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

The U.S. equity markets continue to trade sideways with high levels of volatility and angst about the current macro backdrop.  As I have been writing, this should not be a surprise as turbulence for 1H22 has been the forecast for several months.  Despite the headline news story of the day and the tactically shifting winds that seem to be occurring nearly every day and sometimes multiple times intra-day, most of my bigger picture views have not changed much at all.  Yes, I am keenly keeping my eyes on crude/energy pricing, inflation, interest rates, Fed policy, the geopolitical events, and how the corporate profit backdrop may or may not be shifting. 

Challenging markets can cause investor anxiety to rise and even push one to move completely to the sidelines, but my research and over 20 years of Wall Street experience suggest that times like these normally lead to great investment opportunities, which should be taken advantage of instead of hiding in a cave.  The entire 10 stocks in the Dunks product are slightly underperforming the S&P 500 since inception, but that is not surprising considering the portfolio is meant to be offensive and will likely struggle during down overall equity periods.  With that being said, the Dunk names in total are performing well under the circumstances and my research suggests that the forward outlook remains bright. 

More specifically, markets are still dealing with the impacts of the ongoing Russia/Ukraine conflict, elevated inflation, rising interest rates, and a Fed that is in motion.  Although one or two could potentially come off the board at any time, it is still unlikely based on my research that all the current challenges will imminently disappear.  Thus, choppy and challenging equity markets are probably here to stay for a couple of months more at a minimum. 

Diving deeper, my research and key indicators remain medium term favorable and notwithstanding additional volatility and possibly lower S&P 500 levels in the short term, the outlook for a better 2H22 is still expected.  So, I continue to recommend to investors to keep current risk levels moderate and to be on full alert for opportunities to take advantage of if there are any additional sharp down moves in markets, sectors, or individuals names. 

Changes this month

No changes this month.

Summary

Analysis

Dunks

AMZN 1.27%  – Amazon ( PLAY )

ASM Indicator: Its key indicator remains positively sloped, and still has plenty of room to run before it would reach a positive extreme.  Moreover, the red bars for AMZN continue to shrink and confirm the favorable reading. 

Brian’s Take: During the recent increase in market volatility, the stock has been lingering between 2700 and 3000.  Importantly, AMZN continues to hold a technical support level of 2800 and with its recent announcement to split the stock 20-1 and buy back $10 billion in stock, the reward risk setup continues to be quite attractive.  Once the macro backdrop improves, my expectations for AMZN are quite high as my research still points to raising exposure to this e-commerce and cloud services leader at or near current levels.

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 0.87%  – Diamondback Energy ( PLAY )

ASM Indicator: Its key metric is grinding higher with plenty of room before it would become extreme, which would be a potential contrary bearish signal.  A continuation of this uptrend should bode well for the ongoing positive stock price performance of FANG.

Brian’s Take: The stock has been trading sideways over the last couple of weeks after reaching a tactical overbought condition.  Importantly, FANG’s indicator backdrop is still quite favorable and keeps us exposed to this high quality energy name. 

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 2.26%  – Live Nation ( PLAY )

ASM Indicator: Similar to many names both on the Dunks list as well as the overall S&P 500, LYV’s key earnings revision indicator is now going through a shallow “down-up” cycle.  It is my expectation that over the month a higher low will be reached and the ASM will once again start moving higher again, which will provide a strong tailwind for its stock price. 

Brian’s Take: The recent spillover of geopolitical fears to higher energy prices has provided some tactical headwinds for LYV.  However, with economies beginning to open up and normalize as the weather shifts towards spring for most of the Northern Hemisphere, the company will likely be a beneficiary.

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 -1.46%  – Raytheon ( PLAY )

ASM Indicator: The new ASM cycle is still in its early phases and is likely to provide strong support for healthy price gains in RTX.  Importantly, its bars are fully confirming the uptick in ASM indicator, which strengthens the investment case for the company.

Brian’s Take: The stock continues to be well supported with a rising ASM reading as the RTX stays within its rising price uptrend as well.  This combination portends a high likelihood of solid returns while the backdrop remains on this course. 

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 -2.78%  – Cameco Corporation ( PLAY )

ASM Indicator: In last month’s update, I commented that its ASM was in the process of making a “shallow down-up” and that it was likely to continue its grind higher.  Well, its key indicator is now moving higher again, which is historically a bullish sign for any stock based on our research.  For the coming quarters, it still appears that CCJ has some earnings revision tailwinds from solid uranium pricing from inventory replenishment, potential bans of Russian uranium by Western nations, and the ongoing expected resurgence of nuclear power as countries rethink their respective energy needs.

Brian’s Take: The secular story for CCJ is still in place and is getting stronger as the ongoing Russian/Ukraine situation is providing additional attention to non-Russian uranium plays and the increasing likelihood that nuclear power will be a larger part of Western energy inputs over the next decade.  Combined with supportive indicators from my process, and the stock looking poised to reward investors for raising exposure. 

Commentary: The energy transition is happening, but what technology will eventually help bring down carbon solutions without sacrificing quality of the grid?  Our research and analysis suggest that nuclear energy will become a more essential part of the world’s solution to evolving clean energy needs.

Mid-Range Jumpers

PM -0.18%  – Phillip Morris ( PLAY )

ASM Indicator: Its ASM indicator is working itself off a negative extreme low and now looks to be rising.  You may be asking yourself how this can be happening as PM is impacted somewhat by the Russia/Ukraine events.  As a reminder, the key to my ASM metric is the slope and not the level.  Thus, names that are getting “less bad” (absolute negative, second derivative positive) are favorable while names that are “less good” (absolute positive, second derivate negative) are unfavorable.  The bottom line here is that the maximum rate of change in the bad news for PM looks to now be behind it, which is a historically bullish setup. 

Brian’s Take: Despite the stock being pressured by the geopolitical situation with Russia/Ukraine, the impact to PM appears to be manageable and it has some ability to offset things.  Importantly, since I expect the choppiness in equity markets to continue for at least a couple of more months and that PM has nearly a 5% dividend yield, the stock remains 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 2.95%  – Booking Holdings ( PLAY )

ASM Indicator: Its ASM indicator has completed a shallow down-up cycle and appears poised to start moving higher.  A small tactical headwind might be some geopolitical spillover of Russia/Ukraine on European travel.  My expectation for healthy summer vacation travel activity is still my base case and it should strongly support BKNG.

Brian’s Take: As stated in the last update, BKNG is like LYV as it is another clear beneficiary of economies normalizing and reopening.  Anecdotal survey data continues to signal that the desire to travel and the level of pent-up demand is high among consumers all over the world and should be a key driver for BKNG for the remainder of 2022.

Commentary: BKNG operates as an online travel company that allows users to make travel reservations with providers of travel services, as well as provides accommodation reservations, rental 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 diverse properties across over 220-plus countries.

ISRG 1.46%  – Intuitive Surgical ( PLAY )

ASM Indicator: The setup for ISRG has changed very little over the past couple of months.  It is finishing a down-up ASM cycle and looks poised for a strong reversal, which would be quite favorable for its stock price.  In addition, its red bars are providing a similar signal that together is a powerful setup for future stock performance gains. 

Brian’s Take: From a price perspective, ISRG has been stabilizing between $260-300 and allowing a compelling opportunity for investors to raise exposure to this high quality health care company.  I have been willing to build positions in ISRG as the forward outlook looks quite favorable. 

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 -0.60%  – CME Group ( PLAY )

ASM Indicator: Its key metric remains in a strong uptrend and is still not at a positive extreme.  In addition, CME has now posted several green bars that look to be growing, which is a strong confirmation of the favorable ASM reading and signals further stock gains are quite likely.

Brian’s Take: We commented in the last update that CME might come under some tactical selling pressure as the stock was overbought.  Importantly, however, I stated that any weakness would create a great opportunity to raise exposure in CME.  Well, the stock did indeed act poorly into the recent low on 3/9 but has rallied over 10% since bottoming.   My work suggests that CME is still attractive, and investors should look to raise additional exposure as its indicator setup remains quite supportive. 

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 -0.33%  – Taiwan Semiconductor ( PLAY )

ASM Indicator: TSM is another name that is in what I expect to be a shallow down-up cycle, which will ultimately make a bullish higher low.  This will likely take 2-8 weeks and then provide strong tailwinds into year-end.  Its green bars are quite healthy and help provide conviction in my expectation. 

Brian’s Take: The stock has been hit with a multitude of macro fears that have also impacted other semi related names. Based on its indicators and my outlook for the remainder of the year, the current weakness in the stock is likely creating a wonderful opportunity for investors to raise exposure to this industry leader.

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. 

Last Remarks

PYPL 4.07%  GM 3.31%  SBUX 4.38%  (HOLD)

For now, PYPL, GM, and SBUX remain in the hold bucket as laid out last month and explained below 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 setups where quite compelling and historically have led to healthy returns for investors. 

The “HOLD” bucket is one where a name is not completely kicked out.  Longer-term investors with enough funds to keep holding these names and still able to buy our replacement picks may be well served to do so.