Intermediate-Term Uptrend Cracks
Current Market Outlook
Today’s market dip pulled all the major indexes we track below their 50-day lines, which officially puts the kibosh on the intermediate-term uptrend. Since we pulled in our horns weeks ago, we’re not changing our stance much: We remain cautious, with the indexes having issues and rotation coming fast and furiously among individual stocks. That said, we’re not sticking our head in the sand, either, as we’re seeing a decent number of issues either show signs of bottoming out (some of the virus winners are finally finding support) or holding firm despite the market’s wobbles. We continue to advise taking it slow and holding some cash given the overall environment, but select nibbling is OK, preferably on dips and shakeouts.
This week’s list has many names acting well, though their day-to-day action remains volatile. Our Top Pick is Seattle Genetics (SGEN), which looks like it’s starting to emerge from a two-month correction; we think you can start small here or on dips.
| Stock Name | Price | ||
|---|---|---|---|
| AGCO Corporation (AGCO) | 70.77 | ||
| Brinker International, Inc. (EAT) | 44.58 | ||
| Exelixis (EXEL) | 25.80 | ||
| Kingsoft Cloud Holdings (KC) | 36.80 | ||
| NIO Limited (NIO) | 18.80 | ||
| Norfolk Southern (NSC) | 214.26 | ||
| Pinterest (PINS) | 36.85 | ||
| Seattle Genetics (SGEN) | 178.88 | ||
| Toll Brothers Inc. (TOL) | 47.02 | ||
| TopBuild (BLD) | 157.72 |
AGCO Corporation (AGCO)
Why the Strength
The persistent need to increase crop yields is propelling the adoption of modern farm technologies, as growers try to keep pace with steadily advancing food demand, which in turn will boost makers of agricultural planting and harvesting equipment, a sector that’s expected to grow at a 9% annual clip until 2025. AGCO is the world’s largest manufacturer of machinery and equipment focused solely on the ag industry, as its tractors and combine harvesters are used by farmers globally. Through its subsidiaries, AGCO serves nearly all major facets of food production, and several major farm machine makers operate under its umbrella, including Challenger, Fendt and Massey Ferguson. While revenue and per-share earnings were lower in Q2, operating income for the firm’s North American region increased $13 million, while income from operations in the first six months improved $44 million, free cash flow was up nearly $100 million and its balance sheet remained in excellent shape (total available funds of $1.3 billion). Though global sales of farm equipment is expected to be weaker in 2020, North American retail tractor sales increased in the first six months of the year, and the focus at this point is on 2021, with AGCO reporting a strong order book for tractors in North and South America and Europe heading into Q3. Analysts see a return to top- and bottom-line growth this quarter, with earnings expected to rise 24% during next year’s rebound, a figure that will likely prove low.
Technical Analysis
AGCO peaked just above 80 last November and tumbled all the way to 35 in March as the virus selloff took hold. The initial rebound was decent, with a spike in late May followed by a pullback to the 50-day into July. But the trend has been very solid since then, with AGCO pushing back toward its old peak before getting smacked around today as cyclical stocks pulled back. This test of the 50-day line looks like a reasonable risk-reward entry point.
| Market Cap | $5.66B | EPS $ Annual (Jan) | |
| Forward P/E | 20 | FY 2018 | 3.89 |
| Current P/E | 20 | FY 2019 | 4.44 |
| Annual Revenue | $8.56B | FY 2020e | 3.86 |
| Profit Margin | 4.2% | FY 2021e | 4.80 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.01 | -17% | 1.11 | -39% |
| One qtr ago | 1.92 | -3% | 0.86 | 0% |
| Two qtrs ago | 2.51 | -3% | 0.94 | -28% |
| Three qtrs ago | 2.1 | -5% | 0.82 | -10% |
AGCO Weekly Chart
AGCO Daily Chart
Brinker International, Inc. (EAT)
Why the Strength
Restaurants were one of the hardest hit sectors during the pandemic, with sales at most U.S. chains still lagging compared to last year. There are signs of strength, however, for those that have a digital presence and took quick action. Brinker is one of the world’s leading casual dining restaurant companies (it owns the popular Chili’s and Maggiano’s Little Italy restaurant chains, as well as a stake in Romano’s Macaroni Grill), and while it’s not a great growth outfit anymore, the stock is strong as operating results are improving in a big way. Q2’s headline numbers were terrible due to the shut-ins (sales down 32% and lots of red ink), but that masked some encouraging signs, including growth in off-premise dining and digital expansion. The result: Of the 84% of its dining rooms open, sales were down just 4% in July, while 36% of Chili’s restaurants saw positive same-store sales for the month. Many restaurants leaned heavily to digital sales during the pandemic, but Chili’s significant investments in this area prior to the crisis paved the way for positive operating cash flow in Q2 (which was used to pay down debt to below pre-pandemic levels). While Q3 should see more red ink, analysts predict a solid return to the black by Q4 (to 44 cents per share), with a booming bottom line in 2021 (earnings up 64%). Beyond the numbers, Brinker launched its first virtual brand, It’s Just Wings, in 1,050 Chili’s and Maggiano’s across the U.S. Management reported sales increases every week and sees the potential to exceed $150 million in its first year – with almost no capital investment – which would secure the brand a spot in the top 200 restaurant brands. Brinkers also sees growth in delivery and curbside services increasing even after things return to normal. It looks like a solid turnaround story with a reasonable valuation (just 13 times next year’s earnings estimate).
Technical Analysis
EAT chopped around for years before falling off a cliff during the crash as investors discounted a few horrid quarters. But it quickly made up a good chunk of its losses, and after a five-week retreat put on a great show, rallying nine weeks in a row and refusing to give up much ground during the market’s recent retreat. We’re OK taking a stab at EAT here or on dips.
| Market Cap | $2.08B | EPS $ Annual (Jan) | |
| Forward P/E | 22 | FY 2019 | 3.93 |
| Current P/E | 25 | FY 2020 | 1.71 |
| Annual Revenue | $3.08B | FY 2021e | 2.05 |
| Profit Margin | N/A | FY 2022e | 3.40 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 563 | -32% | -0.88 | N/A |
| One qtr ago | 860 | 2% | 1.28 | 2% |
| Two qtrs ago | 869 | 10% | 1.01 | 13% |
| Three qtrs ago | 786 | 4% | 0.41 | -13% |
EAT Weekly Chart
EAT Daily Chart
Exelixis (EXEL)
Why the Strength
We wrote about Exelixis in April, a (profitable!) biotech with a growing pipeline and some cancer treatments on the market. Its drug portfolio includes Cabometyx, which treats two types of advanced stage carcinomas, and Cometriq and Cotellic, which treat thyroid cancer and metastatic melanoma, respectively. One of the main attractions is that Exelixis has extensive partnerships with some big players in pharma, including Bristol Myers Squibb—in a Phase III trial of Bristol’s cancer-treating Opdivo in combination with Cabometyx, the latest data showed a reduction of death by 40% in previously untreated patients with advanced kidney cancer. Exelixis also has three global Phase III studies of cabozantinib underway in combination with Roche’s Tecentriq in patients with previously treated lung and prostrate cancers. And more recently, Exelixis has joined with Swiss biotech NBE-Therapeutics to develop highly targeted drugs for applications in oncology and hematology,. Those are all to the good, but it’s the venture with Bristol that presents the biggest potential payoff, as the resulting drug combo may become a first-line option for treating renal cell cancer. As for the numbers, Exelixis reported so-so Q2 results, featuring earnings of 25 cents per share (down from a year ago but 12 cents above expectations) on revenue of $260 million (up 8%), despite COVID-related inventory hiccups. Management guided for 2020 revenue to be 4% lower, in line with estimates, but analysts see 20%-plus growth returning in 2021. Just as important, with its blockbuster Cabometyx, the company sees an opportunity to quadruple the drug’s potential from $1 billion to $4 billion longer-term. It’s a good story.
Technical Analysis
EXEL had a big run through 2017, but shares were halved during 2018 and retested that year’s low near 14 during this year’s March panic. The stock gapped to multi-month highs in April, but failed to follow through (and we were stopped out of our initial position in late May). But after a tedious four-month retreat, EXEL found support near its 40-week line and soared last week on very nice volume as biotech stocks popped. We think you can buy some here or on any weakness.
| Market Cap | $8.33B | EPS $ Annual (Dec) | |
| Forward P/E | 59 | FY 2018 | 1.55 |
| Current P/E | 26 | FY 2019 | 1.16 |
| Annual Revenue | $998M | FY 2020e | 0.46 |
| Profit Margin | 30.6% | FY 2021e | 0.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 260 | 8% | 0.25 | -14% |
| One qtr ago | 227 | 5% | 0.19 | -30% |
| Two qtrs ago | 240 | 5% | 0.26 | -37% |
| Three qtrs ago | 272 | 21% | 0.34 | -23% |
EXEL Weekly Chart
EXEL Daily Chart
Kingsoft Cloud Holdings (KC)
Why the Strength
China is still arguably in the early stages of its cloud computing evolution, as the industry is forecast to grow at a 28% annual clip over the next four years. The field of leading contenders in this space is narrowing, and Kingsoft Cloud – China’s largest independent cloud service firm—is making a case for supremacy. Kingsoft operates cloud-based data centers in Hong Kong, China, Russia, Southeast Asia and North America. With China being the second-largest cloud market behind the U.S., Kingsoft aims to capture a growing share of domestic customers who view the cloud as a cheaper alternative to on-site networks. Kingsoft’s top line growth was impressive in the second quarter; revenue was up 60% in U.S. dollars (to $217 million) thanks to solid expansion in both public cloud and enterprise cloud services. (The company plans to use its ample cash pile from its May IPO to invest in edge computing, big data, transcoding and other in-demand technologies.) And though the company isn’t yet profitable, it generated a positive gross profit for the fourth consecutive quarter. Kingsoft’s primary segments are its gaming and video streaming platforms, but the firm is expanding into the e-commerce and education spheres in an effort to increase revenues further. It also recently collaborated with Huaxia Bank to speed the development of its gaming platform and facilitate the rollout of further database products. Management sees plenty of growth ahead, forecasting Q3 revenue to rise more than 70%, and Wall Street thinks the good times will continue for many years to come.
Technical Analysis
KC came public in May and broke out from a brief IPO base the following month, running from 27 (its breakout level) to as high as 43. Then came a choppy, volatile consolidation—KC dipped as low as 30 but held up after that, moving sideways for nine weeks in a wide range. But last week’s action was intriguing, with shares popping back toward the high end of their range on a pickup in volume before pulling in with the market. KC isn’t free and clear yet, but if you’re game, you could start small here with the idea of adding more on a push to new highs.
| Market Cap | $5.74B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.59 |
| Current P/E | N/A | FY 2019 | -0.64 |
| Annual Revenue | $723M | FY 2020e | -0.74 |
| Profit Margin | N/A | FY 2021e | -0.54 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 217 | 60% | -0.16 | N/A |
| One qtr ago | 196 | 56% | -0.16 | N/A |
| Two qtrs ago | 169 | 60% | -0.17 | N/A |
| Three qtrs ago | 140 | 61% | -0.16 | N/A |
KC Weekly Chart
KC Daily Chart
NIO Limited (NIO)
Why the Strength
The electric vehicle (EV) market is projected to reach $800 billion by 2027—a compound annual growth rate of 22%—with China leading the global light-duty EV market by sales. China-based NIO is arguably the brightest up-and-comer in this space and is fast becoming Tesla’s biggest competitor. NIO designs and develops smart, high-performance electric vehicles with an aim to be the first “User Enterprise” in the world. The company has also pioneered the Battery as a Service (BaaS) platform, which allows customers to quickly swap and upgrade batteries as part of a subscription (arguably a more convenient option versus traditional battery charging stations). The firm also enjoys support from China’s government, which reportedly favors it in the nation’s red-hot EV market (NIO recently sealed a $1 billion deal with a group of state investors to help it compete with Tesla). Growth was so-so for a while, but the firm’s metrics have begun to impress; vehicle sales rose 147% in the second quarter to $493 million (a 177% sequential increase), and there’s more of where that came from, with sales expected to rise in the triple digits again in Q3 (total deliveries should be north of 11,000 vehicles), with 90%-plus revenue growth this year and 70% gains forecast in 2021. As for earnings, the red ink is receding, though profitability isn’t likely util 2023. All told, NIO’s sales growth and race toward profitability have been far more impressive than its non-Tesla EV competitors; it looks like the firm will get a lot bigger from here.
Technical Analysis
NIO came public in September 2018 at 6 and topped out the next day at 14; a year and a half later, the stock was sitting just above 2 at its crash lows. But shares have completely changed character since then, breaking out in June, soaring to all-time highs in July and, after a six-week rest, breaking out again last month. NIO has wobbled a bit with the recent market weakness, but the damage has been limited. We’re OK grabbing a small position on weakness.
| Market Cap | $20.4B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.52 |
| Current P/E | N/A | FY 2019 | -1.53 |
| Annual Revenue | $1.39B | FY 2020e | -0.72 |
| Profit Margin | N/A | FY 2021e | -0.47 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 526 | 140% | -0.15 | N/A |
| One qtr ago | 294 | -20% | -0.23 | N/A |
| Two qtrs ago | 409 | -18% | -0.39 | N/A |
| Three qtrs ago | 257 | 20% | -0.33 | N/A |
NIO Weekly Chart
NIO Daily Chart
Norfolk Southern (NSC)
Why the Strength
Norfolk Southern is one of seven Class 1 railroads in the U.S., defined as rail operators with operating revenues of $490 million or more. They share the 140,000 miles of track with 22 regional and 584 local/short line railroads. Due to the pandemic, rail traffic is expected to decline by 14% this year, and that fact affected Norfolk in Q2, as sales and earnings both sank sharply (coal-related revenues dropped by 55% and merchandise revenues declined 26%, while intermodal revenues also struggled), though the bottom line did top expectations, helped by lower fuel, compensation and benefit costs. Longer-term, the company is focusing on adding more intermodal services in the southern U.S. to take market share from the trucking industry, but for now, this is really a play on hopes of a normalized economic environment going forward. Sales and earnings are projected to fall year-over-year for the rest of 2020, but the market seems to think otherwise, and even analysts are expecting a solid rebound (earnings up 23%) in 2021 as demand improves and the company continues to shed some costs. It also doesn’t hurt that some firms in the sector (Kansas City Southern) are a possible takeover target, boosting perception of the industry as a whole. It’s not thrilling, but Norfolk Southern is one of the more straightforward ways to play a cyclical economic upturn.
Technical Analysis
NSC has followed the pattern of most cyclical stocks, with a crash in February/March, a nice upmove through May, a month-long pullback, and then a relatively smooth uptrend since then—in NSC’s case, taking the stock to new all-time highs near 225. Today’s drop looks a bit iffy short-term, and given the market environment, we favor entering on dips toward the 50-day line.
| Market Cap | $56.7B | EPS $ Annual (Dec) | |
| Forward P/E | 26 | FY 2018 | 9.51 |
| Current P/E | 24 | FY 2019 | 10.25 |
| Annual Revenue | $10.2B | FY 2020e | 8.74 |
| Profit Margin | 18.8% | FY 2021e | 10.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.08 | -29% | 1.53 | -43% |
| One qtr ago | 2.62 | -8% | 2.58 | 3% |
| Two qtrs ago | 2.69 | -7% | 2.55 | -1% |
| Three qtrs ago | 2.84 | -4% | 2.49 | -1% |
NSC Weekly Chart
NSC Daily Chart
Pinterest (PINS)
Why the Strength
We wrote about Pinterest, the visual social media company, last month, pointing out its incredible growth since its IPO last year as well as its coming out party after Q2 results—it’s looking like the platform will be one of the big winners of the shift to e-commerce in the wake of the virus, and given that it hasn’t been overplayed, there remain many big investors that will be building positions. The eye opener for the Q2 report was that the company saw a whopping 39% rise in its monthly active users, and at the time of its report, said that July-to-date advertising revenue was up a whopping 50% (though it guided Q3 to a tamer 30% growth rate). Of course, it’s more than just the pandemic that’s helping—in May, Pinterest launched Shopping Spotlights, which allows users to purchase curations by guest editors such as influencers and publishers. And to broaden that category, as well as its content, the company just stole away Aya Kanai, the former editor in chief of Marie Claire. Since Pinterest’s platform allows users put their interests and hobbies out there for the world to see, it’s a natural progression to offer them items for sale, tailored especially for them, resulting in a way to increase time spent on the site. The potential is enormous, with recent stats from Shopify reporting that 9 of 10 consumers say “Pinterest helps them decide what to buy and 78% say the venue is useful in evaluating items to purchase.” Translation: Pinterest appears set to take its place among the key online/e-commerce destinations, which should keep sales and earnings (Q3 should show a profit) growth humming.
Technical Analysis
PINS quacks like a new leader. After crashing as low as 10 earlier this year, the stock jaggedly advanced into July before exploding higher after Q2 results. While the action has been choppy since then, we think the fact that the stock hasn’t given up any of those gains (even as many growth stocks have been hit) is a plus. Bottom line, it looks like PINS wants to head higher if the market can stabilize. You can start with a small position here and look to add if the stock/market get going.
| Market Cap | $22.0B | EPS $ Annual (Dec) | |
| Forward P/E | N/M | FY 2018 | -0.09 |
| Current P/E | 193 | FY 2019 | 0.01 |
| Annual Revenue | $1.22B | FY 2020e | 0.01 |
| Profit Margin | N/A | FY 2021e | 0.19 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 273 | 4% | -0.07 | N/A |
| One qtr ago | 272 | 35% | -0.10 | N/A |
| Two qtrs ago | 400 | 46% | 0.12 | 33% |
| Three qtrs ago | 280 | 47% | 0.01 | N/A |
PINS Weekly Chart
PINS Daily Chart
Seattle Genetics (SGEN)
Why the Strength
Seattle Genetics has long had the look of an emerging blue chip in the oncology field, though the stock has been harder to handle, with many corrections and dead periods over time—though now it appears a new upleg has begun. The company’s biggest contributor is Adcertis, which is a front-line treatment (along with chemo) for a couple of forms of lymphoma; the drug makes up more than half of revenue and should grow around 10% this year. But the real growth drivers are Padcev, a treatment for urothelial cancer, and Tukysa, which looks like a possible best-in-class treatment for HER2 breast cancer. Padcev was approved late last year but is already off to a hot start, with $57 million in revenue in Q2 of this year despite virus-related headwinds; management sees the treatment bringing in $225 million of revenues this year. As for Tukysa, it was approved earlier this year (bad timing), but it still brought in nearly $16 million of revenue in Q2 and the top brass sees $110 million for 2020 as a whole. As Adcertis grows steadily and Padcev and Tukysa penetrate their markets, analysts see rapid top-line growth ahead (nearly 50% this year and another 30% next), with the bottom line reaching the black in 2021 and booming after that. Possibly more important, though, is Seattle’s new backing from Merck—the pharmaceutical giant inked two co-development and co-commercialization deals (one involving an an antibody drug that’s currently in Phase II trials; the other concerning global expansion of Tukysa in Asia, the Middle East and Latin America, bringing a $125 million upfront milestone payment) and took a $1 billion stake in Seattle, too. It looks like a perception-changer to us.
Technical Analysis
SGEN has made good progress over time but it has also suffered some tedious pullbacks, too; after breaking out in October of last year, the stock suffered a four-month correction (which including March’s sharp dip to the 200-day line) and then, after a three-month advance, the recent eight-week pullback that chopped 25% off the stock. But last week’s action looks decisive, with SGEN bolting back toward its prior highs on huge volume after the Merck collaboration. We’re OK starting a position here or on any dips.
| Market Cap | $30.3B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.56 |
| Current P/E | N/A | FY 2019 | -1.32 |
| Annual Revenue | $1.02B | FY 2020e | -2.03 |
| Profit Margin | N/A | FY 2021e | 0.06 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 278 | 27% | -0.54 | N/A |
| One qtr ago | 235 | 20% | -0.65 | N/A |
| Two qtrs ago | 290 | 66% | -0.21 | N/A |
| Three qtrs ago | 213 | 26% | -0.53 | N/A |
SGEN Weekly Chart
SGEN Daily Chart
Toll Brothers Inc. (TOL)
Why the Strength
Toll Brothers is a higher-end homebuilder operating in 24 states, that along with its peers, its set to benefit from the new housing boom that’s being driven by some financial (rock bottom mortgage rates) and other factors (flight from the cities; more working from home, which is altering what people want in a house). Indeed, the latest monthly reading of homebuilder confidence just reached an all-time high! Toll has had a rough go of it the past few quarters (see table below), but like everyone else, the forward-looking indicators are really perking up; in the quarter ending in July, sales and earnings didn’t inspire, but investors care much more about the fact that net signed contracts (taking into account cancellations) boomed 26% from a year ago (up 18% in value), representing the highest Q3 totals ever for Toll (even on a per-community basis, new contracts were the highest in 15 years), and that actually understated the strength—contracts fell 21% in May from a year ago, but boomed 76% in June and 31% in July. And that strength has continued! The company’s mid-quarter report today showed that net signed contracts were up a whopping 114% from the start of August through mid September! Going forward, too, Toll’s main demographic—college-educated professionals—will be most able (and, likely, willing) to work at home even after the pandemic eases, which should keep demand strong. The current quarter is expected to show further sales and earnings retrenchment, but (a) that could prove conservative and (b) the focus now is on 2021, when analysts see earnings leaping 40% (which, again, we think could prove too low).
Technical Analysis
TOL actually peaked back in early 2018, and nearly made it back to those highs earlier this year before crashing in March. The immediate snapback was solid, and after a four-week rest, shares began another advance, rising eight weeks in a row toward all-time highs. It wobbled a bit after earnings, but there has been no abnormal action and TOL has begun to bounce. Further ups and downs wouldn’t surprise us near-term, but we think the path of least resistance remains up.
| Market Cap | $5.68B | EPS $ Annual (Oct) | |
| Forward P/E | 11 | FY 2018 | 4.65 |
| Current P/E | 13 | FY 2019 | 4.03 |
| Annual Revenue | $6.91B | FY 2020e | 3.07 |
| Profit Margin | 6.9% | FY 2021e | 4.29 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.65 | -6% | 0.90 | -10% |
| One qtr ago | 1.55 | -10% | 0.59 | -32% |
| Two qtrs ago | 1.33 | -2% | 0.41 | -46% |
| Three qtrs ago | 2.38 | -3% | 1.41 | -32% |
TOL Weekly Chart
TOL Daily Chart
TopBuild (BLD)
Why the Strength
The real estate market remains strong, with existing home sales soaring 25% in July to 5.8 million, and homebuilder confidence reaching at least a 35-year high as well. The new housing boom should play right into the hands of TopBuild, which is the leading provider of insulation (double the size of its nearest competitor) to the construction industry. As with everyone else, Q2 saw some virus-related issues—sales were down 2%, though earnings of $1.68 per share were up 17% from a year ago and obliterated estimates of $1.19 thanks to cost reductions and general operating efficiencies. And while the firm isn’t providing a ton of guidance due to the uncertainties out there, Wall Street sees the writing on the wall: If TopBuild can grow the bottom line when there are plenty of headwinds, the surge of demand we’re seeing in housing should lead to a stream of better-than-expected results going forward. Indeed, analysts see the top line returning to growth in Q3 and slowly accelerating from there, while earnings are expected to expand 20%-ish both this year and next. Based on industry conditions, we think both of those could prove too low, and there’s another reason for optimism, too—early on in the pandemic, the company suspended its very active acquisition program, but that’s back on now, with many targets in the pipeline since business has proven so resilient. A modest share buyback program puts a nice cherry on top of the story.
Technical Analysis
BLD was in a solid uptrend for all of 2019 and early this year before crashing with the market, but that proved to be a (painful) blip in the overall advance—the stock quickly spurted back to new highs in May and, after a month-long retreat, cruised up to the 160 level. There have been ups and downs since then with the market, but BLD actually nosed to new highs last week before being pulled down by the market. Further dips would be tempting.
| Market Cap | $5.38B | EPS $ Annual (Dec) | |
| Forward P/E | 25 | FY 2018 | 4.19 |
| Current P/E | 27 | FY 2019 | 5.49 |
| Annual Revenue | $2.64B | FY 2020e | 6.50 |
| Profit Margin | 8.6% | FY 2021e | 7.87 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 646 | -2% | 1.68 | 17% |
| One qtr ago | 653 | 5% | 1.37 | 29% |
| Two qtrs ago | 662 | 4% | 1.48 | 23% |
| Three qtrs ago | 682 | 5% | 1.53 | 24% |
BLD Weekly Chart
BLD 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 | |||||
| 9/14/20 | 10x Genomics | TXG | 116-120 | 122 | |
| 8/10/20 | Agnico Eagle Mines | AEM | 79.5-82.5 | 79 | |
| 7/13/20 | Alibaba | BABA | ? | 244-254 | 274 |
| 8/31/20 | Anaplan | PLAN | 59.5-62.5 | 59 | |
| 7/20/20 | Arconic | ARNC | 15-16.5 | 19 | |
| 9/8/20 | Boston Beer | SAM | 765-795 | 879 | |
| 8/17/20 | Builders FirstSource | BLDR | 28-29.5 | 30 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 30 | |
| 8/10/20 | Chart Industries | GTLS | 69-73 | 67 | |
| 9/8/20 | Chipotle Mex Grill | CMG | 1230-1270 | 1208 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 392 | |
| 8/10/20 | Digital Turbine | APPS | 21.5-24 | 33 | |
| 9/14/20 | DouYu | DOYU | 15.2-16.2 | 15 | |
| 8/24/20 | Elastic | ESTC | 99-103 | 108 | |
| 9/8/20 | Farfetch | FTCH | 25-26.5 | 24 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 129 | |
| 7/27/20 | Floor & Décor | FND | 69-72 | 72 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 16 | |
| 8/10/20 | Freshpet | FRPT | 99-102.5 | 105 | |
| 9/14/20 | Gap Inc. | GPS | 16.5-17.5 | 16 | |
| 9/14/20 | Guardant Health | GH | 98-102.5 | 107 | |
| 5/26/20 | Horizon Therapeutics | HZNP | ? | 45.5-48 | 79 |
| 8/17/20 | Innovative Ind. Prop. | IIPR | 116-121 | 123 | |
| 8/17/20 | iRhythm Technologies | IRTC | 168-174 | 225 | |
| 7/13/20 | Kinross Gold | KGC | 7.2-7.6 | 9 | |
| 8/3/20 | Kirkland Lake | KL | 49-52 | 50 | |
| 8/17/20 | L Brands | LB | 26-28 | 29 | |
| 6/29/20 | Meritage Homes | MTH | 71.5-74 | 102 | |
| 9/14/20 | Mosaic | MOS | 17.2-18.2 | 18 | |
| 8/24/20 | Natera | NTRA | 60-63 | 63 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 105 |
| 3/30/20 | Nvidia | NVDA | 250-270 | 501 | |
| 7/13/20 | Pacira Pharmaceuticals | PCRX | 54-56 | 60 | |
| 4/6/20 | Peloton | PTON | 27-29 | 95 | |
| 8/3/20 | Penn Nat’l Gaming | PENN | 34-36.5 | 70 | |
| 8/3/20 | PINS | 33.5-37 | 37 | ||
| 7/20/20 | Plug Power | PLUG | ? | 8.0-8.7 | 13 |
| 8/3/20 | Qualcomm | QCOM | 106-110 | 112 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 49 |
| 7/13/20 | Roku | ROKU | 147-154 | 189 | |
| 8/31/20 | Salesforce.com | CRM | 263-273 | 245 | |
| 7/27/20 | Sea Ltd | SE | 110-116 | 151 | |
| 9/14/20 | Snap | SNAP | 22.5-24 | 24 | |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 81 | |
| 9/14/20 | Target | TGT | 145-149 | 150 | |
| 8/31/20 | Trupanion | TRUP | 60.5-63 | 69 | |
| 8/31/20 | Tupperware | TUP | 14.5-15.5 | 26 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 238 | |
| 8/24/20 | Whirlpool | WHR | 171-176 | 178 | |
| 5/11/20 | Wingstop | WING | 116-122 | 138 | |
| 8/10/20 | Zillow | Z | ? | 77-80 | 96 |
| WAIT | |||||
| 9/14/20 | MyoKardia | MYOK | 116-121 | 126 | |
| SELL RECOMMENDATIONS | |||||
| 9/8/20 | Autonation | AN | 54-57 | 51 | |
| 8/17/20 | Berry Global | BERY | 51.5-53.5 | 48 | |
| 8/31/20 | Futu Holdings | FUTU | 30-32 | 30 | |
| 8/31/20 | Lithia Motors | LAD | 238-250 | 223 | |
| 4/27/20 | PayPal | PYPL | ? | 117-122 | 183 |
| 7/13/20 | Redfin | RDFN | 34.5-36.5 | 45 | |
| 8/3/20 | Scott’s Co. | SMG | 154-159 | 148 | |
| 5/26/20 | Spotify | SPOT | ? | 184-191 | 239 |
| 7/27/20 | Watsco | WSO | 220-230 | 230 | |
| DROPPED | |||||
| 9/8/20 | Deere | DE | 203-208 | 214 | |
| 9/8/20 | EPAM Systems | EPAM | 298-308 | 314 | |
| 9/8/20 | Nintendo | NTDOY | 64-66 | 71 | |
The next Cabot Top Ten Trader issue will be published on September 28, 2020.