September 30, 2013
Washington, D.C. has taken hold of the headlines, and we’re sure there’ll be plenty of news and rumors surrounding a shutdown and debt ceiling deal in the days and weeks ahead. But it’s vital to keep your eye on what counts, and that’s the action of the general market (which remains solid) and leading stocks (which look great). If the evidence changes, then we’ll change our advice, but right now we continue to lean bullish and look to do buying on weakness, or picking up new leaders as they emerge from long consolidations.
Keep Your Eye on the Ball
Our fearless leaders in Washington are at it again, and the uncertainty surrounding a potential government shutdown has cast a pall over the market during the past two days. Still, it’s as important as ever to make sure you keep your eye on the ball—news and rumors are sure to come fast and furiously in the days ahead, but what counts is the action of the market itself and leading stocks. And right now both look fine! If the evidence changes then we’ll change our advice, but tonight we’re keeping our Market Monitor where it’s been and our advice remains unchanged.
This week’s list has a nice mix of repeat recommendations, as well as stocks that are showing up for the first time in many months or years. Our favorite of the week is Oasis Petroleum (OAS), a stock that just leapt out of a three-year consolidation following a major acquisition.
|Wynn Resorts (WYNN)||121.08|
|Vipshop Holdings (VIPS)||14.25|
|Trina Solar (TSL)||0.00|
|Pinnacle Entertainment (PNK)||0.00|
|Oasis Petroleum (OAS)||12.57|
|Nexstar Media Group (NXST)||105.68|
|Chart Industries (GTLS)||72.05|
Wynn Resorts (WYNN)
Why the Strength
The American gambling scene has changed a lot as more and more states have approved casino operations in one form or another, reducing the dominance of Las Vegas in the U.S. gambling scene. But Wynn Resorts reflects an even larger shift in the global gambling business, a move that has made Macau the unchallenged revenue center. Wynn Resorts, which operates the Wynn Macau and Encore at Wynn Macau, got 71% of its 2012 revenue from its Macau operations, with the Wynn Las Vegas and Encore at Wynn Las Vegas kicking in the other 29%. Wynn Resorts is still very much in expansion mode, with additional building going on in the Cotai Strip in Macau and proposals out for gambling licenses in both Philadelphia and Boston, although the outcome of these applications is uncertain. Wynn is also a competitor in the emerging Japanese casino market, an area that could approve casino gambling ahead of the 2020 Olympics. The company’s stock just picked up an upgrade from Credit Suisse. The global competition in the gambling industry is very strong, but Wynn Resorts looks like a genuine player.
WYNN has been rallying since July 2012, when it bottomed at 84, with a couple of major shakeouts along the way. The biggest shakeout began in May, when WYNN tagged 145, but slipped to 122 on big volume in late June. A pleasing earnings report on July 29 got the stock moving again and WYNN built a nice rising base all through August, then broke out during the first week of September. After pushing to 160 last Thursday, WYNN pulled back a hair, but isn’t showing any real weakness. A buy at 155 makes sense, with a loose stop at 140.
WYNN Weekly Chart
WYNN Daily Chart
Vipshop Holdings (VIPS)
Why the Strength
Everything about Vipshop Holdings is hot right now. Investors are enthusiastic about Chinese stocks and Vipshop’s unique approach to discounted online flash sales of fashionable merchandise is generating impressive numbers. This is a very young company, with just four years of revenue history. But the latest three years of operation have brought revenue growth of 1,059% (2010), 597% (2011) and 205% last year. Vipshop Holdings uses its partnerships with nearly 6,000 Chinese and international brands to offer young Chinese professional women (the company’s typical customer) a chance to score name-brand clothing (as well as cosmetics, bedding, watches, cooking gear, sports equipment and jewelry) at a significant discount. The company booked its first profitable quarter in Q3 2012, and full-year 2013 estimates are for earnings of 92 cents per share. The company picked up coverage from a new analyst (Credit Suisse) on September 26 and was upgraded from hold to buy by another (Deutsche Bank) on September 18. Some analysts see the online discount sales business in China as a battle between Vipshop Holdings and E-Commerce China Dangdang (DANG), but there appears to be plenty of room for both companies. Also, at this point it looks like investors are siding with the company, which has successfully defended itself against charges from a short-selling specialist that took a toll in May. The company has even overcome a wave of weakness following its weaker-than-expected guidance in the middle of August. This is a big story, and that is overriding all incidental negatives.
VIPS came public at 6.5 in March 2012 and started to rally in late-August 2012. Except for a dip from 38 to 23 in May and June (a result of the attack by the short seller) and a quick correction in the middle of August, the stock has been rallying steadily ever since. After two days of strong gains following the analyst upgrades, VIPS traded as high as 63 earlier in the month, but has pulled back below 58 on very calm volume. VIPS isn’t cheap here, but this looks like a solid entry point. If you like the story, try to buy as close to 55 as you can, with a stop at the 50-day moving average (now at 46); anything tighter will likely get you stopped out.
VIPS Weekly Chart
VIPS Daily Chart
Trina Solar (TSL)
Why the Strength
Following several years of losses, solar companies appear to have finally turned a corner. Among the hottest companies in the sector, Trina Solar has made a name for itself by becoming one of China’s top solar-panel manufacturers. The company recently piqued investor interest after posting a narrower-than-expected second-quarter loss of 47 cents per share, as revenue grew year-over-year for the first time in years. What’s more, CEO Jifan Gao is pushing for a return to profitability in the third-quarter, with success dependent on manufacturing costs and panel prices, and sees Trina solidly back in the black by the fourth quarter. While growth in the West powered second-quarter sales gains, recently implemented import caps could hurt Trina’s bottom line in regions like the U.K. However, analysts expect demand to surge three-fold in Japan and China due to a consumer rush to take advantage of expiring government incentives. Meanwhile, analysts at Deutsche Bank are expecting a seven-fold increase in solar installations worldwide through 2016, with much of it taking place in the U.S., a higher-margin market than China. With Trina already perched near the top of the Chinese market, we like its potential.
The disappearance of many government subsidies for solar power prompted a plunge in solar stocks in recent years; TSL shares tumbled from their highs near 30 to 7 in 2011, and all the way to 2 (!) during the fourth quarter of 2012. TSL has since recovered nicely, however, as the solar market finally adjusted to thinner government assistance and lower solar panel prices. In fact, TSL has soared more than 250% so far in 2013, with the stock enjoying solid support at its 10-day and 50-day moving averages. Last week’s buying spree has left TSL overbought in the short-term. As such, we feel that TSL is buyable on pullbacks of a point or two.
TSL Weekly Chart
TSL Daily Chart
Why the Strength
Taser is known as a stun-gun maker, and indeed, that continues to drive its business. While the market never grew as large as the bulls thought back in 2004 (when the stock reached 33.5), the stun guns have proven popular in terms of preventing deaths and lawsuits against police officers. But management still sees good growth potential—while half of all officers in the U.S. carry a Taser, just 2% of international police officers do. Plus, an upgrade cycle (to the firm’s new X26P weapon) could boost sales as well. All of that is solid, but the real sex appeal here comes from the company’s new video solutions—Taser has developed AXON Flex cameras (wearable on a vest, or a more expensive version on glasses) that record a cop’s activities, and studies have shown it drastically reduces violence and complaints. Combined with the firm’s Evidence.com, which helps manage all the digital evidence created, Taser might be onto something huge; orders in the second quarter were small (just $2 million) but were quadruple that of a year ago. Starting at $250 per camera, there’s no reason tens of thousands of cops can’t be outfitted with them eventually, which in turn should lead to lots of recurring revenue through Evidence.com. It’s a bit speculative, but if momentum builds, sales and earnings could catapult quickly.
TASR was a huge, huge winner back in 2003 and 2004, but since that climax run, it really hasn’t done much; there have been a few pops higher but they all faded. This upmove, though, looks much different. Shares peaked near 10 late last year and, after some ups and downs, quieted down into early August. And then the stock exploded! TASR has nearly doubled since then on humongous volume, barely pausing along the way. It’s risky to buy up here, but we also don’t expect a major retreat as long as the market remains in good shape. Try to start small on weakness.
TASR Weekly Chart
TASR Daily Chart
Pinnacle Entertainment (PNK)
Why the Strength
While many casino companies have moved their major emphasis to the Chinese gambling enclave of Macau, Pinnacle Entertainment is sticking to operations in the U.S., leaving Las Vegas largely behind to concentrate on its casinos and racetracks scattered around the country. After taking over Ameristar Casinos earlier this year, Pinnacle now has 16 locations, including casinos in Iowa, Indiana, Missouri, Mississippi, Colorado, Louisiana and Nevada, and racetracks in Texas and Ohio. The company has doubled in size, and investors are betting that the combined company will achieve lower costs and enjoy greater expansion opportunities. The company got permission for the takeover from the Federal Trade Commission only after agreeing to sell two of its properties, and it was announced on August 16 that the Lumiere Place Casino and Hotels operation in St. Louis, Missouri, would be sold to Tropicana Entertainment for $260 million in cash. Another Louisiana casino project will be sold to Golden Nugget. With a healthy amount of cash on hand, Pinnacle, which has been growing revenue at single-digit rates for the past three years, is poised to expand in a big way.
PNK went through years of up and down trading between 8 and 15, but finally caught a real updraft in the second half of 2012. The stock has pushed from 9 in the middle of 2012 to 25 in recent trading, punctuated by big corrections in February and May/June of this year. PNK has now put in over three weeks of trading very tightly under resistance at 25, varying less than half a point the whole time. The stock’s rising 25-day moving average is now at 24.5, and may supply a little energy when it intersects the stock. PNK represents a bet on an American strategy in the gambling industry and looks like a good buy on any weakness. A relatively tight stop at the 50-day, now at 23, makes sense.
PNK Weekly Chart
PNK Daily Chart
Oasis Petroleum (OAS)
Why the Strength
Oasis Petroleum is a mid-sized explorer in the Bakken, with most of its output in and around the Williston Basin. The firm has a history of strong sales, earnings and production growth (output was up 71% and 48%, respectively, during the first two quarters of the year), as it has been operating 11 drilling rigs in its 331,000 acres in the area. All of that is good, but what’s kicked the stock into a higher gear was a huge acquisition this month of another 161,000 acres (for a tidy sum of $1.5 billion!), and management’s expectation that it can drive much better growth in this new area going ahead. Analysts loved it, mainly because the deal should prove highly accretive; Oasis had been rumored to be purchasing assets in another basin, which would have spread it thin, but the acquired acreage should be quick to ramp as 2014 approaches. Indeed, management said it expects to increase its rig count from 12 today to 15 or 16 by the end of next year, which should keep production growth (the vast majority of which is oil, not gas) humming. Analysts see the bottom line up 50% this year and another 30% next, and that’s just the beginning, with the company having more than 1,500 wells to drill in the years ahead. Oasis has always had a great story and the recent buyout makes it even better.
OAS has been hitting higher highs this year but in a very choppy fashion—however, we think the uptrend is now firming. The stock had a nice run to start the year, but then pulled back in April before hitting marginal new highs in June and July. After yet another pullback, though, OAS blasted off on news of the acquisition; volume has soared on the upside, and importantly, the stock’s relative performance (RP) line just broke out of a 30-month sideways pattern! Short-term, OAS is extended, but with such big upside volume, we’re not expecting a major pullback.
OAS Weekly Chart
OAS Daily Chart
Nexstar Media Group (NXST)
Why the Strength
When we last visited broadcasting specialist Nexstar Broadcasting, the stock was fresh off a negative reaction to quarterly earnings, prompting us to issue a sell recommendation on August 9. But the stock has come roaring back as investors refocus on the company’s buying spree. The firm has snatched up a slew of independent stations and smaller networks. Currently, Nexstar owns 72 stations in 41 different U.S. markets and has said that it is looking to spend another $650 million for acquisitions in the next two years! Roughly $103 million of that has already been allocated to snap up five TV stations in a deal with Mission Broadcasting. Overall, broadcasting stations are benefiting from a return of ad revenue and an increase in retransmission charges. As a result, Nexstar has seen revenue grow at an average clip of 33% during the past four quarters. Finally, Nexstar should enjoy another big spike in advertising revenue as political ads ramp up heading into next year’s mid-term elections—especially after the Supreme Court’s Citizens United ruling in 2010 opened the floodgates for spending on political ads. All told, Nexstar has the strength to continue growing at its current clip well into next year.
NXST traded sideways for two years before showing signs of life in July 2012. Then it doubled from 6 to 13 in just three months! Since the initial surge, NXST has enjoyed support at its 10- and 25-week moving averages, with shares topping out near 40 in July 2013. A short-term correction in August sent NXST down for a test of support at its 25-week trendline, from which the stock quickly rebounded. NXST has since gone on to eclipse former resistance at 40, with shares hovering just north of 43. With the stock a bit over extended, we recommend buying on dips to ensure the best entry price.
NXST Weekly Chart
NXST Daily Chart
Chart Industries (GTLS)
Why the Strength
Chart Industries remains one of the best pick-and-shovels play on the growth of LNG, and also does good business in a few other areas. One of the most exciting plays is modules for LNG fueling stations, something that China is hot on; the country has 1,600 today but some believe that could go north of 3,000 in the years ahead, with each station representing a sizable opportunity. Chart has a good relationship with behemoth PetroChina (which has already placed three orders for more than $130 million) and is one of the top players in the industry. Here in the U.S., much of Chart’s equipment is used to build LNG export facilities, a potentially huge business if prices stay down and Uncle Sam continues to smile on the industry. The company also does good business in things like heat exchangers and cold boxes for a variety of chemical firms, and orders there remain strong. All told, sales and earnings have been kiting higher, and big investors are taking their clues from total backlog, which stood at $664 million at the end of June (which didn’t even include a new $50 million order from PetroChina). Unless something out of the blue happens, there’s no reason to think orders for Chart’s various products won’t continue to boom.
Despite a good run this year, GTLS continues to trade tightly and properly. The last big move came after second-quarter results, as shares popped from 99 to 117 within a couple of days, and eventually moved to 124 a couple of weeks later. Since then, the stock has been consolidating; the 50-day line isn’t far away, and shares have tightened up between 119 and 125 during the past two weeks. You could nibble here or wait for a powerful thrust above 125.
GTLS Weekly Chart
GTLS Daily Chart
Why the Strength
High-speed network equipment manufacturer Ciena continues to make its case as one of the premier investing opportunities in the sector. Earlier this month, Ciena posted strong third-quarter earnings and revenue growth, topping Wall Street’s expectations for a second consecutive quarter. As stated during a conference call by the company’s CEO, Ciena increased its market share, achieved steady growth, and delivered improved and more consistent financial performance. Ciena also released third-quarter guidance that was above consensus expectations. Driving growth in the sector is increased demand for higher bandwidth among mobile data users. As the industry shifts more toward fiber optic networks, Ciena, which specializes in optical networking equipment, should continue to enjoy better-than-expected growth. Furthermore, Ciena is also benefiting from key partnerships—Southern Cross Cable has implemented Ciena’s 100G transmission equipment across its entire network in Australia and New Zealand, while PLDT, the leading telecom provider in the Philippines, has deployed Ciena’s OneConnect software and 5410 switch systems across its global network. With AT&T and Verizon announcing plans to boost capital spending in the coming year, Ciena still has plenty of room for growth.
CIEN has had a choppy ride since we last checked in. Shares entered August on an uptrend, riding support at their 10-day and 25-day moving averages. By mid-month, CIEN tested and failed to hold support at its 50-day moving average, sending the stock down for a test of the 20 level while tripping our suggested stop-loss for the shares. Less than a week later, however, strong earnings catapulted the stock back above key trendline support, propelling the stock into the 25 region. CIEN is currently digesting its recent gains, providing a potential re-entry point.
CIEN Weekly Chart
CIEN Daily Chart
Why the Strength
Like many successful companies, Baidu, the biggest online search engine in China, has been through lots of ups and downs since it made its debut in Cabot Top Ten Trader in January 2007. Baidu triumphed over Google (and many domestic rivals) to dominate the Chinese search business. Then it survived the Great Recession, which slowed revenue growth to just 40% in 2009. And most recently, the company appears to be responding well to a challenge from rivals like Qihoo 360 in the mobile search business. When Qihoo jumped into mobile search a little over a year ago, quickly winning 10% of search traffic, Baidu looked to be back on its heels. But Baidu’s purchase of online app store 91 Wireless has strengthened its position in the entire mobile field, including app and game sales and online book sales. Baidu’s 40%-ish revenue growth has slowed some but it’s still quite robust, and the 36.1% after-tax profit margin is fine. The big story here is the rapid deployment of mobile phones, especially smartphones, across China, which is proceeding at a quick pace and still has enormous growth potential. Baidu, with a market cap of nearly $42 billion, is considered a Red Chip stock by many institutional investors, and the company’s resurgence after the challenge from Qihoo 360 will only reinforce that conviction.
BIDU was trading at 83 in April, but a red-hot rally in July kicked the stock to 140 in early August. The stock rested at that level for five weeks, consolidating with support around 135 through the first week of September. Another rally that began on September 6 is still going on. BIDU nudged 155 at the end of last week and looks fine, with a rising 25-day moving average now at 143. With a little patience, you should be able to get BIDU a couple of points below 150. A dip below 135 would be bearish.
BIDU Weekly Chart
BIDU 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.
|First||Stock||Symbol||Top Pick||Original Buy Range||Price as of September 30, 2013|
|9/23/13||Las Vegas Sands||LVS||62-65||66|
|6/10/13||Pioneer Natural Resources||PXD||139-144||189|
|WAIT FOR BUY RANGE|
|DROPPED: Did not fall into suggested buy range within two weeks of recommendation.|