Earnings season is a bit of a whirlwind, notes Steve Reitmeister of Reitmeister Total Return.
So as things slow down you can get a better perspective on which stocks should stay...and which should go. Then there is the notion that we may be on the verge of an extended bull run. So I believe our new additions have more upside potential in that environment.
Here Are the Seven Trades for Today:
- Sell all shares of Accenture (ACN)
- Sell all shares of Avid Technologies (AVID)
- Sell all shares of VanEck Gold Miners ETFs (GDX)
- Buy 7% allocation in Bloomin Brands (BLMN)
- Buy 7% allocation in Clean Harbors (CLH)
- Buy 7% allocation in Dropbox (DBX)
- Buy 7% allocation in Shutterstock (SSTK)
Why Sell Accenture (ACN)? It clearly did not hold up well during the market downturn. And that was the only reason for its existence. So time to hit the bricks.
Why Sell Avid Technologies (AVID)? The post-earnings drop makes no sense given that earnings estimates remained neutral. But why stay in a stock with only a neutral earnings outlook when we can own ones with positive outlooks that increases the likelihood of future upside? And that is why it's time to unload AVID.
Why Sell Gold Miners ETF (GDX)? Yes, we have high inflation and typically that is good for gold ownership. But because inflation is so high, leading to a hawkish Fed, which makes the dollar stronger...and unfortunately that is what makes gold less attractive at this time.
Why Buy Bloomin Brands (BLMN)? Earnings outlook increasing + Covid weakness fading away + PE of nine = sign me up for these tasty restaurant shares.
You may not recognize the name Bloomin Brands...but certainly you recognize Outback Steakhouse, Bonefish Grill as well as Flemings Prime Steakhouse, and Carrabba's Italian Grill. The most recent earnings report showed nice growth that led to higher guidance for the future.
Analysts were fawning over this report leading to a range of target prices from $30 to $36. That is some yummy upside when shares are under $22. No wonder it is a Value rating of A.
Why Buy Clean Harbors (CLH)? In a way, this is my replacement for Accenture as a bit more of a defensive pick as they are in the very stable specialty waste management business. However, in this case, we are getting faster earnings growth and a 50% lower (and more attractive) valuation.
The recent 15% earnings beat reminded analysts of how consistently these guys provide the beat and raise results. With that came a wave of earnings estimate increases along with raised target prices.
The average target is $123 which is an ample 35% upside from current levels. However, there is a good reason that there is a bevy of targets between $130-135 which I think is a more likely destination when the bull market gets back on track.
Why Buy Dropbox (DBX)? Long-time followers of mine know how many times I have been in and out of shares. And yes, the results have been a mixed bag. However, they have never had an earnings miss. And have an uber-low a PE of 13 for a growing cloud-based software company.
The above points alone show a 50% upside for shares to a fair value of $30-35. But part of that value picture has me believing it should be a prime buy-out target where a company with a higher PE tech company can acquire the revenue and profits on the cheap.
Lastly on the POWR Ratings, the overall B is solid. But the most important thing to point out is the A for Quality...which is the most predictive part of the POWR Ratings pointing to the future upside.
Why Buy Shutterstock (SSTK)? 2022 has been downright brutal on growth companies ripping valuations down to size. In the case of this internet image and content company, its valuation was never that stretched...but that didn't stop other investors from cutting it in half from a previous high of $128 to only $63 at this time.
All the while the company continues to bang out beats and raise quarters with shares now trading at only 15X next year's earnings. This sets up for tremendous upside to the average target of $109 with a street high of $125.
In Friday's POWR Value commentary I talked about two paths from here. Either an immediate bull run that could easily rally 10-15% in coming weeks as those late to the party get FOMO extended the run.
On the other hand, we could be stuck in a trading range between bear market territory (3,855) and 4,100. This would mean the final determination on bull vs. bear has to wait. But even if this is the case, I still think the bull is more likely.
This has me taking a calculated risk with today's moves to get more aligned with the possibility of an extended bull run. However, I am not asleep at the wheel if things do erode into more bearish conditions and will be ready to act on any break below 3,855. Fingers crossed that an extended bull run is what is in store.