Ratings Updates: WHD to SELL, SNOW & PTLO to BUY SECOND HALF
Cactus (WHD) moves to sell today. After a quick trip to north of 60, shares of WHD have been somewhat volatile and downside risks seems to be creeping in as investors weigh the relatively high valuation and potential for slower ramp up of onshore U.S. production even in the face of soaring oil prices. The bottom line seems to be that U.S. producers can’t – or don’t want to – rapidly increase production as that could drive a higher than desired Capex cycle and crimp longer-term output. No doubt, Cactus is a great company, but we have a quick profit somewhere in the neighborhood of 10% - 15% (depending on how today goes) in less than a month. I’m evaluating other O&G options for next week’s Issue. SELL
Snowflake (SNOW) moves to BUY SECOND HALF. The stock is probing its post-IPO lows (near 185 from last May following a less-than-well-received Q4 earnings report. While there were a lot of details on that report, the bottom line is Snowflake is making platform improvements that will make it more efficient for users. That means, in the short term, they will pay less (Snowflake has a consumption-based business model). This is a tradeoff for what should be higher consumption over the longer term as reliance on Snowflake will only grow. It’s very possible management is being overly conservative with their forecasted revenue hit from this. With SNOW near support, we will step in here and try to catch a bounce. That said, if SNOW slides below support, we may exit the position altogether. BUY SECOND HALF
Portillo’s (PTLO) moves to BUY SECOND HALF. Management reported Q4 results that missed expectations by a small margin (revenue of $139 million, up 17%) and they talked about the impact of rising protein prices (beef, chicken, etc.), wages and energy costs. Given all this, especially in the current environment, PTLO held up relatively well (shares off the day after but have held support in low 20s). No doubt the company will continue to increase prices to protect margins. And the bigger-picture trends – economy opening up, people want to get out and do things, Portillo’s rolling out expansion plan, etc. – remain intact. Similar to SNOW, PTLO is trading near its post-IPO lows, and this appears to be offering a good entry point for our second half position. But … should PTLO break down below the IPO price of 20 we will likely exit altogether. BUY SECOND HALF