Abnormal Action
Current Market Outlook
The market had become vulnerable to a short-term pullback in recent weeks, and now the normal post-Fed wobbles have turned into an abnormal selloff after the new round of Chinese tariffs, with today’s market plunge decisively cracking the intermediate-term uptrends of the major indexes and many leading stocks. Bigger picture, this is still a bull market until proven otherwise, but after some huge runs, many stocks that have been running for months likely need time to repair the damage. Interestingly, the fresher stocks (those that got going in May, June and July) are mostly hanging in there, and we’re not opposed to nibbling on them if you have some cash on the sideline. But at this point, your focus should be more on preserving capital (honoring stops, holding cash, cutting back on new buying) and waiting for bottoms to be formed. Our Market Monitor is back down to a level 4.
This week’s list is full of those fresher names, if you feel like taking a stab at a name or two. Our Top Pick is Inphi (IPHI), a high-potential stock that’s holding up well after earnings.
| Stock Name | Price | ||
|---|---|---|---|
| Agnico Eagle Mines (AEM) | 79.05 | ||
| Anaplan (PLAN) | 47.52 | ||
| Casey’s General Store (CASY) | 165.73 | ||
| Inphi (IPHI) | 120.16 | ||
| MasTec, Inc. (MTZ) | 66.65 | ||
| PagSeguro Digital (PAGS) | 35.09 | ||
| Pinterest (PINS) | 35.86 | ||
| SunPower (SPWR) | 12.26 | ||
| Survey Monkey (SVMK) | 19.97 | ||
| Twitter (TWTR) | 40.37 |
Agnico Eagle Mines (AEM)
Why the Strength
We’ve been writing about gold stocks for a couple of months, and last week proved to be key test—and the group has thus far come through in great shape. (More on that below.) Agnico Eagle Mines remains one of the leaders of the group’s move, with its quarterly report (and higher gold prices) leading to a big ramp in earnings estimates. Q2 wasn’t anything special for the company (sales slipped a bit, though EPS of 10 cents did double expectations), but it did reveal progress on expansion projects—one mine began commercial production in May and should ramp throughout the year, with another coming on-line later this quarter. And while capital spending plans were boosted for the next couple of quarters, it should turn around after that—meaning Agnico will see greater production (expected to rise 14% next year) and lower CapEx in 2020 and beyond. (Even this year, all-in costs should average just $900 per ounce.) And, of course, higher gold prices (95% of Agnico’s output is gold) will fall right to its bottom line as well. The end result: Analysts see earnings more than doubling this year off a low base, and then surging another 75% next year; next year’s estimate has gone from $1 per share to $1.30 in just the past month. Obviously, Agnico and its peers will be news-driven based on the latest economic and geopolitical events, but we like the solid organic growth story and the fact that few weak hands are invested after a few years in the ditch.
Technical Analysis
AEM was up and down (mostly down) since mid 2016, though after a nice off-the-bottom rally it did build a proper-looking base in April and May of this year. And since then the stock’s character has clearly changed—it’s now rallied 12 weeks in a row, and we like how (on the daily chart) AEM shook out below its 25-day line on Thursday only to come booming back to its highs on huge volume. Expect volatility, but we’re OK starting a position on dips.
AEM Weekly Chart
AEM Daily Chart
Anaplan (PLAN)
Why the Strength
For the first time in a while, many cloud enterprise software stocks have taken hits, with more than a few breaking key support. But some newer ones—including Anaplan—are still holding up well as big investors build positions. Anaplan’s story is a good one: It’s offers what management believes is the leading core digital business planning platform, helping managers in a variety of industries (finance, sales, budget, workforce, supply chain and more) plan and (more importantly) adjust on the fly, partially thanks to its proprietary Hyperblock technology that allows users (not just IT experts) to constantly tinker and revise predictive models. It’s been a huge hit, with revenues growing in the upper 40% range, same-customer revenue growth consistently around 23% and the number of larger customers expanding at a great clip (279 now use at least $250,000 in annual services, up 43% from a year ago). Even better, the most recent quarter saw billings rise 57% (third straight quarter of accelerating growth), so you know the future is bright. The bottom line is still in the red, but free cash flow approached breakeven in Q1. Really, though, the excitement here is about the future, with the potential for a huge swath of major, global companies signing up in the years ahead. We think this story has a ton of potential. Earnings are likely out in late August.
Technical Analysis
As opposed to some of the well-known names that have come unglued, PLAN’s first breakout from a legitimate launching pad came in late May of this year following its quarterly report. That not only sparked a breakout but a big, persistent run—shares basically zoomed from 40 to 60 in nine weeks! Now PLAN is pulling back, but (a) last week’s dip came on light volume and (b) the first dip toward the 50-day line (near 51.5) should offer support. Translation: If you’re game, you can nibble here.
PLAN Weekly Chart
PLAN Daily Chart
Casey’s General Store (CASY)
Why the Strength
When the market gets tumultuous, it’s often the non-sexy, estimate-beating stories that get big investors’ attention, and that’s the case with Casey’s General Stores. The company doesn’t offer anything revolutionary—it’s the fourth largest convenience chain in the U.S. with more than 2,100 locations in 16 states. What makes it different is it’s focus on the little guy; more than half of its locations are in locales with less than 5,000 people, so it’s not a city dweller. As usual, though, grocery, food and gasoline makes up just about all of its profit, but the story here revolves around company-specific initiatives to drive growth—a new app to ease ordering (especially of its pizza and other food), a fleet credit rewards card that has a couple thousand members, a new e-commerce website and price optimization techniques and in-store order management systems are all helping Casey’s get the most from every customer and transaction it can. And it’s working, with the latest quarterly report (reported June 10) showing earnings of 68 cents per share (up 33% from a year ago), which destroyed estimates by 22 cents. Granted, top-line growth isn’t going to suddenly boom, but a modestly rising store count and a decent same-store sales outlook in grocery and prepared foods (bolstered in part by an ongoing store remodel program) should help, and our guess is that analyst’s estimates (up high single-digits this year and next) are too low.
Technical Analysis
CASY is one of many stocks that did nothing for years but, just recently, has taken off on the upside. The stock basically consolidated between 100 and 135 (with a couple of pokes above and below that range) from mid-2016 through May of this year. But the early-June earnings report gapped the stock to new highs and it’s acted beautifully since, rallying to 165 before chilling out the past couple of weeks. We’re OK grabbing a few shares here or on dips with a stop under the 50-day line.
CASY Weekly Chart
CASY Daily Chart
Inphi (IPHI)
Why the Strength
Chip stocks as a whole are very sensitive to U.S.-China trade news, so it wasn’t surprising that last week’s tariff news took a bit out of the group. But many of the recent longer-term breakouts in the group are still holding up, and one of them is Inphi, which has a straightforward, big-picture story: It’s the leading provider of high-speed data interconnect products, moving data around faster for cloud providers (between and inside of data centers) and telecom (long haul, metro, 5G, etc.), both of which should grow strongly for the next few years. The stock is strong today for a few reasons. First, business is good, thanks in large part to a major upgrade cycle by cloud providers (cloud revenue up 72% from a year ago in Q2). Second, Inphi has diversified its customers, so even though sales to Huawei sank by two-thirds quarter-over-quarter (causing overall telecom segment results to fall from a year ago), the firm’s overall results looked just fine. And third, of course, the future is bright, as the data center upgrade cycle should continue to pick up steam (management sees the market more than doubling next year) and, now that the Huawei hiccup is in the past, telecom should resume its growth (mostly from products that boost transmission over fiber networks). Analysts bumped up their estimates after the firm’s report last week, with strong sales and earnings expected both this year and in 2020.
Technical Analysis
IPHI has a great, great longer-term chart. The stock topped back in early 2017 and built a big two-year base. The stock looked ready to get going in May, but the Huawei news caused a big one-week shakeout. But since then, big investors have been piling in—IPHI broke out in early July, part of a run of 12 weeks up in a row that included last Friday’s positive earnings reaction. It’s extended here, but taking a small position on weakness with a loose stop makes sense.
IPHI Weekly Chart
IPHI Daily Chart
MasTec, Inc. (MTZ)
Why the Strength
MasTec is a leading infrastructure company, building, installing and maintaining assets in a variety of industries—oil and gas pipelines and facilities make up nearly half of revenue, with communications (wireless, wireline, satelite, etc.) more than a third and the rest spread between power generation (including solar and wind farms), electrical transmission and some other areas. The stock is strong today because business is good and should get better, especially in the communications field; in last week’s conference call, management compared the opportunity it saw four years ago in energy pipelines (which ended up being huge) to the communication opportunity going forward as 5G deployments ramp up. Beyond that area, oil and gas continues to perform well, power generation saw revenues boom 71% and electric transmission was up 18%. But the real excitement is about the future—MasTec’s management sounded a very bullish tone in terms of accelerating growth and said the company “continues to have very strong visibility for multiple years out.” All in all, Q2 earnings of $1.60 per share (up 54%) beat estimates by a whopping 48 cents, and analysts see the bottom line rising 23% this year and another 10% in 2020, both of which are likely conservative. Thus, MasTec offers solid current growth, lots of growth coming up due to in-place industry trends and a bargain valuation (11 times earnings)—just the type of name that interests investors during tough markets.
Technical Analysis
MTZ is yet another stock that’s recently staged a long-term breakout on earnings. Shares peaked around 55 back in early 2018, slipped as low as 37 during the depth of last year’s selloff and bounced back to 54 or so in April. Then came a tighter, more proper base-building effort, with last week’s earnings report producing a powerful gap up. If you’re game, you can take a small position here or (preferably) on dips.
MTZ Weekly Chart
MTZ Daily Chart
PagSeguro Digital (PAGS)
Why the Strength
We featured Pagseguro back in June and the numbers and chart still look great so we’re revisiting the Brazilian payments company again. The big picture story is that digital payments are the future and PagSeguro is a rapidly growing player in the Brazilian market. The company has been around for almost 15 years and was initially started as a financial services platform that offered an electronics payment alternative to BrPay, which was one of the leaders at the time. Today PagSeguro offers low-cost point-of-sales terminals, called the Minizinha, mostly for small and mid-sized merchants in Brazil. The stock is doing well because that business keeps growing, plus PagSeguro is expanding through the launch of PagBank, which includes cash cards, credit cards and other banking services for merchants. This new venture is seen by analysts as highly complementary to existing businesses and likely to open the door to a much bigger addressable market that’s measured in the hundreds of billions. Several analysts have turned bullish, in part because the Q1 report in May was impressive. Total Payment Volume was up 70%, driving 37% growth in both revenue and EPS, to $315 million and $0.26, respectively. The next quarterly report is due out August 15.
Technical Analysis
PAGS came public last January at 21.5 and after a strong start fell back to 17 in December. Shares turned up early in 2019 and corrected normally for a few weeks before the mid-May earnings report launched a huge run—PAGS zoomed from around 30 to 48 during the past two months, and while it’s taken on some water of late, it remains in good shape. If you’re game, you could nibble here with a stop under the 50-day line.
PAGS Weekly Chart
PAGS Daily Chart
Pinterest (PINS)
Why the Strength
Pinterest is one of the standout social media IPOs of the year. What we like about it is that people who use Pinterest love it and revenue growth is off the charts. Backing up to the big picture, Pinterest has developed software, mainly used through mobile apps, that helps people find pictures, videos and GIFs of things they like, whether it’s furniture, floor layouts, recipes, you name it. The marketing team describes it as a visual discovery platform and productivity tool. That’s a fancy way of saying it’s an easy way to find examples of things you like, which makes it easier to bring them to reality. It makes money through advertising, and that’s the reason the stock just gapped up last week. The Q2 report saw revenue rise 62% to $261 million, way ahead of the $236 million analysts expected. Monthly average users (MAUs) hit 300 million, up 30%, including 85 million in the U.S. and 215 million elsewhere around the globe. That international market is reason alone to be bullish, with management rolling the platform out to six more markets, including Scandinavia, Finland, Portugal and Switzerland. With a successful debut in Canada already showing large advertisers spending 400% more this year than last, investors are right to be intrigued by the global growth potential. The IPO lockup (when insiders can sell) should be in mid October, so that’s something to be aware of. But there’s no question the growth story is big.
Technical Analysis
PINS came public at 19 back in April and shot up to 35 two weeks later. Then came the post-IPO droop, with the stock falling back to 24 in May and still hanging around 25 in mid July. But shares began to pick up steam from there, with last Friday’s monster-volume earnings gap bringing the stock back to its highs. If you’re aggressive, you could nibble here, or just keep it on your watch list.
PINS Weekly Chart
PINS Daily Chart
SunPower (SPWR)
Why the Strength
SunPower does exactly what the name implies: It makes solar panels. It’s been in business since the mid-1980s and like a lot of clean tech stocks has posted mixed results as the solar industry transitioned from supernormal growth in the days of crazy expensive oil (2005 – 2008) to a slow growth (and sometimes shrinkage) story for about the next decade. After retooling the business to meet a more mature market, SunPower now uses proprietary processes to make solar cells, panels, inverters and large-scale systems, both in the U.S. and abroad. One of the reasons the stock is doing well is SunPower is set to release a new proprietary software platform later this year; that should help lower customer acquisition costs, which will help align the overall operating cost structure with its already low production costs for panels. But beyond that, the real reason for last week’s gap up to multi-year highs was a nice revenue beat in Q2 (sales were up 7.8%) and a $10 million increase in full-year guidance (to $100 million to $120 million). This overshadowed a slightly weak earnings number, as did commentary that the company is taking share in commercial sales (up 50% in the quarter) and has a fat pipeline of over $3 billion in projects. Throw in a strong solar sector and SunPower has good potential.
Technical Analysis
SPWR went public in 2005 and has been up, down and all over in the time since. What we like now is that, after declining for several years, the stock traded in the 5 to 10 range for a long time and just recently broke out above 10 in June on huge volume. And then, after a three-week pullback, SPWR was launched into orbit, gapping as high as 16 before getting slapped around by the market today. If you’re aggressive, you could nibble here, or just keep it on your watch list.
SPWR Weekly Chart
SPWR Daily Chart
Survey Monkey (SVMK)
Why the Strength
We featured SurveyMonkey back in early April and the stock didn’t do much afterward. But we still like the story and are going back to the well today because Q2 results beat expectations and brought buyers back into the stock. The backstory is that SurveyMonkey has the leading online survey platform for businesses, combining machine learning and AI with all the data it has collected over nearly 20 years of operations. This treasure trove includes answers to roughly 50 billion questions (!), making it far and away the most robust dataset for survey responses out there—and that means it’s very difficult for a competitor to creep up and surpass the company, making the business model relatively sound for the foreseeable future. Growth isn’t amazing here, but the stock took off last week because revenue beat by $2.4 million (up 20% to $75 million), and EPS of -$0.01 beat by $0.04. The sales teams executed well in both the Teams and Enterprises businesses, adding 22,000 paying users and 868 enterprise customers, including Wells Fargo and MercadoLibre. Management is also doing work internally to consolidate shared accounts that will improve how the software works for teams, improve security and increase lifetime value (how much customers pay SurveyMonkey over the relationship). It’s a solid, steady growth story.
Technical Analysis
SVMK went public at 12 last September, got hit right away and ended up building a base for the next few months. The stock ripped to 18.5 in March, but after a big run, it needed more time to consolidate. The launching pad formed since then has been solid, with shares trading between 16 and 18.5, with last week’s earnings move briefly sending the stock to new highs. If you want in, start small and use a stop near the lows of this base.
SVMK Weekly Chart
SVMK Daily Chart
Twitter (TWTR)
Why the Strength
Twitter doesn’t need much of an introduction given how much attention the platform gets on almost a daily basis from President Trump. But no matter who is President, Twitter is one of the world’s foremost platforms for real-time content distribution. The open distribution platform for short-form text, image, and video content is readily available at the touch of a button and has increasingly been adopted by high-profile leaders, stars and the like in recent years. It now has over 320 million users, including tons of famous celebrities, influencers and lots of average Joes and Janes too. The stock didn’t do so hot in the years after going public (in 2013) but performance has improved along with the fundamentals. Quarterly revenue growth has been in the double digits going back to the end of 2017 and profitability has taken off, growing over 100% quarter of late. The biggest headline in Q2, and the reason we’re recommending the stock today, is that engagement metrics are also moving in the right direction, both in the U.S. and internationally, which suggests the platform is gaining momentum. Ad engagements, which drive revenue, were up 20% in Q2. Whether you love it or hate it the stock is working now.
Technical Analysis
TWTR peaked near 48 last June then dropped and spent the remainder of 2018 trading mostly between 26 and 35. Shares perked up after a nice quarterly report in April when they jumped above 40. That led to a new base-building effort, from which TWTR broke out from on earnings two weeks ago. The pullback since then seems well controlled, at least to this point—if you want in, you can take a stab at it here..
TWTR Weekly Chart
TWTR 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.
