Volume Breakdown Report: July 16, 2022


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I have several new VBR buy signals to discuss today. Friday’s 2% bullish action in the US stock market sparked interest in a few names. However, I thought I would step into my overall forecast for Wall Street direction to take a decidedly bearish turn this the week. You can read more about the reasons for my nervousness in the message just published Article “Developing the liquidity crisis” here. I suggest investors hold a good amount of cash, stay well diversified, and/or use some hedging through short selling and index put options to prepare for the strong possibility of a another 10%-15% decline in Wall Street in the coming weeks/months.

I really don’t have much to report on the performance front for the top 11 VBR picks made over the past three weeks. The biggest winner so far is Del Monte Fresh Produce (PDF). An article was published after Friday’s close that a takeover offer could come from a partner I squared the capital. Using the +4% lead in late night trade, this pick is up around +15% over several weeks. The takeover rumor also explains the oversized volume interest in FDP.

As a group, the 11 VBR picks exhibit an average total return performance very close to the flat returns of the small-cap Russell 2000 and large-cap S&P 500 indices. For a review of what is possible on the upside and downside after VBR signals, please read last week’s article linked here.

New buy signals

Incyte

Incyte Corp. (INCY) is a fast growing biotechnology company with a number of pharmaceutical products in the market. A conservative balance sheet includes $2.5 billion in cash ($10 per share) and $4 billion in tangible book value ($16 per share), with few liabilities. Revenues are expected to continue to grow by around 30% per year, as shown below.

INCY – Seeking Alpha – Analyst Estimates, July 15, 2022

Subtracting the large cash reserve, INCY’s underlying earnings yield approaches 5%. Essentially, this selection represents a classic defensive position in a recession, with growth at a reasonable price [GARP] characteristics. Any acceleration in sales or the introduction of new products could lead to robust gains in the stock market listing over the next year.

INCY technical charter

StockCharts.com

Bassett Furniture

I wrote about Bassett Furniture (BSET) earlier in the week here. The company is a defensive pick with almost half of the share price backed by cash. The additional dividends and share buybacks in 2022 could go on for years. Operating activity is incredibly cheap when you adjust cash assets, trading closer to one EV at 4x earnings (final, after tax) and EBITDA below 3x. If a recession doesn’t totally slump furniture industry sales through 2023, I predict that 50% to 90% upside investment is possible in BSET.

Technical sheet BSET

StockCharts.com

Seeking Alpha Computers agree that BSET is a great choice, based on earnings trends and trading dynamics. HER Quantitative ranking for Bassett is currently close to a Top 1% pick, out of a universe of 4,600 stocks.

Ranking of BSET shares

BSET – Seeking Alpha – Quantitative Ranking, July 15, 2022

Cross Country Health Care

If nursing and doctor shortages are the new norm due to COVID-19-related burnout and stress, Cross Country Health Care (CCRN) could have a bright future. The company is based in Florida and has become quite profitable in 2020. This stock benefits as a staffing company for hospitals and other healthcare centers during the nationwide shortage of nurses to meet inflated demand. Nurses and doctors have quit in large numbers, which should work in CCRN’s favor as the supply of skilled labor could take years to replenish. The earnings and sales outlook is shown below, with an expected peak in 2022. Such a forecast may or may not turn out to be accurate if a new wave of coronavirus variants hits this fall and winter. The company has a strong balance sheet with more cash and receivables than total liabilities.

Cross Country Healthcare Profit Estimates

CCRN – Seeking Alpha – Analyst Estimates, July 15, 2022

Despite considerable gains in stock prices over the past two months, the projection of a P/E of 15x EPS next year would still leave a potential price upside of 50%+ sooner or later in 2023. The original VBR signal was at Monday’s close at $24.51. The price at yesterday’s high was already up +10%.

CCRN Stock Technical Chart

StockCharts.com

Green Brick Partners

It seems counter-intuitive to invest in a home builder at a peak in the housing market. More than likely, new homes won’t be as profitable to build, given the effect on demand as mortgage rates have nearly doubled in 18 straight months. However, sound management and lower commodity costs in a recession will still generate decent incomes in the right markets. Green Brick Partners (GRBK) is a major builder in Florida, Atlanta and Dallas, areas of the country that are seeing strong housing demand in 2021-22. The current stock price of $23 and the move is close to its tangible book value of $17 and a far cry from its high of $32 in December. The stock is valued at 5x trailing EPS and 4x EBITDA, with revenue likely peaking this year if a recession is next. The good news is that a long-term demographic trend of new housing shortages in America should support the company. Green Brick has grown rapidly over the years without using a lot of debt, another big plus in my book. David Einhorn’s Greenlight Capital held 34% of the outstanding shares at last report.

Technical sheet GRBK

StockCharts.com

Seeking Alpha Computers agree that Green Brick is currently an exceptional choice. HER Quantitative ranking because GRBK is also ranked in the top 1% today, as is Bassett Furniture.

GRBK Stock Ranking

GRBK – Seeking Alpha – Quantitative Ranking, July 15, 2022

Final Thoughts

I am very cautious about the direction of the US stock market in the coming weeks. Nonetheless, I’m confident my VBR picks will either keep pace or outperform as a group against the S&P 500 and Russell 2000 indices over the coming months. If you’re more optimistic than me, or can handle immediate 15% or 20% losses, feel free to consider my VBR sort winners.

I suggest readers make an effort to do more in-depth research on any of the Volume Breakout Report selections that interest you, based on your risk appetite or sector exposure needs in portfolio construction. . Please understand that small cap selections should be a limited part of portfolio design. Owning a diverse number of stocks is the prudent, risk-adjusted way to play them. Volatile price swings are part of the Wall Street small business investment process. Please consider using pre-placed stop-loss sell orders to reduce the downside potential of individual names. Depending on your risk tolerance, stop levels of 10% to 30% are recommended.

VBR stocks are selected using a specific set of formulas designed around positive momentum characteristics, crossed with high volume days in short-term upward price trends. My proprietary formulas examine the relative health of no less than 15 different technical indicators, computer-sorted daily from a universe of thousands of stocks.

Thanks for reading. Please consider this article as a first step in your due diligence process. It is recommended to consult a registered and experienced investment adviser before carrying out any transaction.

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