Buyers Begin to Nibble
Current Market Outlook
Most of the issues the market had been suffering from are still out there—even after today’s rally, the intermediate-term trend of the major indexes is questionable at best (still technically down), while relatively few stocks are really moving ahead (the number of new highs remains tame). That said, we have begun to see support show up in the market, partially in the indexes but more so among leading (and potential leading) stocks; we’re seeing many show resilience and a bunch begin to set up in legitimate launching pads. That doesn’t mean these stocks are guaranteed to get going, but it’s a first step to keep an eye on going forward.
This week’s list contains a group of names that’s attracting money, including a few that have popped on news. Our Top Pick is CrowdStrike (CRWD), which is one of the few growth-oriented stocks that’s actually been slowly pushing higher in recent weeks as the market has come in.
| Stock Name | Price | ||
|---|---|---|---|
| Blueprint Medicines (BPMC) | 88.88 | ||
| CrowdStrike (CRWD) | 137.38 | ||
| Digital Turbine (APPS) | 30.98 | ||
| DraftKings Inc. (DKNG) | 56.91 | ||
| Generac Holdings (GNRC) | 190.24 | ||
| JinkoSolar Holding (JKS) | 37.78 | ||
| Owens & Minor (OMI) | 21.67 | ||
| QUALCOMM Incorporated (QCOM) | 118.47 | ||
| Sea Limited (SE) | 160.00 | ||
| Square, Inc. (SQ) | 160.79 |
Blueprint Medicines (BPMC)
Why the Strength
A key to rapid growth for young oncology companies is to have extensive partnerships with more established firms. That’s the strategy embraced by Blueprint Medicines, and it’s paying off in a big way. Blueprint is a precision therapy firm that designs drug candidates for cancer patients and rare diseases. Its rapidly advancing pipeline includes avapritinib, a drug for indolent systemic mastocytosis (a bone marrow disease), which was recently granted U.S. approval and earned European approval last week (for treating adults with mutant gastrointestinal stromal tumors). It also includes fisogatinib, which treats locally advanced or metastatic hepatocellular carcinoma (developed in conjunction with CStone Pharmaceuticals). But it’s a blockbuster deal with Swiss giant Roche that’s turning heads right now: Blueprint and Roche have co-developed Gavreto, a drug that was just approved by the FDA to treat patients with metastatic non-small cell lung cancer caused by abnormal rearranged (RET) genes. Roche has a $1.7 billion partnership with Blueprint for rights to commercialize Gavreto for the U.S. market (the drug also awaits approval for treating two advanced types of RET mutant and RET fusion-positive thyroid cancers; the latter indication had positive trial results last week). Analysts see sales rising to $170 million next year, and while earnings are still a ways off, Blueprint has a cash position of $650 million and plenty of room for investor perception as, with the Gavreto deal, Blueprint’s breakthrough moment appears to have arrived. It’s an interesting speculation.
Technical Analysis
BPMC had a huge run all the way to 110 in early 2018 before forming a giant W on the long-term chart, with a drop to 45 in late 2018, a rally back to the century mark last year and a dip back to 45 during this years’ crash. The rally after that was just OK, and BPMC spent most of the past three months grinding slightly lower. But the recent action has been terrific, with shares spiking to multi-month highs on big volume. Dips of a couple of points would mark a solid entry.
| Market Cap | $4.86B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -5.39 |
| Current P/E | N/A | FY 2019 | -7.27 |
| Annual Revenue | $75M | FY 2020e | 3.56 |
| Profit Margin | N/A | FY 2021e | -7.31 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 8.3 | 63% | -2.28 | N/A |
| One qtr ago | 6.2 | 745% | -2.11 | N/A |
| Two qtrs ago | 51.5 | N/M | -1.35 | N/A |
| Three qtrs ago | 9.1 | 731% | -1.93 | N/A |
BPMC Weekly Chart
BPMC Daily Chart
CrowdStrike (CRWD)
Why the Strength
With more people working, learning and playing from home than ever before, cybersecurity has become a paramount concern for companies. CrowdStrike, which has the first cloud-native endpoint detection and network protection platform, is in pole position to be the leading new-age cybersecurity player during the market’s next sustained upmove. The advantages here are numerous—due to its cloud-based architecture, CrowdStrike provides constant and continuous protection and learning (its AI platform looks at three trillion events per week, which it relays to clients via a proprietary and patented threat graph) and obviously avoids all of the on-premise limitations of old-school security methods. The company is expanding both by attracting new clients and by selling current ones new products—the percentage of clients in Q2 that used four or more modules rose to 57% (up 17% from three years ago), while those with five or more modules increased to 39%. The firm also added $104 million in net new annual recurring revenue (up 77% and ahead of its pre-COVID expectations), while its subscription revenue leapt 89%, thanks in part of a 24% gain in same-customer revenue. Additionally, its gross retention rate was 98%, telling you no one is leaving after they sign up; indeed, CrowdStrike is becoming the player of choice among huge outfits (49 of the Fortune 100 are customers). For Q3, Wall Street expects 71% top-line growth as earnings just start to lift off. All told, as companies continue to update obsolete IT infrastructure, CrowdStrike should be able to maintain its high growth rate.
Technical Analysis
CRWD was one of the leaders right off the bottom, bolting to new highs by early June before finally consolidating in late June and early July. But it’s the action since then that’s really stood out—the stock did pop to new highs before and after earnings before pulling back with the market earlier this month, but notice how (on the weekly chart) CRWD has risen six weeks in a row, right during the teeth of this market correction. That’s a good sign the stock wants to plow ahead if the pressure comes off the market. We’re OK starting small here or on weakness.
| Market Cap | $30.1B | EPS $ Annual (Jan) | |
| Forward P/E | N/M | FY 2019 | -0.60 |
| Current P/E | N/A | FY 2020 | -0.32 |
| Annual Revenue | $6545M | FY 2021e | 0.07 |
| Profit Margin | 4.0% | FY 2022e | 0.25 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 199 | 84% | 0.03 | N/A |
| One qtr ago | 178 | 85% | 0.02 | N/A |
| Two qtrs ago | 152 | 89% | -0.02 | N/A |
| Three qtrs ago | 125 | 88% | -0.07 | N/A |
CRWD Weekly Chart
CRWD Daily Chart
Digital Turbine (APPS)
Why the Strength
Digital Turbine (covered in the August 10 issue) simplifies the app advertising, delivery and tracking process for “smart” devices, which is a need that’s in increasing demand as the world goes digital. It essentially acts as a middleman between device makers and app developers, helping developers and digital advertisers increase revenue and user engagement. So ubiquitous is the company’s platform that if you own a smart device, chances are you’ve used Digital Turbine’s platform in setting it up. The company’s software has been used by more than 40 mobile operators and OEMs (including Verizon, AT&T and Samsung), delivering more than three billion app preloads for advertising campaigns, with plans to expand its presence even further. Along with its healthy top-line and bottom-line growth, Digital Turbine is boosting its presence in the smartphone and smart TV markets (boasting a revenue-per-device increase of 25% in fiscal Q1). Wall Street sees the rising top-line trend continuing in the current quarter, with analysts predicting an 84% revenue increase along with per-share earnings of 11 cents. (Estimates for 2021 are more tame—20%-ish revenue growth.) Moreover, the company has outlined plans for additional app-discovery deals with the three biggest U.S. wireless carriers. Bigger picture, while its sequential device penetration grew to over 43 million devices in the latest quarter (despite a COVID-related sales decline of about 20% in the global smartphone market), management believes its market share is only 10% of that market, leaving a significant runway for future growth.
Technical Analysis
APPS galloped to new highs in early June and has enjoyed a fantastic run since, with a couple of tedious but reasonable corrections (in July and September) before the buyers were at it again. Granted, the big move raises risk that APPS may need a deeper pullback, but the stock’s latest push higher came on a few days of excellent volume, which bodes well. Small positions on dips of a point or two make sense.
| Market Cap | $1.96B | EPS $ Annual (Mar) | |
| Forward P/E | 66 | FY 2019 | 0.08 |
| Current P/E | 108 | FY 2020 | 0.20 |
| Annual Revenue | $167M | FY 2021e | 0.46 |
| Profit Margin | 21.2% | FY 2022e | 0.58 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 59 | 93% | 0.13 | 160% |
| One qtr ago | 39.4 | 45% | 0.05 | 67% |
| Two qtrs ago | 36 | 18% | 0.05 | 25% |
| Three qtrs ago | 32.8 | 38% | 0.05 | 400% |
APPS Weekly Chart
APPS Daily Chart
DraftKings Inc. (DKNG)
Why the Strength
Week after week, it’s becoming apparent that daily fantasy sports, online casino (also known as iGaming) and (especially) sports betting is going to be a huge business, and there’s little doubt that DraftKings will be one of the leading players. Industry-wise, it’s nearly a sure thing these opportunities will grow rapidly going forward as states are approving more iGaming and sports betting offerings in a desire to gain revenue follow a Supreme Court decision to allow it in May 2018; last year, the total market for these two areas was around $1 billion, but by 2030, it could be a $20 to $40 billion sector! There will obviously be a ton of competition (every casino is getting in on the act), but there’s no question DraftKings, with its digital-focused, pure-play strategy, is built from the ground up for this boom—it and FanDuel have a combined 60%-plus market share of the early sports betting adopters (like New Jersey), and DraftKings is inking deals like mad (with the Colorado Rockies , Chicago Cubs and New York Giants for sports betting; with EPSN to launch a co-exclusive sportsbook; new sportsbooks launched in Colorado and New Hampshire, etc.) in recent weeks. The historical numbers are hard to follow, partially due to some acquisitions and then because of Q2’s sports halt, but big investors are looking ahead and like what they see; while earnings will likely take a few years to really turn up, the next couple of quarters should be huge as sports have returned, and longer-term, annual sales growth of 30% or more is likely for the next two or three years at least. Bigger picture, DraftKings look like an emerging blue chip in what is effectively an entirely new field. It’s a great story.
Technical Analysis
DKNG had a massive run earlier this year before topping in June and pulling back more than 40%. However, the decline was reasonable on the chart, and the stock quieted down somewhat as time passed. The buyers returned in September, and while day-to-day volatility is extreme (5% to 7% moves aren’t unusual), the stock looks superb, breaking out to new highs on powerful volume today. You can start small here, though we’d prefer looking for dips given the market environment.
| Market Cap | $39.4B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | N/M |
| Current P/E | N/A | FY 2019 | N/M |
| Annual Revenue | N/M | FY 2020e | -1.23 |
| Profit Margin | N/A | FY 2021e | -0.90 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 70.9 | 24% | -0.55 | N/A |
| One qtr ago | 88.5 | 30% | -0.18 | N/A |
| Two qtrs ago | N/M | N/M | -0.97 | N/A |
| Three qtrs ago | N/M | N/M | -0.97 | N/A |
DKNG Weekly Chart
DKNG Daily Chart
Generac Holdings (GNRC)
Why the Strength
Most investors don’t think of power generation as a sexy industry, but that may need to be reconsidered. The outdated electric grid, the increasing home needs from Internet of Technology devices and the 5G rollout—not to mention the wave of fire and weather disasters—are just a few factors boosting companies like Generac, which makes power generation equipment and energy storage systems for the global residential and light commercial and industrial markets. It offers single-engine backup and prime power systems up to 2 MW and paralleled solutions up to 100 MW, using a variety of fuel sources to support power needs. In its second quarter, Generac beat up on analyst estimates, posting earnings of $1.40 per share, compared to $0.89 forecasted and up from $1.20 per share last year. And earnings estimates for the company are rising, going from $1.59 per share to $1.62, for next quarter, and from $5.66 to $5.78 for the total year. Part of the growth is due to the company’s inroads into the solar industry, including its partnership with Baker Electric Home Energy to sell its PWRcell system; that should increase the adoption of new solar + storage in U.S. homes (Baker is the sixth-largest residential solar installer in Southern California). The PWRcell solar + storage was introduced last year, and the company says it is “the most powerful energy storage system available to homeowners seeking energy savings and backup power.” Projected growth is so-so (up 14% this year, up 11% in 2021), but Wall Street clearly thinks those will prove very conservative.
Technical Analysis
GNRC had a big run into February of this year, then got hit with everything else, but quickly rebounded back toward its high by May. The breakout in June led to a great run (up eight weeks in a row), with shares nosing over 190 last month. Now GNRC has rested for four-plus weeks with the market, but it’s held its 50-day line and has begun to find support. We’re fine entering on minor dips with a stop under the 50-day line.
| Market Cap | $11.3B | EPS $ Annual (Dec) | |
| Forward P/E | 31 | FY 2018 | 4.70 |
| Current P/E | 34 | FY 2019 | 5.06 |
| Annual Revenue | $2.21B | FY 2020e | 5.78 |
| Profit Margin | 16.2% | FY 2021e | 6.43 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 547 | 1% | 1.40 | 17% |
| One qtr ago | 476 | 1% | 0.87 | -4% |
| Two qtrs ago | 591 | 5% | 1.53 | 8% |
| Three qtrs ago | 601 | 7% | 1.43 | 0% |
GNRC Weekly Chart
GNRC Daily Chart
JinkoSolar Holding (JKS)
Why the Strength
IBISWorld reported that solar industry revenue in the U.S. grew 36% last year (to $10 billion) and that number is expected to more than double to $23 billion by 2025. Moreover, industry consolidation is speeding up, with the top five module manufacturers expected to ship 65% to 70% of total product this year. All of that is boosting the fortunes of JinkoSolar, which, unbeknownst to most investors, is the largest solar panel producer in the world. In its second quarter, the company posted EPS of $1.20 and revenues of $1.2 billion, trampling estimates and up solidly from a year ago. The main driver was shipments, which totaled 4,469 megawatts of panel modules, 32% higher than the prior year. And its global business is booming, with a recent agreement to supply 60.9 MW of bifacial modules—which produce solar energy from both sides of the panel and generate 40% more power than current mainstream utility products—to the first industrial hybrid plant in Chile. The firm also supplied 611 MW of bifacial modules for the Thuan Nam solar power plant project in Vietnam, and it’s just inked an agreement with ENEOS Corporation, Japan’s largest oil refiner, to provide solar modules for a Virtual Power Plant. But bigger than any one deal is management’s confidence in the future: The top brass initially planned to hike its nameplate capacity from 16 GW at year-end 2019 to 22 GW this December, but it’s already blown through that target, and is now aiming for 30GW of capacity! It’s spending heavily to boost its ingot/wafer production, too. While projected growth is mundane, (a) most believe those figures will prove way too low and (b) it’s looking like any pothole in earnings is off the table, making the current valuation (9 times earnings) appear cheap.
Technical Analysis
JKS has been highly profitable for years, but the stock has been a nothing burger, bobbing and weaving for a long time. But last week looks decisive—after a multi-month rally toward multi-year highs, JKS went ballistic on enormous volume both before and after earnings, soaring numerous days on massive volume. Yes, it’s extended and could shake out a bit, but it’s unlikely we’ll see a huge retreat given the blastoff.
| Market Cap | $1.56B | EPS $ Annual (Dec) | |
| Forward P/E | 15 | FY 2018 | 1.64 |
| Current P/E | 8 | FY 2019 | 3.06 |
| Annual Revenue | $4.81B | FY 2020e | 3.11 |
| Profit Margin | 4.5% | FY 2021e | 2.85 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.19 | 19% | 1.20 | 69% |
| One qtr ago | 1.19 | 38% | 0.65 | 400% |
| Two qtrs ago | 1.36 | 22% | 1.40 | 233% |
| Three qtrs ago | 1.04 | 8% | 0.82 | 6% |
JKS Weekly Chart
JKS Daily Chart
Owens & Minor (OMI)
Why the Strength
The healthcare industry has had its share of ups and downs, with most of the attention being showered on the biotechs that hope to produce COVID-19 vaccines. But after the recent outlook upgrade of Owens & Minor, investors may want to broaden their healthcare watch list. For the second time in three months, this provider of medical supplies and healthcare logistics and marketing programs upped its forecasts for 2020, which has reinvigorated the stock. In July, Owens raised its annual EPS guidance from $0.50-$0.60 to $1.00-$1.20. Now, the company says it expects EPS this year to come in between $1.75-$1.90! According to the firm, the growth is based on “better-than-expected manufacturing output and improved operating efficiencies.” As you might expect, its personal and protective equipment (PPE) kits are in high demand—and being delivered ahead of schedule; the company shipped nearly five billion (!) PPE units from February through the first week of August. But the industry has also caught a surprising updraft from the better-than-expected demand for elective procedures, which had fallen 40% to 80% during the shut-ins. They are now steadily rising, especially in Illinois (up 24%), Arizona (up 17%) and Texas (up 72.3%). Of course, all of this doesn’t make Owens a great growth outfit, but management is confident it can grow earnings at a double-digit pace in 2021 on top of this year’s boom, which isn’t bad at all, and could prove conservative if trends continue.
Technical Analysis
We took a swing at OMI back in July after it catapulted to new highs on earnings, but were knocked out a few days later on a big shakeout. Still, we’ve kept our eye on it, and while the stock meandered for many weeks after that, last week’s bumped guidance caused another big-volume eruption. If you’re game, you can start a position on minor weakness.
| Market Cap | $1.32B | EPS $ Annual (Dec) | |
| Forward P/E | 19 | FY 2018 | 1.15 |
| Current P/E | 33 | FY 2019 | 0.52 |
| Annual Revenue | $8.41B | FY 2020e | 1.29 |
| Profit Margin | 0.7% | FY 2021e | 1.51 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.81 | -24% | 0.20 | 100% |
| One qtr ago | 2.12 | -10% | 0.04 | -33% |
| Two qtrs ago | 2.19 | -10% | 0.26 | 189% |
| Three qtrs ago | 2.29 | -2% | 0.11 | -69% |
OMI Weekly Chart
OMI Daily Chart
QUALCOMM Incorporated (QCOM)
Why the Strength
In the race to accelerate the commercialization of the 5G phone market, Qualcomm has leapt to the forefront after expanding its portfolio of 5G mobile platforms. The firm is widely known for its integrated circuits, software and licensing services for use in wireless communications, but it has lately become one of the top players for 5G handsets (as well as other “smart” tech-related applications). Qualcomm launched its Snapdragon XR2 (extended range) platform – the first to combine 5G with artificial intelligence – last December. The platform boasts multiple custom features that can be scaled across augmented, virtual and mixed reality (including 360-degree views and 3D audio). The firm also recently announced plans to scale its new Snapdragon 4-series (with high- and mid-tier features) for the mass market to further its goal to make 5G accessible to all smartphone users. Most important of all, Qualcomm announced a patent dispute with Chinese tech giant Huawei a few weeks back, opening the way to big milestone ($1.8 billion) and royalty payments in the years ahead—the company now has licensing agreements with every major handset maker just as 5G smartphone boom takes hold. Qualcomm also just applied for a license to sell semiconductors to Huawei (which will use them in its smart phones if the deal is approved by the U.S. government). The financial outlook for Qualcomm is equally favorable—while Q2 stunk (virus related), management guided for a 12% increase in Q4 revenue, driven by royalty revenues from Huawei. And the big payout comes after that, with analysts seeing a whopping 65% hike in earnings in 2021, which should lead to dividend hikes, share buybacks and, overall, continued interest among big investors. As mega-caps go, we like it.
Technical Analysis
QCOM has had some ups and downs over the years, but our bet is that the stock changed character in late July when it gapped to new highs (out of a four-plus-year base) following the Huawei deal. Shares rallied to 124 afterwards before being caught up in the market’s September doldrums. Even so, the retreat was normal, and QCOM has started to find buyers after testing its 50-day line, setting up a good risk/reward entry point.
| Market Cap | $129B | EPS $ Annual (Dec) | |
| Forward P/E | 18 | FY 2018 | 3.62 |
| Current P/E | 30 | FY 2019 | 3.09 |
| Annual Revenue | $20.0B | FY 2020e | 3.91 |
| Profit Margin | 20.1% | FY 2021e | 6.42 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 4.89 | -49% | 0.86 | 8% |
| One qtr ago | 5.22 | 5% | 1.09 | 42% |
| Two qtrs ago | 5.08 | 5% | 0.99 | 32% |
| Three qtrs ago | 4.81 | -17% | 0.78 | -12% |
QCOM Weekly Chart
QCOM Daily Chart
Sea Limited (SE)
Why the Strength
Sea Limited (covered in the July 27 issue) is making some big strides as Southeast Asia’s leading e-commerce, online entertainment and financial service provider; it’s also expanding its presence (especially in gaming) in Latin America. Sea’s online shopping (Shopee) and gaming (Garena) segments have been compared to Amazon and Activision, and its digital payments arm, SeaMoney, offers e-wallet services, payment processing and other financial products. Business has been strong for a while, and the move of everyone online during the pandemic has only helped results—Sea reported continued strong user growth in Q2 along with increasing user engagement across its platforms. Total revenue was up 102%, thanks largely to strong paying user quarterly growth, while digital entertainment revenue rose 62% and e-commerce revenue was up 188%. Sea’s digital financial space continued to expand, with paying users of its mobile wallet service surpassing 15 million and segment revenue roaring higher by 328% (due to continued success in integrating the mobile wallet service with the Shopee platform across different markets). Meanwhile, Sea’s distributor for third-party game developers, Garena, achieved several historic highs in quarter, including reaching nearly half-a-billion (!) global active users (up 61%). Management didn’t offer full-year guidance, but analysts see continued triple-digit top-line growth for the rest of 2020, with 40%-ish growth in 2021 (likely conservative). Sea also believes it will continue to benefit from the deepening digitization trend and from consumers looking for online entertainment during the pandemic. This remains a strong story.
Technical Analysis
SE originally broke out back in February 2019, so it’s not in the early innings of its advance (in all likelihood), but the stock continues to show signs that it wants to head higher. During the past 11 weeks, the stock has etched higher highs and higher lows and respected its 10-week line, even when growth stocks have taken on water. Expect volatility, but we think you can start a position here and add to it if SE and the market get going on the upside.
| Market Cap | $75.8B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -2.79 |
| Current P/E | N/A | FY 2019 | -1.99 |
| Annual Revenue | $2.98B | FY 2020e | -2.39 |
| Profit Margin | N/A | FY 2021e | -1.25 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 882 | 102% | -0.68 | N/A |
| One qtr ago | 715 | 103% | -0.52 | N/A |
| Two qtrs ago | 777 | 174% | -0.53 | N/A |
| Three qtrs ago | 610 | 198% | -0.41 | N/A |
SE Weekly Chart
SE Daily Chart
Square, Inc. (SQ)
Why the Strength
Square made hay with its payments solutions for (mostly) smaller clients a few years ago, and that business continues to have a bright future. But the stock has reemerged as a leader thanks to an entirely new product, following in the footsteps of many big winners of the past two decades that continually rode a wave of innovation. The new offering is the firm’s Cash App, which has become one of the leading peer-to-peer money offerings out there—customers can send and receive money to/from anyone, tip and set up their own debit accounts that can receive paychecks or tax refunds, as well as getting direct deposits earlier than previously. You can even invest the money in stocks or bitcoin! And if you use the accompanying Cash Card (basically a debit card for your account), you’ll get instant discounts at tons of merchants (called Boosts), too. It looks like the next big thing for the company and is catching on quick—in Q2, Cash App-related revenue totaled $1.2 billion, up a whopping 361% from a year ago, while gross profit from the App was up 167%. To be fair, a lot of that was bitcoin-related, which can bob up and down depending on the quarter, but the trend is in place for much higher usage (both from consumers and businesses) and for Square to offer additional services (loans, insurance, even wealth management) that will boost engagement. Throw in the fact that the core payment business should grow nicely as it captures market share and as the economy returns to normal and the future looks bright—revenues should grow at 30%-plus rates for a long time while earnings and cash flow lift nicely going forward. We like it.
Technical Analysis
SQ was a huge winner from 2016 through 2018, then spent a full 21 months bobbing and weaving (and, in March of this year, crashing) before kicking off a new advance. That upmove was extreme, with the stock hitting 170 before getting caught up in the market’s September sloppiness, but it’s shown relative strength the entire month, holding its 50-day line and hitting higher lows even as the correction has continued. We’re OK starting a position here with a stop near its recent lows.
| Market Cap | $68.9B | EPS $ Annual (Dec) | |
| Forward P/E | 287 | FY 2018 | 0.47 |
| Current P/E | 238 | FY 2019 | 0.80 |
| Annual Revenue | $5.88B | FY 2020e | 0.53 |
| Profit Margin | 4.7% | FY 2021e | 1.20 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.92 | 64% | 0.18 | -14% |
| One qtr ago | 1.38 | 44% | -0.02 | N/A |
| Two qtrs ago | 1.31 | 41% | 0.23 | 64% |
| Three qtrs ago | 1.26 | 44% | 0.25 | 92% |
SQ Weekly Chart
SQ 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 | 125 | |
| 9/21/20 | AGCO Corp. | AGCO | 68.5-71.5 | 73 | |
| 8/10/20 | Agnico Eagle Mines | AEM | 79.5-82.5 | 78 | |
| 7/13/20 | Alibaba | BABA | ? | 244-254 | 276 |
| 8/31/20 | Anaplan | PLAN | 59.5-62.5 | 63 | |
| 9/8/20 | Boston Beer | SAM | 765-795 | 900 | |
| 9/21/20 | Brinker Int’l | EAT | 42-44.5 | 45 | |
| 8/17/20 | Builders FirstSource | BLDR | 28-29.5 | 32 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 31 | |
| 8/10/20 | Chart Industries | GTLS | 69-73 | 70 | |
| 9/8/20 | Chipotle Mex Grill | CMG | 1230-1270 | 1264 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 400 | |
| 8/10/20 | Digital Turbine | APPS | 21.5-24 | 31 | |
| 8/24/20 | Elastic | ESTC | 99-103 | 109 | |
| 9/21/20 | Exelixis | EXEL | 24.5-26 | 24 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 128 | |
| 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 | 107 | |
| 9/14/20 | Gap Inc. | GPS | 16.5-17.5 | 17 | |
| 9/14/20 | Guardant Health | GH | 98-102.5 | 109 | |
| 5/26/20 | Horizon Therapeutics | HZNP | ? | 45.5-48 | 80 |
| 8/17/20 | Innovative Ind. Prop. | IIPR | 116-121 | 128 | |
| 8/17/20 | iRhythm Technologies | IRTC | 168-174 | 229 | |
| 8/17/20 | L Brands | LB | 26-28 | 32 | |
| 6/29/20 | Meritage Homes | MTH | 71.5-74 | 108 | |
| 9/14/20 | Mosaic | MOS | 17.2-18.2 | 18 | |
| 8/24/20 | Natera | NTRA | 60-63 | 70 | |
| 9/21/20 | NIO Inc. | NIO | 17-18 | 19 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 108 |
| 3/30/20 | Nvidia | NVDA | 250-270 | 521 | |
| 4/6/20 | Peloton | PTON | 27-29 | 97 | |
| 8/3/20 | Penn Nat’l Gaming | PENN | 34-36.5 | 73 | |
| 8/3/20 | PINS | 33.5-37 | 41 | ||
| 7/20/20 | Plug Power | PLUG | ? | 8.0-8.7 | 13 |
| 8/3/20 | Qualcomm | QCOM | 106-110 | 118 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 53 |
| 7/13/20 | Roku | ROKU | 147-154 | 186 | |
| 7/27/20 | Sea Ltd | SE | 110-116 | 160 | |
| 9/21/20 | Seattle Genetics | SGEN | ? | 175-180 | 191 |
| 9/14/20 | Snap | SNAP | 22.5-24 | 26 | |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 80 | |
| 9/14/20 | Target | TGT | 145-149 | 156 | |
| 9/21/20 | Toll Brothers | TOL | 44.5-47 | 49 | |
| 9/21/20 | TopBuild | BLDR | 149-154 | 32 | |
| 8/31/20 | Trupanion | TRUP | 60.5-63 | 73 | |
| 8/31/20 | Tupperware | TUP | 14.5-15.5 | 21 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 245 | |
| 8/24/20 | Whirlpool | WHR | 171-176 | 185 | |
| 5/11/20 | Wingstop | WING | 116-122 | 139 | |
| 8/10/20 | Zillow | Z | ? | 77-80 | 101 |
| WAIT | |||||
| 9/21/20 | Norfolk Southern | NSC | 204-208 | 221 | |
| 9/21/20 | PINS | 35-37 | 41 | ||
| SELL RECOMMENDATIONS | |||||
| 7/20/20 | Arconic | ARNC | 15-16.5 | 20 | |
| 9/14/20 | DouYu | DOYU | 15.2-16.2 | 14 | |
| 9/8/20 | Farfetch | FTCH | 25-26.5 | 25 | |
| 9/21/20 | Kingsoft Cloud | KC | 35-37 | 30 | |
| 7/13/20 | Kinross Gold | KGC | 7.2-7.6 | 9 | |
| 8/3/20 | Kirkland Lake | KL | 49-52 | 49 | |
| 7/13/20 | Pacira Pharmaceuticals | PCRX | 54-56 | 59 | |
| 8/31/20 | Salesforce.com | CRM | 263-273 | 247 | |
| DROPPED | |||||
| 9/14/20 | MyoKardia | MYOK | 116-121 | 134 | |
The next Cabot Top Ten Trader issue will be published on October 5, 2020.