From a top-down perspective, there’s really not many stones you can throw at the market given where it was just three weeks ago. However, when looking at individual stocks, it remains a tricky environment—specifically, most stocks that have approached their old highs have either stagnated or been soundly rejected, with the action has thus far been concentrated in the worst performers of the prior few months. To be clear, we see this more as descriptive than predictive, but we’ll have to see the selling-on-strength vibe change if the upmove is going to continue to gather steam.
This week’s list is again a mixed bag, with some growth but a lot of commodities and cyclicals, too. Our Top Pick is a big player in the steel space that just recently emerged from a big rest period.
Market Overview
Lots of Crosscurrents, but More Good than Bad
From a top-down perspective, there’s really not many stones you can throw at the market given where it was just three weeks ago—the intermediate-term trend has turned up for the major indexes, and while the rally saw a little selling last week, there’s little doubt the tenor of the overall market is encouraging. However, when looking at individual stocks, it remains a tricky environment—specifically, most stocks that have approached their old highs have either stagnated or been soundly rejected, with the action has thus far being concentrated in the worst performers of the prior few months. (The average number of stocks hitting new highs remains relatively small on the Nasdaq, for instance.) To be clear, we see this more as descriptive than predictive: It’s not unusual for rallies following tough corrections to be herky jerky at first, but we’ll have to see the selling-on-strength vibe change if the upmove is going to continue to gather steam. For now, we remain in a cautiously optimistic stance, but we still think picking your spots and holding some cash makes sense given the evidence.
This week’s list is again a mixed bag, with some growth but a lot of commodities and cyclicals, too. Our Top Pick is Cleveland-Cliffs (CLF), which only recently emerged from a big consolidation—the next pullback should be buyable.
| Stock Name | Price | Buy Range | Loss Limit |
| Baker Hughes (BKR) | 36 | 34.5-36.5 | 31-32 |
| Cleveland-Cliffs (CLF) ★ TOP PICK ★ | 33 | 30.5-32 | 25-26.5 |
| Dave & Buster’s (PLAY) | 47 | 44-46 | 40-41 |
| Gold Fields (GFI) | 15 | 14-15 | 12.5-13 |
| Inspire Medical (INSP) | 264 | 252-260 | 228-233 |
| Occidental Petroleum (OXY) | 58 | 54.5-58 | 48-50 |
| Sierra Oncology (SRRA) | 36 | 33.5-35.5 | 29-30 |
| Tesla (TSLA) | 1140 | 1050-1100 | 910-940 |
| Vertex Pharmaceuticals (VRTX) | 269 | 255-262 | 235-238 |
| Wolfspeed (WOLF) | 115 | 111-115 | 99-102 |
Stock Picks & Previously Recommended Stocks
Stock 1
Baker Hughes (BKR)
| Price | Buy Range | Loss Limit |
| 36 | 34.5-36.5 | 31-32 |
Why the Strength
The day-to-day movements in the front-month oil contract remain extreme based on the news of the day, but more and more people are coming around to the view that, even if Europe sees peace, oil prices are likely to remain elevated for a long time to come. Throw in a lack of investment among explorers and it’s pretty much a sure bet that demand for oil drilling, completion and production equipment will rise for years to come—all of which will benefit Baker Hughes’ core operations. Interestingly, though, this isn’t just about the cyclical recovery in servicing wells; the company also does big business in liquified natural gas, where 90% of the installed base uses its turbo-machinery, and it also is a growing player in things like carbon capture, hydrogen and overall emissions management. All in all, while the top line has been slow to liftoff, most of the forward-looking measures tell us things should begin to accelerate soon: In Q4, revenues were up a solid 8% from the prior quarter, while total orders exploded 24% sequentially (up 28% from a year ago), led by a whopping 62% gain in its turbo-machinery segment that serves many of the newer energy areas mentioned above. That has Wall Street thinking 2022 and beyond will be big for Baker Hughes, with earnings nearly doubling this year and growing rapidly in 2023 as well. There’s no big secret here, just a well-rounded energy equipment and service giant that’s beginning what should be a sustained growth phase. A nice dividend (2.0% yield) ties a nice bow on the package.
Technical Analysis
Compared to many oil explorers, oil service stocks seem to be relatively early stage, and BKR is a great example of that. The stock’s 2020 recovery was just OK, and after peaking at 26 in February 2021, the stock had three tedious corrections (27%, 28%, and 19% deep) and never really broke out on the upside, resulting in no net progress for 11 months. But BKR’s character has changed since, with a decisive rally into the upper 30s, with pullbacks to this point remaining north of the 25-day line. We’re OK starting a position here or (preferably) on dips.
| Market Cap | $37.0B | EPS $ Annual (Dec) | |
| Forward P/E | 28 | FY 2020 | 0.03 |
| Current P/E | 58 | FY 2021 | 0.65 |
| Annual Revenue | $20.5B | FY 2022e | 1.28 |
| Profit Margin | 4.1% | FY 2023e | 1.76 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 5.52 | 0% | 0.25 | N/A |
| One qtr ago | 5.09 | 1% | 0.16 | 300% |
| Two qtrs ago | 5.14 | 9% | 0.10 | N/A |
| Three qtrs ago | 4.78 | -12% | 0.12 | 9% |
Stock 2
Cleveland-Cliffs (CLF) ★ Top Pick
| Price | Buy Range | Loss Limit |
| 33 | 30.5-32 | 25-26.5 |
Why the Strength
New coronavirus restrictions in China have created global supply fears for steel, as most of the nation’s mills now face raw material shortages. Additionally, sanctions on Russian pig iron (a key steel ingredient) and suspension of iron exports from Ukraine have forced producers to hike retail steel prices while scrambling to find replacement cargoes. Cleveland-Cliffs is the largest flat‑rolled steel and iron ore pellet (another key input to steel) maker in North America, thanks in part to a timely purchase of the U.S. assets of steel giant ArcelorMittal in late 2020. Aside from the recent expansion, the firm also invested in its own alternative capacity in the form of a hot-briquette iron (HBI) plant in Ohio in 2020. HBI is a steel-making substitute for pig iron, so this puts Cliffs in an excellent position to meet rising steel demand related to the shortage of that input. The company had already been basking in the glow of the red-hot steel market when a major Wall Street bank boosted its steel price outlook for the rest of 2022 while naming Cliffs as its top steel sector pick (a reason for the stock’s strength). In 2021, the company posted records in several key metrics, including cash flow, revenue and EBTIDA. Fourth-quarter revenue soared 137% from a year ago to nearly $5.4 billion on the back of an 82% jump in steel product sales volume. And while per-share earnings of $1.78 missed estimates by 27 cents, it was miles above the year-ago level of 24 cents. Going forward, Cliffs said it would raise prices for several steel products by at least $50 per ton due to new order strength and announced a $1 billion share buyback program. Analysts see earnings remaining at nosebleed levels through this year (north of $5.50 per share!), and even that outlook could prove conservative.
Technical Analysis
After hitting a peak at 26 last August, CLF spent the next five-and-a-half months grinding lower in response to weakening steel demand related to China’s real estate crisis. Shares bottomed at 16 in late January and turned higher in February, but it was really Russia’s invasion that created an entirely new dynamic for the stocks. CLF has since exploded to levels not seen in over nine years, with the latest upgrade providing an additional boost. We suggest nibbling on dips, though we’re not expecting a major pullback given the numbers and buying power of late.
| Market Cap | $16.8B | EPS $ Annual (Dec) | |
| Forward P/E | 6 | FY 2020 | 0.06 |
| Current P/E | 5 | FY 2021 | 5.98 |
| Annual Revenue | $20.5B | FY 2022e | 5.69 |
| Profit Margin | 17.6% | FY 2023e | 3.42 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 5.35 | 137% | 1.78 | 642% |
| One qtr ago | 6 | 265% | 2.33 | 999% |
| Two qtrs ago | 5.05 | 362% | 1.46 | N/A |
| Three qtrs ago | 4.05 | 999% | 0.35 | 775% |
Stock 3
Dave & Buster’s (PLAY)
| Price | Buy Range | Loss Limit |
| 47 | 44-46 | 40-41 |
Why the Strength
A sports- and games-focused casual restaurant chain, Dave & Buster’s missed consensus Q4 estimates when it reported last week. But the miss resulted from a spike in omicron fears among consumers, especially in the northeast and California. In November (before the variant bared its teeth), same store sales were up nearly 8%, then plunged with the COVID-19 variant surge. The evidence was enough for Wall Street toss out the disappointing quarterly results and embrace management’s focus on the positives among its 142 locations. Assuming the pandemic recedes – or consumers increasingly brush it off – business should continue to increase nicely while innovations are keeping labor costs in check. Much of the appeal of a Dave & Buster’s is following up a meal and drinks with arcade games, including a large-scale Hungry Hippos and basketball shooting games, with some locations offering bowling and billiards. Dave & Buster’s increased the minimum value for its Power Card, to play games, to $25 from $20 last year, nudging up the average spend. Each location also offers a 40-foot “Wow Wall” of televised sports to draw in fans and groups. The chain isn’t immune from inflation, but it has cut discounting, lifting food and beverage checks higher without pushing big menu price hikes. The company also started allowing customers in the restaurant to order through their xDine app, which means servers spend less time on each table, boosting their coverage by about one-third. For fiscal 2023 (began February 1), the company should see earnings lift a solid 45% from last year’s big turnaround. The business is also expected to name a new CEO soon, and there’s a sense the interim executive is leaving some low-hanging fruit for the new team to harvest.
Technical Analysis
PLAY rallied back to 50 during the 2020-2021 rally, followed by a long, deep consolidation, with a low coming late last year around 30 (when omicron was hitting the scene). The recovery from there was jagged, but featured higher lows even as the market was tanking, with a solid earnings-induced push back to 50 after earnings last week. If you’re game, we think pullbacks of a point or two would set up a solid risk-reward situation.
| Market Cap | $2.48B | EPS $ Annual (Jan) | |
| Forward P/E | 15 | FY 2021 | -4.75 |
| Current P/E | 22 | FY 2022 | 2.21 |
| Annual Revenue | $1.30B | FY 2023e | 3.21 |
| Profit Margin | 7.5% | FY 2024e | 3.74 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 343 | 194% | 0.52 | N/A |
| One qtr ago | 318 | 192% | 0.21 | N/A |
| Two qtrs ago | 378 | 643% | 1.07 | N/A |
| Three qtrs ago | 265 | 66% | 0.40 | N/A |
Stock 4
Gold Fields (GFI)
| Price | Buy Range | Loss Limit |
| 15 | 14-15 | 12.5-13 |
Why the Strength
Geopolitical and inflation risks are elevated given Russia’s invasion and all the horrors and uncertainties that accompany it. Meanwhile, the U.S. Treasury yield curve just inverted, implying that investors are increasingly worried about the economy. With such fears abounding, gold is back in favor as a hedge against a possible economic upheaval, putting companies that mine the metal in the catbird’s seat. South Africa-based Gold Fields is one of the world’s largest gold miners with annual gold-equivalent production of over two million ounces and attributable gold-equivalent mineral reserves of 52 million ounces, providing the firm with plenty of exposure to rising prices. In Q4, Gold Fields increased revenue by 3%, to $1.1 billion, while per-share earnings of 28 cents were in-line with expectations. Attributable gold equivalent production for 2021, meanwhile, was 5% higher from a year ago and above guidance, while all-in sustaining costs for mining gold were $1,063 an ounce—well below the current price of around $1,930 an ounce—providing the company with lots of room to expand operations or take on additional projects. Gold Fields said its South Deep mine (one of the world’s largest) was the “stand-out performer” of 2021, with production increasing 29% on lower all-in costs and generating cash levels that were 157% higher than 2020’s, with plans to ramp up production at the mine in the next three years based on its consistent improvement. Looking ahead, management said it expects total production to grow by an additional 20% to 30% over the next three to four years and expects growth to be “more or less linear” in the years ahead, with 2022 production forecast to increase around 7% from last year. Currency movements can affect results, but there’s no question investors see good things ahead.
Technical Analysis
For most of the past year, GFI basically mimicked the action of the gold price, but tellingly, it has had an excellent relative performance versus gold in recent months. Shares peaked last May near 12 and skidded lower for the next four months, finally hitting bottom at 8 in late September. A rally back to around 12 followed in November, then two more months of tightening before soaring gold prices helped push GFI to a multi-year high of 17 in March. Today’s drop was sharp but didn’t do any real damage; we’re OK starting a position here or on further weakness.
| Market Cap | $14.1B | EPS $ Annual (Dec) | |
| Forward P/E | 14 | FY 2020 | 0.83 |
| Current P/E | 15 | FY 2021 | 1.00 |
| Annual Revenue | $4.20B | FY 2022e | 1.12 |
| Profit Margin | 22.5% | FY 2023e | 1.18 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 1.11 | 3% | 0.28 | -15% |
| One qtr ago | 1.11 | 3% | 0.28 | -15% |
| Two qtrs ago | 0.99 | 13% | 0.22 | 120% |
| Three qtrs ago | 0.99 | 13% | 0.22 | 120% |
Stock 5
Inspire Medical (INSP)
| Price | Buy Range | Loss Limit |
| 264 | 252-260 | 228-233 |
Why the Strength
After underperforming for what seems like years, we still think many medical stocks—both device makers and biotechs—could help lead the next growth rally, and Inspire Medical looks ready to participate, both chart-wise and fundamentally. In fact, the company has one of our favorite stories in the sector: Inspire has essentially come up with a better mousetrap for many that suffer from sleep apnea, where these days most still use giant, clunky CPAP machines with masks, hoses and the like. While the results of people who use CPAP are fine, the problem comes from getting people to use it consistently and correctly; it turns out somewhere between one-third and two-third of patients don’t! Throw in the limitations of invasive surgery and a new solution is needed—and Inspire has it. The company’s offering includes three implantable components (a pressure sensing lead, a neuro-stimulator and a stimulation lead) that require just two small incisions (90 minute outpatient procedure) to implant. After thirty days, the system “goes live,” with the components stimulating a nerve that keeps the airway open all night, without the need for any other machinery or devices. The safety profile and results (less snoring and fatigue, higher oxygen levels) have been great, so as the firm has educated and trained sleep physicians, business has soared—revenues have been lifting at a 70% clip, and while that will slow somewhat, there’s no reason Inspire won’t see years of strong growth head. The red ink isn’t ideal, but the potential is huge.
Technical Analysis
INSP has actually been setting up for more than a year at this point. Shares had a deep 37% correction in the middle of last year, and after moving to new highs in the fall, suffered another big drop (34%) that found support in the 190 area a few times. And now that the pressure has come off the market, INSP is perking up, rallying to within 8% of its old highs. It’s a thinly traded name (just 260,000 shares per day), so we’ll set our buy range down a bit from here.
| Market Cap | $7.38B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -2.19 |
| Current P/E | N/A | FY 2021 | -1.54 |
| Annual Revenue | $234M | FY 2022e | -2.13 |
| Profit Margin | N/A | FY 2023e | -1.26 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 78.4 | 70% | -0.09 | N/A |
| One qtr ago | 61.7 | 72% | -0.38 | N/A |
| Two qtrs ago | 53 | 335% | -0.48 | N/A |
| Three qtrs ago | 40.4 | 89% | -0.60 | N/A |
Stock 6
Occidental Petroleum (OXY)
| Price | Buy Range | Loss Limit |
| 58 | 54.5-58 | 48-50 |
Why the Strength
Occidental Petroleum wasn’t a real leader of the oil rally last year, but solid execution, a bullish environment, massive cash flow and news that Berkshire Hathaway has bitten off a big chunk of stock (it now owns nearly 15% of shares) has goosed the stock. The reason for the underperformance was that the firm misstepped far more than many peers during the last couple of cycles, which means it’s still working on getting its head above water—late last year, the company completed a whopping $10 billion divestiture program, leaving it with core operations in the Permian (especially the Delaware, where its acreage is some of the best in the industry), Rockies and Gulf of Mexico, though it also has a very profitable chemical outfit ($1.5 billion of pre-tax profit last year) that’s the third-largest maker of PVC in the U.S. and is a leading caustic soda (used in paper and petroleum products) maker, too. The firm is still solidly in debt reduction mode—it just lowered its target level to a still-large $20 billion—but the stock is strong today because it’s underlying cash flow profile is so bullish that it’s a matter of time before big payouts and share buybacks arrive. Indeed, in Q4 alone, the firm cranked out $2.9 billion of free cash flow (5% of the current market cap) and reduced debt by $2.2 billion, and still had $2.8 billion in cash sitting around; that left it with $27 billion in net debt, but that likely dipped below $25 billion in Q1 and should hit the target of $20 billion sooner rather than later. For now, the payouts are small (dividend was increased in Q1, but annual yield is just under 1%), but investors see the huge cash flow likely leading to big things later this year or in 2023. There are a few moving parts here, but there’s little doubt that Occidental’s underlying business is extremely strong.
Technical Analysis
OXY’s post-crash rally petered out around 33 back in early 2021 and shares bobbed and weaved for a long time afterwards; in fact, there was no net progress for about the next 10 months. But shares perked up in February of this year and then went haywire in March as oil prices hit triple-digits and it was revealed that Berkshire Hathaway took a stake. It’s obviously been news-driven of late, but the ups and downs have set up a nice entry point as the 25-day line catches up—we’re OK stepping in here or (preferably) on further weakness.
| Market Cap | $53.5B | EPS $ Annual (Dec) | |
| Forward P/E | 12 | FY 2020 | -4.01 |
| Current P/E | 23 | FY 2021 | 2.55 |
| Annual Revenue | $26.3B | FY 2022e | 6.15 |
| Profit Margin | 20.6% | FY 2023e | 4.29 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 8.01 | 139% | 1.48 | N/A |
| One qtr ago | 6.82 | 108% | 0.87 | N/A |
| Two qtrs ago | 6.01 | 102% | 0.32 | N/A |
| Three qtrs ago | 5.48 | -18% | -0.15 | N/A |
Stock 7
Sierra Oncology (SRRA)
| Price | Buy Range | Loss Limit |
| 36 | 33.5-35.5 | 29-30 |
Why the Strength
Momelotinib, Sierra Oncology’s lead drug aimed at myelofibrosis, recently met all its pre-specified key primary and secondary end points in Phase III trials. Myelofibrosis is a rare cancer of the bone marrow that disrupts production of white blood cells. It causes extreme scarring in the marrow, too, which can lead to severe anemia, bringing weakness and fatigue for patients. All in all, Myelofibrosis that leads to anemia results in a very poor prognosis, with a life expectancy of two years, about a fourth of expectancy for people who have the cancer without resulting anemia. Sierra Oncology will file its new drug application to the FDA this quarter for Momelotinib as a monotherapy, and if the treatment succeeds, it will become an important drug in a sizable niche market: There are 15,000 people in the U.S. who suffer from both myelofibrosis and anemia and, based on pricing of unique treatments in similar specialized areas of need, it’s a potential $3 billion addressable market for Sierra Oncology (an amount that’s nearly four times Sierra’s current market cap). If it gets a priority review then approval should come in early 2023, with sales beginning immediately after. The potential is there for more general treatment of the bone marrow cancer in tandem with other drugs, too, as well as applying the drug to solid tumors. But Sierra Oncology’s primary focus is on the launch of Momelotinib next year. That means Sierra’s history of large losses, typical of development stage biopharmas, don’t really enter into investor’s calculus. More important is Sierra’s cash position, and there the business has plenty on hand. Pro forma cash totaled $296 million in early March, up nearly three-fold in recent months after issuing stock and warrants, with no long-term debt. It’s an interesting speculative play.
Technical Analysis
SRRA was a dead duck before late January, when a combination of bullish trial results for Momelotinib and an expansion of its liquidity (to be able to bring the drug to commercialization) caused the stock to go bananas, rallying from around 15 to 35-ish in just a couple of weeks. Shares did pull in some after that, but held the majority of those gains, and net-net, SRRA has calmed down and bounced off its 50-day line last week. It’s a roll of the dice, but we’re OK with a small position around here.
| Market Cap | $787M | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2020 | -5.11 |
| Current P/E | N/A | FY 2021 | -6.17 |
| Annual Revenue | N/M | FY 2022e | -4.93 |
| Profit Margin | N/A | FY 2023e | -3.72 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | N/M | N/M | -1.44 | -85% |
| One qtr ago | N/M | N/M | -1.86 | N/A |
| Two qtrs ago | N/M | N/M | -1.41 | N/A |
| Three qtrs ago | N/M | N/M | -1.46 | 44% |
Stock 8
Tesla (TSLA)
| Price | Buy Range | Loss Limit |
| 1140 | 1050-1100 | 910-940 |
Why the Strength
The auto industry isn’t exactly on fire right now, but Tesla (covered in the January 3 report) is an exception. The electric vehicle (EV) maker is making strides even as its competitors remain stuck in neutral, as the latest news attests. Over the weekend, Tesla said it delivered over 310,000 vehicles in the first quarter—a record number of shipments and up 68% from a year ago—with shipments rising 0.5% from Q4. Although the number slightly trailed analyst estimates, it showed that the global chip shortage that’s especially impacting the auto sector hasn’t been an obstacle for Tesla. In fact, the company has been expanding in the face of ongoing supply-chain challenges, as its recent opening of a new plant in Germany shows. A major Wall Street institution hailed the new Gigafactory as one of Tesla’s “biggest strategic endeavors” in the last 10 years, adding that it should further increase the firm’s European market share as more consumers “aggressively head down the EV path.” Moreover, Tesla guided for higher production levels at its existing plants in 2022, with plans to bring more production online as the year progresses (including at its new plant in Texas). Based on the company’s 2021 production, higher output is definitely warranted as Tesla nearly doubled its EV deliveries last year (to 936,172 units, compared to 499,500 units in 2020), even as its competition increased. Revenue, margins and earnings are also still galloping ahead as evidenced by the 65% sales and 218% EPS increase in Q4. When the company reports Q1 earnings on April 20, analysts expect top- and bottom-line growth of 70% and 140%, respectively, with earnings expected to rise 60% for all of 2022, and even that could prove conservative as Tesla’s execution has been top-notch during the past couple of years.
Technical Analysis
After a much-needed breather last year, TSLA tightened up during the summer and broke out in October, and the rally that followed took the stock to around 1,200 by early November. But that was the market peak, and another correction ensued for four months which took shares to 700 (down over 40%!), but the damage wasn’t as bad as it sounds, with shares holding the 40-week line unlike most growth titles. The snapback since the market low has been impressive, though it’s now sitting in a big resistance area. We suggest aiming for dips with a stop in the low 900s.
| Market Cap | $1.12T | EPS $ Annual (Dec) | |
| Forward P/E | 160 | FY 2020 | 2.24 |
| Current P/E | 159 | FY 2021 | 6.78 |
| Annual Revenue | $53.9B | FY 2022e | 10.86 |
| Profit Margin | 16.2% | FY 2023e | 14.33 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 17.7 | 65% | 2.54 | 218% |
| One qtr ago | 13.8 | 57% | 1.86 | 145% |
| Two qtrs ago | 12 | 98% | 1.45 | 230% |
| Three qtrs ago | 10.4 | 74% | 0.93 | 304% |
Stock 9
Vertex Pharmaceuticals (VRTX)
| Price | Buy Range | Loss Limit |
| 269 | 255-262 | 235-238 |
Why the Strength
Vertex is a Boston-based biopharma with multiple approved medicines that treat the underlying cause of cystic fibrosis (CF). It also boasts a robust pipeline of investigational small molecule and genetic therapies in other serious ailments, including sickle cell disease, type 1 diabetes and Duchenne muscular dystrophy. The company is the recognized leader in CF treatments, with four commercialized products including the blockbuster Trikafta ($5.7 billion in 2021 sales), Symdeko, Orkambi and Kalydeco. CF is the firm’s main line and Vertex holds a monopoly in this market, which includes some 83,000 patients across North America, Europe and Australia. Vertex sees an addressable market of more than 25,000 additional patients that could benefit from its treatments, so there’s still plenty of room for growth in CF. But Vertex is looking to expand beyond CF and into other areas; it’s working on a gene-editing therapy (CTX001) with CRISPR Therapeutics for treating the underserved blood disorders beta-thalassemia and sickle cell disease, with plans to file for regulatory approval by the end of the year; the market potential here is north of $1 billion if it gets a solid label. Further, it’s exploring treatment options for type 1 diabetes (VX-880) and acute pain following surgery (VX-548), with the latter reporting positive results from two studies (a reason for the strength) and suggesting VX-548 could be an alternative to opioids for pain treatment. On the financial front, Vertex grew revenue 27% in Q4 while EPS of $3.37 beat estimates by 8 cents. Analysts see growth slowing, but remaining positive for the next couple of years, while a reasonable (20 P/E) adds to the attraction.
Technical Analysis
VRTX hit an all-time apex just over 300 in July 2020, a time when most stocks were still in recovery mode. But the tide turned after that and shares begin cratering over the next 14 months before hitting bottom at 177 last October. Seven weeks of consolidation followed and then the stock blasted off on high volume in early December. Expect for a minor pullback in February which was halted at the 50-day line, VRTX hasn’t looked back since. This isn’t a runaway-type stock, so we think dips are best for entering.
| Market Cap | $67.3B | EPS $ Annual (Dec) | |
| Forward P/E | 18 | FY 2020 | 10.32 |
| Current P/E | 20 | FY 2021 | 13.02 |
| Annual Revenue | $7.56B | FY 2022e | 14.46 |
| Profit Margin | 41.8% | FY 2023e | 15.28 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 2.07 | 27% | 3.37 | 34% |
| One qtr ago | 1.98 | 29% | 3.56 | 35% |
| Two qtrs ago | 1.79 | 18% | 3.11 | 19% |
| Three qtrs ago | 1.72 | 14% | 2.98 | 16% |
Stock 10
Wolfspeed (WOLF)
| Price | Buy Range | Loss Limit |
| 115 | 111-115 | 99-102 |
Why the Strength
As governments continue to mandate energy-efficient solutions across many industries, fast and eco-friendly technology is needed to meet the demand. Enter Wolfspeed (formerly known as Cree), a semiconductor company that develops industry-leading technologies for efficient energy consumption. Wolfspeed’s product line includes silicon carbide materials—a higher-speed, energy-saving replacement for traditional silicon used in semiconductors—as well as power-switching devices and RF devices used in electric vehicles (EVs), 5G applications, renewable energy and storage and other products. The company also boasts multi-year, longer-term materials agreements totaling more than $1.3 billion across several industries and a device pipeline that totals more than $15 billion, making it a top player in the major shift from silicon to silicon carbide. It’s in the EV space, though, that Wolfspeed sees most of its long-term opportunity. At a recent presentation, the company predicted its top line would grow at a 30% annual clip through 2026 that would more than triple last year’s revenue of $526 million, with most of the growth expected to come from the EV industry (due to its heavy reliance on silicon carbide). The company also expects to be free cash flow positive by 2024, when its Mohawk Valley fabrication plant is fully ramped up. Wall Street shares the sanguine outlook; a major bank just added the firm to its semiconductor focus list, noting that Wolfspeed is “best positioned” to benefit from the shift to system-on-a-chip in the EV space and should see “significant growth” for many years. Revenue grew 36% in fiscal Q2 to $173 million and analysts expect growth of around 40% for several more quarters. We think Wolfspeed is a “newer” name that could be a fresh leader.
Technical Analysis
After peaking at 130 in last year’s February, WOLF spent almost nine months grinding lower to 80 in early October. That’s when the stock reversed course, and by later that month, WOLF mushroomed on volume that was four times average (on earnings). But that move coincided with the market’s top, which pulled shares back toward their lows, but the stock has been finding support since early February, rising seven of nine weeks, including a nice-looking pop since the market round its footing. We’re OK starting small here with a stop near the century mark.
| Market Cap | $14.0B | EPS $ Annual (Jun) | |
| Forward P/E | N/A | FY 2020 | -0.71 |
| Current P/E | N/A | FY 2021 | -0.93 |
| Annual Revenue | $613M | FY 2022e | -0.62 |
| Profit Margin | N/A | FY 2023e | 0.18 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) |
| Latest qtr | 173 | 36% | -0.16 | N/A |
| One qtr ago | 157 | 36% | -0.21 | N/A |
| Two qtrs ago | 146 | 35% | -0.23 | N/A |
| Three qtrs ago | 137 | 2% | -0.22 | 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 4/04/2022 |
| HOLD |
| 3/28/22 | AGCO Corp. | AGCO | | 142-146 | 143 |
| 3/14/22 | Agnico Eagle | AEM | | 57.5-59.5 | 63 |
| 2/28/22 | Allegheny Tech | ATI | | 23.5-25 | 28 |
| 3/21/22 | Alpha Metallurgical | AMR | | 116-124 | 121 |
| 3/14/22 | Antero Resources | AR | | 23-24.5 | 31 |
| 11/8/21 | Arista Networks | ANET | ★ | 129-134 | 143 |
| 3/28/22 | Axcellis Tech | ACLS | | 75.5-78.5 | 72 |
| 2/28/22 | Barrick Gold | GOLD | | 22-23 | 25 |
| 3/14/22 | Cameco | CCJ | | 24.5-26 | 28 |
| 2/28/22 | CarGurus | CARG | | 44.5-47 | 45 |
| 3/14/22 | Century Aluminum | CENX | | 24-25 | 27 |
| 1/3/22 | CF Industries | CF | | 67-69 | 102 |
| 3/7/22 | Civitas | CIVI | | 53-56 | 62 |
| 3/14/22 | CrowdStrike | CRWD | | 176-184 | 229 |
| 5/10/21 | Devon Energy | DVN | ★ | 25-26.5 | 61 |
| 2/7/22 | Dutch Bros. | BROS | | 54.5-58 | 58 |
| 3/14/22 | Fluor | FLR | | 27-28.5 | 29 |
| 3/28/22 | FMC Corp | FMC | | 128-132 | 132 |
| 2/28/22 | Freeport McMoRan | FCX | | 45-47 | 51 |
| 3/7/22 | Globalfoundries | GFS | | 54-56.5 | 62 |
| 1/18/22 | Halliburton | HAL | | 27-28 | 39 |
| 3/28/22 | Helmrich & Payne | HP | | 39.5-41.5 | 45 |
| 3/21/22 | Hilton | HLT | | 147-151 | 152 |
| 1/31/22 | Intra-Cellular Tech | ITCI | | 45-48 | 63 |
| 3/21/22 | Lantheus | LNTH | | 52-54 | 57 |
| 3/7/22 | Lockheed Martin | LMT | | 450-470 | 444 |
| 3/28/2022 | LPL Financial | LPLA | | 181-186 | 184 |
| 1/10/2022 | Marathon Oil | MRO | | 17.0-17.8 | 26 |
| 1/24/2022 | Newmont Mining | NEM | | 61.5-63 | 81 |
| 2/14/2022 | Nucor | NUE | | 114-118 | 150 |
| 3/21/2022 | Nutrien | NTR | | 97-101 | 103 |
| 3/21/2022 | Oasis Petroleum | OAS | | 147-152 | 149 |
| 2/14/2022 | Occidental Petroleum | OXY | | 38-40 | 58 |
| 3/7/2022 | Palo Alto Networks | PANW | ★ | 525-540 | 628 |
| 3/7/2022 | Patterson-UTI | PTEN | | 14-15 | 16 |
| 3/28/2022 | PDC Energy | PDCE | ★ | 70-73 | 76 |
| 1/10/2022 | Pioneer Natural Res. | PXD | | 194-198 | 253 |
| 3/21/2022 | Pure Storage | PSTG | ★ | 33-35 | 35 |
| 3/28/2022 | Rambus | RMBS | | 31.5-33 | 31 |
| 1/31/2022 | Regeneron Pharm | REGN | | 630-645 | 698 |
| 3/7/2022 | Royal Gold | RGLD | | 123-127 | 145 |
| 3/28/2022 | SolarEdge | SEDG | | 310-323 | 335 |
| 3/7/2022 | Steel Dynamics | STLD | | 70-73 | 84 |
| 3/14/2022 | Sweetgreen | SG | | 30-32.5 | 34 |
| 3/14/2022 | Westlake | WLK | ★ | 117-121 | 121 |
| 1/3/2022 | ZIM Shipping | ZIM | ★ | 55-57.5 | 67 |
| WAIT |
| None this week | | | | | |
| SELL RECOMMENDATIONS |
| 3/28/22 | Alpha & Omega Semi | AOSL | | 61.5-64.5 | 53 |
| 1/31/22 | Chesapeake Energy | CHK | | 66-68.5 | 89 |
| 2/28/22 | Matson | MATX | | 103-107 | 102 |
| 3/7/22 | Onsemi | ON | | 57.5-59.5 | 60 |
| 2/22/22 | Seaworld | SEAS | | 65-68 | 70 |
| 2/22/22 | StarBulk Carriers | SBLK | | 30-31 | 28 |
| DROPPED |
| 3/21/22 | MP Materials | MP | | 45.5-48 | 58 |
The next Cabot Top Ten Trader issue will be published on April 11, 2022.
