Lots of Volatility, Little Progress
Current Market Outlook
The market has been thrashing around during the past few trading days, with big gaps up and down, dramatic reversals and news-driven moves. But overall, nothing has really changed from our point of view—most growth leaders are still under pressure after suffering abnormal selling the prior couple of weeks, which, coming after a prolonged upmove, raises the odds that further potholes are ahead. Of course, it’s not all bad—today was a stick save for the major indexes (most bounced nicely off their 50-day lines), and while the broad market has pulled back, many areas are doing so normally. All told, we remain flexible, and are open to the possibility that the recent dip was more of a shakeout than the start of a rough patch, but the burden of proof is on the bulls to step up. Until then, we prefer being cautious.
The good news is that our stock screens continue to pick up on some potential fresh leaders should the market find its footing. Our Top Pick this week is Novocure (NVCR), an innovative player in the cancer market that’s come to life after a year-long rest. Try to buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| 10X Genomics (TXG) | 121 | ||
| DouYu (DOYU) | 16 | ||
| The Gap, Inc. (GPS) | 17 | ||
| Guardant Health (GH) | 103 | ||
| The Mosaic Company (MOS) | 18 | ||
| MyoKardia (MYOK) | 124 | ||
| Novocure (NVCR) | 98 | ||
| Snap Inc. (SNAP) | 24 | ||
| Taiwan Semiconductor (TSM) | 80 | ||
| Target (TGT) | 148 |
10X Genomics (TXG)
Why the Strength
Even after mapping the human genome, scientists still don’t know why some people with a particular variation in their DNA develop cancer, while others with the same variation don’t – mainly due to the limitation of biotech research tools. 10X Genomics, which designs and manufactures gene sequencing tools and software, is addressing this problem. Its technology suite enables the study of cells and systems at an unprecedented level of resolution, allowing for the capture of DNA, RNA, protein and immunological info from individual cells (it has helped researchers discover previously unrecognized cell types, including those linked to cystic fibrosis, melanoma, breast cancer and kidney disease). Despite widespread lab closures in Q2, the firm reported strong instrument demand particularly driven by COVID-related research; 10X reported significant tailwinds from its Immune Profiling products, as researchers use them to increase their understanding of SARS-CoV-2. It also recently launched an integrated software product which adds support for targeted gene analysis. The top line was 23% lower because just one-fourth of customer labs were open early in the quarter (though 60% were open by the end of Q2). There should be improvement from here, with revenues flat-ish this quarter and resuming growth in Q4. New product development is a top priority for 10X, which has an IP portfolio of over 500 patents pending. And with the single-cell genome sequencing market worth an estimated $25 billion by 2025, 10X has an exciting runway for future growth as the virus-induced hiccups in demand fade.
Technical Analysis
TXG was on a roller-coaster ride after its IPO last September, rising from 54 to peak at 108 in January before plummeting back to 50 in March. Since then, however, TXG has enjoyed a smoother path, with a quick rebound above 80 after the low, a steady advance along its 10-week line for a few months and last week’s big-volume rip to new highs (coming after a share offering, which is unusual). If you want in, aim for dips of a few points.
| Market Cap | $12.2B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.18 |
| Current P/E | N/A | FY 2019 | -0.32 |
| Annual Revenue | $251M | FY 2020e | -1.04 |
| Profit Margin | N/A | FY 2021e | -0.33 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 42.9 | -23% | -0.41 | N/A |
| One qtr ago | 71.9 | 34% | -0.22 | N/A |
| Two qtrs ago | 75.3 | 49% | -0.07 | N/A |
| Three qtrs ago | 61.2 | 67% | -0.10 | N/A |
TXG Weekly Chart
TXG Daily Chart
DouYu (DOYU)
Why the Strength
The global market for online streaming platforms is hyper-competitive and is heating up in China. While it has several leading competitors (including Hitbox and Twitch), DouYu has taken the lead as China’s largest game-centric live streaming site, boasting 165 million monthly active users. (It has been called the Chinese version of Twitch and was also Wall Street’s largest Chinese IPO last year.) Aside from being a top video game platform, DouYu offers live sports, variety shows and other entertainment, enabling users to submit, view and add commentary subtitles to premium content (setting it apart from competitors). Chinese internet giant Tencent (which owns 38% of DouYu) has proposed merging the firm with its nearest competitor Huya. Once completed, the alliance will form an online gaming juggernaut and give DouYu an even bigger share of China’s gaming, streaming and live-event market. Douyu’s second quarter featured some impressive metrics, with paying users increasing 13% (from 6.7 million to 7.6 million), while those users spent an average of $45, up 20% from a year ago. Throw in higher income from advertising and live-streaming and revenue was up 30% in the quarter, while per-share earnings of 15 cents beat the consensus by 3 cents and continued a multi-quarter trend of triple-digit growth. Analysts see the growth continuing, with double-digit revenue increases forecast for the next several quarters while earnings should triple this year and surge nearly 50% in 2021. The company also features a strong balance sheet with no debt and cash holdings of $1.2 billion, which should make it easier for DouYu to grow via acquisitions and new content creation.
Technical Analysis
After coming public in 2019, DOYU drifted from its IPO price of 11.5 last July to 6 in March. It slowly bottomed out over the next two months before breaking out from a base in late May and commencing a multi-month upside run. A series of higher highs and lows since June suggests there is more intermediate-term potential ahead for the stock, and while DOYU has pulled back of late, it’s finding support near its 25-day line. You could take a stab here if you want in.
| Market Cap | $4.94B | EPS $ Annual (Dec) | |
| Forward P/E | 30 | FY 2018 | -0.37 |
| Current P/E | 39 | FY 2019 | 0.16 |
| Annual Revenue | $1.23B | FY 2020e | 0.51 |
| Profit Margin | 13.5% | FY 2021e | 0.75 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 355 | 30% | 0.15 | 400% |
| One qtr ago | 322 | 45% | 0.13 | 550% |
| Two qtrs ago | 296 | 75% | 0.08 | N/A |
| Three qtrs ago | 260 | 75% | 0.03 | N/A |
DOYU Weekly Chart
DOYU Daily Chart
The Gap, Inc. (GPS)
Why the Strength
When you combine the death of many mall-based retailers with the sea change of shopping habits brought on by the virus, you might think that a company like Gap would be losing investor interest. But it’s not, and when you dig into the story, you find more than a few positives. First off, Gap—which operates not just its namesake brand but also Old Navy, Athleta, Banana Republic and more—has been solidly profitable for years, and while 2020 will bring red ink due to the shut-ins, analysts see the bottom line popping back into the black this quarter. Second, the company seems to be ahead of many retailers when it comes to adjusting to the new e-commerce realities: In Q2, online sales boomed 95% as it acquired 3.5 million new online customers (up 165%), with particular strength in Old Navy (online sales up 136%). And third, the brick-and-mortar piece of the business should be recovering (90% of stores were reopened as of August 1). To be clear, it’s not all good news—the core Gap brand is doing just OK, and Banana Republic has been a mess (sales down 52% in Q2!), so there’s nothing new or sexy that’s likely to drive longer-term growth. But for the next few quarters, we think upside surprises could be the norm—Q2’s loss of 17 cents per share was 20 cents better than expected, and analysts have been hiking next year’s guesstimate (now $1.05 per share, which we think will prove very low). Gap looks like a solid turnaround situation to us.
Technical Analysis
GPS has been out of favor for years, and the exclamation point on that decline came earlier this year when the stock crashed to 5. But that was the low, and after a few choppy weeks, the stock has been acting well, gliding higher above its 50-day line and spiking to new highs in late August on good volume. The pullback toward the 25-day line since then looks like a solid entry point.
| Market Cap | $6.19B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | 2.59 |
| Current P/E | N/A | FY 2019 | 1.97 |
| Annual Revenue | $14.1B | FY 2020e | -2.10 |
| Profit Margin | N/A | FY 2021e | 1.05 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 3.28 | -18% | -0.17 | N/A |
| One qtr ago | 2.11 | -43% | -2.51 | N/A |
| Two qtrs ago | 4.67 | 1% | 0.58 | -19% |
| Three qtrs ago | 4 | -2% | 0.53 | -23% |
GPS Weekly Chart
GPS Daily Chart
Guardant Health (GH)
Why the Strength
Cancer detection often entails performing a tissue biopsy, which is invasive and expensive. A blood biopsy, however, is non-invasive, far less costly (under $4,000 compared to $12,000) and can alert the patient to any abnormalities much faster. Guardant develops proprietary blood tests for a range of diseases and uses data sets and advanced analytics in the fight against cancer. It’s lately received some high-profile FDA approvals, including one for its Guardant360 CDx—a biomarker test for tumor mutation profiling—that delivers critical genomic info to oncologists from a simple blood draw. Guardant360 CDx was also approved as a companion diagnostic to identify non-small cell lung cancer patients with epidermal growth factors who may benefit from treatment with the drug Tagrisso. Guardant was further granted an emergency use authorization for its Guardant-19 test for use in COVID-19 detection (the company says testing workflow can be scaled to over 10,000 tests per day). Bigger picture, the opportunity is enormous, and as Guardant’s platform improves, it should be able to take share from tissue biopsies as it moves into early-stage cancer screening, a market that’s 2.5x as big as its current addressable market. Near-term, the virus has affected things—virus-related shutdowns have rippled through the entire industry, though the firm reported a healthy top-line of $66 million (+23%) in Q2, driven by higher precision oncology testing revenues and higher testing prices. Q3 should also suffer some slowdown, but growth is expected to steadily reaccelerate after that; the bottom line is still stuck in the red, though losses should begin to shrink in the next three years with profitability anticipated by 2024.
Technical Analysis
GH went public in October 2018 at 19 and reached a high of 110 the following August, but it’s been in one big consolidation ever since, with lows in the mid 50s last October and again this March. Shares did return to the century mark in May, and now they’ve etched a good-looking four-month base, with the stock actually perking up in recent days and nosing to multi-month highs today on big volume. We’re OK starting small here or on dips.
| Market Cap | $9.43B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.00 |
| Current P/E | N/A | FY 2019 | -0.84 |
| Annual Revenue | $258M | FY 2020e | -1.59 |
| Profit Margin | N/A | FY 2021e | -1.21 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 66.3 | 23% | -0.57 | N/A |
| One qtr ago | 67.5 | 84% | -0.29 | N/A |
| Two qtrs ago | 62.9 | 91% | -0.27 | N/A |
| Three qtrs ago | 60.8 | 181% | -0.14 | N/A |
GH Weekly Chart
GH Daily Chart
The Mosaic Company (MOS)
Why the Strength
Fertilizer companies aren’t the sexiest names on Wall Street, but the sector has shown an ability to trend when conditions are right, and that time looks to be here. The industry is garnering attention after top-consumer China’s looming corn shortage (due to weather-related issues) and recent vow to increase its agricultural imports from the U.S. That’s good news for Mosaic, the largest producer of phosphate and potash fertilizers in the U.S. Both inputs are essential for all major crops (the potash is mined in Canada and New Mexico, while the phosphate is mined in Florida, with additional facilities in Brazil). Mosaic reports higher fertilizer demand from farmers in Brazil (who are having excellent years) and sees a big opportunity for capacity additions in that country. Moreover, phosphate prices are rebounding (up $13/ton in Q2), with rising ag commodity prices (especially soybeans) likely to boost the firm’s profit outlook via higher demand. In Q2, Mosaic posted per-share earnings of 11 cents, down 8% from a year ago but easily beating estimates of two cents. Sales volumes in all its three businesses were higher in the quarter (records were reached in its potash and Fertilizantes segments), and cash flow increased, with $814 million generated from Q2 operations (it also has a liquidity position of $3 billion). But this is really all about the future—analysts expect earnings to grow 87% in Q3, 50% for full-year 2020 and an explosive 274% in 2021! While COVID continues to impact the world economy, ag and food security are high priorities, which means fertilizer demand will remain high (with prices likely rising), all of which should keep buyers interested.
Technical Analysis
MOS has been out of favor for years, with its latest slide coming to an end in March at 6.5. The upmove after that was choppy, with a sharp dip in April and a shallow eight-week consolidation in June and July. But the Q2 report has changed the stock’s character, causing MOS to rip above its 200-day line last month, and the tight consolidation of that move in recent weeks is constructive. We’re OK starting a position here with a stop under the 50-day line.
| Market Cap | $6.91B | EPS $ Annual (Dec) | |
| Forward P/E | 66 | FY 2018 | 2.12 |
| Current P/E | N/A | FY 2019 | 0.18 |
| Annual Revenue | $8.67B | FY 2020e | 0.27 |
| Profit Margin | 2.0% | FY 2021e | 1.01 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.04 | -6% | 0.11 | -8% |
| One qtr ago | 1.8 | -5% | -0.06 | N/A |
| Two qtrs ago | 2.07 | -18% | -0.29 | N/A |
| Three qtrs ago | 2.75 | -6% | 0.08 | -89% |
MOS Weekly Chart
MOS Daily Chart
MyoKardia (MYOK)
Why the Strength
We wrote about MyoKardia in May, noting that the company had five treatments in the works for serious heart disease, focusing on small molecule therapeutics aimed at the proteins of the heart that regulate cardiac muscle contraction. At that time, the firm’s mavacamten treatment for hypertrophic cardiomyopathy had just reported a great Phase III clinical trial. In July, mavacamten was granted breakthrough therapy designation from the FDA, and the company plans to submit a New Drug Application for it in the first quarter of 2021. MyoKardia also just entered an agreement with Chinese biotech LianBio to develop and commercialize mavacamten in China and other Asian territories, which will result in a $40 million milestone payment at closing. Additionally, the company reported that its danicamtiv drug for genetic dilated cardiomyopathy (DCM) is now in a Phase 2 study, with results expected in the second half of next year. DCM is a progressive disease that can result in shortness of breath, debilitating fatigue, fainting, and swelling of the extremities and irregular heart rhythms, leading to heart failure. Danicamtiv is the only therapeutic targeting DCM’s biologic underpinnings. The risk here is that MyoKardia is an R&D outfit, with no sales, never mind earnings, and a need for cash over time (it recently issued six million shares). However, the potential is big, as the hypertrophic cardiomyopathy market is more than $1 billion and the genetic dilated cardiomyopathy market is around $250 million. Consider it an interesting speculation.
Technical Analysis
MYOK exploded higher in May after the good trial news before sagging for the next three months as hot money left. But shares quieted down, found support near 90 and have gotten a head of steam going since early August; MYOK has returned to its prior highs on solid volume, even as the market has softened. Pullbacks of a few points could provide a solid entry point.
| Market Cap | $6.11B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.76 |
| Current P/E | N/A | FY 2019 | -6.17 |
| Annual Revenue | N/M | FY 2020e | -5.68 |
| Profit Margin | N/A | FY 2021e | -6.82 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | N/M | N/M | -1.27 | N/M |
| One qtr ago | N/M | N/M | -1.50 | N/M |
| Two qtrs ago | N/M | N/M | -1.31 | N/M |
| Three qtrs ago | N/M | N/M | -3.07 | N/M |
MYOK Weekly Chart
MYOK Daily Chart
Novocure (NVCR)
Why the Strength
Novocure has always had a great story, and after a year-long rest, the stock is back in favor. The firm’s claim to fame is its Optune system for treating certain types of cancers, which uses tumor treating (electrical) fields that, via long, low doses of radiation, disrupt and destroy cancer cells. The system is portable (important since it needs to be worn for many hours at a time) and is often used in concert with other treatments (including chemo). And it’s shown great results, with higher survival rates than with chemo alone, and the more hours Optune is used, the better the outcome. So far, the system is used for glioblastoma (a very tough brain tumor) and mesothelioma (only treatment approved for this asbestos-linked disease in 15 years; it’s the first torso indication for Optune), and that has led to a steady increase in the number of patients (3,278 at the end of June, up 20%), revenues (up 34% in Q2) and earnings (Novocure turned profitable late last year and hasn’t looked back). But if all goes well the company could grow manyfold from here: Optune is in trials for a variety of other cancers, with five data readouts expected next year, including Phase II trial results in liver and gastric cancer, and Phase III data on non-small cell lung, locally advanced pancreatic and recurrent ovarian cancer. The top brass believes its addressable market could grow nearly fivefold within three years and much more five years out. As it stands now, analysts see revenues up 32% this year and 18% next, with earnings picking up steam. We like it.
Technical Analysis
NVCR enjoyed a big run from its post-IPO lows in early 2017 to its peak in the fall of last year. The century mark was a tough nut to crack, rejecting the stock many times over a few months, before the crash earlier this year pulled the stock to as low as 55. Unlike most names, NVCR retested that low a few months later, but since then it’s changed character with the stock racing higher, including last week’s gains on big volume and today’s surge with many medical stocks. We’re OK starting small here or (preferably) on any minor wobbles.
| Market Cap | $8.96B | EPS $ Annual (Dec) | |
| Forward P/E | 514 | FY 2018 | -0.69 |
| Current P/E | 728 | FY 2019 | -0.07 |
| Annual Revenue | $409M | FY 2020e | 0.17 |
| Profit Margin | 1.4% | FY 2021e | 0.31 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 116 | 34% | 0.02 | N/A |
| One qtr ago | 102 | 39% | 0.04 | N/A |
| Two qtrs ago | 99.2 | 42% | 0.04 | N/A |
| Three qtrs ago | 92.1 | 42% | 0.02 | N/A |
NVCR Weekly Chart
NVCR Daily Chart
Snap Inc. (SNAP)
Why the Strength
If you’re not in the 18-24 year age group, you may not know much about Snap, but 78% of that age demographic loves Snapchat, this company’s mobile messaging app that’s used to share photos, videos, text and drawings. Of its user base, in fact, more than 53% are aged 18 to 24, and they post more than three billion photos and videos daily. The firm had some issues after going public (worries about stagnant user growth were everywhere), but it’s righted the ship, with new offerings and features attracting more and more people. In the second quarter, daily active users jumped 17%, to 238 million, helping to drive a sales increase of 17%, while the loss of nine cents per share was 14 cents ahead of estimates. Going forward, this quarter is looking pretty good for Snap, with an expanding line of games and video content, as well as its Discover newsfeed and newer features (including an augmented reality Lens that takes viewers into virtual NFL locker rooms). And the upcoming election is also likely to boost business a bit. More important, Snapchat downloads were up 29% year-over-year in August, and analysts see accelerating growth going forward—the top line should slowly return to its pre-COVID growth rates (revenues expected to rise 23% this quarter and 28% next), though the bottom line will likely remain just south of breakeven. Longer term, compared to the gold standards of the social media industry like Facebook, Snap’s revenue per active user is far lower; as it attracts more advertisers, that leaves plenty of revenue upside down the road.
Technical Analysis
SNAP tried to break out of a multi-month base early this year before getting yanked down by the crash in March. But the stock quickly got back on track, hitting new highs in early June and reaching 27 in July. Now SNAP is nine-plus weeks into a new launching pad, and we like the look of it, especially with some tightness near the lows and a pickup in buying even as the market has sagged of late. You can start small here and consider adding if shares push higher.
| Market Cap | $35.1B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.47 |
| Current P/E | N/A | FY 2019 | -0.16 |
| Annual Revenue | $1.92B | FY 2020e | -0.72 |
| Profit Margin | N/A | FY 2021e | -0.45 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 454 | 17% | -0.09 | N/A |
| One qtr ago | 463 | 44% | -0.08 | N/A |
| Two qtrs ago | 561 | 44% | 0.03 | N/A |
| Three qtrs ago | 446 | 50% | -0.04 | N/A |
SNAP Weekly Chart
SNAP Daily Chart
Taiwan Semiconductor (TSM)
Why the Strength
In a world increasingly dominated by computers, semiconductors are essential for keeping the digital economy functioning smoothly. Taiwan Semiconductor (last covered in the August 10 issue) has been called “the most important company in the world” since it’s the largest dedicated pure-play semiconductor foundry (with many chipmakers outsourcing fabrication of their components to it). This year’s acceleration of cloud migration has led to the rapid expansion of data center-related demand, with Taiwan Semi seeing a subsequent increase in chip fabrication orders (as seen in recent financial results); the 5G smartphone boom (delayed by COVID for a bit) is also helping the cause, as are some issues with Intel. After beating top- and bottom-line estimates in its last quarterly earnings report, Taiwan Semi surprised again last week when it reported August revenue of $4.2 billion (up 16% from a year ago) as semiconductor demand has been stronger than anticipated. Year-to-date sales, meanwhile, are up 31%. Also boosting the firm’s outlook is the huge hike in demand anticipated for connected devices in the years ahead (not to mention smart cars and wearable technology). There are some worries here about deceleration—analysts see earnings up just 6% next year, while the buoyant top-line growth is expected to slow to just 10% in 2021—but Wall Street doesn’t seem to believe it, especially as the monthly reports continue to top expectations. All in all, Taiwan Semi looks like a fresh chip stock leader.
Technical Analysis
After spending the better part of the spring establishing a base (following the COVID-related crash), TSM initiated liftoff in June. It rose from 50 to 80 in just two months and has spent the last several weeks tightening up while the 50-day line catches up. It’s a classic-looking chart that offers a decent risk-reward proposition—you can take a swing at TSM here if you don’t own any.
| Market Cap | $09B | EPS $ Annual (Dec) | |
| Forward P/E | 25 | FY 2018 | 2.20 |
| Current P/E | 27 | FY 2019 | 2.17 |
| Annual Revenue | $40.9B | FY 2020e | 3.14 |
| Profit Margin | 38.9% | FY 2021e | 3.33 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 10.6 | 36% | 0.79 | 93% |
| One qtr ago | 10.3 | 45% | 0.74 | 95% |
| Two qtrs ago | 10.6 | 12% | 0.75 | 19% |
| Three qtrs ago | 9.45 | 11% | 0.63 | 12% |
TSM Weekly Chart
TSM Daily Chart
Target (TGT)
Why the Strength
The online shopping boom continued in the second quarter, with e-commerce reaching its highest penetration, rising 44% over last year to a stunning $201 billion overall; more than $1 in every $5 was spent online during the quarter. But impressively, it’s not just an online vs. offline situation—total retail sales were actually up 2.2% in second quarter. Target continues to be the best-run of the big retailers, thanks to both management pulling the right levers and being in the right place at the right time (groceries, etc.). In the most recent quarter, Target booked a 25% increase in revenues, to $22.9 billion, and a whopping 86% climb in earnings per share, to $3.38, driven in large part by its digital business, where same-store sales rose by 195%! (The company’s overall same-store sales rose 24.3%, marking their 13th straight increase.) For several years, Target has been investing in omnichannel initiatives, including the purchase of Shipt 2017, which gave it same-day delivery capabilities, as well as investing in Drive Up and in-store Order Pickup. Those moves have paid off handsomely, with these services soaring by 273% in second quarter. Of course, it’s not all peaches and cream (clothing sales in the U.S. declined during the quarter), but Target actually saw a double-digit jump in overall apparel sales, while its private brands are flourishing (its Good & Gather brand—just a year old—has captured more than $1 billion in sales this year). Unlike most brick-and-mortar retailers, the company is continuing to open new small-format stores, mostly in high-density, underserved neighborhoods. Target is too large to be a rapid growth outfit (high single-digit to low double-digit growth is likely going forward), but it’s the best in its class and has continually outpaced expectations for years. As mega-caps go, we like it.
Technical Analysis
TGT topped at 130 in January and slipped to 90 during the depths of this year’s crash before beginning to rebound. It pushed all the way back to 126 in May and then tightened up beautifully for many weeks around that level. The breakout came in early August and TGT eventually popped to 156 after earnings before pulling back with the market of late. This dip to the 25-day line looks buyable to us.
| Market Cap | $73.7B | EPS $ Annual (Jan) | |
| Forward P/E | 20 | FY 2019 | 5.39 |
| Current P/E | 21 | FY 2020 | 6.39 |
| Annual Revenue | $84.7B | FY 2021e | 7.21 |
| Profit Margin | 7.4% | FY 2022e | 7.68 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 23 | 25% | 3.38 | 86% |
| One qtr ago | 19.6 | 11% | 0.59 | -61% |
| Two qtrs ago | 23.4 | 2% | 1.69 | 10% |
| Three qtrs ago | 18.7 | 5% | 1.36 | 25% |
TGT Weekly Chart
TGT 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 | |||||
| 8/10/20 | Agnico Eagle Mines | AEM | 79.5-82.5 | 86 | |
| 7/13/20 | Alibaba | BABA | ? | 244-254 | 274 |
| 8/31/20 | Anaplan | PLAN | 59.5-62.5 | 58 | |
| 7/20/20 | Arconic | ARNC | 15-16.5 | 20 | |
| 9/8/20 | Autonation | AN | 54-57 | 56 | |
| 8/17/20 | Berry Global | BERY | 51.5-53.5 | 53 | |
| 9/8/20 | Boston Beer | SAM | 765-795 | 866 | |
| 8/17/20 | Builders FirstSource | BLDR | 28-29.5 | 33 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 29 | |
| 8/10/20 | Chart Industries | GTLS | 69-73 | 69 | |
| 9/8/20 | Chipotle Mex Grill | CMG | 1230-1270 | 1267 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 394 | |
| 8/10/20 | Digital Turbine | APPS | 21.5-24 | 25 | |
| 8/24/20 | Elastic | ESTC | 99-103 | 103 | |
| 9/8/20 | Farfetch | FTCH | 25-26.5 | 26 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 131 | |
| 7/27/20 | Floor & Décor | FND | 69-72 | 74 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 16 | |
| 8/10/20 | Freshpet | FRPT | 99-102.5 | 110 | |
| 8/31/20 | Futu Holdings | FUTU | 30-32 | 32 | |
| 5/26/20 | Horizon Therapeutics | HZNP | ? | 45.5-48 | 77 |
| 8/17/20 | Innovative Ind. Prop. | IIPR | 116-121 | 120 | |
| 8/17/20 | iRhythm Technologies | IRTC | 168-174 | 220 | |
| 7/13/20 | Kinross Gold | KGC | 7.2-7.6 | 9 | |
| 8/3/20 | Kirkland Lake | KL | 49-52 | 54 | |
| 8/17/20 | L Brands | LB | 26-28 | 29 | |
| 8/31/20 | Lithia Motors | LAD | 238-250 | 244 | |
| 6/29/20 | Meritage Homes | MTH | 71.5-74 | 100 | |
| 8/24/20 | Natera | NTRA | 60-63 | 62 | |
| 3/30/20 | Nvidia | NVDA | 250-270 | 515 | |
| 7/13/20 | Pacira Pharmaceuticals | PCRX | 54-56 | 58 | |
| 4/27/20 | PayPal | PYPL | ? | 117-122 | 187 |
| 4/6/20 | Peloton | PTON | 27-29 | 82 | |
| 8/3/20 | Penn Nat’l Gaming | PENN | ? | 34-36.5 | 66 |
| 8/3/20 | PINS | 33.5-37 | 36 | ||
| 7/20/20 | Plug Power | PLUG | ? | 8.0-8.7 | 12 |
| 8/3/20 | Qualcomm | QCOM | 106-110 | 113 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 52 |
| 7/13/20 | Redfin | RDFN | 34.5-36.5 | 49 | |
| 7/13/20 | Roku | ROKU | 147-154 | 158 | |
| 8/31/20 | Salesforce.com | CRM | 263-273 | 247 | |
| 8/3/20 | Scott’s Co. | SMG | 154-159 | 160 | |
| 7/27/20 | Sea Ltd | SE | 110-116 | 148 | |
| 5/26/20 | Spotify | SPOT | ? | 184-191 | 239 |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 81 | |
| 8/31/20 | Trupanion | TRUP | 60.5-63 | 72 | |
| 8/31/20 | Tupperware | TUP | 14.5-15.5 | 24 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 226 | |
| 7/27/20 | Watsco | WSO | 220-230 | 238 | |
| 8/24/20 | Whirlpool | WHR | 171-176 | 178 | |
| 5/11/20 | Wingstop | WING | 116-122 | 135 | |
| 8/10/20 | Zillow | Z | ? | 77-80 | 87 |
| WAIT | |||||
| 9/8/20 | Deere | DE | 203-208 | 218 | |
| 9/8/20 | EPAM Systems | EPAM | 298-308 | 325 | |
| 9/8/20 | Nintendo | NTDOY | 64-66 | 70 | |
| SELL RECOMMENDATIONS | |||||
| 8/24/20 | AZEK Co. | AZEK | 37-38.5 | 35 | |
| 8/17/20 | First Solar | FSLR | 69-72 | 71 | |
| 8/10/20 | LivePerson | LPSN | 55-58.5 | 50 | |
| 8/17/20 | Shift4 Payments | FOUR | 47.5-49.5 | 45 | |
| DROPPED | |||||
| 8/31/20 | FedEx | FDX | 206-213 | 236 | |
The next Cabot Top Ten Trader issue will be published on September 21, 2020.