Stocks Under $10 Weekly Roundup (original) (raw)

Last Week

That was an intense week. Investor focus over the five-day period was really centered on the Fed's policy statement and press conference on Wednesday, the October jobs data release on Friday and, ultimately, a whisper of hope regarding the eventual reopening of the Chinese economy.

We'll get to those further down, but, first, the Stocks Under $10 portfolio. It was not very active over the week. The portfolio took off 10% of its long position in SoFi Technology (SOFI) in response to a strong earnings report on Tuesday and added that tranche back on approximately 16% lower on Friday, restoring the position to full-size. Transocean Ltd. (RIG) also beat Wall Street on the top and bottom lines, while revealing an oversized contract backlog. The portfolio reiterated its stance on RIG in response.

Now the portfolio looks forward to hearing from Pixelworks (PXLW) after the close on Monday and from 22nd Century Group (XXII) ahead of the opening bell on Tuesday.

As of last Friday night's close, the portfolio is now down 17.4% year-to-date. Our benchmark is the Russell 2000. That index is now down 19.84% for 2022. The S&P SmallCap 600, which is not our benchmark, but is also a small-cap focused equity index and is somewhat comparable, is down 16.43% this year.

The portfolio has now retaken its lead against its benchmark, while still lagging behind the S&P 600. The portfolio would like to reduce its stash of cash, but does not feel, even with seasonality on our side, that this is a good time to get extended. This is going to have to remain an opportunity by opportunity operation for the remainder of 2022.

Now, back to the broader market last week -- with a word on the Fed. Investors came into last Wednesday's event in hopes that there would be some evidence of sentient life at the Federal Reserve Bank. The policy statement gave these investors exactly what they came for as the language had been changed to signal the potential for less aggressive future policy. Markets rallied sharply in response only to sell-off, even more sharply a half hour later and all day on Thursday in response to Fed Chair Jerome Powell's overtly hawkish messaging at the press conference.

The deal is this, sports-fans, the central bank can be dovish, the central bank can be hawkish, the central bank can even let us know if there is dissension in the ranks. Let us know that some of you may think it's a good idea to use more discretion going forward. That said, do not, I repeat, do not, release a seemingly dovish statement and follow that statement up with a hawkish press conference. That's bush-league. Am I calling the members of the committee amateur? If the shoe fits.

Onto Friday. The Bureau of Labor Statistics released it twin employment surveys for October and the results were mixed. In fact, they were very mixed. As for job creation, the establishment survey showed non-farm payroll growth of 261,000, while the household survey showed job losses of 328,000. No, you can't make this stuff up.

The two surveys were "just" 589,000 jobs apart. As for wage growth, that was mixed as well. Month over month wage growth beat expectations while year-over-year growth slowed down significantly. The unemployment rate moved higher as participation contracted. All in all, it is difficult to call this a strong jobs report, but it surely was not weak enough to change minds at the Fed, and that is what matters to investors and traders now.

Lastly, there is China, and, yes, China appears to have turned inward and re-embraced its communist views, thus shunning the globalist ways of the recent past. However, the world would still like China to open up, even internally. That would at least prop up demand for certain goods and commodities, while un-kinking supply lines for other goods. On Friday, there was news that China may permit foreigners to use the Pfizer/ BioNTech messenger RNA Covid vaccine. As this is a much higher quality vaccine than what was developed domestically in China, the hope was that at some point, Beijing would embrace a foreign vaccine for the good of its own people. Globally, including the U.S., stocks rallied.

Overall last week was negative for U.S. equities, but the "tradeable" bottom that we spoke of as having occurred on Oct. 13 and having been confirmed on Oct. 21 is still (for now) intact.

Markets

The S&P 500 rallied 1.36% on Friday, closing down 3.35% for the week. The Nasdaq Composite, which is heavily exposed to tech, gained 1.28% on Friday, but still lost an ugly 5.65% for the week. The Russell 2000 ran 1.13% on Friday, while surrendering 2.55% for the week. Then, there is the Philadelphia Semiconductor Index, which we always keep an eye on as this group has been the engine of both the economy and the markets... This index popped a robust 4.6% on Friday giving up "just" 1.46% for the week.

All 11 of the S&P sector-select SPDR exchange-traded funds shaded green on Friday, while only three of the 11 funds ended in the green for the week. Energy (XLE) easily led the weekly performance tables at +2.43%, while discretionaries (XLY) , technology (XLK) , and communication services (XLC) were pummeled to the tune of 5.15%, 6.63% and 6.75% respectively.

According to FactSet, the S&P 500 now trades at 16.1 times forward looking earnings, down from 16.3 times one week ago. This ratio remains significantly below the S&P 500's five year average of 18.5 times, as well as its 10-year average of 17.1.

The Week Ahead

This week, readers will notice that with 85% of the S&P 500 in the books for the season that the number and quality of the names reporting will ebb somewhat. You'll still hear from some key names and the retailers are still out there, so this is no time to let our guard down.

From a macroeconomic perspective, the focus of the week will be the October consumer price index to be released on Thursday. In addition to that, the U.S. Treasury Department will "raffle" off 35billionworthof10YearpaperonWednesdayafternoonand35 billion worth of 10 Year paper on Wednesday afternoon and 35billionworthof10YearpaperonWednesdayafternoonand21 billion worth of 30 Year Bonds on Thursday. Toward the end of the week, the calendar will slow as Friday is Veterans Day, which is a federal holiday, even if it is not an equity market holiday. The Marine Corps birthday is this Thursday as well and whether you know it or not, this is a big deal to the fire-eating, hard charging, devil dogs in your life.

At last glance, futures markets trading in Chicago are pricing in a 59% probability for a 50-basis point increase to be made to the target range for the Fed Funds Rate on Dec. 14, with a 51% probability for a second 50 bps rate hike on Feb. 1, 2023. Those same futures markets are currently pricing in a terminal rate of 5% to 5.25% that will not be reached until March and will then stick for most of the calendar year.

According to FactSet, 70% of S&P 500 companies have reported earnings beats, while 71% have reported revenue beats. The blended (results & expectations) rate of year-over-year earnings growth is still 2.2% for this quarter after having started the season at 3.8%. The blended rate of revenue growth is now up to 10.5% from 9.3% last week.

As for individual companies reporting this week, there are still a few notables. Such names as BioNtech, The Walt Disney Company (DIS) , Roblox (RBLX) , Wynn (WYNN) , Astra-Zeneca (AZN) , and Ralph Lauren (RL) will report throughout the week.

Monday

Economics (All Times Eastern)

3:00 p.m. - Consumer Credit (Sep): Last $32.24B.

The Fed (All Times Eastern)

3:40 - Speaker: Cleveland Fed Pres. Loretta Mester. 3:40 - Speaker: Boston Fed Pres. Susan Collins. 6:00 - Speaker: Richmond Fed Pres. Tom Barkin.

Earnings Highlights (Consensus EPS Expectations)

Before the Open: BNTX (3.42), PLTR (.02) After the Close: ATVI (.50), FANG (6.36), IFF (1.33), LYFT (.08), TTWO (1.38) Tuesday:

Economics (All Times Eastern)

6:00 - NFIB Small Biz Optimism Index (Oct): Expecting 91.7, Last 92.1. 8:55 - Redbook (Weekly): Last 9.7% y/y. 4:30 - API Oil Inventories (Weekly): Last -6.53M.

The Fed (All Times Eastern)

No public appearances scheduled.

Earnings Highlights (Consensus EPS Expectations)

Before the Open: DD (.79), GFS (.62), PLNT (.38) After the Close: LCID (-.30), DIS (.56)

Wednesday:

Economics (All Times Eastern)

6:00 - MBA 30 Year Mortgage Rate (Weekly): Last 7.06%. 6:00 - MBA Mortgage Applications (Weekly): Last -0.5%. 10:00 - Wholesale Inventories (Sep-rev): Flashed 0.8% m/m. 10:30 - Oil Inventories (Weekly): Last -3.115M. 10:30 - Gasoline Stocks (Weekly): Last -1.257M. 1:00 p.m. - Ten Year Note Auction: $35B.

The Fed (All Times Eastern)

11:00 - Speaker: Richmond Fed Pres. Tom Barkin.

Earnings Highlights (Consensus EPS Expectations)

Before the Open: DHI (5.15), RBLX (-.36) After the Close: U (-.15), WYNN (-1.01)

Thursday:

Economics (All Times Eastern)

8:30 - Initial Jobless Claims (Weekly): Expecting 220K, Last 217K. 8:30 - Continuing Claims (Weekly): Last 1.485M. 8:30 - CPI (Oct): Expecting 8.0% y/y, Last 8.2% y/y. 8:30 - Core CPI (Oct): Expecting 6.6% y/y, Last 6.6% y/y.

10:30 - Natural Gas Inventories (Weekly): Last +107B cf. 1:00 a.m. - Thirty Year Bond Auction: $21B.

The Fed (All Times Eastern)

02:00 - Speaker: Reserve Board Gov. Christopher Waller. 09:00 - Speaker: Philadelphia Fed Pres. Patrick Harker. 09:30 - Speaker: Dallas Fed Pres. Lorie Logan. 1:30 p.m. - Speaker: Kansas City Fed Pres. Esther George.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: AZN (1.52), BDX (2.74), DDS (4.87), RL (2.07), WRK (1.42) After the Close: TOST (-.11)

Friday:

Economics (All Times Eastern) 10:00 - U of M Consumer Sentiment (Nov-adv): Expecting 59.3, Last 59.9. 1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 770. 1:00 - Baker Hughes Oil Rig Count (Weekly): Last 613.

The Fed (All Times Eastern)

No public appearances scheduled.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: AQN (.16) After the Close: SJR (.36)

The Stocks Under $10 Portfolio

Below is a rundown of our current positions. Figures in parentheses are each stock's Friday closing price and percentage weighting in the model portfolio. For the current portfolio, please click here.

ONEs

None

TWOs

22nd Century Group (XXII:NYSE American; $1.27; 6.48%)

1- Wk. Price Change: -4.5%

WEEKLY UPDATE: This stock broke a three-week winning streak last week going into earnings. 22nd Century is set to report the firm's third-quarter financial results on Tuesday morning ahead of the opening bell. Wall Street is looking for an unadjusted loss per share of 0.06onrevenueof0.06 on revenue of 0.06onrevenueof20 million. Sales growth like that would amount to year-over-year growth of roughly 155% as the firm successfully ran their pilot program in the Chicago area and then moved in Colorado and beyond. A conference call set for 10 a.m. ET on Tuesday will be webcast live at the firm's website.

INVESTMENT THESIS: This stock is basically a play on the idea that the Biden administration moves toward an agenda targeting less dangerous and less addictive forms of tobacco as a replacement for what is currently available to US (and global) consumers. The idea here is for the firm's VLN (very low nicotine) cigarettes to get regulatory approval and move toward commercialization.

Price Target: $5

AXT Inc. (AXTI:NYSE; $4.91, 6.49%)

1-Wk. Price Change: +6.7%

WEEKLY UPDATE: AXT Inc has now put together a three-week winning streak after the mid-September through mid-October earnings related melt-down. The portfolio backed off after having added on weakness over previous weeks.

INVESTMENT THESIS: AXT, Inc. is a materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers. InP is a high-performance semiconductor substrate used in broadband and fiber optic applications, 5G infrastructure and data center connectivity. InP substrates are also used in biometric wearables and other health monitoring applications. Semi-conducting GaAs substrates are used to create opto-electronic products, including high brightness light emitting diodes that are often used to backlight wireless handsets and liquid crystal display TVs and also used for automotive panels, signage, display and lighting applications. A new application for semi-conducting GaAs substrates is 3-D sensing chips using vertical cavity surface emitting lasers as an array of lasers on a single chip that can be used in cell phones and other devices. The company manufactures all of its products in the People’s Republic of China.

Price Target: $6.

Pixelworks, Inc. (PXLW:Nasdaq; $1.45; 4.47%)

1- Wk. Price Change: unchanged

WEEKLY UPDATE: This stock traded in a range spanning just 12 cents last week, ending up unchanged over five days, which is fairly hard to do since equity pricing moved from Spanish pieces of eight to decimals. Pixelworks will report the firm's third-quarter earnings after the closing bell on Monday (tonight). Wall Street is looking for adjusted loss per share of 0.07onrevenueof0.07 on revenue of 0.07onrevenueof17.53 million within a range spanning from 117.5millionto117.5 million to 117.5millionto17.6 million.

Revenue like that would be good for year over year growth of greater than 15%. A conference call will be held at 17:00 ET and will be webcast live at the firm's website.

INVESTMENT THESIS: Pixelworks is a provider of visual processing solutions, and is a purveyor of both software and semiconductors designed toward those ends. The belief is that Pixelworks will bebeter positioned in 2022 to secure incrementally increased capacity from supplier Taiwan Semiconductor (TSM), which should ease logistics issues and provide for the firm pricing power at home.

Price Target: $5

SoFi Technologies (SOFI:Nasdaq; $5.18; 5.70%)

1-Wk. Price Change: -5.0%

WEEKLY UPDATE: On Tuesday, SOFI reported a quarter that beat expectations for both earnings and revenue generation, while setting a firm record for adjusted earnings before interest, taxes, depreciation, and amortization, while raising guidance. The stock ran on the news. Fortunately, the portfolio sold 10% on the position on that spike because the stock closed out the week -5%, and the portfolio was able to repurchase that trance almost a dollar lower.

INVESTMENT THESIS: There are a number of reasons to be involved in this troubled name. No, SOFI is not yet profitable, but it is a bank trading under $10 that has plenty of potential as a one-stop financial services shop as interest rates rise and the yield curve normalizes. Ending the moratorium on student loans where SOFI has plenty of exposure would be an upside catalyst.

Price Target: $9

Southwestern Energy Company (SWN:NYSE; $6.81; 6.00%)

1-Wk. Price Change: +3.5%

WEEKLY UPDATE: Southwestern Energy had a nice week as prices for natural gas spiked early in the week and again late in the week. In addition, WTI crude was strong all week. Just an FYI, this stock over the past almost two months, has now formed what looks like a closing pennant formation. This type of formation often precedes a violent move in the share price of an underlying security exhibiting such behavior. It does not predict direction.

INVESTMENT THESIS: The portfolio's intent here is to gain exposure not just to the energy space, but more specifically to the domestic US energy space with a focus on natural gas over oil as the war in Europe continues to skew those markets.

Price Target: $11

Transocean Ltd. (RIG:NYSE; $4.06; 6.26%)

1-Wk. Price Change: +12.2%

WEEKLY UPDATE: This stock had a great week over the past five business days, going into and out of earnings. For the third quarter, RIG posted beats on both the top- and bottom- lines as well as a total contract backlog of $7.3 billion. The portfolio reiterated both its "Two" rating for this name as well as the target price.

INVESTMENT THESIS: The portfolio's reason for being in this name is its exposure to deep sea drilling and exploration and the sudden global need for such operations amid a severe shortage in energy commodities. That and the low share price, despite some shaky fundamentals. This helps the portfolio broaden its exposure to the energy sector going forward at limited expense. The plan is to grow the position to something in between a 2% to 3% weighting.

Price Target: $5

Vera Bradley Inc. (VRA:Nasdaq; $3.31; 2.92%)

1-Wk. Price Change: +3.8%

WEEKLY UPDATE: CEO Jacqueline Audrey had a nice first week on the job as the stock outperformed broader markets. There was no other firm-specific news outside of announcing when the firm will report its third quarter results, and it's not for a while. Vera Bradly is set to report ahead of the opening bell on Wednesday, December 7, a day that will live in infamy. Outgoing CEO Robert Wallstrom will stick around through year's end to help with the transition.

INVESTMENT THESIS: This name is a bit of a project for the portfolio. The execution has been poor in terms of assortment, margin, and outright sales. However, the firm runs a tight ship when it comes to the balance sheet, and should be able to withstand the correction now obviously necessary. They may need to burn some of that balance sheet to get there from here, and they have the quality on paper to do it.

Price Target: $6

Vision Marine Technologies Inc. (VMAR:Nasdaq; $4.77; 1.47%)

1-Wk. Price Change: -4.4%

WEEKLY UPDATE: This stock suffered a second consecutive "down" week last night. A reader asked me last week if I was going to add on weakness. I may. The reason that I have not added of late is that the position's weighting is very light, and both its 50-day simple moving average and 200-day SMA went out last week at $5.33 with the 50-day line dropping more quickly than the 200 day. For that reason, I have decided to allow the "death cross" to occur, probably on Monday and then see what the algos do to the stock.

INVESTMENT THESIS: This name is one of the very few actively involved in taking the recreational maritime industry electric. VMAR is a provider of electric outboard motors and powertrains. The firm also runs an electric boating business in California with operations to soon open in Florida as well. This is probably a longer-term investment for the portfolio rather than a tirade.

Price Target: $9

THREEs

None

Please remember that Stocks Under $10 is not intended

to provide personalized investment advice. DO NOT EMAIL THE SU10 TEAM SEEKING PERSONALIZED INVESTMENT ADVICE, WHICH HE CANNOT PROVIDE.