Still Bullish
Not much changed with the market’s stance last week—the overall uptrend remains in fine shape, though we’re seeing the usual under-the-surface potholes and choppiness (as well as some upside explosions) during earnings season. All told, our advice remains the same: remain bullish and give most of your best performers a chance to run, and when it comes to new buying, it will probably pay to get shares during temporary weakness ... unless you see a super-powerful earnings gap.
We’re seeing plenty of both during the past couple of weeks (normal bouts of weakness, as well as huge earnings gaps), which is encouraging. This week’s list has many names that can help lead the market’s uptrend, and our favorite this week might prove to the be the #1 leader among growth stocks. It’s LinkedIn (LNKD), which soared after earnings last Friday and is looking like the flag-bearer of this bull move.
| Stock Name | Price | ||
|---|---|---|---|
| Team Health Holdings (TMH) | 0.00 | ||
| Seattle Genetics (SGEN) | 150.85 | ||
| Shutterfly (SFLY) | 94.71 | ||
| Phillips 66 (PSX) | 0.00 | ||
| Oshkosh (OSK) | 95.04 | ||
| Melco Crown (MPEL) | 0.00 | ||
| LinkedIn Corporation (LNKD) | 0.00 | ||
| Cheniere Energy (LNG) | 63.82 | ||
| Cree, Inc. (CREE) | 67.96 | ||
| Popular, Inc. (BPOP) | 0.00 |
Team Health Holdings (TMH)
Why the Strength
Team Health Holdings is in the exciting business of supplying outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers in the U.S. The company serves more than 730 civilian and military hospitals, clinics and physician groups in 47 states. Not happy with its current reach, Team Health embarked on an impressive buying spree last year, snapping up five regional competitors. Its most recent acquisitions include Arizona-based Emergency Physicians Professional Association and Valley Emergency Physicians, which staff five hospital emergency departments and two emergency care centers in the Phoenix area. But Team Health’s string of acquisitions hasn’t hurt the company’s bottom line. With management implementing a balanced and integrated approach to achieving its financial goals, the company has averaged revenue growth of nearly 20% over the past four quarters, with earnings growth coming in at about 16% year-over-year for the same period. As for the Affordable Care Act (ACA), CEO Greg Roth recently told investors, “While healthcare reform remains a dynamic topic, we believe our business is well positioned to succeed in this new operating environment.” Succeed indeed, as Roth forecasts 2013 revenue growth between 13% and 14%, noting that Team Health was well positioned with a solid acquisition pipeline.
Technical Analysis
Like most healthcare related stocks, TMH broke out of its 2012 doldrums following the November elections. The effective reaffirmation of ACA prompted a resurgence in the shares, allowing TMH to rebound from its October lows near 24 to rally more than 30% to its current perch above 34. The stock’s 10-day and 25-day moving averages have provided key support throughout this uptrend, with the former taking a leading role in 2013. The stock is currently consolidating above 34, and we think it’s buyable near here, with a stop near 31.
TMH Weekly Chart
TMH Daily Chart
Seattle Genetics (SGEN)
Why the Strength
Seattle Genetics specializes in combating cancer by stimulating the body’s immune system to attack the foreign cells on its own. Utilizing a process called Antibody-Drug Conjugate (ADC) technology, Seattle Genetics’ treatments use the body’s antibodies and a linking agent to directly target cancer cells and inject them with cancer-killing medicine. A leader in the ADC field, Seattle Genetics attracted quite a bit of attention recently when its Adcetris treatment for Hodgkin’s lymphoma (HL) was approved by Health Canada. The approval extends Adcetris’ market, as the treatment was approved earlier by both the FDA and the EU for the treatment of HL when autologous stem cell transplant has failed, or two prior multi-agent chemotherapy regimens have failed. The company also announced that it is currently enrolling patients for two phase III studies evaluating Adcetris for the front-line treatment of HL and mature T-cell lymphoma (MTCL). Meanwhile, Seattle Genetics continues to expand its pipeline, announcing two phase I studies with an oncology treatment. The trials are designed to test the safety of the anti-tumor drug in CD19-positive lymphoblastic leukemia and B-cell non-Hodgkin lymphoma patients.
Technical Analysis
After stair-stepping lower during the final quarter of 2012, SGEN shares have taken off in 2013. Since the start of the year, SGEN has rallied more than 30%, with the stock enjoying solid support from its 10-day moving average. The stock is now trading just shy of all-time high territory near 30, with SGEN consolidating recent gains into support at its 10-day trendilne. You can take bites here in anticipation of an upside breakout, or wait for SGEN to put 30 firmly in the rearview mirror. Either way, a stop-loss on a trade below 27.5 seems prudent.
SGEN Weekly Chart
SGEN Daily Chart
Shutterfly (SFLY)
Why the Strength
Shutterfly is a major player in the storing and sharing of digital photos online, allowing customers to create and ship specialized photo books, gift cards and the like. It’s always been a great, mass market story, and thanks to a blowout fourth-quarter earnings report, it’s now one of the strongest stocks in the market. In the holiday quarter (when, by the way, Shutterfly does most of its business for the entire year), the bottom line came in at $1.40 per share, miles ahead of estimates, while a measure of cash flow was up about 40%. Impressively, it was Shutterfly’s 48th straight quarter of year-over-year revenue growth, and transacting customers grew 30% to 4.2 million ... still a small figure considering the size of the potential market. Another bullish factor is the company’s move into enterprise sales, which mainly consists of printing for direct marketing products. Sales in that relatively young area totaled just $27 million last year, up more than 100%; AT&T, Dell and UnitedHealth are all customers, and we see huge potential, especially as the economy picks up. On the downside, there remains plenty of photo-sharing and printing competition out there, which could always cause the stock to hiccup. Still, we see big potential here longer-term. We like it.
Technical Analysis
SFLY was a big winner through mid-2011, but after topping at 66 that year, it fell to 21 a few months later and spent all of last year gyrating between 23 and 35. Business remained brisk, though, and as the stock approached resistance in the mid-30s a few weeks ago, it tightened up beautifully—a sign no new sellers were coming into the market. Then came last week’s huge earnings thrust, which moved the stock on its biggest weekly volume in years. If you’re game, you can buy a small position around here, use a stop near 36.5, and look to buy a little more if you develop a profit.
SFLY Weekly Chart
SFLY Daily Chart
Phillips 66 (PSX)
Why the Strength
The numbers tell the story for Phillips 66, which was spun off from ConocoPhillips and came public in May. The company owns and operates 15 refineries with a total capacity of 2.8 million barrels of crude oil per day, 10,000 Phillips 66-branded retail outlets in the U.S. and Europe, nearly 80,000 miles of pipeline, 7.2 billion cubic feet per day of gross natural gas processing capacity and over 40 billion pounds of gross annual chemicals processing capacity. While many refiners are reporting strong results, Phillips 66 has been a standout in its ability to capture crude resources at advantageous prices. With many refineries offline for maintenance and upgrading, prices for gasoline and diesel have been rising, which is expected to further boost Phillips 66’s margins. Among all refining stocks, Phillips 66’s combination of cheaper feedstocks, cheap valuation (forward P/E ratio of 9) and a stock that will pay a quarterly dividend of 31.25 cents per share (ex-dividend date is February 18) make Phillips 66 a nice package for investors looking for a pure oil and gas refiner.
Technical Analysis
SPX came public last May and took very little time to get moving. Nearly 10 months later, the stock has ripped from 30 to 64 with a few mild corrections along the way. When the stock reached 46 in September, it traded sideways for nine weeks, building a new base, then put in another six-week base in December and early January. Despite the stock’s extended run, it still trades at an attractive P/E. Try to buy on a dip of a couple of points and keep a loose stop at the 50-day moving average at 55.
PSX Weekly Chart
PSX Daily Chart
Oshkosh (OSK)
Why the Strength
Oshkosh Corp. was founded in 1917 as Wisconsin Auto Duplex, and has been in the specialty vehicle business ever since. The company’s lines include fire trucks, emergency rescue vehicles, snow plows, tow trucks, concrete mixers, refuse collectors, mobile broadcast vehicles and medium- and heavy-duty military trucks. The company also owns JLG, an aerial lift-truck maker. Oshkosh is an economically sensitive company, as sales of many of its product lines depend on healthy states and municipalities, as well as thriving smaller companies. Investors are also concerned that a possible sequester of the U.S. defense budget might take a bite out of military procurement. Earnings gains in the last two quarters were great (30% in Q3 and 54% in Q4) despite essentially flat revenue growth. The company’s earnings report on January 24 was highlighted by fiscal 2013 earnings guidance in the $2.80–$3.00 per share range. With its long history and diversified offerings, Oshkosh is used to taking the long view, and investors like what they see.
Technical Analysis
OSK began its current uptrend in July 2012 at 19, climbing to 30 in just eight weeks. After 15 weeks of consolidation, the stock got moving on January 2 along with the rest of the U.S. market. Three weeks later, the stock had hit 35 when the good earnings and guidance report gapped it up to 41 in one day on huge volume since then. OSK has been trading sideways, consolidating its gains without giving back more than a couple of points. OSK looks buyable anywhere below 39 with a stop at 34. Or, you can wait for the stock to move past 41 with positive volume.
OSK Weekly Chart
OSK Daily Chart
Melco Crown (MPEL)
Why the Strength
As the only legal gambling destination in China, Macau has become a hotbed for casino operators from around the globe. Gambling revenue in Macau was up 7.3% in January, and while the figure was slightly below analyst expectations, it still points toward strong growth in the region. With its home-court advantage, Melco Crown Entertainment is better positioned than most to take advantage of a budding resurgence in the gaming sector. Currently, the company operates the Altira Macau resort, which sports some 255 table games, 95 gaming machines, a luxury hotel with about 215 deluxe rooms, as well as a number of restaurants, bars and other visitor amenities. Fundamentally, Melco has shown consistent growth, with revenue rising a stronger-than-expected 9.3% in the most recent quarter. Some investors have shied away from Macau gaming stocks following news of a Chinese crackdown on junkets to the area. However, during a recent conference call, Melco management noted that they had not heard of any changes and reminded investors that they had heard these rumors before (in December), without any action from Beijing. Melco’s leadership and strong revenue growth make it a prime candidate for investment in the Macau gambling market.
Technical Analysis
MPEL shares have been on a tear over the past several months. Since bottoming near 9 in July 2012, the stock has surged more than 120%! Throughout this rally, MPEL has enjoyed solid support from its 10-day, 25-day, and 50-day moving averages. Volume has been brisk on MPEL recently, as investors react to both the company’s stronger-than-expected earnings report and rumors of a Chinese crackdown on Macau junkets. That said, the stock’s recent dip offers investors a chance to get in on the action at a more favorable entry point. A stop-loss at 18 would be prudent to limit losses.
MPEL Weekly Chart
MPEL Daily Chart
LinkedIn Corporation (LNKD)
Why the Strength
LinkedIn has all the characteristics of past big market winners, and after last week’s huge breakout, it’s looking like a flag-bearer for this bull move. The company’s story is just as enticing as it was the day it came public—it’s revolutionizing the multi-billion dollar recruiting and talent acquisition industry, and is in fact becoming the standard for big companies. And the firm’s fourth-quarter report last Thursday confirmed that’s the case. Revenues and earnings continued their torrid growth pace, and all of the sub-surface metrics were impressive as well; members totaled 202 million at year-end (two new members are signing up per second!), unique visitors to its website grew 26%, page views reached an all-time high and non-U.S. revenue continued to expand and now makes up 38% of all revenues. The reason those aforementioned page-view statistics are meaningful is because LinkedIn is becoming sort of a professional online portal, where millions go every day to check on business news that relates to them. And that’s paying off; while the firm’s Talent Solutions division is the main attraction (more than half of revenues, and up 90% from a year ago), its marketing division grew 68% and made up more than a quarter of all revenues. All told, LinkedIn is set to get much, much bigger in the quarters and years ahead, and could even see an added boost should the global economy (and, hence, hiring) pick up steam.
Technical Analysis
LNKD rose into the 120 area last April, and that basically acted as a ceiling for the stock (and the RP line) until last week. The big clue that the current rally would prove different was the stock’s action since its mid-November low; notice how, first, nearly every week was up, and second, the weekly ranges were much tighter, a sign the stock had come under control. Last week’s breakaway gap actually took LNKD out of a huge base that dates back to its IPO 21 months ago. If you don’t own any, consider buying a small position around here or on a pullback of a few points, with a stop in the 130-135 area.
LNKD Weekly Chart
LNKD Daily Chart
Cheniere Energy (LNG)
Why the Strength
The story of Cheniere Energy is right there in its stock symbol, LNG. The Houston-based company owns and operates the Sabine Pass liquefied natural gas (LNG) terminal in Louisiana and the Creole Trail Pipeline that connects the Sabine Pass receiving terminal with downstream markets. The company is also developing projects to liquefy and export natural gas from the Sabine Pass facility and the company’s site in Corpus Christi, Texas. The big story here is the runaway success of horizontal drilling and hydraulic fracturing (fracking) in recovering natural gas resources from U.S. shale deposits. The surge of natural gas resources has turned the U.S. into an exporter of LNG, and Cheniere Energy is designing its liquefaction facility at Sabine Pass to operate up to four LNG trains (trains 1 and 2 are already under construction) and its Corpus Christi LNG terminal to operate up to three LNG trains. Combined, these LNG facilities will have a capacity of 33 million tons per year, and the company expects exports to commence as early as 2017. Cheniere Energy isn’t a profitable enterprise at present, but investors are taking the long view. The stock still has under 300 institutional supporters, but more are jumping on all the time.
Technical Analysis
LNG is unusual among recent Top Ten picks in not being an earnings story. The stock has been in a long-term uptrend, but with a low price and some wild volatility that made it very tough to hold onto. But after a long sideways consolidation that began in March 2012, LNG has made a steady upmove since the middle of November. Volume spikes have all been on up days and the stock’s latest move came after a two-week consolidation over support at 20 in early January. With LNG now trading at 22 and the 25-day moving average at 21, we think you can buy a small position on any weakness.
LNG Weekly Chart
LNG Daily Chart
Cree, Inc. (CREE)
Why the Strength
From our 42-plus years of stock picking experience, we can say that the most common characteristic (by far) of our biggest winners has been a company with a new (and sometimes revolutionary) product that addresses a mass market. And that’s why we think Cree could be starting another great run here—the company is the leading way to invest in the growth of LED lighting. Of course, LEDs have been around for a while and are being used in more and more applications (cars, appliances, TVs, etc.). But the biggest opportunity is lighting, and it appears that market could be at a tipping point; as LED prices have come down, commercial and industrial customers have ramped up their purchases (Richard Petty’s 100,000 square foot restoration garage was the latest to switch, saving 50% on energy costs), and the average Joe could be next—some analysts estimate that the retail lighting market will grow from 3% LEDs to 16% within just three or four years. All of that would be a boon to Cree, which is engineering a turnaround after an LED glut cut prices and depressed profits. Now, though, profit growth is re-accelerating, profit margins just reached their highest level in six quarters and analysts see earnings both this year and next rising more than 30%. As LEDs penetrate the biggest mass market of all—residential lighting—we think even those forecasts could prove conservative.
Technical Analysis
We wrote about CREE two weeks ago, so we won’t rehash all the ups and downs it’s experienced in recent years. What we think is more pertinent is the action of the past month—the stock gapped up 22% on earnings, on its heaviest volume since August 2011, and since then, it’s marched higher nearly every day, with any intraday dips being bought. That sort of gap-and-follow-through action doesn’t mean you should pile in, but it does portend good things weeks down the line.
CREE Weekly Chart
CREE Daily Chart
Popular, Inc. (BPOP)
Why the Strength
Like many recent stocks featured in Cabot Top Ten Trader, Popular has gained momentum from a strong quarterly report. But this Puerto Rican bank, which was founded in 1893, is also riding the rising tide of recovery in the global financial sector. Popular is the holding company for Banco Popular de Puerto Rico—192 branches and 633 ATMs in Puerto Rico and the Virgin Islands—and a community banking franchise in the U.S. with 93 branches in New York, California, Illinois, New Jersey and California. Banco Popular is the largest bank in Puerto Rico in both assets ($28 billion) and deposits, and ranks 36th by assets among U.S. bank holding companies. A specialization in development loans for commercial real estate has been a big contributor to recent results. The quarterly report on January 24 showed a major reduction in non-performing loans and an increase in capital ratios. Investors were impressed by the decrease in bad loans and the company’s 710% jump in earnings. Popular is the dominant bank in Puerto Rico and is growing aggressively in the U.S. And that, plus the rebound in the global financial sector, is driving investor interest.
Technical Analysis
BPOP pulled out of a rough patch in 2012, soaring from 13 in July to 23 in January 2013. That great run was put in the shade by the stock’s reaction to earnings on January 24, which gapped the stock up to 26 in one day on huge volume and has been followed up with continuing gains that have produced a run to near 29. The 25-day moving average is rising fast, but it still back below 25, which may portend a consolidation or correction in the near future. If you like the story, you should wait for a period of flat trading or a pullback of a point or so.
BPOP Weekly Chart
BPOP 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.
