The Music Stops
Current Market Outlook
There have been a growing number of yellow flags among leading growth stocks in recent months, and last week the sellers finally came out of the woodwork, causing a quick 10% top-to-bottom drop in the Nasdaq and cracking the uptrends in many leaders. Where does that leave us? Overall, the market’s intermediate-term trend remains up, though it’s getting close to the fence as most indexes test their 50-day lines. Throw in the fact that many areas are holding up OK and we don’t advise you to sell wholesale. But with decisive weakness in most leaders following huge runs (and some climactic upside activity during the past two weeks), paring back makes sense, and from here, the onus is on the bulls to step up. We’re knocking our Market Monitor down to a level 5.
This week’s list contains a bunch of names that have either avoided any major selling or have pulled back normally to support. Our Top Pick is Penn National Gaming (PENN), which looks like one of a couple of leaders in the “new” gaming boom.
| Stock Name | Price | ||
|---|---|---|---|
| AutoNation (AN) | 56.16 | ||
| Boston Beer Company (SAM) | 791.28 | ||
| Chipotle Mexican Grill (CMG) | 1299.15 | ||
| Deere & Company (DE) | 210.19 | ||
| EPAM Systems (EPAM) | 308.95 | ||
| Farfetch (FTCH) | 26.04 | ||
| Five Below (FIVE) | 122.69 | ||
| Freeport-McMoRan Inc. (FCX) | 15.72 | ||
| Nintendo Co., Ltd. (NTDOY) | 66.76 | ||
| Penn National Gaming (PENN) | 55.31 |
AutoNation (AN)
Why the Strength
Vehicle sales suffered during the depths of the shutdowns but have steadily recovered in recent months as the economy reopens. What’s more, experts see sales of both commercial and personal vehicles increasing in the coming months as consumers shy away from public transportation and shared riding. That should be good for AutoNation, a big nationwide auto retailer that offers new and pre-owned vehicles and related services through more than 325 locations. Its first-class digital platform makes shopping for certified vehicles easy and has attracted a growing customer base this year. Although same-store revenue in Q2 was 14% lower due to shelter-in-place orders, the company still managed to deliver its best quarter ever from an earnings perspective, posting EPS of $1.41 (+18%), thanks partly to its cost-lowering digital platform investments. Other metrics were equally solid, as Financial Services gross profit per vehicle retailed was an all-time record $2,172 (+12%). And while the early part of Q2 was impacted by shutdowns, the company reported “significant” sequential recovery from month to month as stay-at-home orders were lifted and the economy reopened, driven largely by the resilience of the used vehicle business. Looking ahead, management expects margins and inventories to recover and sees opportunities to increase its share in the used vehicle market (which is much bigger than the new vehicle market); revenues should be soft for a bit longer but earnings are expected to rise both this year and next. Autonation is a solid-looking economic recovery play.
Technical Analysis
AN’s recovery from the late-winter market panic was choppy as the stock bounced from its March low of 20 to 45 by early June before pulling back 20% or so. But the stock went gangbusters in July, with earnings catalyzing a big-volume breakout to a fresh high. AN has resisted the latest broad market shakeout fairly well, and while it could see some volatility in the coming days, you could do some nibbling here or on dips.
| Market Cap | $4.91B | EPS $ Annual (Dec) | |
| Forward P/E | 10 | FY 2018 | 4.19 |
| Current P/E | 12 | FY 2019 | 4.63 |
| Annual Revenue | $20.2B | FY 2020e | 5.46 |
| Profit Margin | 2.7% | FY 2021e | 6.12 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 4.53 | -15% | 1.41 | 17% |
| One qtr ago | 4.67 | -6% | 0.91 | -4% |
| Two qtrs ago | 5.55 | 3% | 1.31 | 36% |
| Three qtrs ago | 5.34 | 2% | 1.18 | 8% |
AN Weekly Chart
AN Daily Chart
Boston Beer Company (SAM)
Why the Strength
At the end of April, we wrote about The Boston Beer Company, saying that beer sales at bars and restaurants had been decimated by COVID-19, which crimped results, but this company had a few aces up its sleeve. One big driver for the firm is Truly Hard Lemonade (a seltzer acquired when the company bought Dogfish Head), with Q1 revenues up 31%. Since then, the company’s marketing (outspending its rivals 3-to-1!) and distribution edge have catapulted the brand to one of the most popular and best-selling seltzers out of a field of about 70 different names. While the coronavirus is still with us, Boston Beer reported a fantastic second quarter, with EPS of $4.88 handily beating analysts’ estimates of $2.43, and coming in at more than twice the $2.34 earned in the prior year. Shipments grew 40%, helping to boost revenues by 42%, to $481 million, blowing through forecasts of $419 million. Depletions (cases sold to retailers) rose 42% year-to-date. Impressively, even excluding contributions from Dogfish, the company’s depletions grew 37%. Analysts expect EPS of $12.57 per share this year, and one brokerage house is even forecasting a share price of $1,000 (though we never put much stock in price targets like that). The thing that really separates Boston Beer from the pack is marketing, and the company plans to continue that strategy, which should further boost its market share. It’s a good, well-run company with a solid foundation and a couple of hot brands.
Technical Analysis
SAM has definitely been a leader since the March market bottom, rallying 10 weeks in a row right off the low, resting for five weeks, and then blasting higher after earnings in July. The recent hesitation and dip looks normal thus far, with the 10-week line offering support. If you want in, you can take a stab at it here.
| Market Cap | $9.83B | EPS $ Annual (Dec) | |
| Forward P/E | 64 | FY 2018 | 7.46 |
| Current P/E | 76 | FY 2019 | 8.69 |
| Annual Revenue | $1.46B | FY 2020e | 12.61 |
| Profit Margin | 12.7% | FY 2021e | 17.40 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 452 | 42% | 4.69 | 116% |
| One qtr ago | 331 | 31% | 1.32 | -29% |
| Two qtrs ago | 301 | 34% | 1.06 | -42% |
| Three qtrs ago | 379 | 23% | 3.58 | 12% |
SAM Weekly Chart
SAM Daily Chart
Chipotle Mexican Grill (CMG)
Why the Strength
With the job market repairing itself and money coming out of hot cloud and technology names, retail-related firms could be an area of new leadership. Chipotle Mexican Grill—a leading provide of fast-casual Mexican fare via its 2,669 restaurants—is one of the best-run restaurants out there, and while it’s not the young pup it was five or 10 years ago, it’s well positioned to thrive going forward. The current reason for the stock’s strength is optimism about the firm’s improving trends—while Q2 results were weak (see table below), things picked up meaningfully as the quarter went on (same-store sales were -24% in April, -7% in May, +2% in June and +6% in the first three weeks of July). And the trend should continue. At the end of June, just 30 of its restaurants remained fully closed, and the firm’s leading position in digital sales should help—in Q2, online sales exploded 216% (making up 61% of sales), so even if there are virus-related hiccups, the company’s business should be resilient. Bigger picture, though, Chipotle is much more than a play on the economic reopening: Management believes it can double the current store base over time while boosting restaurant margins to 25% (up from 20% or so before the virus) thanks to improved marketing, digital sales (including new delivery partnerships with Uber and Grubhub), menu innovations (one to two new items per year; currently testing cauliflower rice with a cilantro lime flavor) and its rewards program (15 million enrolled). Analysts see growth resuming this quarter, while earnings begin to boom in Q4.
Technical Analysis
CMG was a leader coming out of the market’s late-2018 correction, though it began to stall out last fall and plunged with everything in February and March. But the recovery was excellent (new highs by May) and it really hasn’t suffered many wobbles since then, generally holding its 25-day line as it’s pushed higher, with last week’s damage very limited. We do think further dips are possible, but they should also be buyable.
| Market Cap | $36.8B | EPS $ Annual (Dec) | |
| Forward P/E | 124 | FY 2018 | 8.88 |
| Current P/E | 131 | FY 2019 | 14.05 |
| Annual Revenue | $5.62B | FY 2020e | 10.72 |
| Profit Margin | 0.8% | FY 2021e | 20.89 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.36 | -5% | 0.40 | -90% |
| One qtr ago | 1.41 | 8% | 3.08 | -9% |
| Two qtrs ago | 1.44 | 18% | 2.86 | 66% |
| Three qtrs ago | 1.4 | 15% | 3.82 | 77% |
CMG Weekly Chart
CMG Daily Chart
Deere & Company (DE)
Why the Strength
When most people think of high-tech, farming doesn’t usually come to mind. But advanced technology is transforming today’s farm sector from seed to harvest, and John Deere is on the leading edge. Deere, of course, is one of the largest producers of tractors, lawn mowers and construction and harvesting machinery—easily recognized by their distinctive green and yellow livery. The firm is divided into two major segments—ag and construction—and while shutdowns have impacted the latter, its Ag & Turf business has impressively weathered the pandemic. Much of its focus is on tech-enabled “precision farming,” which enables growers to monitor fields and apply crop protection and nutrients in exactly the right amounts based on satellite-generated data. Precision farming has been widely adopted in major growing regions like Europe, South America and China, but interestingly, surveys show just 20% of total acreage in the U.S. (one of Deere’s most lucrative markets) is using precision ag, so the growth potential is huge (and more farmers are embracing it). Also supportive is the recent phase 1 trade deal with China (projected to buoy U.S. grain and oilseed crop sales). On the financial front, the Ag & Turf segment (comprising two-thirds of total sales) saw a 5% revenue decline in fiscal Q3, but operating profit actually rose and the figures easily topped expectations. Analysts see the current quarter being another tough one, but (a) it’s likely those figures are too conservative, and (b) the market is focusing on next fiscal year (which starts this November), which is expected to see earnings surge above $10 per share (up from an estimate of $8.50 just a couple of months ago). A possible added bonus: Any inflation from the world’s super-loose monetary policy should only help the cause going forward.
Technical Analysis
DE isn’t usually a big mover, but it’s very strong today as expectations of next year’s results are on the rise. Shares bobbed and weaved for much of 2018 and 2019 before crashing in March of this year, and while the initial recovery was OK, the stock was still meandering in the same two-year range at the end of July. But since then DE has plowed higher, with a breakout in July and a positive earnings-induced pop in August. Pullbacks of a few points should offer a decent entry point.
| Market Cap | $66.5B | EPS $ Annual (Oct) | |
| Forward P/E | 21 | FY 2018 | 9.39 |
| Current P/E | 25 | FY 2019 | 9.92 |
| Annual Revenue | $35.7B | FY 2020e | 7.52 |
| Profit Margin | 9.1% | FY 2021e | 10.26 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 8.93 | -11% | 2.57 | -5% |
| One qtr ago | 9.25 | -18% | 2.11 | -40% |
| Two qtrs ago | 7.63 | -4% | 1.63 | 6% |
| Three qtrs ago | 9.9 | 5% | 2.14 | -7% |
DE Weekly Chart
DE Daily Chart
EPAM Systems (EPAM)
Why the Strength
“Going digital” is a top trend for 2020 as enterprises realize that to remain competitive, they must develop a digital presence. Unsurprisingly, companies like EPAM, which specializes in digital platform engineering and development, have been in favor this year. EPAM provides software product development and digital platform building, serving hundreds of Fortune 500 clients worldwide (including Google, Microsoft, Barclays and Adidas) that span several industries. The firm offers scalable software solutions, business consulting and advanced technology design solutions to help speed the customer’s digital transformation journey. In its latest earnings report, management noted that the explosive growth of remote work will likely drive future growth, while increased investment in knowledge management, collaboration and productivity platforms are EPAM’s main areas of focus right now. The firm delivered a 16% hike in revenue and a 15% jump in per-share earnings in Q2 despite shutdown-related headwinds. In fact, it has done well during the pandemic as customers turn to EPAM to help with critical business and streamlining efforts. The firm also recently partnered with UNICEF to develop the HealthBuddy COVID-19 information app, designed to help families and communities across Europe and Central Asia by dispelling virus-related rumors. Looking ahead, management guided for Q3 revenues to near $638 million (up 9% at the mid-point), which was in-line with estimates., and analysts see the top-line accelerating next year as normalcy (presumably) returns. It’s a steady, solid story.
Technical Analysis
EPAM has been in a long-term uptrend for years, albeit with the occasional dip, usually when the market has issues. Indeed, the stock plunged with everything else in March, but it’s been trending persistently higher since, with new highs reached in June and with the advance accelerating in July and August. The pullback that started last week could easily get a bit deeper, but we think further weakness should prove buyable.
| Market Cap | $17.7B | EPS $ Annual (Dec) | |
| Forward P/E | 54 | FY 2018 | 4.38 |
| Current P/E | 56 | FY 2019 | 5.42 |
| Annual Revenue | $2.50B | FY 2020e | 5.89 |
| Profit Margin | 13.4% | FY 2021e | 7.14 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 632 | 15% | 1.46 | 14% |
| One qtr ago | 651 | 25% | 1.43 | 14% |
| Two qtrs ago | 633 | 25% | 1.51 | 19% |
| Three qtrs ago | 588 | 26% | 1.39 | 19% |
EPAM Weekly Chart
EPAM Daily Chart
Farfetch (FTCH)
Why the Strength
Traditional brick-and-mortar retail outlets are closing in droves, but digital sales for many luxury retailers are on the rise as higher-income earners continue spending. Farfetch (last covered in the July 27 issue) is one the biggest online luxury goods marketplaces, featuring products from over 700 global boutiques. The latest numbers reveal that the firm is crushing it as brand-conscious consumers continue to shop from home. During Q2, gross merchandise value (GMV) of goods sold boomed 48% to $721 million thanks to accelerated digital platform adoption. While the bottom line was still in the red, the top line rose an eye-popping 70% and possibly the most bullish statistic was that Farfetch had 100% retention of its top 100 brands and top 100 retailers. The company ended the quarter with 2.5 million active consumers, and platform-wide traffic increased more than 60% while app installs more than doubled (with an average order value of $493 in Q2). Additionally, the cash position improved to $802 million, which should help it ride out any COVID-related bumps. Going forward, management said new customer growth remained strong into the first six weeks of Q3 and expects digital platform GMV growth of between 40% and 45% in the current quarter. Analysts, meanwhile, believe the momentum will continue, predicting Q3 top-line growth of 44%. It’s a good story.
Technical Analysis
FTCH has been a new glamour leader this year, coming to life after the March bottom; it hit multi-month highs in early May, which was a big positive clue. After a brief rest, the stock entered a persistent run from there—we took profits a few weeks ago, but now the stock has been yanked down by the general market. If you want in, this first test of its 50-day line offers a decent risk-reward opportunity.
| Market Cap | $8.91B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.52 |
| Current P/E | N/A | FY 2019 | -0.55 |
| Annual Revenue | $1.33B | FY 2020e | -0.92 |
| Profit Margin | N/A | FY 2021e | -0.83 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 365 | 74% | -0.20 | N/A |
| One qtr ago | 331 | 90% | -0.24 | N/A |
| Two qtrs ago | 382 | 95% | -0.08 | N/A |
| Three qtrs ago | 256 | 90% | -0.20 | N/A |
FTCH Weekly Chart
FTCH Daily Chart
Five Below (FIVE)
Why the Strength
Five Below has always had a great cookie-cutter story, and after two years in the wilderness, the stock appears to be kicking into gear. The company is a new kind of dollar store, with a variety of goods mostly for teens and pre-teens in a ton of categories (sporting goods, clothes, toys and games, technology, style, decorations, books, snacks and more), all of which are $5 or less. It’s a great business that few others really focus on, which has led to best-in-class store economics (new stores historically paid back the initial investment in less than a year!), which has led to a rapid store opening program (15%-plus growth annually), which, along with steady same-store sales growth (usually 2% to 5%), has produced a history of rapid, reliable growth. The past couple of years have been challenging, though, first due to the never-ending China trade war (tariffs forced some maneuvering), and then with the virus, which crushed results as everything shut down. But investors are looking ahead, and the last week’s quarterly report was encouraging; all of Five Below’s stores had reopened by June (along with the supply chain), and 63 new ones opened, too (it expects 100 to 110 openings all of this year; unit growth of 12% to 13%), all while boosting e-commerce sales. Total sales were actually up 2% despite the closings, and same-store sales rose a total of 6%, with similar growth seen so far this quarter. All in all, Five Below’s business is back on track, and analysts see earnings booming as things fully return to normal in 2021. Better yet, the longer-term picture remains excellent, with total store potential north of 2,500 compared to a base of nearly 1,000 stores today. We like it.
Technical Analysis
FIVE topped way back in September 2018, chopping, falling and recovering during the past two years. But we think it’s changed character—after a heady recovery following the March crash, FIVE built a nice, tight base on relatively low volume for 11 weeks, a sign that the weak hands had been worn and scared out. Last week’s breakout in the face of a tough market environment was a good sign. Buying breakouts can be tricky in an environment like this, but we’re OK starting small here.
| Market Cap | $7.02B | EPS $ Annual (Jan) | |
| Forward P/E | 68 | FY 2019 | 2.57 |
| Current P/E | 75 | FY 2020 | 2.98 |
| Annual Revenue | $1.69B | FY 2021e | 1.86 |
| Profit Margin | 6.6% | FY 2022e | 3.74 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 426 | 2% | 0.50 | 0% |
| One qtr ago | 201 | -45% | -0.93 | N/A |
| Two qtrs ago | 687 | 14% | 1.96 | 24% |
| Three qtrs ago | 377 | 21% | 0.17 | -23% |
FIVE Weekly Chart
FIVE Daily Chart
Freeport-McMoRan Inc. (FCX)
Why the Strength
We wrote about Freeport-McMoRan last month, noting that the company—the world’s largest publicly-traded copper producer—was back in the black in the near-term, and looking out a bit, analysts predict the firm’s 34% market share will hit 50% in the next five years. The future looks ‘shiny’ as FCX’s cost-cutting measures, lower copper inventories accompanied by rising prices (up 41% since their March low) and new mines coming online should further boost profits. Analysts expect copper demand—and prices—will continue to grow as stockpiles are at their lowest level since 2005, Chinese infrastructure is growing, U.S. housing starts are very healthy and green technology—which uses a fair amount of copper—is beginning to spring back. Citi, for instance, is extremely bullish on copper and is forecasting that prices could go as high as $8,000 per ton, from its $6,790 price today. It also doesn’t hurt that Freeport is increasing its gold production (up 19% in the second quarter), cashing in on the 29% rise in gold prices in the past year. The company’s Grasberg mine in Indonesia, the second largest copper mine in the world, should be a big help, with management saying the transition (by 2022) to an underground mine will boost the production of both copper and gold. Analysts have been raising forecasts for the company as economic growth rebounds following the early-year plunge; Freeport should be profitable this year (23 cents per share, up from an estimate of a loss of nine cents three months ago) and see the bottom line soaring in 2021. Freeport is a classic cyclical play that appears to be in the right place at the right time.
Technical Analysis
FCX has completely changed character since the March lows, embarking not just on a big run but also a persistent one, with the entire advance contained by the 50-day line (and since mid May, the 25-day line has barely been breached). The recent market turmoil could easily pull shares lower, but FCX doesn’t seem very interested in retreating at this point. We’re OK starting a position here or (preferably) on dips.
| Market Cap | $23.3B | EPS $ Annual (Dec) | |
| Forward P/E | 82 | FY 2018 | 1.52 |
| Current P/E | N/A | FY 2019 | 0.02 |
| Annual Revenue | $13.1B | FY 2020e | 0.19 |
| Profit Margin | 1.4% | FY 2021e | 1.22 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 3.05 | -14% | 0.03 | N/A |
| One qtr ago | 2.8 | -26% | -0.16 | N/A |
| Two qtrs ago | 3.91 | 6% | 0.02 | -82% |
| Three qtrs ago | 3.31 | -33% | -0.01 | N/A |
FCX Weekly Chart
FCX Daily Chart
Nintendo Co., Ltd. (NTDOY)
Why the Strength
The video game industry is booming, with the virus accelerating sales as well as time spent online—in July, consumers spent $3.25 billion on video game content, up 34%, with digital spending rising 41%. And while console sales were down 2% over last year, Nintendo’s Switch sales grew to $1.8 billion (5.68 million units sold last quarter, up 166%), putting it at the top of all gaming hardware sales. Switch sales are forecast at 19 million units for all of 2020, with rumors swirling that an upgraded model could come soon, which should further boost sales. Just as the pandemic hit, Nintendo released its “Animal Crossing: New Horizons game,” which saw sales of 10.6 million units in the second quarter. The company has a thriving menu of exclusive game franchises, including Zelda, Mario Bros. and Animal Crossing, with those brands being the main reason Q2 profits soared a whopping 550%. Digital software sales accounted for 56% of total revenues, rising 38% from last year. The company’s Super Mario Bros is still a big winner, with five of that brand’s games in the top 10 of July sales reported by research group NPD, and Nintendo has announced several new Mario games, including “Super Mario Bros 35,” one of the company’s Battle Royale properties. (It allows 35 players at a time, launches October 1, on a limited time release which ends March 31, and will be available only to Nintendo Switch Online users, for $20 per month.) New games, and possibly a new Switch, should keep the positive earnings surprises coming.
Technical Analysis
Nintendo shares didn’t go much of anywhere until after the March market doldrums. After that, the stock showed great initial power, hitting multi-month highs by April, then stair-stepped higher (support near the 10-week line twice) through July. Then came an accelerated uptrend, with NTDOY ripping above 70 before finally pulling in today. We’re OK stepping on further weakness toward the 25-day line (now near 64 and rising).
| Market Cap | $74.4B | EPS $ Annual (Mar) | |
| Forward P/E | 22 | FY 2019 | 1.82 |
| Current P/E | 21 | FY 2020 | 2.52 |
| Annual Revenue | $13.8B | FY 2021e | 3.22 |
| Profit Margin | 29.7% | FY 2022e | 3.26 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 3.32 | 108% | 1.04 | 550% |
| One qtr ago | 2.66 | 45% | 0.61 | 154% |
| Two qtrs ago | 5.33 | -4% | 1.30 | 31% |
| Three qtrs ago | 2.52 | 29% | 0.44 | 42% |
NTDOY Weekly Chart
NTDOY Daily Chart
Penn National Gaming (PENN)
Why the Strength
The online casino market has experienced rapid growth this year as more states legalize so-called iGaming to supplement faltering tax revenues. Penn National Gaming (last covered on August 3) now has more gambling licenses than any casino operator in the nation (42 properties in total) and is rapidly becoming one of the largest online gaming platforms. Penn is also poised to become a major player in digital sports betting, another huge and growing area, thanks to its 36% stake in sports blog provider Barstool Sports (purchased earlier this year). As of early August, all but two of Penn’s properties have resumed operations, and while capacity is limited to 50% of normal, the firm reports those customers that are showing up have boosted spending by a whopping 45%. While Q2’s top line (-77%) was impacted by COVID-related safety protocols, it was much stronger than analysts expected, beating the consensus estimate by $63 million. Penn reported encouraging growth trends in July and early August, and the firm has made significant progress in developing the Barstool Sportsbook mobile app (set to be launched in Pennsylvania later this month, with more states to follow in the next two quarters). Its improved liquidity, coupled with an aggressive reduction in operating expenses, should provide well over 12 months of operating cash in the (unlikely) event of another shutdown and zero-revenue environment, but big investors aren’t looking at the worst-case scenario—instead, they’re focused on the fact that Penn has the potential to capture a good chunk of the iGaming and online sports betting sectors in the quarters to come, two themes we think have big potential.
Technical Analysis
PENN was crushed in March, recovered in full by June, and then chopped sideways for nearly two months. When we last wrote it up, the firm was just about to report results, and investors were pleased—PENN broke out in early August and enjoyed a nice-looking move on elevated volume. It’s since begun to catch its breath, but there’s been no abnormal action, with volume drying up and the stock hovering near its 25-day line. Further weakness is possible, but we still think the next major move is up.
| Market Cap | $7.43B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | 0.93 |
| Current P/E | N/A | FY 2019 | 0.37 |
| Annual Revenue | $4.12B | FY 2020e | -6.04 |
| Profit Margin | N/A | FY 2021e | 1.07 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 0.31 | -77% | -1.69 | N/A |
| One qtr ago | 1.12 | -13% | -5.26 | N/A |
| Two qtrs ago | 1.34 | 16% | -0.80 | N/A |
| Three qtrs ago | 1.35 | 72% | 0.38 | 0% |
PENN Weekly Chart
PENN 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 | 79 | |
| 7/13/20 | Alibaba | BABA | ? | 244-254 | 270 |
| 8/31/20 | Anaplan | PLAN | 59.5-62.5 | 57 | |
| 7/20/20 | Arconic | ARNC | 15-16.5 | 21 | |
| 8/24/20 | AZEK Co. | AZEK | 37-38.5 | 37 | |
| 8/17/20 | Berry Global | BERY | 51.5-53.5 | 51 | |
| 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 | 63 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 389 | |
| 8/10/20 | Digital Turbine | APPS | 21.5-24 | 23 | |
| 8/24/20 | Elastic | ESTC | 99-103 | 100 | |
| 8/17/20 | First Solar | FSLR | 69-72 | 69 | |
| 7/27/20 | Floor & Décor | FND | 69-72 | 70 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 16 | |
| 8/10/20 | Freshpet | FRPT | 99-102.5 | 106 | |
| 8/31/20 | Futu Holdings | FUTU | 30-32 | 31 | |
| 5/26/20 | Horizon Therapeutics | HZNP | ? | 45.5-48 | 70 |
| 8/17/20 | Innovative Ind. Prop. | IIPR | 116-121 | 118 | |
| 8/17/20 | iRhythm Technologies | IRTC | 168-174 | 207 | |
| 7/13/20 | Kinross Gold | KGC | 7.2-7.6 | 9 | |
| 8/3/20 | Kirkland Lake | KL | 49-52 | 52 | |
| 8/17/20 | L Brands | LB | 26-28 | 29 | |
| 8/31/20 | Lithia Motors | LAD | 238-250 | 241 | |
| 8/10/20 | LivePerson | LPSN | 55-58.5 | 50 | |
| 6/29/20 | Meritage Homes | MTH | 71.5-74 | 95 | |
| 8/24/20 | Natera | NTRA | 60-63 | 62 | |
| 3/30/20 | Nvidia | NVDA | 250-270 | 477 | |
| 7/13/20 | Pacira Pharmaceuticals | PCRX | 54-56 | 60 | |
| 4/27/20 | PayPal | PYPL | ? | 117-122 | 186 |
| 4/6/20 | Peloton | PTON | 27-29 | 86 | |
| 8/3/20 | Penn Nat’l Gaming | PENN | 34-36.5 | 55 | |
| 8/3/20 | PINS | 33.5-37 | 34 | ||
| 7/20/20 | Plug Power | PLUG | ? | 8.0-8.7 | 12 |
| 8/3/20 | Qualcomm | QCOM | 106-110 | 110 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 51 |
| 7/13/20 | Redfin | RDFN | 34.5-36.5 | 45 | |
| 7/13/20 | Roku | ROKU | 147-154 | 163 | |
| 8/31/20 | Salesforce.com | CRM | 263-273 | 241 | |
| 8/3/20 | Scott’s Co. | SMG | 154-159 | 157 | |
| 7/27/20 | Sea Ltd | SE | 110-116 | 138 | |
| 8/17/20 | Shift4 Payments | FOUR | 47.5-49.5 | 50 | |
| 5/26/20 | Spotify | SPOT | ? | 184-191 | 240 |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 77 | |
| 8/31/20 | Trupanion | TRUP | 60.5-63 | 66 | |
| 8/31/20 | Tupperware | TUP | 14.5-15.5 | 21 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 226 | |
| 7/27/20 | Watsco | WSO | 220-230 | 231 | |
| 8/24/20 | Whirlpool | WHR | 171-176 | 168 | |
| 5/11/20 | Wingstop | WING | 116-122 | 133 | |
| 8/10/20 | Zillow | Z | ? | 77-80 | 81 |
| WAIT | |||||
| 8/31/20 | FedEx | FDX | 206-213 | 221 | |
| SELL RECOMMENDATIONS | |||||
| 6/22/20 | Big Lots | BIG | 32.5-35 | 43 | |
| 6/1/20 | Bill.com | BILL | 69-73 | 84 | |
| 8/17/20 | Cerence | CRNC | 53.5-55.5 | 50 | |
| 5/11/20 | Chegg | CHGG | ? | 58-62 | 66 |
| 3/23/20 | Cloudflare | NET | 19-21 | 33 | |
| 3/23/20 | Coupa Software | COUP | 124-132 | 277 | |
| 8/24/20 | Daqo New Energy | DQ | 119-125 | 100 | |
| 9/9/19 | DocuSign | DOCU | ? | 55-58 | 206 |
| 8/24/20 | Emergent Bio | EBS | 120-125 | 104 | |
| 8/31/20 | Enphase Energy | ENPH | 72-76 | 65 | |
| 8/24/20 | Etsy | ETSY | 121-125 | 111 | |
| 4/20/20 | Immunomedics | IMMU | 20.5-22 | 41 | |
| 7/27/20 | Invitae | NVTA | 30-32.5 | 30 | |
| 6/22/20 | LGI Homes | LGIH | 84-87 | 108 | |
| 3/30/20 | Okta | OKTA | ? | 118-126 | 197 |
| 8/3/20 | Qorvo | QRVO | 127-131 | 114 | |
| 11/11/19 | Tesla | TSLA | 80-81 | 330 | |
| 6/8/20 | Trade Desk | TTD | 338-358 | 420 | |
| 4/6/20 | Zscaler | ZS | 61-64 | 133 | |
| DROPPED | |||||
| 8/24/20 | JD.com | JD | ? | 72.5-75 | 76 |
The next Cabot Top Ten Trader issue will be published on September 14, 2020.