As the Wall Street earnings season for Q2 2021 is coming to an end, investors already have access to the second quarter financial data from almost all S&P 500 members. However, given a large number of index' constituents, one may struggle to decide which stocks to include in a portfolio. We present 10 stocks that were chosen by our stock picking model at the start of September 2021.
Stock Picking Model
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Open real account TRY DEMO Download mobile app Download mobile appOur model was designed in order to simplify the stock picking process. The goal is to try to predict which of the S&P 500 companies will be winners over the future 5-year horizon. To do this we have performed a quantitative analysis of quarterly data for S&P members starting from the 1990s, including over 80 different ratios, in order to determine any patterns that could help us single out potential outperformers in the future periods.
We have found patterns that not only looked common across winners for different periods but also seemed to follow "common sense". Stocks that became winners were characterized by above-average revenue growth and cash convergence ratios while at the same time having below-average levels of debt or dividend yields.
Top 10 stocks from June 2021
As we have already mentioned, the model is based on quarterly financial data. Having said that, it is best to run it either after earnings season ends or when the vast majority of the companies from the investment universe have already reported. In this case the investment universe is defined by membership in the S&P 500 and because of this the best time to run the model is at the end of the second month of the quarter (most companies from the index have published quarterly results by that time).
We have also run our model at the end of May and presented chosen stocks back in June and we can take a look at performance of that portfolio. As one can see on the chart below, the portfolio of stocks selected by our model has outperformed its benchmark - S&P 500 index - by quite a huge margin. S&P 500 index gained 7.5% between the end of May and the end of August 2021. Meanwhile, portfolio selected by our model gained 23.1% in the same period! However, a disclaimer is needed here. As we have mentioned earlier, the goal of the model was to select stocks that will be S&P 500 winners over the 5-year horizon therefore traders should not jump to conclusions based on a 3-month performance.
Top 10 picks - September 2021
Apple (AAPL.US)
Apple is a company that needs no introduction. US mega tech is known for its smartphones, personal computers and tablets. However, the company is also attempting to diversify its earnings stream by launching services like Apple Music or Apple TV. Apple reported strong 36% year-over-year growth in Q2 revenue. Q2 EPS doubled to $1.30. As usual, Apple managed to beat market expectations by a big margin.
Apple (AAPL.US) managed to jump above the resistance marked with exterior 127.2% retracement of a downward move from the beginning of a year ($152.65). Next resistance can be found at 161.8% retracement, that also more or less coincides with the upper limit of the upward channel. Source: xStation5
Fortinet (FTNT.US)
Fortinet is a company developing cybersecurity products and performing cybersecurity services. Apart from that, Fortinet also engages in development of hardware and software solutions, like firewalls or VPNs. Fortinet reported an almost 30% year-over-year jump in Q2 revenues while Q2 EPS was 19% YoY higher at $0.82. All major metrics turned out to be better than expected by the market.
Fortinet (FTNT.US) continues to enjoy a very strong bullish momentum. Any attempts to move lower are quickly being halted by buyers. Source: xStation5
Advanced Micro Devices (AMD.US)
Advanced Micro Devices is a company producing electronic components. Among its main products one can find advanced microprocessors. One of AMD's key rivals is well-known US tech company - Intel. AMD's revenue in the Q2 2021 doubled compared to Q2 2020 and reached $3.85 billion. EPS increased from $0.13 to $0.59. Results were better than expected.
After a spike at the turn of July and August 2021, share price of AMD (AMD.US) pulled back below the earlier-broken upper limit of the upward channel. Nevertheless, stock remains close to this technical resistance. Source: xStation5
Nvidia (NVDA.US)
Nvidia is a company designing and manufacturing computer parts. The company is best known for its graphics processing units that are appreciated by gamers as well as cryptocurrency mining equipment manufacturers. Nvidia has also begun offering cloud gaming services via its Geforce Now brand. Nvidia reported a 68% YoY in Q2 revenue while EPS jumped 126% YoY, to $0.42. Results were slightly above market consensus.
Nvidia (NVDA.US), just like many other US tech stocks, trades at record levels. Stock has used 50-session EMA as a support during the two most recent pullbacks and this technical hurdle should be in focus in case a correction starts. Source: xStation5
Paycom Software (PAYC.US)
Paycom Software is an online payroll and human resource technology provider. Its software supports employers in terms of hiring process, talent management or paying employees accurately and in a timely manner. Company reported a 33% year-over-year jump in Q2 revenue and a 83% year-over-year increase in Q2 EPS, to $0.90. Revenue turned out to be slightly better than expected while earnings beat expectations by a huge margin.
Paycom Software (PAYC.US) had a rough start of 2021. Stock has been moving lower throughout the first five months of the year before it started to regain ground. However, a strong upward move that followed pushed the stock above 2020 highs. Source: xStation5
Autodesk (ADSK.US)
Autodesk is a company designing and drafting software for architects and engineers. Company reported a 16% year-over-year increase in revenue in Q2 2021, and for the second time in history its quarterly sales topped $1 billion. Q2 EPS improved just slightly, from $0.52 to $0.53. Autodesk reported revenue in-line with market estimates but net income turned out to be over 50% lower than expected.
Share price of Autodesk (ADSK.US) took a dive recently. Stock erased most of recent gains and tested upward trendline. In case declines are not halted there, a test of the lower limit of the Overbalance structure at $276 cannot be ruled out. Source: xStation5
Adobe (ADBE.US)
Adobe is a company developing graphics software. In its portfolio of flagship products we can find software like Adobe Photoshop, Adobe Illustrator or Adobe Premiere. Revenue of Adobe jumped over 20% in Q2 2021 compared to Q2 2020. EPS was almost unchanged at $2.30 ($2.27 in Q2 2020). Company managed to beat market expectations both in terms of sales as well as in terms of earnings.
Adobe (ADBE.US) is trading at fresh record highs and bullish momentum on the stock is very strong. Trying to time a potential reversal in case of such a strong momentum may be a very risky play and the line of least resistance seems to be upward. Source: xStation5
Align Technology (ALGN.US)
Align Technology is a medical device manufacturer that produces 3D scanners and aligners used by orthodontists. Align Technology experienced a massive jump in Q2 revenue, with sales increasing from $352.3 million in Q2 2020 to $1.018 billion in Q2 2021. EPS reached $2.72, up from a loss per share of $0.51 in Q2 2020. Align beat market expectations in all major metrics.
Align Technology (ALGN.US) traded in an ascending triangle pattern throughout the first half of the year, that was limited by 100-session EMA (lower limit) and $633 price zone (upper limit). Following a break above $633 mark, upward move accelerated. Source: xStation5
Qualcomm (QCOM.US)
Qualcomm is a company manufacturing semiconductors, software as well as performing services related to wireless technology. Qualcomm owns key 5G and 4G patents. Sales of Qualcomm jumped over 60% year-over-year in Q2 2021 and exceeded $8 billion - a new record for the calendar second quarter. EPS increased from $0.66 in Q2 2020 to $1.66 in Q2 2021. Revenue was 5% higher than expected while net income was 13% higher than median estimate.
Qualcomm (QCOM.US) has been range trading recently. The wide trading range for the stock is limited by the $129.40 zone on the downside and $151.00 zone on the upside. Stock has recently tested the upper limit but failed to break above. Source: xStation5
Regeneron Pharmaceuticals (REGN.US)
Regeneron Pharmaceuticals is a biotech company involved in discovery and development of medicines for eye diseases, inflammatory diseases or cancer. Company experienced a big jump in revenue in Q2 2021, in part thanks to its Covid-19 treatment products. Sales exceeded $5 billion and were 163% YoY higher. EPS jumped from $6.56 to $25.12. Earnings were almost 50% higher than expected while sales data turned out to be almost 30% higher than expected.
Regeneron (REGN.US) jumped above its 2020 highs recently and reached fresh record levels. Stock is enjoying strong upward momentum but in case correction is launched, the support level to watch can be found in the $655 area and is marked with lower limit of market geometry and 2020 highs. Source: xStation5
