There were a few positives last week, including some intriguing early-week strength, with some very powerful breadth, and, even with the slide of the past couple of sessions, far fewer stocks were hitting new lows compared to a couple of weeks ago. Given how everyone is leaning bearish, there’s plenty of upside potential if the market can catch a spark, but the jobs report-induced selling reinforces the pattern of selling on each and every rally. Long story short: While our eyes are open, nothing has changed with the major evidence. We’ll stick with a level 3 on our Market Monitor.
This week’s list is heavier on energy and medical areas, though our Top Pick is a name that should benefit from higher rates. As usual, though, we think aiming for dips is the right move.
Cabot Top Ten Trader Issue: October 10, 2022
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Can’t Escape the Bear’s GraspThere were a few positives last week—the major indexes actually finished in the plus column, for one, and many individual stocks outperformed them, too. There was also some intriguing early-week strength, with some very powerful breadth—and, even with the slide of the past couple of sessions, far fewer stocks were hitting new lows compared to a couple of weeks ago, another minor positive divergence. As we’ve written a few times, given how everyone is leaning bearish, there’s plenty of upside potential if the market can catch a spark, but the jobs report-induced selling reinforces the pattern of selling on each and every rally. Long story short: While our eyes are open, nothing has changed with the major evidence, as the trends of most everything remains down and most stocks that bump into some overhead resistance (recent highs, moving averages, etc.) are quickly taken lower. We’ll stick with a level 3 on our Market Monitor.
This week’s list is heavier on energy and medical areas, though it’s fairly well rounded. Our Top Pick, though, is a name that should benefit from higher rates—LPL Financial (LPLA) remains a port in the storm, with earnings estimates that are hard to beat. As usual, though, we think aiming for dips is the right move.
| Stock Name | Price | Buy Range | Loss Limit |
| Fluor (FLR) | 28 | 26.5-28 | 23.5-24.5 |
| LPL Financial (LPLA) ★ TOP PICK ★ | 245 | 232-240 | 210-214 |
| Matador Resources (MTDR) | 61 | 58-60 | 51-52.5 |
| Neurocrine Biosciences (NBIX) | 107 | 105-108 | 95-97 |
| Pinduoduo (PDD) | 58 | 62-64 | 53-55 |
| Revance Therapeutics (RVNC) | 29 | 26-27.5 | 22-23 |
| RPM International (RPM) | 91 | 89.5-92 | 82-83 |
| Sarepta Therapeutics (SRPT) | 109 | 106-109 | 96-98 |
| Schlumberger (SLB) | 42 | 40-41.5 | 35-36 |
| Wynn Resorts (WYNN) | 64 | 68-70 | 61-63 |
Stock 1
Fluor (FLR)
| Price | Buy Range | Loss Limit |
| 28 | 26.5-28 | 23.5-24.5 |
Why the Strength
After a multi-month slump in crude oil prices, the energy sector is on the rebound following OPEC’s recent decision to reduce oil output by two million barrels per day starting in November. The decision is one reason why Fluor as turned up. The firm is a leading engineering firm providing construction, maintenance and project management services for the oil and gas, industrial and infrastructure and power generation (including nuclear) industries. Fluor is divided into four segments with energy the firm’s main focus, putting Fluor in an excellent position to benefit from rising oil prices. But the firm’s fortunes aren’t tied strictly to energy; indeed, a big part of its story is a growth strategy that includes expanding its reach to include the alternate energy, life sciences, high-demand metals, industrial chemicals and infrastructure industries. The company believes growing in these areas will shield it from the cyclical nature of traditional energy, allowing it to generate more stable cash flow and earnings. To that end, the company has recently seen a steady contract flow for its various business segments. Last week, Fluor announced it was awarded two reimbursable engineering, procurement and construction contracts by BASF, worth $2 billion, for an ethylene oxide/ethylene glycol infrastructure and utilities package as part of a new program in China. Fluor also just received a major contract to perform procurement and construction management for a leading biologics manufacturing facility in Scandinavia. Additionally, Fluor won a $4.5 billion contract extension from the U.S. Energy Department for the Savannah River Nuclear Solutions site management in South Carolina. On the financial front, Wall Street sees the bottom line doubling from a year ago in Q3, and looking into 2023, sees 30%-plus earnings growth.
Technical Analysis
FLR hit a peak at 25 in May last year, dropped to 15 over the next two months and then rounded out a base before again taking flight earlier this year and meeting resistance at 31 in mid-April. Shares have spent the six months since then bobbing and weaving in an eight-point range, making little net progress. However, after what looks like a shakeout two weeks ago, FLR has stormed back on two straight heavy-volume weeks. We’re not opposed to nibbling on dips.
| Market Cap | $4.03B | EPS $ Annual (Dec) | |
| Forward P/E | 24 | FY 2020 | -0.56 |
| Current P/E | 37 | FY 2021 | 0.99 |
| Annual Revenue | $12.7B | FY 2022e | 1.17 |
| Profit Margin | 0.7% | FY 2023e | 1.54 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 3.3 | -10% | 0.13 | -59% |
| One qtr ago | 3.12 | -7% | 0.11 | 57% |
| Two qtrs ago | 3.16 | -3% | 0.31 | N/A |
| Three qtrs ago | 3.1 | -10% | 0.23 | 64% |
Stock 2
LPL Financial (LPLA) ★ TOP PICK ★
| Price | Buy Range | Loss Limit |
| 245 | 232-240 | 210-214 |
Why the Strength
Every bullish investor wants a Fed “pivot,” where the central bank eases up on the brake, but there are few signs of that, both from the economic data (last week’s jobs report) or Fed heads themselves (one talked last week and said rates would stay up until inflation comes down). That should play into the hands of LPL Financial, which is a top custodian for registered advisors, one of the largest independent broker-dealer in the U.S. and a top provider of brokerage services for banks and credit unions—while you’d think assets would be plummeting in the bear market, LPL’s tally (north of $1 billion of brokerage and advisory assets under management, split about evenly between the two businesses) is holding up pretty well, down just 4.5% at the end of August (the latest data available) vs. the prior year, with LPL still bringing in some new money ($9.7 billion in new assets in the month). Plus, big picture, LPL is something of a roll-up play, getting many new assets via acquisition and with advisor groups signing up; all in all, when the bulls retake control of the market, that part of the story should strengthen rapidly. But then there’s the interest rate factor—LPL’s client cash balances are up 34% from a year ago to $66 billion, which should result in a surge in interest income that will fall right to the bottom line. That’s starting to play out now and should continue to accelerate going forward: Q2 saw sales up 7% and earnings up 21%, but analysts see much sharper bottom line growth ahead, with a 51% gain for all of this year and a 66% boom to more than $17 per share in 2023. Q3 earnings are likely out in early November, with a November 16 Analyst Day also a potential stock-moving event.
Technical Analysis
Like everything else, LPLA has been tossed around by the market this year, but it continues to make upside progress as investors look ahead to surging earnings. Shares did more chopping than advancing through June, but then the stock took off on the upside, with a peak near 235 in August—and instead of pulling in sharply, it effectively moved sideways, with another push to new highs late last week. We don’t expect a runaway move higher, but we still think LPLA can be a port in the storm—nibbling on dips is fine by us.
| Market Cap | $19.3B | EPS $ Annual (Dec) | |
| Forward P/E | 23 | FY 2020 | 6.46 |
| Current P/E | 32 | FY 2021 | 7.02 |
| Annual Revenue | $8.22B | FY 2022e | 10.61 |
| Profit Margin | 9.0% | FY 2023e | 17.57 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 2.04 | 7% | 2.24 | 21% |
| One qtr ago | 2.07 | 21% | 1.95 | 10% |
| Two qtrs ago | 2.09 | 32% | 1.63 | 7% |
| Three qtrs ago | 2.02 | 38% | 1.77 | 23% |
Stock 3
Matador Resources (MTDR)
| Price | Buy Range | Loss Limit |
| 62 | 58-60 | 51-52.5 |
Why the Strength
The big news in the oil patch last week was the decision by OPEC to cut production more sharply than expected starting next month, helping to goose the rebound in oil prices (now back into the low $90s) that was already underway; combined with the fact that natural gas remains historically elevated ($6.75 or so), it’s all helped the energy group storm back toward their highs. Matador Resources is one of the stronger plays in the group, with a heavy focus on the Delaware basin, which accounts for the vast majority of production and reserves (it’s divesting some non-core assets in the Eagle Ford and Haynesville). But unlike so many popular peers in the space, the firm isn’t as focused on shareholder payouts as it is on growth: In Q2, Matador’s output leapt above 110,000 barrels per day (a bit over half oil, the rest gas), which was up 19% from a year ago; the full year production target up 20% from last year, so it wasn’t a one-off quarter. And there should be more coming, too--in its Q2 report, management said the company had contracted to hire a seventh rig to drill in a new area in the Delaware, bringing on a handful of new wells about a year ahead of schedule. Despite the expanding production and the inflation that’s going on, cost per well is falling and cash flow is outstanding—Matador’s Q2 saw $454 million of free cash flow (6% of the current market cap!), which is leading to a rapid debt paydown (down 40%-plus the past year) and a token dividend (yield 0.6%), and while those figures could ease as energy prices have come down some, the latest oil price spike hikes the odds the figures will remain elevated.
Technical Analysis
MTDR performed well with the entire group during the last many months, rallying throughout 2021 and perking up further earlier this year as energy prices took off. It peaked in June and suffered a sharp 39% correction before finding support. The rally after that was stronger than most in the sector, though MTDR again backed off in September as the market caved in. But last week’s spike was very powerful, bringing the stock to within 10% of its high (better than most peers). The weekly chart is still a bit sloppy, so if you want in, aim for dips.
| Market Cap | $7.34B | EPS $ Annual (Dec) | |
| Forward P/E | 6 | FY 2020 | 0.55 |
| Current P/E | 8 | FY 2021 | 4.25 |
| Annual Revenue | $2.55B | FY 2022e | 10.95 |
| Profit Margin | 44.0% | FY 2023e | 10.36 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 944 | 164% | 3.47 | 240% |
| One qtr ago | 566 | 112% | 2.32 | 227% |
| Two qtrs ago | 566 | 153% | 1.26 | 367% |
| Three qtrs ago | 472 | 132% | 1.25 | 999% |
Stock 4
Neurocrine Biosciences (NBIX)
| Price | Buy Range | Loss Limit |
| 107 | 105-108 | 95-97 |
Why the Strength
Biotech stocks are a mixed bag—the sector (the S&P biotech fund, symbol XBI, is our favorite measure of the sector) has been moving lower since early August, but a few leaders in the group have held firm. We got knocked out of Neurocrine during the market’s September dip, but shares immediately snapped back so we’re re-recommending the name. The potential here is big thanks to the firm’s Ingrezza treatment for an ailment called Tardive Dyskinesia (TD for short), which is a relatively rare side effect of some antipsychotic drugs that causes involuntary movements of the face and body, which can become permanent if they go without treatment; Ingrezza is the front-line treatment for the disease, and it should bring in $1.4 billion or so of revenue this year (sales were up north of 30% in Q2), and it’s the main driver of growth—the top brass thinks there are a half million undiagnosed TD patients in the U.S. alone, with one analyst thinking the drug can eventually blossom into a $3.2 billion annual seller (and even that could be conservative). However, Neurocrine doesn’t look like just a one-trick pony, with some other potential treatments in the till including valenazine (it has orphan drug status for an involuntary-movement disease associated with Huntington’s), which should be submitted for approval by year-end. And next year should bring key readouts on some pipeline treatments for major depressive disorder, which is a huge market. 2023 should bring more modest sales growth (15% to 20%) but earnings should lift nicely to nearly $4 per share, and those estimates have been pushing higher for most of this year. We like the combination of Neurocrine’s current growth plus solid pipeline potential.
Technical Analysis
NBIX isn’t super dynamic, but the stock bottomed back in January, broke out above 100 in August, actually held that level during the ensuing market maelstrom and extended higher when the pressure came off the market briefly last week. Of course, the market retreat of the past couple of days has pulled the stock back in, but it loos like NBIX wants to head higher if the market can stabilize. If you want in, we’re OK grabbing a small stake here with a stop in the mid 90s, which should be a solid risk/reward situation.
| Market Cap | $10.4B | EPS $ Annual (Dec) | |
| Forward P/E | 53 | FY 2020 | 2.95 |
| Current P/E | 61 | FY 2021 | 1.81 |
| Annual Revenue | $1.30B | FY 2022e | 2.04 |
| Profit Margin | 21.7% | FY 2023e | 3.92 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 378 | 31% | 0.84 | 17% |
| One qtr ago | 311 | 31% | 0.30 | -40% |
| Two qtrs ago | 312 | 26% | 0.04 | -96% |
| Three qtrs ago | 296 | 15% | 0.64 | N/A |
Stock 5
Pinduoduo (PDD)
| Price | Buy Range | Loss Limit |
| 58 | 62-64 | 53-55 |
Why the Strength
For years, Pinduoduo (covered in the September 6 report) has been a huge player in China’s online shopping industry, being that country’s second-largest e-commerce site. The company’s “hook” is that it combines online shopping with social media to offer deep discounts on everyday household items to group shoppers—a business model some are calling “gamified shopping”—and it boasts an eyebrow-raising monthly active user base of over 750 million and nearly 900 million active buyers overall. But Pinduoduo has made even bigger waves lately after a recent decision to enter the U.S. market—the new website is called Temu and lists inexpensive items across a number of product categories, including clothing, jewelry, beauty and health products, as well as pet and gardening supplies. (The site also offers 30% discounts on the first three purchases with no minimum, as well as free shipping and returns as an added enticement to new customers.) Industry experts see the move as a way for Pinduoduo to grow outside the slowing Chinese market, and many see the company having a clear advantage over Amazon in some categories, including fashion. Aside from its drive into the U.S., Pinduoduo’s growth strategy also includes a focus on technologies to improve agricultural productivity and distribution in China, as part of a larger goal to expand China’s ag-based economy (most of Pinduoduo’s customers are located in rural China where farming is a big industry). On the financial front, the company reported Q2 revenue of $4.7 billion that rose 31% from a year ago and operating profit that soared 335% to $1.3 billion, while per-share earnings of $1.13 obliterated estimates. For Q3 (report likely not out until near Thanksgiving), analysts expect top- and bottom-line growth of 30% and 120%, respectively.
Technical Analysis
PDD ended a 15-month bear market earlier this spring after falling 90% from a lifetime high of 212. The stock bottomed in March and again in May, and saw a good rally into July, and, after another correction, perked up to 72 last month. The pullback started normally but got uglier today--actually tripping the stop we have on the stock from our prior recommendation. So what’s the play from here? To see if this was a shakeout, which we’ve actually seen from many names of late. If you’re interested in buying (or eventually re-entering), we’ll set our range up from here, thinking a relatively quick snapback could lead to a solid advance.
| Market Cap | $76.1B | EPS $ Annual (Dec) | |
| Forward P/E | 21 | FY 2020 | -0.37 |
| Current P/E | 23 | FY 2021 | 1.48 |
| Annual Revenue | $16.1B | FY 2022e | 3.08 |
| Profit Margin | 34.3% | FY 2023e | 3.71 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 4.69 | 31% | 1.13 | 157% |
| One qtr ago | 3.75 | 11% | 0.47 | N/A |
| Two qtrs ago | 4.28 | 5% | 0.93 | N/A |
| Three qtrs ago | 3.34 | 59% | 0.34 | 580% |
Stock 6
Revance Therapeutics (RVNC)
| Price | Buy Range | Loss Limit |
| 29 | 26-27.5 | 22-23 |
Why the Strength
Revance’s main draw is that it has the next generation Botox, a neuromodulator called DaxibotulinumtoxinA, which is marketed as Daxxify. It’s a proprietary stabilizing peptide that is injected for the same aesthetic reasons as Botox—to temporarily remove wrinkles—and which has a promising extension into therapeutics for people with muscular dystrophy. The treatment gained FDA approval in September for treatment of glabellar lines, the frown lines that appear between peoples’ eyebrows. That comes on top of FDA approval for lip lines. Revance says Daxxify is a better version of AbbVie’s Botox because injections last up to 24 weeks, compared to as little as 12 to 16 weeks for Botox. The appeal is that consumers want fewer injections that last longer and presumably are willing to pay more for the product. Revance’s aesthetics division saw worldwide sales of $28.4 million in the second quarter, up 51% thanks primarily to Daxxify and a Botox biosimilar it produces with Viatris that sells in most places around the world. The aesthetics market is large: Botox itself sells $4.7 billion in cosmetic applications globally. Revance believes Daxxify will expand the market to interested consumers who are put off by Botox’ frequency. The company also has a payments system, Opul, it pitches to beauty practices to replace traditional bank payments; Revance’s system charges about 0.5% to 1% of a transaction as fees, compared to up to 3.5% for existing networks. Still in clinical trials is applying Daxxify to treat muscle spasticity and cervical dystonia, together a $1.2 billion global market opportunity. The bottom line is still in the red, but sales are expected to rise 51% this year, with top-line growth accelerating to 85% in 2023.
Technical Analysis
September’s FDA approval–which came with extensive reviews of Revance’s operations—unwound a year-long bear market for RVNC sparked by earlier regulator concerns. The stock actually began rallying before that, with volume increasing in a big way after the FDA approval, and with the stock refusing to budge at all even when the market cascaded lower; last week actually saw a big-volume rally. It’s a volatile name, so if you want to take a swing at it, aim for further weakness.
| Market Cap | $2.15B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -4.86 |
| Current P/E | N/A | FY 2021 | -4.17 |
| Annual Revenue | $100M | FY 2022e | -2.70 |
| Profit Margin | N/A | FY 2023e | -2.15 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 28.4 | 51% | -0.88 | N/A |
| One qtr ago | 25.3 | 90% | -0.94 | N/A |
| Two qtrs ago | 26 | 133% | -0.93 | N/A |
| Three qtrs ago | 19.8 | 414% | -1.10 | N/A |
Stock 7
RPM International (RPM)
| Price | Buy Range | Loss Limit |
| 91 | 89.5-92 | 82-83 |
Why the Strength
RPM manufactures coatings, sealants and building materials, marketing them under several brands, including Rust-Oleum, Dap and Varathane. The largest of its four business segments is consumer products, which supplies sealants and coatings to big retail home improvement centers like Lowe’s and Home Depot. Last week, RPM reported higher profit growth than unit volume growth in its fiscal Q1 (which ended August 31), showing the company has been able to pass higher costs along to customers. Revenue of $1.9 billion jumped 17% from a year ago, while per-share earnings $1.47 beat estimates by 14 cents and were up 36%. All four of the firm’s segments achieved double-digit sales growth in Q1, driven by improving material supply through insourcing and qualifying new suppliers—and despite cost inflation and supply-chain tightness. Increased public sector and home renovation spending, meanwhile, drove consumer product sales in the quarter as roofing systems were in particularly high demand. The company also reported double-digit growth in flooring systems, protective coatings and fiberglass reinforced plastic grating, all of which benefited from the trend of re-shoring manufacturing to the U.S. and contributed to record Q1 adjusted EBITDA (which was up 19%). The sanguine results prompted a major Wall Street bank to upgrade RPM’s shares from neutral to overweight, while expecting a “brighter” outlook for the company. The firm also just announced a 5% quarterly dividend increase (now a decent 1.8% yield). There’s some risk given the potential weakness in the housing market, but management is optimistic--for the current quarter, they guided for total sales growth of 9% to 12% (in-line with the consensus), while analysts see solid earnings growth for many quarters to come.
Technical Analysis
RPM isn’t a super volatile name, as it’s been mostly rangebound between 75 and 100 (ballpark) during the past couple of years. However, that trading range action has been a good thing in recent months (the relative performance line bottomed in March and just reached its highest level since late 2020), and RPM is showing some spark of late—after yet another market-induced retreat last month, shares popped higher last week on their heaviest volume since the pandemic. If you want in, we’re OK nibbling on this dip.
| Market Cap | $11.8B | EPS $ Annual (May) | |
| Forward P/E | 20 | FY 2021 | 4.16 |
| Current P/E | 23 | FY 2022 | 3.66 |
| Annual Revenue | $6.98B | FY 2023e | 4.52 |
| Profit Margin | 9.7% | FY 2024e | 5.06 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 1.93 | 17% | 1.47 | 36% |
| One qtr ago | 1.98 | 14% | 1.42 | 11% |
| Two qtrs ago | 1.43 | 13% | 0.38 | 0% |
| Three qtrs ago | 1.64 | 10% | 0.79 | -25% |
Stock 8
Sarepta Therapeutics (SRPT)
| Price | Buy Range | Loss Limit |
| 109 | 106-109 | 96-98 |
Why the Strength
Sarepta is an RNA-focused biotech firm seeking treatment for rare diseases caused by a single genetic mutation. Its primary focus is for Duchene muscular dystrophy (DMD), a fatal neuromuscular disease that occurs in one in every 3,500 to 5,000 boys. It’s usually diagnosed around the age of four, with muscle deterioration that sadly forces patients into a wheelchair by 12 and limits lifespans to 35 to 40 years. Right now, the company has three injectable treatments that improve conditions for about 30% of DMD patients—but two weeks ago, it submitted a new biologics license application (BLA) for a treatment that potentially could address 80% of DMD patients. The drug, SRP-9001, would be the first gene therapy for Duchenne and has the potential to be about a $4 billion market. The treatment would be for those in early stages of Duchenne, 4 to 7 years old, for whom clinical studies have shown effectiveness in improving ambulatory ability out four years. Management has asked for an accelerated BLA approval and are confident enough in getting the green light they are gearing up production for SRP-9001, which has a two-year shelf life, and are planning 50 sites to treat the bulk of DMD patients. Approval, which is expected mid-2023, clearly will drive the business in the near term. Long-term, Sarepta has some three dozen other treatments in development for Duchene, as well as clinical trials to treat limb girdle muscular dystrophies (LMGD) and early-stage efforts aimed at multiple sclerosis and about dozen other similar afflictions. While the bottom line is in the red, Sarepta’s revenues are expected to be up 31% from a year ago, with another 30%-ish gain in 2023—and bigger potential down the road.
Technical Analysis
SRPT crashed in early 2021 and was basically a nothing burger for the next year and a half, with multiple dips to 60 before the buyers finally showed up. The stock got going in June, with positive clinical results in July resulting in eight weeks up in a row and an eventual push to 120. And SRPT has basically held onto those gains in recent weeks, which is obviously impressive in the bear market. It’s a name to watch--and if you’re aggressive, you could nibble here with a stop under the century mark.
| Market Cap | $9.75B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2016 | -3.94 |
| Current P/E | N/A | FY 2017 | -1.51 |
| Annual Revenue | $836M | FY 2018e | -1.17 |
| Profit Margin | N/A | FY 2019e | 0.31 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 234 | 42% | -1.18 | N/A |
| One qtr ago | 211 | 43% | -0.56 | N/A |
| Two qtrs ago | 202 | 39% | -0.77 | N/A |
| Three qtrs ago | 189 | 32% | -0.19 | N/A |
Stock 9
Schlumberger (SLB)
| Price | Buy Range | Loss Limit |
| 42 | 40-41.5 | 35-36 |
Why the Strength
Higher oil prices are obviously bullish for equipment firms, but the story for a firm like Schlumberger is bigger than that—after years of underinvestment in the oil exploration and production field, booming prices have launched what many experts see as a multi-year capital spending cycle in the energy sector, which means oil explorers will be turning to firms like Schlumberger to meet their project expansion needs. The company is obviously a big player in oilfield service space, offering technology, project management and information solutions to optimize performance for petroleum producers, and it reported strong exploration and drilling activity growth—both internationally and in North America—during Q2, momentum that’s expected to continue after OPEC’s announced oil production cuts. Schlumberger posted revenue of $6.8 billion in Q2, up 20% from a year ago, and its largest sequential increase (up 14%) in more than a decade, thanks to expanding rig counts worldwide. The company also earned several new contract wins and boosted its backlog for its production systems and re-equipment business (a leading indicator of future pipeline activity strength). Schlumberger is also growing its footprint in the alternative energy space, entering a partnership with global water solutions provider Gradiant to provide a key technology in the production process for battery-grade lithium compounds. Plus, the company just partnered with Saudi Aramco to develop a digital platform to enable companies in several industries to verify their emissions. For now, though, oil is the firm’s main growth catalyst, and Wall Street sees the strength continuing, based partly on the immense global need for non-Russian oil and gas supply, with earnings catapulting this year and next. The Q3 report is due October 21.
Technical Analysis
Oil equipment outfits have generally lagged their exploration peers, and SLB has been no exception—though now it’s looking like buyers are becoming energized. Shares topped near 50 in June, corrected 38% to a low in July and really couldn’t muster much of a bounce from there, with a retest of sorts two weeks ago. But last week’s action looks noteworthy, with a big pickup in volume and with SLB hitting four-month price highs. There should be good support in the 35 to 40 area, so dips would be intriguing.
| Market Cap | $60.2B | EPS $ Annual (Dec) | |
| Forward P/E | 21 | FY 2020 | 0.68 |
| Current P/E | 26 | FY 2021 | 1.28 |
| Annual Revenue | $24.8B | FY 2022e | 2.03 |
| Profit Margin | 10.6% | FY 2023e | 2.80 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 6.77 | 20% | 0.50 | 67% |
| One qtr ago | 5.96 | 14% | 0.34 | 62% |
| Two qtrs ago | 6.23 | 13% | 0.41 | 86% |
| Three qtrs ago | 5.85 | 11% | 0.36 | 125% |
Stock 10
Wynn Resorts (WYNN)
| Price | Buy Range | Loss Limit |
| 64 | 68-70 | 61-63 |
Why the Strength
China has begun easing Covid restrictions in the region of Macau, where gambling is a major business. The government said Chinese tour groups will be approved to visit the island beginning in November, which is great news for hotel and casino operator Wynn Resorts, as it derives a sizable chunk of its revenue from Macau. Prior to the onset of Covid, Wynn got most of its profit from its two Macao properties, the Wynn Palace and Wynn Macau, which posted adjusted property-level EBITDA of $1.4 billion in 2019 (compared with $437 million from Wynn’s combined Las Vegas and Boston operations). So it’s easy to see why investors are salivating over Wynn’s recovery prospects in China going forward. This, plus positive trends on the Las Vegas front, prompted a major bank to reinstate coverage of the stock with an “outperform” rating, calling Wynn “one of the more compelling stories in gaming.” On the earnings front, while operating revenue of $908 million in Q2 was down 8% from a year ago (mainly due to Covid-related travel restrictions in Macau), the company reported domestic strength at both Wynn Las Vegas and Encore Boston Harbor. The firm touted “very strong customer demand” as contributing to a new all-time quarterly record for adjusted property EBITDA at Wynn Las Vegas (up 70%) and a second quarter record at Encore Boston Harbor (up 36%). Looking ahead, management said forward bookings continue at a pace of pre-Covid levels on “substantially higher” average daily occupancy rates. It also sees a potential “significant catalyst” in Massachusetts both in digital and retail sports betting, which should be approved early next year. Analysts see a 2% top-line increase for 2022, followed by a 40% bump next year as the Macau recovery presumably kicks in.
Technical Analysis
WYNN hit a peak around 140 in early 2021 and then slid persistently, with China’s zero-Covid efforts hampering numbers despite a U.S. rebound; shares finally hit bottom near 50 in June and again in July. But then we saw some positive momentum develop, with a push back to 70 in August, and after a pullback with the market, a rally back to the 200-day line last week on big volume. Today, though, all things China-related were hit, with WYNN falling quickly back into its prior zone. We’ll set our buy range up a few points, with a (relatively) quick rally from here telling us this was a shakeout.
| Market Cap | $8.31B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -19.18 |
| Current P/E | N/A | FY 2021 | -6.12 |
| Annual Revenue | $3.91B | FY 2022e | -3.51 |
| Profit Margin | N/A | FY 2023e | 1.50 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 909 | -8% | -0.82 | N/A |
| One qtr ago | 953 | 29% | -1.21 | N/A |
| Two qtrs ago | 1053 | 54% | -1.37 | N/A |
| Three qtrs ago | 995 | 168% | -1.24 | N/A |
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 bold.
| Date | Stock | Symbol | Top Pick | Original Buy Range | Price as of 10/10/2022 |
| HOLD |
| 9/12/22 | Academy Sports | ASO | ★ | 48.5-51.5 | 44 |
| 8/15/22 | Albermarle | ALB | ★ | 272-283 | 278 |
| 10/3/22 | Axonics | AXNX | | 71.5-74.5 | 68 |
| 10/3/22 | Biogen | BIIB | | 255-262 | 255 |
| 9/26/22 | Cal-Maine Foods | CALM | | 57-59 | 55 |
| 8/29/22 | Chord Energy | CHRD | | 141-146 | 146 |
| 7/25/22 | Chesapeake Energy | CHK | | 89-92 | 98 |
| 9/26/22 | Consol Energy | CEIX | | 63.5-65.5 | 69 |
| 9/19/22 | Dick’s Sporting Goods | DKS | | 108-111 | 110 |
| 8/8/22 | First Solar | FSLR | | 100-104 | 131 |
| 9/26/22 | HealthEquity | HQY | | 67-69 | 67 |
| 9/19/22 | Interactive Brokers | IBKR | | 65-67 | 70 |
| 9/19/22 | Iveric Bio | ISEE | | 15.7-16.7 | 20 |
| 9/19/22 | Las Vegas Sands | LVS | ★ | 37.5-39.5 | 39 |
| 9/6/22 | LPL Financial | LPLA | | 215-222 | 245 |
| 9/26/22 | Onsemi | ON | | 66-68 | 62 |
| 10/3/22 | Penumbra | PEN | | 192-197 | 180 |
| 9/12/22 | Regeneron Pharm | REGN | | 700-720 | 733 |
| 6/27/22 | Shockwave Medical | SWAV | | 185-195 | 268 |
| 10/3/22 | Texas Roadhouse | TXRH | | 89-91 | 88 |
| 10/3/22 | Trip.com | TCOM | | 26.5-28 | 27 |
| 9/19/22 | Uber | UBER | | 30-31.5 | 28 |
| 8/1/22 | WillScot | WSC | | 37-38.5 | 42 |
| 8/22/22 | Wingstop | WING | | 115-120 | 131 |
| 8/22/22 | Wolfspeed | WOLF | ★ | 104-109 | 108 |
| 9/26/22 | Xometry | XMTR | ★ | 54.5-57 | 56 |
| WAIT |
| 10/3/22 | Cheniere Energy | LNG | | 160-165 | 168 |
| SELL RECOMMENDATIONS |
| 9/6/22 | Cameco | CCJ | ★ | 27.5-29 | 25 |
| 6/6/22 | Enphase Energy | ENPH | | 197-205 | 258 |
| 9/12/22 | Evolent Health | EVH | | 36.5-38 | 33 |
| 9/12/22 | Karuna Therapeutics | KRTX | | 245-260 | 207 |
| 8/29/22 | Livent Corp. | LTHM | | 30-32 | 30 |
| 8/8/22 | Paylocity | PCTY | ★ | 248-263 | 237 |
| DROPPED |
| 9/26/22 | Akero Therapeutics | AKRO | | 23.5-25 | 38 |
| 9/26/22 | Shift4 Payments | FOUR | | 40.5-42.5 | 46 |
The next Cabot Top Ten Trader issue will be published on October 17, 2022.
About the Analyst
Mike Cintolo
A growth stock and market timing expert, Michael Cintolo is Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable is his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.
