January 2, 2019

Valens Conviction Long List – January 2019


Value stocks top our January Valens Conviction Long List, with Capital One Financial (COF) moving to the top of our list. Our other picks this month are: CRUS, FB, WGO, LRCX, GOOGL, HIG, DHI, EBAY, FSLR, MYL, GRMN, NOV, THRM, PINC, GILD, ASGN, CTXS, TPR, PLNT, AMN, and BHC.

 

  • Capital One Financial (COF) moves to our top pick. COF continues to have a strong franchise and is benefiting from a higher rate environment, and reduced competition. COF trades below peers, with improving returns and growing management confidence per Earnings Call Forensics™

 

  • Cirrus Logic Inc. (CRUS) is in the second spot on the list, due to accelerating fundamental momentum and very low market expectations. CRUS is gaining share and seeing a favorable product cycle, with strong returns and growing management confidence per Earnings Call Forensics™

 

  • With valuations suppressed due to the sell-off to end 2018 even as macro and corporate fundamentals have been favorable, 13 Value names make up the largest portion of our Conviction Long List this month, and GARP make up the second largest group, with six names

 

  • The sector with the most companies in the January list is Consumer Discretionary, with seven firms. Technology has six, Healthcare has five, Finance has two, and Energy and Industrials each have one company

 

  • We removed Ensco (ESV), Zillow (ZG), AK Steel (AKS), Sanderson Farms (SAFM), LGI Homes (LGIH), and Ichor (ICHR) from the list. Ensco’s announced acquisition of RDC raises concerns about the company’s combined leverage. ZG’s series of acquisitions moving them into the mortgage lending space shifts the company’s business model to higher risk, lower return areas. AKS’s credit risk has shifted more negatively, a concern in a rising interest rate environment. SAFM was a short-term idea driven by elevated short interest and pessimism about profitability, however declining estimates limit a short squeeze catalyst. LGIH was a regional to national homebuilding story, but the challenging rate environment makes the growth story may be more challenged. Lastly, ICHR falling below $500mn market cap means it is too small
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