78 Stocks Doubled Year-to-date

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I ran a MarketSmith screen to see how many stocks priced above $5 and trading at least 100k shares a day, doubled year-to-date. The result: 78.

One can easily assume that most of those stocks probably belong to very profitable companies. I applied an earnings quality filter. It turns out that only 6 out of the 78 stocks are in the top 20% in earnings quality. This should challenge the common-held belief that earnings growth is the driving force behind strong price performance. The market is a lot more nuanced and complicated in a one to twelve months perspective. Expectations for future price gains drive demand and supply in the short-term and nothing impacts those expectations more than recent price action. Price momentum continues to be one of the least understood and most powerful characteristics behind many of the best-performing stocks every single year.

Momentum Monday – Nasdaq at All-Time Highs, Netflix Under Pressure

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The Nasdaq 100 reached new all-time highs a few days before earnings season began. Amazon, Facebook, Google, and Microsoft rallied in anticipation of another set of strong earnings. Market expectations are certainly running high, so it’ll be interesting to see if the numbers justify them.

Netflix reported earnings after the close on Monday and so far, the reaction is not stellar. Netflix is down more than 10%. Reactions to earnings matter because they reflect the current market sentiment. Bad news is usually ignored in strong bull markets.

Disclaimer: everything on this show is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.

The Most Profitable Business

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Kylie Jenner might be the youngest self-made billionaire in the history of the world. She is not even 21 but she has managed to leverage her social media following and Internet tools like Shopify to build a highly profitable business. She sells makeup. Her company Kylie Cosmetics has generated more than $600 million since its launch two years ago. Forbes has an interesting overview of her business.

What interests us more as investors is how we can participate in this high-margin, high-growth makeup business? There are several cosmetic plays available to public investors – ULTA, ELF, AVP, LVMUY (which owns Sephora).

The price action in ULTA is the only one that is catching my attention at this point. After going from $5 per share in 2009 to $300 in 2017, ULTA has pulled back about 20% and it might be setting up again.

ULTA is not just a pure momentum play. No long-term trend can survive on just rising market expectations. Long-term price appreciation requires serious earnings growth. And ULTA has the numbers. ULTA had earnings per share of 1.90 in 2012. This year, it is expected to make 8.40. In 2020, it is anticipated to gain close to $13 per share. It is currently trading at about 20X its 2020 expected earnings, which is a reasonable valuation for a company that grows 30% per year.

ULTA is working on a new base and it needs some time to set up properly. A breakout above $260 might trigger another momentum move higher. I don’t own any shares of it at the moment.