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

The Stocks Under $10 Portfolio Last Week

The stock market ended last week on a hopeful note thanks to two events. First, preliminary data from a Gilead Sciences (GILD) study using the antiviral treatment remdesivir on Covid-19 patients found the drug highly effective. Second, late Thursday, President Trump presented the public with a plan to reopen the economy, which provided guidelines but left the decisions on how and when in the hands of state governors. Investors reacted positively to both pieces of news.

After Thursday's closing bell, the medical news site Stat reported very positive early results from a Chicago hospital testing Gilead Sciences' antiviral treatment remdesivir on Covid-19 patients. The drug was one of the first to be identified as a candidate to fight the coronavirus. According to the report, nearly all of the 125 patients included in the University of Chicago Medicines drug trial were discharged in less than a week after having been treated with daily infusions of remdesivir. Gilead's study of severe Covid-19 cases includes 2,400 patients from 152 different clinical trial sites worldwide, and its study of moderate Covid-19 cases includes an additional 1,600 patients across 169 different centers worldwide. In our view, this news was decidedly preliminary, and Gilead announced that it was waiting for more results. Even so, investors, enjoyed a moment of hope that just maybe we are getting some effective tools to battle this pandemic. Our thinking is that an effective treatment is more of a game-changer than a vaccine because, given the time associated with human trials, a vaccine will still take months if not quarters to develop. With expanded testing and treatment, however, life can start moving back toward normal.

Meanwhile the new federal guidelines for opening up the country put the responsibility for decisions on how and when squarely on the shoulders of governors. The three phases are as follows:

-- Phase One is for the states and regions and defines gating criteria to reopen, and which types of businesses should remain closed.

-- Phase Two is implemented if there has been no evidence of a rebound in Covid-19 cases and includes the resumption of non-essential travel. Previously closed businesses such as bars can now re-open with diminished capacity.

-- Phase Three is life back to normal for most except those at greatest risk, who should continue to minimize time in crowded environments.

While we are cautiously optimistic on the above, the economic data and earnings reports for the next few weeks are likely to remind investors that the economy is unlikely to bounce back quickly, even if a miracle treatment is found. The market's late-in-the-week enthusiasm will be forced to contend with those realities in the days and weeks to come.

Broadcom (AVGO) provided a stark reminder of this as it warned customers they will need to place orders for parts at least six months ahead of time given lockdowns in Malaysia, Thailand, Singapore, and the Philippines that are "closing or severely restricting business operations." In a letter to customers, Broadcom "urged clients to put in their orders at least 26 weeks ahead of delivery -- meaning anything ordered now will get shipped right around the crucial holiday season."

Adding further evidence that it will take some time for the economy to rebound, China's economy contracted 6.8% in the first quarter of 2020, marking the first decline since the nation began reporting quarterly data in 1992. Industrial Production contracted 1.1% year over year in March after having fallen 13.5% in January and again in February, while March Retail sales fell 15.8% year over year following the 20.5% decline in both January and February.

In our view, New York Federal Reserve President John Williams summed it up rather well on CNBC Friday saying he doesn't see full economic growth returning to the U.S. in 2020. Rather, he expects pockets of the economy will come back but those that rely on "big public gatherings" will be hamstrung so long as people are reluctant to attend such events. We would add airline and train travel as well, which therefore will hamper the rebound in the larger travel & leisure industry. Our view is it will take time for people to become comfortable engaging in those kinds of activities especially with (at least) several months until a vaccine is potentially available.

We also agree with Williams' comments about seeing "some tough days ahead." Even though the virus may have peaked, new cases will continue to be reported, folks will remain in lockdown for several weeks to come and consumer spending in the U.S. will face a headwind in the form of 22 million new jobless claims over the last few weeks.

On Thursday, New York Governor Andrew Cuomo announced that its economy "on pause" policy will be extended until May 15, at the earliest, and the U.K. extended its national lockdown for at least three more weeks. These follow similar extensions that were enacted this week in the eurozone. This all means economic data in the coming weeks won't be pretty, and that will be especially true for the forthcoming April Employment Report.

All told, U.S. equities finished the week higher, led by the tech-heavy Nasdaq Composite Index, which surged 6.0%. The Dow gained 2.2% and the S&P 500 advanced 3.0%. Despite the late week rebound, the small-cap heavy Russell 2000 declined over the five days.

Turning to the Stocks Under $10 portfolio, a number of our positions climbed noticeably higher last week led by the double-digit gains in Farfetch Ltd. (FTCH) , MobileIron (MOBL) , RF Industries (RFIL) , and Durect Corp. (DRRX) .

Only one holding was lower for the week -- Ovinitiv (OVV) -- and several were little changed, including ADT Inc. (ADT) , USA Technologies (USAT) and Pareteum (TEUM) . Speaking of Parateum, we sold a chunk late last week as the shares hit some resistance at the 50-day simple moving average (SMA).

As investors cheered last week's stock market gains, we will continue to face a combination of continued hurdles for the economy, consumers and companies. Those hurdles will be evident in the forthcoming economic data and corporate earnings reports.

The Stock Market Next Week

While last week was a rather light on economic data, this one will be rather busy on the earnings front as we have a four-fold increase in the number of companies reporting. More than 450 such reports will be coming this week, including 105 S&P 500 constituents. But that doesn't mean the economic data will be overlooked. Far from it, as we assess the current quarter's economic speed. That likely means the Flash Composite PMI data for Japan, the eurozone and the U.S. to be published next Thursday will be the highlight of the forthcoming economic data. And while many will focus on the headline figures tied to those reports, we will keep with our usual practice of reading below the headlines, examining the underlying data, including that for new orders, as we look to assess the vector and velocity of the global economy for May.

Here's a closer look at the economic data scheduled for this week:

Tuesday, April 21: March Existing Home Sales.

Wednesday, April 22: Weekly MBA Mortgage Applications Index; EIA Oil Inventories; April FHFA Housing Price Index.

Thursday, April 23: IHS Markit April Flash Composite PMI data for Japan, Eurozone and the U.S.; Weekly Jobless Claims; EIA Natural Gas Inventories; March New Home Sales.

Friday, April 24: March Durable Goods Orders; April University of Michigan Consumer Sentiment – Final.

As mentioned above, there is a significant jump in the number of companies reporting quarterly results this week. We will peruse the sea of reports zeroing in on industry, product and company-specific comments as we look to review and update our investing mosaic given the likely dearth of forward guidance.

Here's a more detailed look at the reports that we'll be focusing on this week:

Monday, April 20: Philips (PHG) , Truist Financial (TFC) , Equifax (EFX) , IBM (IBM) , NVR (NVR) .

Tuesday, April 21: Coca-Cola (KO) , Emerson (EMR) , JetBlue Airways (JBLU) , Paccar (PCAR) , Philip Morris International (PM) , SAP SE (SAP) , Chipotle Mexican Grill (CMG) , Netflix (NFLX) , Snap (SNAP) .

Wednesday, April 22: AT&T (T) , Delta Air Lines (DAL) , Ericsson (ERIC) , Evercore (EVR) , Kimberly-Clark KBM, Alcoa (AA) , Boston Beer (SAM) , CSX (CSX) , Lam Research (LRCX) , Las Vegas Sands (LVS) .

Thursday, April 23: Citrix Systems (CTXS) , Domino's Pizza (DPZ) , Hershey (HSY) , Grainger (GWW) , Union Pacific (UNP) , Intel (INTC) , LogMeIn (LOGM) , United Airlines (UAL) , Verisign (VRSN) .

Friday, April 24: American Airlines (AAL) , American Express (AXP) , AutoNation (AN) , Verizon (VZ) .

Upcoming Dates to Note

-- April 28-29: Federal Reserve FOMC meeting.

-- April 30: European Central Bank rate decision.

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 most up-to-date portfolio results, please click here.)

ONES

ADT Inc. (ADT:Nasdaq; $5.37; 2.85%)

After surging the prior week, shares of this home security and services company were little changed last week. We see the company's 6.5 million recurring revenue customers driving consistent cash flow and earnings as well as funding its dividend payments. At the current share price, the yield associated with ADT shares is around 3%. Our 7pricetargetequatestolessthana12xP/Eonthe2020consensusEPSnear7 price target equates to less than a 12x P/E on the 2020 consensus EPS near 7pricetargetequatestolessthana12xP/Eonthe2020consensusEPSnear1 that we've haircut by 40%. Near-term we will closely monitor the monthly housing starts and new homes sales data to keep tabs on the company's growth prospects.

Price Target: $7.

Farfetch Ltd. (FTCH:Nasdaq; $12.02; 4.23%)

Shares of this digital luxury shopping platform rose 20% last week following its March-quarter preannouncement that topped expectations. Farfetch estimated its gross merchandise value grew 43%-46% and it expected an adjusted EBITDA loss of 21million−21 million-21million−25 million for the seasonably weak quarter. The company reiterated its EBITDA profitability target for 2021. Despite the surge, we continue to see shoppers flocking to digital services during the pandemic, a move that, in our view, will remain in place even as the global economy gets back to normal.

Price Target: $16.

MobileIron Inc. (MOBL:NYSE; $4.73; 4.60%)

MobileIron shares climbed about 19% last week, bringing their move over the last month to an astounding 47%. We continue to read reports of the growing cyber threat activity as the coronavirus outbreak expands, which, in our view, only adds to the long-term demand drivers for cybersecurity and data privacy. To that end, MobileIron recently inked a partnership with secure collaboration company Adeya to offer private, end-to-end encrypted real-time voice and video calls, conference calls, SMS, instant messages, group chats and file exchanges on any device.

Price Target: $5.75.

Orion Energy Systems Inc. (OESX:Nasdaq; $4.32; 3.63%)

Shares of Orion Energy continued to march higher, bringing their move over the last month to more than 30%. We believe the progress is due in part to plans to reopen the domestic economy, which even on a state-by-state basis, would likely lead to a resumption of work by Orion. That said, the response to the coronavirus will likely continue to limit the company's activity in the coming weeks as will capital spending freezes. Longer-term, we recognize the power efficiency and other savings to be had from the company's LED lighting solutions. As such, we will look to prudently add to our position given the favorable risk vs. reward profile at current levels as the overall stock market finds its footing.

Price Target: $6.

RF Industries (RFIL:Nasdaq; $5.00; 3.38%)

Shares of this diamond-in-the-rough mobile network equipment company surged just over 20% last week despite a lack of company-specific news. We are starting to see more 5G smartphones making the rounds, including new ones from Samsung and our own Nokia (NOK) . Apple's (AAPL) key manufacturing partner confirmed last week the expected 5G iPhone model is still on track for the second half of 2020 and Taiwan Semiconductor (TSM) reported stronger-than-expected March-quarter results, primarily due to ramping 5G-related business. Near-term we see the shift to work at home, as well as education and content consumption at home, which are embracing video communication and streaming, chewing through bandwidth that could lead to incremental network capacity additions. We will continue to take a longer view with RFIL shares and the company's business prospects. As the stock market settles out, we will look to nibble further on RFIL shares.Price Target: $8.

USA Technologies (USAT:Nasdaq; $5.05; 2.28%)

Shares of this mobile payment technology company advanced modestly last week, bringing their quarter-to-date move to nearly 10%. With the company's shareholder meeting set for April 30, we expect the recent Board drama will heat up further in the coming days. We expect measures to fend off the coronavirus will sap demand for the company's transaction-based business in the near-term. Given our position size and the favorable, long-term prospects of the mobile payments market, particularly at USAT's core unattended retail market, we nibbled on some shares recently and are inclined to add further to our holdings as the overall stock market enters calmer waters and as the company's board drama passes.

Price Target: $10.

TWOS

Antares Pharma (ATRS:Nasdaq; $2.77; 0.94%)

ATRS, smallest position in the portfolio in terms of weighting, ran sideways last week after showing some nice performance the prior week. There have been no recent news events released that are related to the firm. This is a name where an add could be considered should equity markets show increased signs of stabilization at some point later in the current crisis, and as ATRS continues to lag that recovery.

Price Target: $5.25.

Digital Turbine (APPS:Nasdaq; $5.12 ; 1.19%)

This name rallied sharply on Friday. In fact APPS has rallied for two weeks in a row. Do we see news? Not since March. Then again, this stock suffered a terrific beating without a substantial news event as well. The portfolio must remain cautious, however, with this volatile stock in such a dangerous environment for smaller cap issues, it's very difficult to assess when a name lurches both upward and downward without obvious reason.

Target: $7.40

Durect Corporation (DRRX:Nasdaq; $1.56; 1.39%)

DRRX rallied hard early last week, and then spent three days holding that move. There has been no significant news released since the firm was able to put an optimistic take on FY 2020 for both POSIMIR and DUR-928. No telling how the Covid-19 crisis slows development of non-Covid-19 therapies for the year, however. That mitigates our optimism for this stock a bit. As you know, the stock remains speculative for us. The portfolio's position remains small. Price Target: $4.

Energy Recovery (ERII:Nasdaq; $7.58; 1.27%)

This stock showed some significant gains late in the week after also showing some nasty weakness earlier in the week. There was no new company-specific news in either case. It would not be surprising to see weakness for this name related to the precipitous fall in front month futures pricing for WTI Crude. Remember,though, it has been some time since ERII relied upon its oil services segment as a driver. This is a water treatment company for all intents and purposes, at least for the time being. Any contribution at all from oil services would at this point be a surprise. This one is a longer-term, Two-rated investment for the portfolio.

Price Target: $13.

Nokia Corp. (NOK:NYSE; $3.48; 3.07%)

Shares of this mobile infrastructure and IP licensing company climbed more than 6% week over week. Competitors Ericsson (ERIC) and AT&T (T) will report their quarterly results this week, which we expect will touch on the 5G market. Also this week, Citrix Systems (CTXS) reports and we suspect its results and pandemic comments will confirm the sharp climb in remote work that is taxing communication networks. We see all of this as a positive for network capacity demands and infrastructure equipment.

Price Target: $5.

Ovintiv (OVV:NYSE; $4.04; 3.16%)

These shares rallied significantly into week's end after selling off earlier in the week. OVV took it on the chin on Monday as front month crude oil prices suffered an incredible beating. Gone are the positive vibes emitted in the wake of the announced reduction made to production by OPEC and OPEC+. Our thinking is still that in order to get out of this name intelligently, we will have to work (add to, at times) fairly hard over a lengthy period of time. Could be a while. Price Target: $10.

THREES

Pareteum Corp. (TEUM:Nasdaq; $0.49; 1.18%)

These shares traded sideways for most of the past week, after making some progress the week prior. As you know, Pareteum has once again been notified by Nasdaq that it was outside of listing compliance rules due to the need to restate financial results for 2018 and parts of 2019. Why higher? Speculation that news breaks on this front? We don't know yet. We will continue to reduce exposure on market fluctuations when we think it's advantageous. We have no price target, nor will there be one any time soon.

Price Target: None.

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