Worried about Fed rate hikes pushing the greenback up higher? Focus on growing companies deriving at least 80% of sales from the U.S., says Jefferies' Steven DeSanctis.
He notes the dollar peaked on Jan. 20, and sectors with big overseas exposure have outperformed since. However, with higher interest rates looking like they might send the dollar back into an uptrend, it's time to refocus on companies less reliant on exports.
DeSanctis and team identified 27 small- and mid-cap companies that were: In the Russell 2500 and Buy-rated by Jefferies, have less than 20% of sales outside of U.S., "sit in the highest two quintiles" based on ROE, and have market values north of $2B.
Of that group, they picked ten showing the highest growth of sales per share (though a tie brought the total to 11): Paycom Software (NYSE:PAYC), Lithia Motors (NYSE:LAD), Centene Corp. (NYSE:CNC), Molina Healthcare (NYSE:MOH), Five Below (NASDAQ:FIVE), Mednax (NYSE:MD), Western Alliance Bancorp (NYSE:WAL), Signature Bank (NASDAQ:SBNY), KAR Auction (NYSE:KAR), Science Applications (NYSE:SAIC), and Urban Outfitters (NASDAQ:URBN).
Many tech stocks are seeing 6%+ losses as investors flee to safety yet again. The Nasdaq is down 3.4%, and the S&P 2.7%.
As was the case on Friday following Tableau and LinkedIn's disappointing guidance, a slew of enterprise tech stocks are seeing big losses, with cloud software and security tech names well-represented on the casualty list.
Also: Solar stocks are having another brutal day (TAN -6.7%) as energy stocks get routed amid fears Chesapeake Energy is close to bankruptcy. WTI crude oil is once more near $30/barrel.
A long list of enterprise software and security tech names are off sharply after business intelligence/analytics software upstart Tableau (down 45.3%) reported slower-than-expected license revenue growth and issued below-consensus Q1/2016 guidance.
Also possibly weighing: LinkedIn (down 39.6%), which derives a large % of its revenue from cloud-based recruiting and sales tools for enterprises, issued weak Q1/2016 guidance.
Given the magnitude of the drops, margin calls and forced selling by funds could be playing a big role. The Nasdaq is down 2.2%.
Tableau suggested its growth slowdown has to do with softening IT spend and a need to improve sales productivity, but analysts have raised questions about competition from the likes of Microsoft, Amazon, and Qlik. LinkedIn forecast a growth slowdown for its field sales hiring solutions business, while blaming European/Asian macro pressures. The company also noted its display ad business continues declining amid weak industry growth.
Major enterprise software decliners include Splunk (SPLK -23.7%), Workday (WDAY -15.1%), Adobe (ADBE -7%), Zendesk (ZEN -15.2%), ServiceNow (NOW -13.6%), NetSuite (N -12.4%), Salesforce (CRM -11.2%), Paycom (PAYC -10.6%), Ellie Mae (ELLI -11.5%), Cornerstone OnDemand (CSOD -7.8%), Veeva (VEEV -7.7%), Ultimate Software (ULTI -9%), Luxoft (LXFT -7.5%), Manhattan Associates (MANH -8.5%), Box (BOX -6.6%), Guidewire (GWRE -13.6%), Demandware (DWRE -9.3%), Hortonworks (HDP -9.7%), and Tableau rival Qlik (QLIK -16.6%). The casualty list includes many cloud software firms, as well as several analytics software plays. Previously covered: New Relic, Atlassian.
Major decliners among security tech firms: Palo Alto Networks (PANW -12%), FireEye (FEYE -8.9%), Rapid7 (RPD -8.6%), CyberArk (CYBR -8.3%), Proofpoint (PFPT -8%), Imperva (IMPV -8.3%), Fortinet (FTNT -6.9%), and Vasco (VDSI -5.1%). The selloff comes in spite of an FQ3 beat and in-line FQ4 guidance from Symantec, which has been losing share to various upstarts.
Barclays' Raimo Lenschow has downgraded firewall/security software firm Check Point (CHKP -1.9%), cloud talent management software firm Cornerstone OnDemand (CSOD -2.7%), and data warehousing hardware/software provider Teradata (TDC -3.8%) to Underweight. Cloud HR/financials software vendor Workday (WDAY -3.6%) and e-commerce software/services provider Demandware (DWRE -2.9%) have been cut to Equal Weight.
Cloud HR software firm Paycom (PAYC -1%), on the other hand, has been upgraded to Overweight on a belief consensus estimates are too low. Meanwhile, BofA/Merrill has launched coverage on Demandware at Buy.
Regarding Check Point, Lenschow says he prefer security tech firms that are gaining share - his top three ideas are Palo Alto Networks, Imprivata, and Rapid7. He sees security IT spend rising 7% in both 2016 and 2017, a rate on par with 2015's.
Regarding Cornerstone, Lenschow is worried about slowing top-line growth, a lack of profits, and growing competition. Regarding Workday, he's concerned about competition from SAP/Oracle, a high valuation, and the relatively limited impact of its financials offerings on sales growth.
The downgraded names are underperforming amid a 1.1% Nasdaq drop.
TheStreetSweeper highlights recent major sales of Paycom (NYSE:PAYC) shares from P-E firm WCAS, and the Dec. 28 release of 18M shares from insiders. It also argues sales could drop following January and March 2016 Obamacare compliance deadlines, given Obamacare has fueled demand for Paycom's cloud HCM/HR software offerings and customers are allowed to cancel with just 30 days prior notice.
The site adds Paycom faces competition from Zenefits, ADP, Intuit, Salesforce, Palo Alto Software, and others, and suggests the market is overheated the way the 3D printing space recently was. "We think $22 per share is a very fair, near-term valuation for this stock."
Investment firm WCAS, Paycom (NYSE:PAYC) execs, and certain other stockholders are selling 4.5M shares (nearly 8% of outstanding shares) through a secondary offering. The underwriter (Barclays) has a 675K-share overallotment option.
If the story sounds familiar, it could be because Paycom announced a similar offering in September. The latest offering comes a week after the cloud HR software firm jumped to new highs in response to a Q3 beat and strong Q4 guidance.