My research, which has been developed over two decades of Wall Street experience, strongly suggests that our Dunks Product can add significant value by supplementing the actively managed part of your portfolio. By highlighting individual stocks with high quality reward risk ratios that over the medium/long-term raise the probability, you can outperform the overall equity market without taking on excessive amounts of risk.

For those who are less risk-averse, we also present some higher-risk, but often higher-reward opportunities that will be included in the Mid-Range Jumper section of the overall Dunks. Both these stock lists are derived by the models and techniques that I have been producing for professional institutional investors since the 1990s. For the first time ever, I am now making it available to retail investors on FSInsight.com.

My investment and selection methodologies are grounded in proprietary quantitative analysis and methods that have not only have stood the test of time but also have been evolving. Please be aware, that because I am using a quantitative model-based method. Therefore, I am not doing extensive fundamental and catalyst analysis on the individual names we land on. You should always do additional due diligence before adding a name to your portfolio to ensure it conforms with your individual risk tolerance and investment goals.

Click HERE to read the intro of Brian’s Dunks

Market Commentary

My expectations for market turbulence to begin 2022 have been playing out and the increase in volatility has certainly made the investing backdrop challenging to say the least.  I should have known from Murphy’s Law that the long-awaited launch of Dunks would not be at a nice and easy market bottom.  With that being said, we are grinding and despite some bumps that have been a bit disappointing my work says we are in good shape.  In this update, I am going to make some changes to the Dunks List that will reflect the ever-changing macro backdrop as well as the readings from my key indicators. 

When looking at the bigger picture, I have been expecting elevated inflation, rising interest rates, and the path of Fed policy to be big factors that will affect equity markets during 1H22.  All of these are still on the board and need time to play out before the coast will be clear.  So, we must keep alert.  It should be noted that my work is still signaling that inflation is likely to peak during 1H22 and the markets will overly price in what Chairman Powell and the committee will end up doing, which will provide some strong tailwinds for equities during the back half of the year.  The new wrinkle has been the recent geopolitical events and what their ultimate impact will be.  Despite the serious nature of what is occurring in Ukraine at the moment, it is my view that the spill over into the equity markets is likely to be of shorter time duration and investors should use day-to-day news announcements and increased volatility as opportunities to raise exposure in stocks and sectors that my work is still portending will provide healthy returns through year end.

Importantly, my work is still medium term constructive and is suggesting that although the bears are getting some time in the spotlight thus far during 2022, the bulls will end up leading the charge into year end.  So, I continue to advise investors to remain vigilant and look for opportunities in the stocks and sectors that my proprietary process continues to support for the medium term.

Changes this month

Summary

Analysis

Dunks

AMZN -0.97%  – Amazon ( PLAY )

ASM Indicator: It continues to have positive slope and is about to cross into the northern hemisphere, which is a reading above zero and is supportive of future performance gains. Additionally, the red bars for AMZN are also getting smaller and is a bullish confirmation for its favorable ASM reading.

Brian’s Take: The stock has yet to meaningfully pick up, but its key indicators are slowly getting less bad, which is contrarian favorable in my work. Another supportive piece of evidence is that AMZN held above its technical analysis chart support level of $2800. My work continues to signal that raising exposure to this e-commerce and cloud services leader at current levels is quite attractive.

Commentary: AMZN is the undisputed leader in e-commerce and cloud services through its Amazon Web Services segment. We believe the competitive advantage will be hard for peers to catch up to. The company will likely grow at above-market rates as the importance of cloud and e-commerce continues to increase.

FANG 1.54%  – Diamondback Energy ( PLAY )

Changed from Mid-Range Jumper to Dunk

ASM Indicator: In my last comment, FANG’s reading was in the midst of a shallow down/up cycle and that appears to have been completed as its ASM is once again rising, which should provide support for upside gains.

Brian’s Take: The stock has been treading water as it was a bit extended.  With that being said, FANG’s indicator backdrop is still robust and suggests that any tactical underperformance that may occur because of macro news should be viewed opportunistically. 

Commentary: This is a well-managed Energy name that should be able to outperform markets and peers and has a tailwind of being in an attractively valued sector.

LYV 5.81%  – Live Nation ( PLAY )

ASM Indicator: It continues to drift higher and has not yet reached elevated levels. In addition, further evidence that this trend should continue was today’s earnings release for LYV where they posted better than expected results and provided optimistic guidance for a strong 2022 comeback.

Brian’s Take: My thesis and the indicators for LYV are playing out as the company should continue to be a beneficiary of reopening as the evidence is growing that COVID is likely to be fading. Also, the stock appears to be attempting a technical analysis price breakout, which would also provide additional tailwinds for LYV’s stock.

Commentary: This company’s superior scale and operating expertise allow LYV to benefit from the ongoing normalization and return of live events, including concerts. 

RTX -0.21%  – Raytheon ( PLAY )

New Addition

ASM Indicator: It has been effective signal for relative performance reversal points following its extreme negative low in 1Q20 and its subsequent peak in 2Q21.  During the last six months, RTX’s ASM was under pressure until it made a major low in December and has been trying to begin a new earnings revision up cycle, which would bode well for future stock price gains.

Brian’s Take: The stock is well supported with a new positive ASM inflection from an extreme low and RTX looks poised for a technical analysis price breakout.  Consequently, my work views Raytheon quite favorably and a nice addition to my Dunks. 

Commentary: Raytheon operates as an aircraft manufacturing company as well as a leading defense contractor. Thus, RTX has a diversified mix of commercial aerospace and military exposure and has been increasing its global exposure as well.

CCJ 1.38%  – Cameco Corporation ( PLAY )

ASM Indicator: It is currently in the process of making a “shallow down-up” and is likely to continue its grind higher.  For the coming quarters, it appears that further earnings revision tailwinds will come from the fact that uranium pricing looks well supported with inventory replenishment that looks likely to occur.

Brian’s Take: In my view, CCJ is a secular story that will from time to time be impacted by tactical and cyclical factors as well.  A rising US dollar and fears of economic growth slowing may have short term negative implications while the geopolitical events of Russia/Ukraine and its large influence on Europe’s natural gas supplies can be tactical positives as the EU may have to further raise the importance of nuclear for their electricity needs.  The stock looks poised to grind higher based on my work and will use any tactical weakness to raise exposure.

Commentary: CCJ explores, develops, mines, refines, converts, and fabricates uranium as one of the world’s largest global providers of the fuel needed to energize a clean-air world. The company offers uranium for sale as fuel for generating electricity in nuclear power reactors. Its top tier operations have the licensed capacity to produce over 50 million pounds of uranium concentrates annually, backed by more than 450 million pounds of proven and probable mineral reserves. It is also a leading supplier of uranium refining, conversion and fuel manufacturing services.

Mid-Range Jumpers

PM -1.88%  – Phillip Morris ( PLAY )

New Addition

ASM Indicator: It peaked during the back half of 2H21 and had been falling into mid-December when a negative extreme reading was reached.  The subsequent positive inflection that has occurred is a contrarian favorable signal in my methodology.  Moreover, the red bars for PM also made a higher low, which is a bullish confirmation of the positive ASM reading. 

Brian’s Take: Despite the stock getting hit today because it has roughly 8% exposure to Russia/Ukraine, company management does not expect much impact on its business because of any future sanctions placed on Russia.  Thus, the combination of a positive indicator backdrop and a price decline that looks overdone contributes to our favorable view on PM.  Also, since I am also expecting more rocky equity markets for at least a couple of months and with a nearly 5% dividend yield, the stock presents an interesting mix of both offense and defense. 

Commentary: Phillip-Morris is the third-leading producer of tobacco products. The company has an 11.4% global market share and owns flagship brands such as Marlboro. In addition, PM is also launching an effort into less-harmful, heated tobacco products. This push has been largely unaffected by COVID and is expected to compensate for the declining global sales of cigarettes and tobacco bans.

BKNG -1.71%  – Booking Holdings ( PLAY )

New Addition

ASM Indicator: I am adding BKNG to the Mid-Range Jumpers to take advantage of what my work suggests was an improper reaction to the company’s earnings release this week.  Its ASM indicator is about to finish a shallow down-up cycle that will likely get a strong boost from what I expect will be a powerful surge in summer vacation travel.  A healthy rising ASM would bode quite well for stock price gains if my expectation is correct. 

Brian’s Take: Along with LYV, BKNG is another clear beneficiary of COVID fading and life moving back towards normal.   Anecdotal survey data shows that the desire to travel and the level of pent up demand is high among consumers all over the world and should be an important driver for BKNG for the remainder of 2022.

Commentary: BKNG operates as an online travel company that allows you to make travel reservations with providers of travel services, as well as provides accommodation reservations, rentals cars, airline tickets, and vacation packages. BKNG operates six of the world’s leading online travel tools, and Booking.com is its namesake and top brand and offers online reservation services for nearly 2.4 million properties — including hotels, motels, resorts, apartments, and homes — across 220-plus countries.

ISRG 0.14%  – Intuitive Surgical ( PLAY )

ASM Indicator: In the last update, I commented that the ASM indicator was in the process of a down-up cycle, which now looks like an important bottom is being formed.  If this is indeed the case, ISRG should begin to see its stock price respond favorably.  Since the company’s earnings revisions have been negatively impacted by the recent Omicron COVID wave and the disruption in elective surgeries, it is expected that the worst is behind ISRG and the rest of year should reward investors who own the stock.

Brian’s Take: My work was signaling that putting ISRG on the Dunks was a bit aggressive and likely early.  However, I was willing to start building a position in the name on weakness as my key indicators are signaling healthy investment gains through year end.   Therefore, I’d advise raising exposure before the stock begins working. 

Commentary: The Health Care sector is experiencing healthy disruptions and changes, and ISRG is one of the leading innovators in the space. The firm has products that utilize both robotics and augmented reality to positively impact the industry and get improved results for patients.

CME -1.14%  – CME Group ( PLAY )

ASM Indicator: This important indicator is still rising and has plenty of room to keep going before it reaches a positive extreme.  In addition, CME now has a green bar that looks to be growing, which is a strong confirmation of the healthy ASM reading and portends further gains in the stock.

Brian’s Take: After releasing its earnings results earlier this month, which were strong, the CME’s price surged higher and reached overbought levels.  It is not uncommon for any stock to have a short consolidation/pullback period before continuing to move higher.  Hence, I would use any tactical weakness without any company specific news as an opportunity to raise exposure in CME.

Commentary: This company is a cutting edge financial services name that is a leader in the burgeoning area of derivatives. CME’s profitability will likely continue to increase as more investors use the firm’s comprehensive product offerings to manage risk.

TSM 1.10%  – Taiwan Semiconductor ( PLAY )

ASM Indicator: It made its last extreme negative in 1Q19 and has been making a series of bullish higher lows for the last three years and is still strongly rising. 

Brian’s Take: After reporting it earnings on 1/13, the stock has been under pressure.  Initially, this price weakness appeared to be just a normal and healthy consolidation that was needed since TSM was overbought.  However, the stock has been hit by two factors this week — 1) The company said it will comply with export control rules on Russia; and 2) Trader concerns about Taiwan-China relations in the aftermath of Russia’s military action in Ukraine.  I am willing to give the strong indicator backdrop the benefit of the doubt but will keep the geopolitical factors on my radar screen for TSM.       

Commentary: This company has steadily risen to the top of the pack in the semiconductor industry and maintains a dominant competitive foothold at the leading edge of chip production.  In addition, it has considerable pricing power caused by the ongoing semi shortage that will likely help the company achieve superior operating results. 

Changes

PYPL -2.64%  GM 1.40%  SBUX 2.24%  (Changed from PLAY to HOLD)

I am removing PYPL, GM, and SBUX from the Dunk’s Play list as they have all acted much weaker than my model was forecasting.  This has been quite frustrating and disappointing to me as their indicator set ups were quite compelling and historically have led to healthy returns for investors. 

With that being said, my medium-term work is still favorable on all three names suggesting that the stocks still have attractive return potential.  Hence, I am putting them in the “HOLD” bucket and not completely kicking them out.  Longer-term investors with enough funds to keeping holding these names and still able to buy our replacement picks may be well served to do so.