaming platform and earns roughly half its revenue from video games, also earning money from ads, virtual item sales during live broadcasts and sales from content creators who operate site-based online shops. The stock is strong today because of a solid Q3 earnings report, which featured monthly active users of 197 million (up 54%), daily active user growth of 42% (to 53 million) and daily video views of 1.3 billion (up 77%). Mobile user growth was also impressive at 61%, while users spent an average 81 minutes per day on the platform, making it one of China’s “stickiest” video communities. Paid user conversions also impressed, with monthly paying users up 89% to reach 15 million in the quarter. Although Bilibili isn’t yet profitable, Q3 featured record-breaking top-line growth of 83%, along with a 19% gross margin bump. Moreover, the company guided for Q4 revenue to rise by a whopping 85%. While the site is already a household name among China’s Gen Z crowd, management believes there’s a large untapped set of potential users that’s just now learning about the site. We like the story.
Technical Analysis
BILI came public last year and wasn’t heavily dented by the March crash, falling from 29 to 20 before running up to the 50 level by July. It spent the next few months consolidating before last week’s high-volume breakout to new highs following earnings. Yes, it’s extended, but we’re okay nabbing shares on any weakness.
| Market Cap | $20.6B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.18 |
| Current P/E | N/A | FY 2019 | -0.47 |
| Annual Revenue | $1.46B | FY 2020e | -1.09 |
| Profit Margin | N/A | FY 2021e | -0.66 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 475 | 82% | -0.41 | N/A |
| One qtr ago | 371 | 65% | -0.19 | N/A |
| Two qtrs ago | 327 | 60% | -0.20 | N/A |
| Three qtrs ago | 288 | 71% | -0.15 | N/A |
BILI Weekly Chart
BILI Daily Chart
Celsius Holdings (CELH)
Why the Strength
Energy drinks have supplanted sodas as the beverage of choice among today’s youth, but while they’re typically marketed as a healthier choice, they often contain as much, or more, sugar than soft drinks. Enter Celsius, which offers sugar-free energy drinks with no preservatives, artificial flavors or colors and are made with healthy ingredients. The company’s products are aimed at health-conscious, active consumers who love energy drinks but want to avoid the “crash” and jitters that often accompany them (some are calling Celsius the “new Red Bull”). Along with its popularity, the firm’s reach is growing, recently securing distribution agreements with Anheuser Busch, Pepsico, Keurig, Dr. Pepper and MillerCoors. Further, its U.S. distribution now exceeds 74,000 retail locations, plus it boasts a 10% share and the third-largest energy drink brand on Amazon. It’s not all sunshine and marshmallows, as Celsius is suffering through a U.S. aluminum can shortage (expected to slightly impact gross margins through 2021), though it’s exploring opportunities to alleviate the can shortage, with plans to increase marketing of its line of On-The-Go powdered drink sticks and its Fast-branded protein bars. Still, there’s no question business is good: Celsius set records across several key metrics in Q3, including revenue, gross margins, net income and cash flow. The top line was up an eye-popping 80% in Q3, with domestic sales growth of 60%, driven by increased distribution (stores grew by over 19,000 locations, including Walmart and Target), plus double-digit growth from existing customers. The quarter also saw more than 100% growth in e-commerce channels, driven by Amazon sales. Looking ahead, analysts expect revenue growth well over 30% during the next few quarters along with steady bottom-line growth. It’s an exciting, consumer-oriented story that could go far if management pulls the right levers.
Technical Analysis
CELH spent the first nine years of its existence as a publicly traded company meandering around under 5. But the stock went absolutely bonkers starting in May this year as healthy food brands came into vogue following the pandemic. The stock exploded from 5 to 25 in just a three-month period, followed by a tightening period in September and October. The latest earnings provided the catalyst to this month’s move to new highs, accompanied by strong volume. Expect lots of volatility, but we’re OK nibbling here.
| Market Cap | $2.41B | EPS $ Annual (Dec) | |
| Forward P/E | 243 | FY 2018 | -0.19 |
| Current P/E | 486 | FY 2019 | 0.16 |
| Annual Revenue | $119M | FY 2020e | 0.12 |
| Profit Margin | 12.9% | FY 2021e | 0.14 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 36.8 | 80% | 0.06 | 100% |
| One qtr ago | 30 | 86% | 0.02 | N/A |
| Two qtrs ago | 28.2 | 95% | 0.01 | -95% |
| Three qtrs ago | 24.1 | 64% | -0.02 | N/A |
CELH Weekly Chart
CELH Daily Chart
Halozyme Therapeutics (HALO)
Why the Strength
Halozyme is one of many young, peppy biotech and medical outfits that’s acting very well and has a great fundamental story that should play out for many years. The company has come up with a better mousetrap when it comes to drug delivery. Its specialized technology uses a proprietary enzyme that breaks down a “tough” layer just under the skin that often obstructs bulk fluid flow, allowing treatments to be given in just minutes instead of the drips you see that often take hours. (Such bulk fluid flow has proven to be safe, too, and can boost effectiveness as it increases absorption.) A ton of big names (including Roche, J&J, Alexion, Lilly, AbbVie and more) have inked deals with Halozyme to use its technology to deliver their own sets of drugs; each one has to go through clinical trials to be proven safe, and as they progress, Halozyme is getting good-sized milestone payments. In fact, the company expects to collect north of $140 million of those payments this year (including $30 million from Horizon Therapeutics, which just inked a deal today) and another $280 million or so during the next two years. Then, of course, when products come to market (one big one from J&J already has), the royalties will flow; the top brass believes it could collect $1 billion annually from royalties by 2027 if all goes well! Of course, there’s no guarantee everything does go well, and seven-year forecasts usually aren’t worth the paper they’re printed on. But this isn’t just about the future, as Halozyme is thriving right now, with sales and earnings both kiting higher, and analysts see more of that coming in 2021, with earnings more than doubling and sales soaring. Thus, you have real, high-margin growth today (55% after-tax margins in Q3!) and the potential for far greater payouts going forward. We like it.
Technical Analysis
HALO really wasn’t much of anything for the past few years, but it’s changed character in recent months. The stock actually topped back in 2015 and went through the wringer a few times before finally getting going post-crash this year; shares briefly lifted to all-time highs in early summer before starting a flat consolidation. That rest lasted nearly four months, but the Q3 report, some bullish trial updates from partners and the addition to the S&P 400 MidCap Index have all caused a massive breakout in HALO. We’re OK buying some here or (preferably) on dips.
| Market Cap | $5.33B | EPS $ Annual (Dec) | |
| Forward P/E | 22 | FY 2018 | -0.56 |
| Current P/E | 241 | FY 2019 | -0.50 |
| Annual Revenue | $200M | FY 2020e | 0.86 |
| Profit Margin | 55.4% | FY 2021e | 1.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 65.3 | 41% | 0.25 | N/A |
| One qtr ago | 55.2 | 41% | 0.19 | N/A |
| Two qtrs ago | 25.4 | -55% | -0.04 | N/A |
| Three qtrs ago | 53.7 | -11% | -0.24 | N/A |
HALO Weekly Chart
HALO Daily Chart
Huazhu Group (HTHT)
Why the Strength
Huazhu Group is the Hyatt or Marriott of China, with the firm operating thousands of all different types of hotels (economy, mid-scale, upscale) in all different size cities (Tier 1, 2 and 3) across China. The stock is strong for two reasons: First, at heart, this is a classic cookie-cutter story, as new hotels (either built, acquired and/or franchised) and expansions of existing locations have led to a steady increase in the number of rooms available, which in turn has pushed sales and cash flow generally higher. And second, today Huazhu is benefiting from increasing travel and a return to normal in the Chinese economy—sales plunged in the first two quarters of the year while earnings dove into the red, and there will surely be some reshuffling of the company’s hotel chain (550 to 600 closures, which will offset new openings to some extent). But there’s little doubt that a major recovery is underway—in its Q3 update (it hasn’t reported full results yet), Huazhu reported that room rates rose 32% from the prior quarter, occupancy of 88% was up from 69% and the firm restarted its expansion, with 319 net new hotels opening in the quarter (520 opened, 201 closed; the firm now operates near 6,400 hotels across China). There’s always the chance for further virus-related hiccups, of course, but as of now analysts see 63% revenue growth in 2021 while earnings pop well into the black. Over time, this year’s hard times will probably be a good thing, as the cost cuts and closure of underperforming locations means the nascent recovery should push the bottom line much higher than expected.
Technical Analysis
HTHT is one of many stocks that’s staging a long-term breakout, with the stock emerging from a two-and-a-half-year consolidation. After topping at 50 back in mid-2018, the stock fell as low as 25 two different times, including during the crash of this year, but it’s been acting well since—shares etched two nice consolidations (June-July and September-October), with the recent strength pushing the stock to new all-time highs on solid volume. See if you can sharpshoot an entry down a bit from here.
| Market Cap | $14.7B | EPS $ Annual (Dec) | |
| Forward P/E | 46 | FY 2018 | 0.84 |
| Current P/E | N/A | FY 2019 | 0.76 |
| Annual Revenue | $1.41B | FY 2020e | -0.68 |
| Profit Margin | N/A | FY 2021e | 1.16 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 276 | -34% | -0.23 | N/A |
| One qtr ago | 284 | -20% | -0.54 | N/A |
| Two qtrs ago | 418 | 7% | 0.20 | 11% |
| Three qtrs ago | 428 | 6% | 0.20 | -20% |
HTHT Weekly Chart
HTHT Daily Chart
II-VI Incorporated (IIVI)
Why the Strength
II-VI’s engineered materials and optoelectronic components and devices (which include lasers, photonics and performance products) play in a $5.1 billion global market that’s growing at a 10%-plus annual clip. Optoelectronics include devices that either convert light energy to electricity or vice versa, and the market is rapidly expanding due to growing demand for industrial lasers and machine vision systems; electric vehicles, self-driven trucks and autonomous vehicles; light emitting diodes (LEDs) for electronics like TV’s; and partially due to rising consumer electronics demand in Asia-Pacific and Latin American countries. That demand is showing up on the bottom line at II-VI: The company released quarterly results earlier this month, with revenues of $728 million (meeting expectations), but increasing margins helped earnings wallop estimates, coming in at $0.84 per share compared to the $0.55 forecast, the third time in the last four quarters II-VI has topped expectations. Last year’s acquisition of Finisar has been successfully integrated (that’s one reason for the triple-digit sales growth), which—along with Apple’s new iPhone 12 lineup, which incorporates II-VI sensors for Face ID—helped grow its 3D sensing revenue by 200% year-over-year. Looking ahead, II-VI says that the 5G and Cloud Computing megatrends will continue to boost its business, with solid double-digit revenue and booming earnings growth likely for the next couple of quarters.
Technical Analysis
IIVI has been a nothingburger for years, but it looks like the post-pandemic environment and the Finisar acquisition has changed things up. Shares quickly leapt to multi-month highs after the March bottom, then went on to build an up-and-down base for the next four months. And now IIVI is freewheeling, leaping to new highs on earnings and pushing higher since the report. We’d aim for dips of two or three points if you want in.
| Market Cap | $6.72B | EPS $ Annual (Jun) | |
| Forward P/E | 19 | FY 2019 | 2.52 |
| Current P/E | 22 | FY 2020 | 2.59 |
| Annual Revenue | $2.77B | FY 2021e | 3.41 |
| Profit Margin | 13.8% | FY 2022e | 3.88 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 728 | 114% | 0.84 | 58% |
| One qtr ago | 746 | 106% | 1.18 | 82% |
| Two qtrs ago | 627 | 83% | 0.42 | -30% |
| Three qtrs ago | 666 | 94% | 0.40 | -44% |
IIVI Weekly Chart
IIVI Daily Chart
Inspire Medical Systems (INSP)
Why the Strength
The global sleep apnea device market is expanding at a high single-digit rate and is expected to reach $10.3 billion by 2027. The market is dominated by therapeutic devices, which account for 64% of the revenues, and that’s the segment where Inspire Medical Systems operates. The company makes innovative and minimally invasive solutions for patients with obstructive sleep apnea (OSA). The company says that its proprietary Inspire therapy is the first and only FDA-approved neurostimulation technology that provides a safe and effective treatment for moderate to severe OSA. The small device is inserted during a same-day, outpatient procedure; at bedtime, you just click the remote to turn it on and it delivers mild stimulation to the nerve that controls the tongue, keeping the muscles and soft tissues from sagging and blocking the airway, allowing users to breathe normally and sleep peacefully. The device has been so successful that in the third quarter, Inspire activated 42 new Inspire centers in the U.S., for a total of 370, and created seven new U.S. sales territories, bringing the total to 98. That, plus broader commercial and Medicare insurance coverage, helped the company’s quarterly sales beat estimates by a mile, coming in at $36 million, 72% higher than a year ago. Inspire won’t be profitable for a while but the Q3 loss of $0.39 per share heartily beat the $0.72 loss expected. The company hiked guidance going forward, with analysts looking for the top line to rise another 52% in 2021. Inspire is yet another small medical firm that’s thriving today.
Technical Analysis
INSP crashed with everything else in March, but after a quick snapback, the stock impressed by entering a persistent uptrend into September, easily taking the stock to new highs. Shares did stall out a bit at that point, shaking out below its 10-week line during the market’s weakness, but the Q3 results caused INSP to erupt to new highs. The stock is a bit thinly traded, so try to get an entry on a bit of a pullback.
| Market Cap | $4.84B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.08 |
| Current P/E | N/A | FY 2019 | -1.40 |
| Annual Revenue | $96.3M | FY 2020e | -2.40 |
| Profit Margin | N/A | FY 2021e | -2.27 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 35.8 | 72% | -0.39 | N/A |
| One qtr ago | 12.2 | -32% | -0.88 | N/A |
| Two qtrs ago | 21.3 | 31% | -0.67 | N/A |
| Three qtrs ago | 26.9 | 63% | -0.38 | N/A |
INSP Weekly Chart
INSP Daily Chart
Moderna (MRNA)
Why the Strength
We alerted you to Moderna in March, when the shares were trading around 27, and the company was working on a potential RNA-based vaccine for coronavirus. At that time, 350,000 people around the world were infected, and more than 15,000 had died. Those statistics dim in the face of today’s 58.7 million global cases and 1.39 million deaths. But good news has arrived! Last week, both Pfizer/BioNTech and Moderna announced fantastic Phase III results from their vaccine clinical trials, with reported efficacy of around 95%. Moderna stated that among its 30,000 patients, there were no severe COVID-19 cases after receiving the vaccine. One worry is that both companies’ vaccines are messenger RNA vaccines which can disintegrate very quickly, and Pfizer’s requires ultra-cold storage (-94 degrees Fahrenheit), which might slow distribution. However, Moderna’s mRNA-1273 can be stored at regular refrigeration temperatures (for 30 days). (If storage is required for a longer period, the vaccine will need to be frozen.) Moderna’s vaccine is being offered to the U.S. government at a reasonable price, $25 to $37 per dose. The company is now negotiating prices with the E.U. as the firm also works on emergency authorization in the U.S. and other countries (slated to be applied for this week). The next step will be execution: Moderna said it expects to ramp up production of the vaccine to between 500 million to one billion doses. The firm has other irons in the fire, but the vaccine is clearly the lead story and is why analysts see the firm’s bottom line leaping to north of $4 per share next year.
Technical Analysis
MRNA had a huge advance after the March crash on hopes for an eventual vaccine, but after spiking as high as 87 in May the hot money left as the focus shifted to the trials. Shares spent the next few months bobbing up and down on news items, and MRNA was still sitting in the 70 area last month when perception turned up—the stock has since broken out on good volume as investors discount a huge uptick in business going forward. Dips of a few points would be tempting.
| Market Cap | $38.5B | EPS $ Annual (Dec) | |
| Forward P/E | 21 | FY 2018 | -1.16 |
| Current P/E | N/A | FY 2019 | -1.56 |
| Annual Revenue | $247M | FY 2020e | -1.82 |
| Profit Margin | N/A | FY 2021e | 4.35 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 158 | 826% | -0.59 | N/A |
| One qtr ago | 66.4 | 407% | -0.31 | N/A |
| Two qtrs ago | 8.4 | -48% | -0.35 | N/A |
| Three qtrs ago | 14.1 | -60% | -0.37 | N/A |
MRNA Weekly Chart
MRNA Daily Chart
Omnicell (OMCL)
Why the Strength
Clinicians spend lots of time searching for and counting meds due to outdated, error-prone manual drug dispensaries. Omnicell has a better way, with its tech-enabled autonomous pharmacy improving workflows by helping clinicians safely and securely deliver proper drug doses to the right patient at the right time. Its flagship product, the Omnicell XR2, uses robotics to package and sort drugs to reduce handling time by pharmacists and reduce expired medication waste. Its XT automated dispensing cabinet improves medicine tracking and regulatory compliance while reducing inventory costs. And its business software uses predictive analytics to optimize medical supply management so clinicians can focus on patient care. While Omnicell’s business was impacted by COVID, its customers began returning to normal business in Q3, driving significant increases in new customer wins and bookings. Revenue of $214 million was down 7% from a year ago (though revenues increased 7% sequentially). Management is encouraged by the strength in bookings and the ability to grow its backlog and sees better times ahead, with the top brass thinking Q4 revenue will increase 13% sequentially; and analysts see 2021 revenue up 17%. Plus, longer-term, the top brass reaffirmed its 11% annual organic growth rate (usually a bit higher with some M&A here and there). Thus, Omnicell offers investors both a recovery story as investors look ahead to a lessening of the pandemic as well as a long-term, reliable growth story—both of which should keep big investors interested.
Technical Analysis
OMCL has been in a long-term uptrend for years, but has also suffered through many multi-month dips and rest periods along the way. The latest of those lasted two full years (no net progress from September 2018 to September 2020), but now OMCL is freewheeling, with shares up eight weeks in a row (a sign of persistent accumulation) to all-time highs. We advise looking to buy on the next retreat.
| Market Cap | $4.43B | EPS $ Annual (Dec) | |
| Forward P/E | 33 | FY 2018 | 2.09 |
| Current P/E | 43 | FY 2019 | 2.81 |
| Annual Revenue | $891M | FY 2020e | 2.38 |
| Profit Margin | 12.3% | FY 2021e | 3.13 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 214 | -7% | 0.60 | -21% |
| One qtr ago | 200 | -8% | 0.37 | -45% |
| Two qtrs ago | 230 | 13% | 0.66 | 8% |
| Three qtrs ago | 248 | 17% | 0.77 | 10% |
OMCL Weekly Chart
OMCL Daily Chart
Sonos (SONO)
Why the Strength
With more than 100 brands to choose from, the global audio speaker market is ultra-competitive, and to thrive, companies must combine superior hardware quality with premium services buyers won’t find anywhere else. Sonos does this by making hi-fi wireless home audio products and smart speakers. Its chief claim to fame is its Whole House Audio concept, which allows a household to play music from multiple sources across several rooms simultaneously, so that different rooms may hear the same music source in sync (it also partners with over 100 music service companies, including Pandora and Amazon Music). This approach has created a fiercely loyal client base for Sonos, where customers return to add additional products to their home (the company just delivered its 15th straight year of growing the number of homes its products are found in by 20% or more; total of nearly 11 million households globally). For fiscal 2020, sales grew only 5% to $1.3 billion, due mainly to COVID-related setbacks earlier in the year. However, Q4 revenue was up by an impressive 16%—and up 36% sequentially—on the back of strong demand for new and existing products. Even more bullish was direct-to-consumer revenue, which rose 84% and accounted for a record 21% of the top line. Looking ahead, management guided for revenue of around $1.47 billion in fiscal 2021 (which started October 1), up 11% at the midpoint and in-line with estimates. Analysts further expect per-share earnings to grow 24% next year, which we think is conservative. Sonos also plans on increasing its new product output (it just introduced Sonos Radio HD, an ad-free hi-def streaming subscription service) and expanding its partnerships (which include IKEA). We’re thinking business will continue its estimate-beating ways in the quarters to come.
Technical Analysis
SONO came public in 2018, quickly hitting a post-IPO high of 23 before sliding steadily to its lifetime low of 7 in this year’s March panic. Shares staged a solid comeback in the four months that followed that bottom before peaking in July and etching a reasonable three-month launching pad. The breakout on earnings was very powerful (up 30% on 13 times average volume!), and while there’s still some old resistance from 2018, we think SONO should generally head higher from here.
| Market Cap | $2.31B | EPS $ Annual (Sep) | |
| Forward P/E | 31 | FY 2019 | -0.05 |
| Current P/E | N/A | FY 2020 | -0.18 |
| Annual Revenue | $1.33B | FY 2021e | 0.68 |
| Profit Margin | 5.4% | FY 2022e | 0.84 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 340 | 16% | 0.15 | N/A |
| One qtr ago | 249 | -4% | -0.52 | N/A |
| Two qtrs ago | 175 | -17% | -0.48 | N/A |
| Three qtrs ago | 562 | 13% | 0.60 | 9% |
SONO Weekly Chart
SONO 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 | |||||
| 11/16/20 | Albemarle | ALB | 121-126 | 134 | |
| 10/26/20 | Align Technology | ALGN | ? | 420-440 | 475 |
| 10/19/20 | Avalara | AVLR | 147-152 | 172 | |
| 10/26/20 | Axon Enterprise | AAXN | 99.5-102.5 | 126 | |
| 9/21/20 | Brinker Int’l | EAT | 42-44.5 | 49 | |
| 11/2/20 | Bunge | BG | 56-58.5 | 60 | |
| 11/16/20 | Canopy Growth | CGC | 23.5-25 | 25 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 39 | |
| 11/2/20 | Cloudflare | NET | 49-52 | 66 | |
| 11/9/20 | Enphase Energy | ENPH | 112-118 | 134 | |
| 10/26/20 | Exact Sciences | EXAS | 103-107 | 120 | |
| 11/2/20 | Fine9 | FIVN | 136-140 | 148 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 156 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 22 | |
| 8/10/20 | Freshpet | FRPT | 99-102.5 | 137 | |
| 10/26/20 | General Motors | GM | 34-36 | 45 | |
| 10/26/20 | GrowGeneration | GRWG | 16.5-18 | 31 | |
| 11/9/20 | HubSpot | HUBS | 335-350 | 371 | |
| 10/19/20 | Invitae | NVTA | 47-49.5 | 51 | |
| 11/9/20 | JD.com | JD | 83-86.5 | 88 | |
| 11/16/20 | Lam Research | LRCX | ? | 415-435 | 448 |
| 11/2/20 | Martin Marietta | MLM | 263-273 | 267 | |
| 11/16/20 | Marvell Tech | MRVL | 41.5-43.5 | 45 | |
| 11/2/20 | Mattel | MAT | 13-13.5 | 15 | |
| 10/26/20 | MercadoLibre, Inc. | MELI | 1180-1240 | 1452 | |
| 8/24/20 | Natera | NTRA | 60-63 | 86 | |
| 11/16/20 | Norfolk Southern | NSC | 235-245 | 242 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 135 |
| 10/19/20 | Paycom Software | PAYC | 360-375 | 402 | |
| 8/3/20 | PINS | 33.5-37 | 66 | ||
| 8/3/20 | Qualcomm | QCOM | 106-110 | 144 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 69 |
| 7/13/20 | Roku | ROKU | 147-154 | 277 | |
| 10/5/20 | SeresTherapeutics | MCRB | 27.5-29.5 | 34 | |
| 10/26/20 | Shift4 Payments | FOUR | 51.5-54 | 61 | |
| 11/16/20 | Snap | SNAP | 37.5-39.5 | 45 | |
| 9/28/20 | Square | SQ | 157-162 | 208 | |
| 11/16/20 | Staar Surgical | STAA | 76-79.5 | 79 | |
| 10/5/20 | ST Microelectronics | STM | 32-33.5 | 37 | |
| 10/19/20 | SunPower | SPWR | 16.5-17.5 | 22 | |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 98 | |
| 9/14/20 | Target | TGT | 145-149 | 177 | |
| 11/16/20 | Timken | TKR | 69-72 | 74 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 302 | |
| 11/9/20 | Uber | UBER | 45-47.5 | 50 | |
| 11/9/20 | Yeti | YETI | 50-53 | 61 | |
| 10/5/20 | Zendesk | ZEN | 101-105 | 127 | |
| 11/9/20 | Zillow | Z | 100-105 | 114 | |
| WAIT | |||||
| 11/16/20 | Shockwave Medical | SWAV | 87.5-91 | 99 | |
| 11/16/20 | Upwork | UPWK | 29.5-31 | 35 | |
| SELL RECOMMENDATIONS | |||||
| 10/12/20 | Abercrombie | ANF | 15.5-16.5 | 23 | |
| 10/19/20 | Deckers Outdoor | DECK | 238-246 | 258 | |
| 9/14/20 | Gap Inc. | GPS | 16.5-17.5 | 26 | |
| DROPPED | |||||
| 11/9/20 | Amiccus Therapeutics | FOLD | 19.5-20.5 | 22 | |
The next Cabot Top Ten Trader issue will be published on December 7, 2020.