September 9, 2013
The action among leading growth stocks remains super, and we’re starting to see a few other groups perk up. Overall, the environment remains good, but not great, and that’s how we think you should be positioned—leaning bullish, but not pushing the accelerator to the mat. This week’s Cabot Top Ten Trader has a few hot stocks, but also a few newer names (to us), which will ideally join the leadership ranks. Our favorite is a little-known energy stock that looks poised for exciting growth during the next many years.
Good Not Great
If you’re invested in leading growth stocks, you’re probably doing very well; many of them have been shooting ahead, and on big volume to boot! That said, the broad market still isn’t acting right, and the longer that goes on, the greater the chance of some potholes in the days or weeks ahead. We’re not anticipating anything drastic, and we think holding your strong, profitable stocks is your best move. But we’ll continue to keep our Market Monitor just shy of bullish territory—holding some cash and picking your spots is important, especially with so many stocks extended to the upside.
This week’s list has many newer names (to us), which could reflect the start of a rotation into some previously stagnant groups. Our favorite of the week is Energen (EGN), one many good-looking energy stocks out there; we think it’s a solid buy here or on any weakness.
|YY Inc. (YY)||0.00|
|Pinnacle Entertainment (PNK)||0.00|
|Nu Skin Enterprises Inc. (NUS)||46.07|
|Micron Technology, Inc. (MU)||43.31|
|Lear Corp. (LEA)||0.00|
|Evercore Partners (EVR)||0.00|
|Infoblox Inc. (BLOX)||0.00|
|Aegerion Pharmaceuticals (AEGR)||0.00|
YY Inc. (YY)
Why the Strength
YY Inc., the Chinese online social platform that made its Cabot Top Ten Trader debut on July 15, continues to push the popularity of its wildly popular platform into different areas. The company’s signature offering is a kind of interactive karaoke competition that pits users against one another in a contest to win the most votes. But the company has recently partnered with Hunan TV’s Happy Boy singing competition, a tie-up that brings in paid-music users and expands the company’s roster of clients. The real attraction of YY Inc. is that the company gets far less average revenue per user than many of its rivals, which gives it considerable room for growth. Smartphone use in China is growing rapidly, as more people make their mobile devices their primary way of accessing the Internet, e-commerce and all online functions. YY Inc., which has a robust menu of games that brings in more than half of its annual revenue, is finding new ways to serve that mobile population, from online concerts to TV shows like Happy Boy Show. YY has booked three years of triple-digit revenue growth, and the company is showing great ingenuity in attracting users, which raises its online advertising prices. This is a hot company with a great story, as the sheer mass of the Chinese conversion to getting online via mobile devices is staggering.
YY came public in November 2012 at 10.5, and it hasn’t had a significant correction during its march higher. The stock is now trading over 46, and shows no signs of letting up. Volatility is fairly high, which makes it likely that you can get shares on a pullback of a point or so. We think an entry below 46 makes sense, with a stop at 39.
YY Weekly Chart
YY Daily Chart
Pinnacle Entertainment (PNK)
Why the Strength
Pinnacle Entertainment began life in 1938 in Las Vegas, but is now a geographically diversified company with 14 resort casino operations in Missouri, Louisiana, Indiana, Mississippi, Nevada, Colorado and Iowa. The company just completed a $2.8 billion buyout of Ameristar Casinos that brought eight properties under Pinnacle ownership (although the company had to agree to divest two properties to gain FTC clearance). The acquisition approximately doubled the company’s size. Pinnacle got 87% of its 2012 revenue from gaming and the Ameristar takeover is expected to boost earnings immediately through opportunities for cutting expenses. A longer-term investment with great prospects is the company’s 20% equity interest in a hotel/gaming development in Vietnam. Pinnacle has written down the investment in the project as a complete loss due to the many delays in getting the project moving, but this also leaves a major upside if the recent progress (the first phase of the project just opened) continues. Pinnacle is in a tough business, as regional casinos operate on a viciously competitive battlefield. But the company’s management is aggressive and the Ameristar takeover has big potential.
In December 2012, PNK began rallying out of a stretch of range-bound trading that had kept it between support at 8 and resistance at 15 for many years. The stock hit new multi-year highs in late 2012 and finally left its old trading range behind in April, soaring from 15 to 20 in just four weeks. After a May/June correction, the stock got back in gear, mostly on the strength of the Ameristar takeover, and has now put in 12 weeks without a weekly decline. This raises the probability of some kind of correction, and it’s worth waiting for a down week to buy. Look for a pullback to 24 to get in and put in a mental stop at 20 or a hard stop at 19.
PNK Weekly Chart
PNK Daily Chart
Nu Skin Enterprises Inc. (NUS)
Why the Strength
As the name implies, Utah-based Nu Skin develops and sells personal care products and nutritional supplements to improve appearance and health. The company’s Nu Skin brand includes anti-aging skin care systems and products like ageLOC Galvanic Spa System that aim to keep skin looking young. The company’s Pharmanex brand includes dietary supplements that package vitamins, minerals and anti-oxidants to support health. Distribution of Nu Skin products is through a network of over one million independent distributors in 54 markets worldwide. Nu Skin spends a lot of time in its investor presentations defending its direct sales model, including the results of a couple of FTC investigations that required only minor modifications. But there’s no argument about the company’s success in selling product. Revenue increased by 24% in 2012 and earnings increased from $2.57 in 2011 to $3.52 in 2012, and estimates for 2013 are for $5.15 per share. The company recently authorized a $400 million stock buyback and pays a dividend with an annual yield of 1.4%. Nu Skin gets a high proportion of its revenue from north Asia (South Korea and Japan), greater China and the south Asia/Pacific region. There is also a vigorous development process for new products that keeps enthusiasm high. The company is beginning to roll out weight control products, and its large staff of scientists is actively pursuing genetic customization of products for anti-aging uses.
NUS went into a serious correction in 2012, falling from 60 in March to 32 as 2013 began. A new rally that began in April 2013 consolidated in May and June, then blasted off on July 10 after a great earnings report. The stock got two more bursts of energy on July 18 and August 1. NUS has been trading sideways with support at 83 since the beginning of August, but just pushed out to new all-time highs above 90. It looks buyable on any weakness with a stop at 78.
NUS Weekly Chart
NUS Daily Chart
Micron Technology, Inc. (MU)
Why the Strength
Semiconductor manufacturer Micron Technology makes the chips that help make portable computing possible. The company’s NAND Flash and DRAM memory modules can be found in everything from smartphones to cars to desktop and laptop PCs to industrial equipment. In addition, Micron manufactures semiconductor components for CMOS image sensors and various other semiconductor products. The company had benefited greatly from the smartphone boom of the past three years, but flash memory prices for NAND and DRAM (the two most widely used memory modules) have come under extreme pressure due to widespread availability. However, Micron saw considerable interest from investors last week after reports emerged that the second-largest NAND and DRAM manufacturer experienced a fire at its main plant. Full production capacity at this plant is expected to take two to three weeks to recover, sparking the largest surge in NAND/DRAM prices in three years. The jump in key product pricing just ahead of the holiday shopping season, combined with Micron’s own announcement at an analyst day that it is ramping up production by 40% to 50% for next year, has Wall Street buzzing. All in all, we like Micron’s long-term growth and the company’s above-average margins compared to its industry peers.
After bouncing around the 6 region for the last half of 2012, MU took off in 2013, climbing by nearly 150% higher year-to-date. Shares have enjoyed broad support at their 10-, 25-, and 50-day moving averages, having closed only a handful of days below this trio since the start of the year. Recently, MU has struggled with short-term resistance in the 15 region, but last week’s news of rising memory prices provided the spark necessary to lift the stock into fresh all-time high territory. We feel MU is buyable here, or on any pullback below 15.
MU Weekly Chart
MU Daily Chart
Lear Corp. (LEA)
Why the Strength
Auto sales continue to show impressive signs of growth. According to LMC Automotive, light vehicle sales were up 8.5% through the first seven months of 2013. While the natural drift for investors on this information is toward automakers, parts suppliers like Lear Corp. are also intriguing. The company specializes in seating and electrical distribution systems. The company’s seating unit includes seat systems and related components, such as seat frames, recliner mechanisms, seat tracks, seat trim covers, headrests and seat foam. The electrical power management systems unit includes electrical distribution systems for traditional powertrain vehicles, as well as for hybrid and electric vehicles. Lear is currently one of the few parts suppliers that is already benefiting from industry growth; it’s averaged double-digit earnings growth during the past four quarters, with average revenue growth of 7% during this timeframe. In Lear’s second-quarter earnings report, the company logged a 20% spike in earnings and a 12% jump in revenue. What’s more, Lear also boosted its full-year 2013 earnings and revenue outlook, placing year-end targets above Wall Street’s consensus estimates. As an added bonus for investors, the company sports a quarterly dividend of 17 cents per share and is currently in the midst of an accelerated $1 billion share repurchase program.
After spending much of 2011 and 2012 being ground into support near 40, LEA finally found its legs in mid-October 2012. Benefiting from reports of stabilizing growth in the automotive market, LEA reclaimed support at its 10-week and 25-week moving averages and finally broke out of its doldrums. Shares breached former resistance at 50 in February, and proceeded to consolidate their gains through April before challenging and besting long-term resistance at 60 in June/July. Shares spent July charging toward 70, finally eclipsing this hurdle in August. Following another basing period, LEA could be ready for its next upleg.
LEA Weekly Chart
LEA Daily Chart
Why the Strength
Halliburton needs no introduction, as it’s one of the largest oilfield service firms in the world, and the leading provider of fracking equipment in the U.S. While that is generally a good thing in a world of $100 oil prices and a fracking bonanza here in the U.S., the fact is there’s been a supply glut of fracking equipment and services in the U.S. during the past couple of years, especially as low natural gas prices have cut into drilling activity in some areas. However, Halliburton is strong today because investors see the firm’s strong international growth continuing (Eastern Hemisphere revenues grew 11% sequentially in the second quarter, far faster than the U.S. and Mexico), and the advent of so-called pad drilling should re-start Halliburton’s growth in the U.S. Just as important, the company is a true cash cow and is returning a ton of it to shareholders—management hiked the dividend earlier this year (a modest 1.0% annual yield) and wants to pay out 15% to 20% of dividends as earnings going ahead. It also bought back $1 billion of stock in the second quarter, and through a Dutch auction, is now buying back another $3.3 billion (7.4% of the company)! With earnings expected to leap 30% in 2014, yet with a P/E of just 15 on this year’s earnings, we expect higher dividends and more share buybacks going ahead. Combined with a pickup in drilling activity, Halliburton could surprise on the upside.
HAL topped out in July 2011 at 57, plunged to 27 in October of that year, and then spent many months building a bottom—the stock was still trading at 37 in April of this year. But since that time the stock and its relative performance (RP) line have been acting well. HAL did pull back during the market’s May-June retreat, but it’s been trending steadily higher since, despite the market’s choppiness. We think you could buy some here with a stop in the mid-40s, though a dip of a point or two would mark a better entry point.
HAL Weekly Chart
HAL Daily Chart
Evercore Partners (EVR)
Why the Strength
Evercore Partners is strong today because it’s a straightforward Bull Market stock. The company (founded by former Treasury Secretary Roger Altman) is an independent investment bank that derives the vast majority of its revenue from merger and acquisition advisory services. That really hasn’t been a great place to be since the 2008 meltdown; M&A activity remains on the lower end of its historical range. But Evercore has been growing strongly in recent years, quadrupling its market share in the industry (to a still tiny 4%). How’s it done it? First, by good management, but more important, by being independent—big corporate clients prefer a smaller, more responsive firm solely focused on M&A, rather than a behemoth like Goldman or JP Morgan, which often have conflict of interests because of their trading and advisory arms. (In recent years, Burlington Northern, Sanofi, AT&T and others have used Evercore.) Sales and earnings are usually lumpy in this industry, but Evercore has posted some solid results, estimates are encouraging (21% this year and 25% in 2014), and if the bull market finally spills over to more M&A activity, this firm’s bottom line could surge. As Bull Market stocks go, we like it.
EVR peaked in late-2009, believe it or not, and spent the next four years gyrating below its high of 38. But the character of the stock has completely changed since the market low of last November; shares advanced 13 weeks in a row from 25 to 45, built a base until late-June, and then hit new peaks soon after. Lately, EVR has pulled back to its 50-day line but has rebounded impressively in recent days; it looks like it wants to move higher. You can buy some here with a stop near 45.
EVR Weekly Chart
EVR Daily Chart
Why the Strength
Energen is a mid-sized ($1.7 billion of annual revenue) energy explorer that’s re-focusing its efforts on its oil and liquids producing properties, and that’s likely to make a big difference. The firm does have some operations in the San Juan Basin in New Mexico and Colorado, but drilling there is being cut back due to lower natural gas prices. Instead, the real action is in the Permian Basin, which is far more liquids-rich; Energen boosted production in that area by 26% in the second quarter alone, and expects oil and liquids output to grow 24% this year as a whole. And, like many explorers featured in Top Ten of late, this company is only scratching the surface for his potential—it’s still trying to de-risk some of its acreage in the Permian, but if all goes well, it could have north of 5,000 more wells to tap, which represents years’ worth of activity. And that doesn’t include the still-huge San Juan Basin! Moreover, management operates the company very conservatively; 70% of its 2013 production is already hedged, and a good portion of 2014, too, guaranteeing great cash flow. (Energen pays a modest dividend that yields 0.9%.) We can’t say this is the fastest-growing energy story, but if its exploration activities come in better than expected, the stock could do very well. As it stands now, analysts see earnings up 24% next year, but we’d guess growth will come in even faster.
Like many energy stocks, EGN peaked in the spring of 2011 and is just now back to that high. The stock was 65 at that peak, and as of April of this year, was still stuck in the mud at 45. But since then, the buyers have been in control—the stock spiked into mid-May, then built a calm base through most of July. But after its quarterly report (and its update on its exploratory drilling activities), the stock catapulted from 57 to 66 in just two days on enormous volume! It’s since chopped slightly higher; we think the stock wants to head higher if the market gets going. You can buy some in this range with a stop near 62.
EGN Weekly Chart
EGN Daily Chart
Infoblox Inc. (BLOX)
Why the Strength
Infoblox, a software company that makes automated network controls, made its debut in Cabot Top Ten Trader in June, and is back today after a blockbuster quarterly earnings report last Friday. The company booked a very strong 40% jump in revenue (to $63.1 million) and earnings of 14 cents per share, which represented a whopping 1,300% gain in earnings. For comparison, analysts had expected the company to report earnings of nine cents per share on revenue of $59.3 million. Infoblox is just one of many software companies that are thriving as customers migrate their data and computing resources to the Cloud. Providing access, organization and security to Cloud operations ultimately saves big companies money, but it’s also a gold mine for companies like Infoblox that can help to monitor and control these new networks by managing IP addresses, configuring devices, checking compliance, discovering networks, implementing IT policies and other functions. Infoblox is an industry leader in Automated Network Control, and once clients sign up, there is considerable continuing revenue from licensing fees and services. The excellent earnings surprise last Friday led to an upgrade from at least one analyst, and a high-volume blastoff like the one the stock enjoyed usually has a lasting effect on momentum.
BLOX is still relatively young, coming public in April 2012 at 16. After a rise to 24 and a correction to 14, the stock began a rally with a high-volume jump in late November. BLOX re-based from mid-February through the end of April of this year, then began to rise steadily, hitting 35 before the earnings report last Friday that punched it above 40 in one day. BLOX has more than doubled this year, but it doesn’t look a bit tired. You can buy a little right here, although a pullback of a point is possible if the market gets hit. Look to buy below 41 and put a stop in at 35.
BLOX Weekly Chart
BLOX Daily Chart
Aegerion Pharmaceuticals (AEGR)
Why the Strength
When we highlighted Aegerion Pharmaceuticals in early August, the company was fresh off its first-ever reported revenue. While that was admittedly an unusual move for us, given that Aegerion only has two quarters of revenue history, the company impressed us with its handling of Juxtapid. Juxtapid is a treatment for Homozygous Familial Hypercholesterolemia (HoFH), a blood condition characterized by high levels of low-density lipoprotein (bad cholesterol) that results when both parents have a genetic disorder. Juxtapid was approved by the FDA last December, and Aegerion was able to rake in $1.2 million in revenue during the first quarter, with sales soaring to $6.5 million by the second quarter. Furthermore, management nearly doubled its revenue estimates for the year. Looking ahead, Juxtapid received E.U. approval last month, and the company announced just today that the drug has received orphan status in Japan for treatment of HoFH. Furthermore, the U.S. has granted a seven-year exclusive patent on Juxtapid, and Aegerion has already applied for an extension of that protection period—such moves are commonly offered to developers of orphan drugs. Because of this, we believe that Aegerion has excellent growth prospects, especially with analysts forecasting revenue of $40 million this year and $177 million in 2014.
Technically speaking, AEGR has gone through an orderly period of consolidation since we last looked at the stock, having paused for the past five weeks. Currently, AEGR is rebounding from support near 85, with shares maintaining support at their 10-day and 25-day moving averages. With the weak hands likely shaken out by AEGR’s cool-down period, the stock should resume its uptrend. You can nibble here, and think about buying more on a push above 97.
AEGR Weekly Chart
AEGR 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 9, 2013|
|8/26/13||Cabot Oil & Gas||COG||37.5-39||39|
|8/26/13||Green Mountain Coffee||GMCR||83-88||86|
|3/18/13||Lion’s Gate Entertainment||LGF||21-22.5||37|
|6/10/13||Pioneer Natural Resources||PXD||139-144||182|
|WAIT FOR BUY RANGE|
|DROPPED: Did not fall into suggested buy range within two weeks of recommendation.|
|None this week|