Very Strong, Lots of Crosscurrents
Current Market Outlook
The market staged a stunning rebound last week, producing rare strength that bodes well for the months ahead. And today’s action was even more dramatic, with news of a virus vaccine causing some wild moves up in the major indexes. The intermediate-term trend is now clearly up, but the tricky part comes with individual stocks—today’s action saw growth stocks get hit (in general) while lagging cyclical names exploded higher. Overall, the evidence has clearly improved so we’re optimistic the next leg up has begun, but at the same time, it’s likely the crosscurrents we’re seeing among individual names and sectors will be with us a while (rotation and re-rotation, etc.). Thus, we’re OK with gradually extendingyour line, but it’s probably not going to be like April or May when throwing a dart made you money; continue to pick your spots and stocks carefully and give names room to maneuver.
This week’s list is growth-heavy after we saw many positive earnings reactions last week; yes, most took on some water today but they remain in uptrends until proven otherwise. Our Top Pick is Zendesk (ZEN), which is early stage and acts like it wants to go higher. Try to buy on weakness.
| Stock Name | Price | ||
|---|---|---|---|
| Amicus Therapeutics (FOLD) | 21.15 | ||
| Enphase Energy (ENPH) | 116.95 | ||
| HubSpot (HUBS) | 345.57 | ||
| JD.com (JD) | 84.91 | ||
| QUALCOMM Incorporated (QCOM) | 142.44 | ||
| Roku, Inc. (ROKU) | 221.95 | ||
| Uber (UBER) | 48.20 | ||
| Yeti Holdings (YETI) | 51.52 | ||
| Zendesk (ZEN) | 124.63 | ||
| Zillow (Z) | 104.12 |
Amicus Therapeutics (FOLD)
Why the Strength
Amicus creates therapeutics for rare and orphan diseases. Its primary drug is Galafold, which is a small molecule pharmacological chaperone (chaperones are molecules that bind to proteins to prevent degradation) for the treatment of Fabry disease, a rare genetic disorder that prevents the body from making an enzyme called alpha-galactosidase A. It can cause kidney damage, heart attacks and strokes and affects one in every 40,000 to 60,000 males. (Women can also get it, but prevalence statistics are currently unknown.) In the pipeline are various high-potential treatmeants: Amicus is in Phase III studies for a drug to treat Pompe disease, which results in the abnormal buildup of a sugar molecule inside cells that can lead to impairment of the heart, respiratory and skeletal muscles; trial results are due in 1Q21. And the company recently announced positive results from a Phase I/II study of a gene therapy for CLN6 Batten disease, a fatal neurologic disease that targets two to four out of every 100,000 children; the results met safety requirements and showed a slowdown in disease progression, with more data forthcoming next year. What we like here is that Amicus has a real business today (Q3 revenue up 38% thanks to Galafold; losses continue to shrink) and potential for plenty of upside should trial results please.
Technical Analysis
FOLD topped out in early 2018 and had a few legs down to its nadir in March before rallying nicely. After getting back to 16 in June, shares backed off for a couple of months on quiet volume, putting the finishing touches on a two and a half year launching pad. FOLD broke out in October and has continued higher since, even accelerating after earnings last week. Dips of a point or so would be good to start a position.
| Market Cap | $5.48B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.88 |
| Current P/E | N/A | FY 2019 | -1.48 |
| Annual Revenue | $246M | FY 2020e | -0.98 |
| Profit Margin | N/A | FY 2021e | -0.70 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 67.4 | 38% | -0.25 | N/A |
| One qtr ago | 62.4 | 41% | -0.20 | N/A |
| Two qtrs ago | 60.5 | 78% | -0.35 | N/A |
| Three qtrs ago | 55.3 | 69% | -0.35 | N/A |
FOLD Weekly Chart
FOLD Daily Chart
Enphase Energy (ENPH)
Why the Strength
Solar companies have been among the few non-tech industries that have thrived this year as homeowners and businesses increasingly turn to solar power in a quest for energy independence (the U.S. is expected to add a record 18 gigawatts of solar capacity this year alone). Enphase Energy (last covered in the August 31 issue) is the top supplier of microinverters that convert energy generated by solar panels into AC power used in homes and businesses. Moreover, while it’s dominant in the inverter market, it’s also expanding its reach into the rapidly growing energy storage market--in July, it started shipping its new Encharge battery storage system, which allows homeowners to generate, store and control solar energy in a single system for the first time ever. The firm reported strong demand for the system in Q3 and sees it as a major future revenue driver. Separately, Enphase will soon unveil its IQ 8, a grid independent solar microinverter (beta launch expected by early 2021), while its small commercial product, the AC IQ 8D microinverter, is also nearing launch. The stock is strong today because, after a virus-related hiccup in demand, business looks set to reaccelerate in a big way—in Q3, Enphase reported a top line of $179 million (down 1% from a year ago, but up 42% sequentially) with per-share earnings of 30 cents (up from 17 cents in Q2), driven by continued cost reduction efforts and post-shutdown demand recovery. Gross margin was an eye-popping 53% as the firm enjoys a much lower cost structure compared to its competitors. What’s more, analysts are calling for 23% revenue growth this year and even stronger growth in 2021 (up 61%) while earnings rise 48% (which is likely too low). With the general and household-based solar opportunity rising by the year, Enphase should have a long runway of growth ahead.
Technical Analysis
Solar stocks have been on fire this year, and ENPH has been one of the top performers in this sector. Following a sharp decline in March, the stock has advanced nicely, albeit with a few multi-week rest periods along he way. The latest consolidation in October saw shares drop from a peak of 120 to 92 (just above the 50-day line; the stock is known for sharp swings) before bouncing back. Last week’s push to new highs is encouraging, though we’d favor entering on dips of a few points.
| Market Cap | $15.5B | EPS $ Annual (Jan) | |
| Forward P/E | 63 | FY 2018 | 0.10 |
| Current P/E | 97 | FY 2019 | 0.95 |
| Annual Revenue | $720M | FY 2020e | 1.28 |
| Profit Margin | 23.4% | FY 2021e | 1.90 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 179 | -1% | 0.30 | 0% |
| One qtr ago | 126 | -6% | 0.17 | -6% |
| Two qtrs ago | 206 | 105% | 0.38 | 375% |
| Three qtrs ago | 210 | 128% | 0.39 | 680% |
ENPH Weekly Chart
ENPH Daily Chart
HubSpot (HUBS)
Why the Strength
HubSpot is a customer relationship management leader, providing software that simplifies the advertising process for small and mid-sized outfits. The key is really Hubspot bringing these firms into the new advertising age—instead of outbound (cold call, random emails, etc.) actions that worked OK years ago but have poor response rates today, the firm’s platform uses non-invasive “inbound” marketing methods, focused on providing valuable content via blogs, videos, landing pages and personalized messages to attract visitors to a company’s website and grow its customer base. Growth has been solid for a while and that’s picked up as the move of everything online accelerates: In Q3, Hubspot’s top line grew 32% in Q3 on the back of 39% customer growth (total clients surpassed 95,000, including record-setting customer additions of 9,000). Subscription and services revenue rose 32% and 12%, respectively, while total average subscription revenue per customer of roughly $9,700 was slightly higher sequentially but down 3% year over year. Calculated billings (more of a leading indicator), meanwhile, saw a 33% bump. Looking ahead, HubSpot guided for total Q4 revenue to be near $236 million, up 27% and in line with consensus estimates. Management also believes the digital transformation tailwind is still going strong and, coupled with the investments in both its product and go-to market teams, will help it grow in 2021 and beyond. This is a solid long-term growth story that should continue to play out for many quarters to come.
Technical Analysis
HUBS has been an excellent performer since the March bottom, with the three pullbacks it’s suffered each finding support near its 10-week line, two of which occurred during the market’s September and October dips. But HUBS has roared back since then, including last week’s gap on earnings, with today’s dip reasonable in that context. Given the run in recent months (and last week), we favor entering on further dips.
| Market Cap | $18.0B | EPS $ Annual (Dec) | |
| Forward P/E | 247 | FY 2018 | 0.89 |
| Current P/E | 259 | FY 2019 | 1.26 |
| Annual Revenue | $817M | FY 2020e | 0.96 |
| Profit Margin | 5.9% | FY 2021e | 1.36 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 228 | 32% | 0.28 | 8% |
| One qtr ago | 204 | 25% | 0.34 | 10% |
| Two qtrs ago | 199 | 31% | 0.30 | 0% |
| Three qtrs ago | 186 | 29% | 0.38 | 3% |
HUBS Weekly Chart
HUBS Daily Chart
JD.com (JD)
Why the Strength
We wrote about JD.com in August, we cited its earnings and revenues beat and its 30% rise in customer count during the second quarter—great results that were helped by the coronavirus-related rise in an already accelerating Chinese e-commerce market. As well, JD.com is investing in new shopping formats such as social and live-streaming—which should fare very well in major upcoming shopping periods, including the Chinese New Year early next year and the Singles Day shopping day on November 11 (this week). The company is essentially a one-stop-shop, with a giant e-commerce platform and logistics network with automated warehouse robots, delivery drones and driverless delivery vehicles. And speaking of the latter, JD.com is about to become the first company in the world to deploy an autonomous delivery vehicle program at scale, with 100 vehicles by the end of the year in Changshu, Jiangsu province. They feature no driver but only within a specific mapped area, known as geofencing. They notify customers with texts and phone calls that include a verification code to ensure packages are given to the proper recipient. The company expects to have more than 100,000 automated delivery robots on the road within the next five years, resulting in massive labor and energy consumption savings. JD.com is also readying IPOs of its JD Digits, JD Logistics and JD Health subsidiaries very soon, though to be fair, those may be delayed amid concerns of China’s renewed enthusiasm for regulations, as shown by the delay of Alibaba’s Ant Group IPO. Earnings are expected to be announced on November 20.
Technical Analysis
JD has been an excellent performer in recent months, and as opposed to many growth names, the advance has been somewhat smooth—the stock rallied nicely through June, rested for a few weeks, bounced off its 50-day line in August, then rested for two months through October. The breakout last week looked good, and while today’s growth stock-induced retreat mars the picture a bit, the overall uptrend remains intact. We’re OK starting small here and seeing what earnings bring.
| Market Cap | $141B | EPS $ Annual (Dec) | |
| Forward P/E | 57 | FY 2018 | 0.34 |
| Current P/E | 80 | FY 2019 | 1.02 |
| Annual Revenue | $91.9B | FY 2020e | 1.61 |
| Profit Margin | 2.9% | FY 2021e | 2.23 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 28.5 | 30% | 0.50 | 52% |
| One qtr ago | 20.6 | 15% | 0.28 | -15% |
| Two qtrs ago | 23.9 | 22% | 0.08 | 14% |
| Three qtrs ago | 18.9 | 24% | 0.29 | 142% |
JD Weekly Chart
JD Daily Chart
QUALCOMM Incorporated (QCOM)
Why the Strength
Qualcomm is front and center in the commercialization of the 5G phone market and continues to expand its portfolio of 5G mobile platforms, all of which is resulting in some huge growth. Management says that the 5G rollout is progressing even faster than 4G did and believes 2021 will be the “sweet spot” for 5G, with all major handset makers paying the company royalties on their 5G phones (including higher licensing fees from Apple and Huawei, who finally stuck deals with the company during the past couple of years). Qualcomm had blowout earnings in its fiscal fourth quarter, reporting a stronger-than-expected handset market. The company reported a hefty 35% jump in its Q4 top line to $6.5 billion (plus an additional, one-time $2 billion licensing payment from Huawei) and earnings of $1.45 per share (up 86% and 28 cents above expectations). It further reported solid revenue growth in its Internet of Things (IoT) solutions thanks to higher demand in networking, retail, industrial, tracking and utilities verticals. Management also guided for strong demand for 5G devices in the current fourth quarter, forecasting revenues of $8.2 billion or so, far exceeding the consensus estimate of $7.2 billion. With over 110 licensing agreements for 5G with smartphone original equipment manufacturers (OEMs), the firm believes there will be around 500 million 5G smartphones shipped in 2021, up significantly from this year’s estimated 200 million. And analysts are buying in—earnings for the current fiscal year (which just began) should leap to $7 per share, leaving plenty of room for dividend hikes and share buybacks if the top brass go that direction. Qualcomm remains our favorite mega-cap story.
Technical Analysis
QCOM’s character changed for the better in late July when it gapped to new highs (out of a five-plus-year base) following a deal with Huawei. Shares stair-stepped higher from there, pulling back to the 10-week line a couple of times when the market got rocky. But last week’s quarterly report caused another rush of buying, with QCOM gapping to new highs on big volume. This isn’t generally a go-go stock, so we’ll set our buy range down a smidge, thinking a little shaking and baking is possible near-term.
| Market Cap | $164B | EPS $ Annual (Dec) | |
| Forward P/E | 22 | FY 2018 | 3.09 |
| Current P/E | 33 | FY 2019 | 4.40 |
| Annual Revenue | $23.5B | FY 2020e | 6.96 |
| Profit Margin | 20.0% | FY 2021e | 7.75 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 8.34 | 73% | 1.45 | 86% |
| One qtr ago | 4.89 | -49% | 0.86 | 7% |
| Two qtrs ago | 5.21 | 5% | 1.09 | 42% |
| Three qtrs ago | 5.07 | 5% | 0.99 | 32% |
QCOM Weekly Chart
QCOM Daily Chart
Roku, Inc. (ROKU)
Why the Strength
Roku has the look and smell of a fresh leader, with the stock only recently emerging from a huge launching pad and a business that’s accelerating. The company is a pure play on the major trend toward consumers cutting cable and going with over-the-top services, effectively serving as a neutral gateway for all the competing streaming offerings. (Roku actually benefits as more streaming services go live, as these firms want to be available on the firm’s platform.) Roku does put a lot of effort into hardware, either via its own streaming devices or integrating its operating system into fast-selling smart TVs, but there’s not a ton of profit in that business—instead, it’s all about Roku’s platfor, which is becoming ever more popular for users and, hence, advertisers. In Q3, Roku’s platform revenue lifted 78%, active accounts were up 43% (to 46 million) and revenue per user lifted 20%. Better yet, some tidbits in the quarter point to a major reallocation of ad dollars away from linear (regular) TV and toward Roku’s platform—Q3 ad impressions grew 90% in the quarter, first-time ad clients more than doubled from a year ago and Roku has already closed 2021 upfront deals with all six major ad agency firms at “significantly increased levels of commitment.” Management is somewhat conservative given the uncertainties out there, but still sees mid-40% revenue growth in the holiday (Q4) quarter, which was above estimates. Big picture, the upside here is enormous as people continue to cut the cord (linear TV hours watched in the 18-to-49 year old demographic down 17% in Q3!) and move to streaming.
Technical Analysis
ROKU broke out from a year-long consolidation in September and enjoyed a solid run to around 240 before getting caught up in the growth stock selling last month; shares eventually dipped just under 200 on some superficial bad news (Walmart and Comcast are teaming up to develop a smart TV). But the first dip to the 50-day line is usually buyable, and that proved to be the case this time, with last Friday’s surge coming after the Q3 report. ROKU is very volatile (as we saw today), but we’re OK starting a position here or on further weakness.
| Market Cap | $31.3B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.08 |
| Current P/E | N/A | FY 2019 | -0.52 |
| Annual Revenue | $1.54B | FY 2020e | -1.39 |
| Profit Margin | N/A | FY 2021e | -0.94 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 452 | 73% | 0.09 | N/A |
| One qtr ago | 356 | 42% | -0.35 | N/A |
| Two qtrs ago | 321 | 55% | -0.45 | N/A |
| Three qtrs ago | 411 | 49% | -0.13 | N/A |
ROKU Weekly Chart
ROKU Daily Chart
Uber (UBER)
Why the Strength
Uber’s ride sharing business was sidetracked by the pandemic, but the company has made a strong comeback in recent months thanks to some optimism that the world is slowly returning to normal, and more importantly, because of its booming food service segment. Uber has been forced to turn its focus from rides to deliveries in COVID’s wake, and the strategy is so far paying off big as Uber Eats now works with over half-a-million restaurants in the U.S. (30% of the market!). While the top line was down 18% in Q3 due to softer ride sharing demand, gross delivery bookings were up a whopping 134%. Uber Eats revenue, meanwhile, was up by an equally impressive 125%, with new users being added at elevated rates. Consequently, management is EBITDA breakeven by the end of next year. Meanwhile, after suffering shutdown-related setbacks, Uber’s main ride-sharing business is showing signs of recovery in some cities as commuting makes a comeback (gross bookings in New York, for instance, were up 63% in October). Although ride revenue fell 53% in Q3, that was an improvement over the 67% drop in Q2; overall gross bookings of $14.8 billion also beat consensus expectations. Management credits its new Uber rides app—which can also be used for Uber Eats orders—for generating delivery customer growth in the quarter, as well as fast delivery times (guaranteed in 30 minutes or less). Looking ahead, analysts see total revenue surging 40% next year as Eats continues its expansion and ride sharing stages a strong rebound. All told, Uber has exposure to both pandemic (Eats) and economic recovery (Rides) trends.
Technical Analysis
UBER was a high-profile IPO bust last year and crashed with everything else in March of 2020. But it rebounded nicely after that and went on to etch a tightening base for the next four-plus months. (Notice the many big-volume up weeks during that rest, a good sign big investors were picking up shares.) The breakout came last week, first after some bullish ballot initiatives passed in California and then after earnings. After today’s gap, we favor aiming for dips, though we’re not anticipating a major retreat.
| Market Cap | $77.9B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | 0.59 |
| Current P/E | N/A | FY 2019 | -5.04 |
| Annual Revenue | $13.0B | FY 2020e | -3.81 |
| Profit Margin | N/A | FY 2021e | -1.38 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 3.13 | -18% | -0.62 | N/A |
| One qtr ago | 2.24 | -29% | -1.02 | N/A |
| Two qtrs ago | 3.54 | 14% | -1.70 | N/A |
| Three qtrs ago | 4.06 | 37% | -0.64 | N/A |
UBER Weekly Chart
UBER Daily Chart
Yeti Holdings (YETI)
Why the Strength
Yeti has become the go-to brand for best-in-class (and they charge you for it) drinkware (58% of revenue) and coolers and other equipment (41% of revenue), allowing millions of consumers to keep their beer or wine cold at the beach or coffee hot while on the go. Yes, there are knockoffs, but you get what you pay for, and Yeti’s brand and distribution is second to none—plus, the market opportunity has expanded from niche hikers and campers 10 years ago to just about everyone who enjoys a nice beverage today. The company has been doing well for years, and the pandemic environment has only helped—in Q3, revenue growth accelerated to 29% while earnings more than doubled thanks in large part of direct-to-consumer (read: e-commerce) sales, which soared 62% and made up more than half of all revenue. Growth probably will cool off some going forward, but longer-term, the sky’s the limit, especially as Yeti’s products become popular for gifts (the holiday season could be big) and as the company expands internationally; Q3 saw triple-digit sales growth overseas, though that segment makes up just 7% of the firm’s total. It won’t be a lightning-fast growth story, but big investors are betting Yeti is a new dominant brand that will produce dependable 15% to 20% growth for many years to come. It’s a solid story.
Technical Analysis
YETI came public in October 2018 and was at the same level as that after crashing in March of this year, but it’s been a different beast since then; shares motored to decisive new highs during the following few months, finally hitting some resistance near 50 in August. The stock then went into a 12-week correction and consolidation, which set up things for the breakout last week after earnings. Today’s action was far from ideal and could be a sign that the stock needs a little time; even so, we think it’s a decent risk/reward around here.
| Market Cap | $5.16B | EPS $ Annual (Dec) | |
| Forward P/E | 34 | FY 2018 | 0.90 |
| Current P/E | 37 | FY 2019 | 1.11 |
| Annual Revenue | $1.01B | FY 2020e | 1.58 |
| Profit Margin | 18.2% | FY 2021e | 1.87 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 295 | 29% | 0.61 | 126% |
| One qtr ago | 247 | 7% | 0.41 | 37% |
| Two qtrs ago | 174 | 12% | 0.11 | 83% |
| Three qtrs ago | 298 | 23% | 0.48 | 26% |
YETI Weekly Chart
YETI Daily Chart
Zendesk (ZEN)
Why the Strength
Zendesk is a leading Software as a Service (SaaS) company which provides customer support software and a customer relations management (CRM) platform that makes it easier for developers to build and deploy customer apps and services faster. Zendesk turned a corner in Q3 from the biggest COVID-related impacts to its business, with new growth returning to pre-pandemic levels in many categories. It reported a 24% top-line increase on per-share earnings of 18 cents (a 7-cent beat), driven by strong demand for its solutions, along with lessening customer churn and cancellation rates during the quarter (though the latter metric remains elevated compared to historical levels). The company also crossed the $1 billion annual revenue run rate during the quarter, exceeding its own expectations. Other metrics were equally robust, with same-customer revenue growth of 12% (within the 10% to 20% range that the company considers healthy), free cash flow of $25 million (compared to $9 million a year ago) and a gross margin of 76% (up 4%). Management now expects to exceed its revenue target goal of $1 billion (set in 2016) this year, which if realized would represent 25% growth. It also guided for Q4 revenues of between $274 and $279 million (up 20% at the midpoint). With subscription revenue and other metrics on the upswing following the worst of the pandemic’s impacts, we expect Zendesk’s growth story will continue.
Technical Analysis
ZEN topped in mid 2019 and built a year-long structure on the chart before attempting to break out in July and again in August—both times meeting with selling. But shares never did anything wrong, and the third time was a charm, with the stock accelerating to 115 in October. After an orderly pullback with the market, shares have let loose on the upside following earnings. It’s extended, but impressively, held firm today; we think you can enter here or (preferably) on weakness.
| Market Cap | $14.4B | EPS $ Annual (Dec) | |
| Forward P/E | 158 | FY 2018 | 0.15 |
| Current P/E | 242 | FY 2019 | 0.31 |
| Annual Revenue | $976M | FY 2020e | 0.56 |
| Profit Margin | 8.1% | FY 2021e | 0.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 262 | 24% | 0.17 | 42% |
| One qtr ago | 247 | 27% | 0.14 | 180% |
| Two qtrs ago | 238 | 31% | 0.10 | 150% |
| Three qtrs ago | 230 | 33% | 0.10 | 67% |
ZEN Weekly Chart
ZEN Daily Chart
Zillow (Z)
Why the Strength
In September, housing inventory hit a record low—just 2.7 months’ supply nationwide. There are three reasons for this: 1) sellers don’t want strangers in their homes as virus cases rise; 2) there’s little for them to buy when they sell their homes; and 3) if they plan to sell and move into senior housing—good luck! The nursing homes and assisted living centers that have been the unfortunate primary targets of COVID-19 don’t want new customers right now. Still, the National Association of Realtors said housing demand hit a 14-year high in September—simply put, demand is swamping the supply, driving inventory down and prices up. All of that has been a boon for Zillow, the most popular online destination for real estate listings. We wrote about Zillow in August after the company saw visits rise 14% in the second quarter, to 2.5 billion. Of course, revenues and earnings were impacted by the coronavirus, but the company was looking forward to a better third quarter. And it was right! Zillow’s revenues were down 12% from a year ago, but sales of $657 million handily topped analysts’ projections of $579 million, driven by its Premier Agent segment, which saw revenues pick up from 17% decline in Q2 to a 24% rise in Q3. Meanwhile, mortgage-related revenue rose 114% thanks to a healthy refinance market, and mobile apps and website traffic increased 32%. And it achieved all of that despite a dip in its home buying and selling operation—revenue there was down 51% as the company stopped home buying for a while, but that’s set to resume now that the market is heating up. Analysts see sales, earnings and cash flow ramping from here. Overall, Zillow remains the most growth-oriented and well-rounded way to play the new housing boom.
Technical Analysis
Z broke out from a big base in July and acted very well for a few months, with just modest dips and shakeouts as it marched up to 110 or so. We actually sold the position up there, and the stock did sag meaningfully during the growth stock weakness in October. But it’s come storming back, both before and after last week’s report, and today’s dip, while sharp, looks reasonable. We’re OK taking a swing at Z here.
| Market Cap | $26.9B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | 0.39 |
| Current P/E | N/A | FY 2019 | -0.54 |
| Annual Revenue | $3.49B | FY 2020e | -0.30 |
| Profit Margin | 13.5% | FY 2021e | -0.02 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 657 | -12% | 0.37 | N/A |
| One qtr ago | 768 | 28% | -0.17 | N/A |
| Two qtrs ago | 1126 | 148% | -0.25 | N/A |
| Three qtrs ago | 943 | 158% | -0.26 | N/A |
Z Weekly Chart
Z 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 | 477 |
| 10/19/20 | Avalara | AVLR | 147-152 | 154 | |
| 10/26/20 | Axon Enterprise | AAXN | 99.5-102.5 | 124 | |
| 9/21/20 | Brinker Int’l | EAT | 42-44.5 | 50 | |
| 11/2/20 | Bunge | BG | 56-58.5 | 57 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 39 | |
| 11/2/20 | Cloudflare | NET | 49-52 | 65 | |
| 10/5/20 | Datadog | DDOG | 103-107 | 95 | |
| 10/19/20 | Deckers Outdoor | DECK | 238-246 | 255 | |
| 10/26/20 | Exact Sciences | EXAS | 103-107 | 123 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 146 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 20 | |
| 8/10/20 | Freshpet | FRPT | 99-102.5 | 125 | |
| 9/14/20 | Gap Inc. | GPS | 16.5-17.5 | 23 | |
| 10/26/20 | General Motors | GM | 34-36 | 39 | |
| 10/26/20 | GrowGeneration | GRWG | 16.5-18 | 22 | |
| 10/19/20 | Invitae | NVTA | 47-49.5 | 44 | |
| 11/2/20 | Martin Marietta | MLM | 263-273 | 261 | |
| 10/26/20 | MercadoLibre, Inc. | MELI | 1180-1240 | 1332 | |
| 10/19/20 | Monolithic Power | MPWR | 300-310 | 317 | |
| 8/24/20 | Natera | NTRA | 60-63 | 79 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 126 |
| 10/19/20 | Paycom Software | PAYC | 360-375 | 405 | |
| 10/12/20 | Paylocity | PCTY | 178-188 | 204 | |
| 8/3/20 | PINS | 33.5-37 | 58 | ||
| 8/3/20 | Qualcomm | QCOM | 106-110 | 143 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 65 |
| 7/13/20 | Roku | ROKU | 147-154 | 222 | |
| 7/27/20 | Sea Ltd | SE | 110-116 | 169 | |
| 10/5/20 | SeresTherapeutics | MCRB | 27.5-29.5 | 33 | |
| 10/26/20 | Shift4 Payments | FOUR | 51.5-54 | 63 | |
| 9/28/20 | Square | SQ | 157-162 | 184 | |
| 10/5/20 | ST Microelectronics | STM | 32-33.5 | 35 | |
| 10/19/20 | SunPower | SPWR | 16.5-17.5 | 19 | |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 89 | |
| 9/14/20 | Target | TGT | 145-149 | 155 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 274 | |
| 10/5/20 | Zendesk | ZEN | 101-105 | 124 | |
| WAIT | |||||
| 11/2/20 | Five9 | FIVN | 136-140 | 141 | |
| 11/2/20 | Mattel | MAT | 13-13.5 | 14 | |
| 11/2/20 | Pinduoduo | PDD | ? | 86-90 | 106 |
| 11/2/20 | Ultragenyx Pharm | RARE | 90-94 | 114 | |
| SELL RECOMMENDATIONS | |||||
| 7/13/20 | Alibaba | BABA | ? | 244-254 | 291 |
| 10/19/20 | Bill.com | BILL | 110-114 | 97 | |
| 9/21/20 | NIO Inc. | NIO | 17-18 | 44 | |
| 4/6/20 | Peloton | PTON | 27-29 | 100 | |
| 9/21/20 | Seattle Genetics | SGEN | ? | 175-180 | 168 |
| DROPPED | |||||
| None this week | Í | ||||
The next Cabot Top Ten Trader issue will be published on November 16, 2020.