Stocks Under $10 Weekly Summary

The Stock Market Last Week

The portfolio took its cue from the week-over-week decline posted by the Russell 2000, as more holdings moved lower last week than higher. We saw noticeable declines with our FuelCell (FCEL) , Shift Technologies (SFT) and Regulus Therapeutics RFLS shares. Two bright spots were our positions in Energy Recovery (ERII) and Nokia (NOK) , both of which outperformed on a both an absolute and relative basis. While we initiated no new positions last week, we added to our holdings of AXT Inc. (AXTI) and 22nd Century (XXII) .

Stepping back to look at the larger economy and market, equities closed a week of trading that was decidedly mixed. The S&P 500 inched ahead while the Dow Jones industrial average and the small-cap heavy Russell 2000 finished lower. By comparison, the Nasdaq Composite Index climbed by more than 1% this week, spurred on by gains in big tech, including Apple (AAPL) , Amazon (AMZN) , Nvidia (NVDA) and others. 

Amid the shift in corporate earnings reports that skewed toward retail and a light economic calendar, the week started off with President Joe Biden signing the $1.2 trillion bipartisan infrastructure bill. That was quickly followed by a virtual meeting with China's Xi Jinping. Following that several hour-long meeting, the White House shared the discussion didn't produce any major resolutions, Biden was clear that the U.S. needs to protect American workers and industries from China's unfair trade and economic practices, Xi said Biden is "playing with fire" regarding U.S. support for Taiwan.

"China and the United States should respect each other, coexist in peace and pursue win-win cooperation. I stand ready to work with you, Mr. President, to build consensus, take active steps and move China-U.S. relations forward in a positive direction," said Xi.

Our take is initial conversations can always be tricky, now to see what follow-through ensues, including topics for the next Biden-Xi conversation, as well as subsequent progress. Also on the trade front, Japan and the U.S. agreed to start discussions aimed at tackling additional U.S. tariffs on Japanese steel and aluminum imports.

Weighing on equities late in the week was the resurgence in COVID-19 as Austria became the first country in Europe to reimpose a full coronavirus lockdown, stepping up its restrictive actions for only unvaccinated citizens. This follows surging cases in Germany and other parts of Europe that are leading to renewed restrictions.

Exiting the week, in Washington, the House is trying to approve the $1.75 trillion Build Back Better economic package this week. The Senate then plans to take up the legislation after it returns from a Thanksgiving recess. Also coming back to the forefront in Washington is the U.S. debt ceiling given that the Treasury Department projects that the U.S. government can stave off a debt default until Dec. 15 -- that's just over three weeks away and, yes, Congress does have that Thanksgiving break that means the House and Senate won't be back in session until Nov. 30.

Looking at the global economy last week there was a bevy of data to be had and it showed a mixed bag with certain sectors rising while others continue to hit headwinds. Inflation facing data, continued to tick higher.

The NY Empire State Manufacturing Index for November came in much stronger-than-expected, rising to 30.9 from 19.8 in October, well above the expected increase to just 21.2. Both new orders and shipments posted strong gains. Delivery Times were significantly longer. Employment grew at the fastest pace on record and the average workweek grew. "Prices paid" remains near its all-time high while, "prices received" hit a new peak.

October retail sales report, which showed headline growth year-over-year of 16.3% for retail and food services, well ahead of the expected 13.9% increase. Stripping out food, and focusing on retail, those sales climbed 14.8% year-over-year with particular strength in food services & drinking places (+29.3% year-over-year), department stores (+27.6%) and clothing & clothing accessories (+25.8%) and gasoline stations (+46.8%).

Taking a closer look at the sequential year-over-year pattern for September and October, we see a nice tick up in non-store retail sales, food & beverage stores (including grocery stores), auto & other motor vehicle dealers, and building materials. That month-over-month improvement seems to confirm that supply chain issues have improved at least some in October, further supporting the figures we've seen from the likes of Ford Motor (F) , Costco Wholesale (COST) and others.

We recognize that year-over-year price increases in gasoline, home heating, and food as well as those for other products and services, are taking a bite out of consumer wallets, hitting disposable spending dollars. One such example of this was had from the American Farm Bureau Federation that shared Thanksgiving dinner will cost US consumers an average of 14% more this year, marking the biggest annual increase in 31 years. Housing Starts in October fell for the third time out of the past four months, coming in slightly lower than expected at 1.52 million from the prior 1.53 million and well below the expected 1.576 million. Single family housing starts fell to the lowest levels since August 2020. Building permits came in higher than expected, rising to 1.65 million from 1.586 million, well above the 1.638 million expected.

The Philly Fed Manufacturing Index for November came in much stronger-than-expected at 39, up from the prior 23.8, and way above the expected slight increase to 24. The prices paid component rose again to 80 from 70.3, its third consecutive increase and just below June's 42-year record high of 80.7. New orders rose 17 points to 47.4 with 48% of respondents reporting an increase in new orders while less than 1% reported a decrease. Taking some of the air out that balloon, the Kansas Fed Composite Index dropped from 31 to 24 and the Manufacturing Index also fell from 25 to 17.

The Stock Market This Week

We have a shortened trading week given the Thanksgiving holiday that has domestic markets closed on Thursday and opened for a shortened trading session on Friday. Some shortened weeks are quiet ones, while others can be jam packed with data. This week is one of the latter ones, particularly on the economic data front. Meanwhile, retail earnings flood continues, setting the stage for Black Friday to Cyber Monday shopping bonanza, the traditional kick off to the madness known as the year-end holiday shopping season.Here are the economic reports we’ll be watching this week: * Data on the red-hot housing market comes on Monday with Existing Home Sales for October followed by the October data for New Home Sales on Wednesday. * On Tuesday, we'll be focused on the Flash PMI readings for Japan, Europe and the U.S. Inside those reports, we'll be looking for not only the latest indicators of economic activity, but also signs that supply chain issues are improving. We'll also be assessing inflation facing comments for both inputs as well as companies raising prices * The most important data points will be Wednesday’s release of the second estimate for Q3 GDP and the minutes from the last Federal Reserve policy setting meeting as investors look for more insight into the Fed’s possible next moves. * We’ll also be paying close attention to Wednesday’s Personal Income and Spending reports that include inflation insight in the form of the PCE Price index, along with the November Michigan Consumer Sentiment report for insight into the state of the consumer. Keep in mind that we need to see consumers’ long-term inflation expectations rise materially to get worried about wage pressures and data on that will be had in the Michigan Consumer Sentiment report. * Wednesday also bring the Durable Goods data for October, and it’s one we’ll be examining closely after September’s pullback, the first one in five months. * Other economic activity metrics of note to be released include Monday’s Chicago Fed National Activity Index for October, Wholesales Inventories on Wednesday, and because of the holiday, the usual weekly jobless claims reports will be published on Wednesday rather than the usual Thursday.

On the earnings front, we have a jam-packed first half of the week that once again skews heavily toward retail.

Following comments from Walmart (WMT) and Target (TGT) over the impact of rising input and transportation costs on margins and bottom-line results, investors will be scrutinizing retail revenue vs. profit growth this week. They will also be digging into holiday shopping forecasts, with a focus on which companies are best positioned to keep their shelves stocked this year and which one’s plan to flex their digital shopping capabilities. Companies in those cross hairs will be Urban Outfitters (URBN) , Abercrombie & Fitch (ANF) , Gap (GPS) , Nordstrom (JWN) , and others. Sticking with retail facing businesses, Jack in the Box (JACK) should benefit from the year-over-year-surge in restaurant retail sales, but will those gains be impacted by the sharp rise in meat and other protein costs as well as higher wages?

With COVID-19 restrictions returning in Europe, we suspect Zoom Video (ZM) will offer an upbeat outlook, and we'll be listening in closely given how that competes with Microsoft's Teams. We'll also be looking to hear what specialty contractor Dycom (DY) has to say on the 5G and gigabit fiber buildout. Here's a closer look at the earnings reports coming at us this week:

Monday, Nov. 22: Avaya Holdings (AVYA) , Li Auto (LI) , Jack in the Box (JACK) , Urban Outfitters (URBN) , Zoom Video (ZM) .

Tuesday, Nov. 23: Abercrombie & Fitch (ANF) , American Eagle (AEO) , Analog Devices (ADI) , Best Buy (BBY) , Dick's Sporting Goods (DKS) , Dycom (DY) , J.M. Smucker (SJM) , Dell (DELL) , Gap (GPS) , HP (HPQ) , Nordstrom (JWN) , VMware (VMW) .

Wednesday, Nov. 24: Deere & Co., Kingsoft Cloud (KC) .

The Stocks Under $10 Portfolio

Below is a rundown of our current positions. Figures in parentheses are each stock's Friday closing price and percentage weighting in the model portfolio. (For the most up- to- date portfolio results, please click here.

ONEs

AXT Inc. (AXTI:NYSE; $8.81, 2.82%)1-Wk. Price Change: -3.3%

WEEKLY UPDATE: Following Qualcomm’s (QCOM) vibrant multi-year 5G forecast as well as bullish outlook for data center chipset demand from Nvidia (NVDA) , we added to our AXTI holdings last week.

INVESTMENT THESIS: AXT, Inc. is a materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers. InP is a high-performance semiconductor substrate used in broadband and fiber optic applications, 5G infrastructure and data center connectivity. InP substrates are also used in biometric wearables and other health monitoring applications. Semi-conducting GaAs substrates are used to create opto-electronic products, including high brightness light emitting diodes that are often used to backlight wireless handsets and liquid crystal display TVs and also used for automotive panels, signage, display and lighting applications. A new application for semi-conducting GaAs substrates is 3-D sensing chips using vertical cavity surface emitting lasers as an array of lasers on a single chip that can be used in cell phones and other devices. The company manufactures all of its products in the People’s Republic of China. Price Target: $13

BlackBerry Ltd. (BB:NYSE; $10.44; 3.76%)

1-Wk. Price Change: -3.2%

WEEKLY UPDATE: BlackBerry will host a virtual fireside chat on Nov. 30 with John Giametto, the President of cybersecurity business unit.

INVESTMENT THESIS: BlackBerry provides intelligent security software and services to enterprises and governments around the world. The Company secures more than 500 million endpoints including more than 175 million cars on the road today. Based in Ontario, the company leverages artificial intelligence (AI) and machine learning to deliver innovative solutions in the areas of cybersecurity, safety and data privacy, and is a leader in the areas of endpoint security, endpoint management, encryption, and embedded systems. As the digital transformation of enterprises continues to advance, workforces are becoming more distributed and mobile, and data and applications are increasingly migrating to the cloud. As part of this trend, the number of connected endpoints is growing rapidly, as is their complexity and the volume of sensitive data that they process and store. These endpoints, which include smartphones, laptops, desktops, servers, vehicles, industrial equipment and other connected devices in the Internet of Things (IoT), increasingly operate beyond the traditional network security perimeter and present an expanding attack surface to cyber adversaries.

Price Target: $14

Coty Corp. (COTY:NYSE; $10.36; 2.03%)

1-Wk. Price Change: -4.3%

WEEKLY UPDATE: Wells Fargo upped its rating on Coty shares to "Equal Weight" from "Underweight" and boosted its price target to $11 from $8. By comparison, Deutsche Bank raised its price target to $13 from $12 while Evercore ISI took its target on the shares to $20 from $15. Those moves follow Coty’s 2021 Investor Day at which it shared expectations to benefit from an improving beauty market, including a stronger U.S. and Chinese market, a robust rebound in travel retail, and steady improvement across Europe. The company also shared it sees a minimum adjusted EBITDA of $900 million for its 2022 and closer to $1 billion for calendar 2022. Coty raised its FY22 adjusted EPS guidance to $0.20-$0.24 from its previous guidance of $0.19-$0.23. In response we are increasing our price target to $15 from $13, which leads us to upgrade the shares to a “One” rating.

INVESTMENT THESIS: Coty Inc. is one of the world’s largest beauty companies with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care. Strategic priorities of the recently instilled management team include stabilizing Coty’s consumer beauty brands through leading innovation and improved execution, accelerating the prestige fragrance brands and ongoing expansion into prestige cosmetics, building a comprehensive skincare portfolio leveraging existing brands, enhancing e-commerce and DTC capabilities, expanding the company’s presence in China through prestige products and select consumer beauty brands, and establishing Coty as an industry leader in sustainability. Alongside these initiatives, the management team’s Transformation Plan targets improve gross margin growth and cost controls to drive margin and EPS improvement.

Price Target: $15.

Nokia Corp. (NOK:NYSE; $5.82; 3.91%)

1-Wk. Price Change: +2.3%

WEEKLY UPDATE: None.

INVESTMENT THESIS: Nokia’s core mobile and digital infrastructure businesses should continue to benefit as recent cost reduction efforts drive improving margins in the coming quarters as 4G densification continues and 5G deployments accelerate across the globe. Meanwhile, the company’s high margin IP licensing business should also continue to benefit from 5G licensing transactions even as the company begins work on 6G. We suspect management will look to address underperforming or low growth businesses in the coming quarters, moves that would shore up its balance sheet while allowing operating leverage to fall to the bottom line. 

Price Target: Reiterate $8.00

TWOs

Antares Pharma (ATRS:Nasdaq; $3.53; 1.00%)

1- Wk. Price Change: -2.5%

WEEKLY UPDATE: This stock finally rallied on Friday after what had been a tough week for small to mid-cap stock quite broadly.

INVESTMENT THESIS: This company develops and manufactures therapeutic products using its drug delivery system. Current products include XYOSTED. for testosterone replacement therapy, as well as OTREXUP, and NOCDURNA. Currently the firm is launching a Phase 1 study for ATRS-1902 meant to treat adrenal crisis rescue and is preparing to commercialize TLANDO in the US under a licensing agreement with Lipocine.

Price Target: $5.25.

Cantaloupe, Inc. (CTLP:Nasdaq; $9.66; 2.31%)

1-Wk. Price Change: -3.9%

WEEKLY UPDATE: Over the last month, shares of this mobile payment company have fallen just over 16% and we are revisiting our current Two rating relative to our $12 price target. Last week, CEO Sean Feeney acquired 5,200 CTLP shares at an average prices of $9.42.

INVESTMENT THESIS: Cantaloupe is a digital payments and software services company that provides end-to-end technology solutions for the unattended retail market. Its enterprise- wide platform is designed to increase consumer engagement and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. The bulk of its revenue is derived from its enterprise-wide platform is designed to increase consumer engagement and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. We see the company as a beneficiary of both mobile payment growth as well as the adoption of B2B fintech solutions.

Price Target: $12

Conformis Inc. (CFMS:Nasdaq; $0.99; 1.40%)

1- Wk. Price Change: -7.4%.

WEEKLY UPDATE: No new news since Conformis appointed James Paiva as new vice president of U.S. marketing on Nov. 8. The stock has been weak with the broader market for mid-caps on down.

INVESTMENT THESIS: Conformis is a medical technology company that has created an iFit Image to Implant platform to develop, manufacture and sell joint replacement implants that are customized individually to each patient's unique anatomy. The portfolio's thinking is that once more regions of the country (and beyond) become more comfortable with making space for elective surgeries, post-pandemic, that demand for such products should increase significantly.

Price Target: $2.50

DURECT Corporation (DRRX:Nasdaq; $1.10; 3.90%)

1- Wk. Price Change: -6.0%

WEEKLY UPDATE: The stock of DURECT ground just a few pennies lower each day. This was not event or news driven, and in our opinion, does not impact the story behind the stock.

INVESTMENT THESIS: This firm focuses on life saving investigational therapies. The company's lead candidate currently is DUR-928, oral for metabolic lipid disorders, and injectable for acute organ injuries. The candidate is currently in Phase 1 and Phase 2 studies for different indications. The POSIMIR non-opioid local analgesic is currently deliverable under supervision to post-surgical patients.

Price Target: $4.

Energy Recovery (ERII:Nasdaq; $24.18; 1.37%)

1-Wk. Price Change: +7.8%

WEEKLY UPDATE: This stock ran last week on news that the firm had been awarded a contract to replace the Flowserve Exchanger with PX PowerTrain Pressure Exchanger in a desalination facility serving the community of Palm Jumeirah off the coast of Dubai.

INVESTMENT THESIS: Energy Recovery creates technologies that solve challenges for industrial fluid-flow markets. The business runs through two segments, "Water Treatment", and "Emerging Technologies". Emerging technologies had formerly been known as "Oil Services" until that business came to a screeching half in recent years. Now, that business would include oile services, and with Water having carried the frim for that past couple of years, a rebirth in oil production would be where the potential is for this firm at this level.

Price Target: $25

FuelCell Technologies (FCEL:Nasdaq; $9.81; 0.70%)

1- Wk. Price Change: -12.6%

WEEKLY UPDATE: Last week, FuelCell Energy gave up about half of the stock's gains from the week prior. No news. Pure green, clean energy equals volatility.

INVESTMENT THESIS: This company offers various fuel cell products, which are used for multi-megawatt utility applications, microgrid applications,distributed hydrogen or use of the platform's thermal attributes for on-site heat or chilling.

Price Target: $14.

Rada Electronic (RADA:Nasdaq; $10.18; 2.53%)

1- Wk. Price Change: -4.6%

WEEKLY UPDATE: RADA gave up some ground after having announced the week prior, a $5 million in initial pre-orders to the firm's advanced exMHR Radar Platform. Readers will recall that the platform is still in its field testing stage, and is not expected to see the first of deliveries until mid-2022.

INVESTMENT THESIS: RADA Electronic is an aviation and defense contractor and subcontractor, currently specializing in mini-tactical radars for nations on a budget. The firm has recently signed an agreement to increase operations in India. Given the fiscal state of the post-pandemic world, the portfolio sees an opportunity in this kind of business even if defense spending slows or pauses.

Price Target: $15.

Shift Technologies (SFT:Nasdaq; $5.13; 3.64%)

1- Wk. Price Change: -15.9%

WEEKLY UPDATE: There has been no news since Shift Technologies reported Q3 earnings, beating expectations for both the top and bottom line. The firm is obviously going through some growing pains, and the portfolio is still a believer. I would expect the portfolio to try to take SFT back up to a 4% weighting on continued weakness.

INVESTMENT THESIS: Shift is a rapidly growing e-commerce used vehicle business, currently operating primarily on the west coast and in Texas. Shift has some advantages over the competition, including test drives and other innovative steps that make the purchase or sale of used vehicles more "hassle-free."

Price Target: $12

22nd Century Group (XXII:NYSE American; $2.86; 5.07%)

1- Wk. Price Change: -4.0%

WEEKLY UPDATE: The shares of 22nd Century Group were wildly volatile last week, closing down 4% (12 cents) for the week after rallying hard early in the week, so the moves were tremendous in percentage terms. The portfolio did add to this position on weakness twice last week.

INVESTMENT THESIS: This stock is basically a play on the idea that the Biden administration moves toward an agenda targeting less dangerous and less addictive forms of tobacco as a replacement for what is currently available to US (and global) consumers. The idea here is for the firm's VLN (very low nicotine) cigarettes to get regulatory approval and move toward commercialization.

Price Target: $7.

THREEs

Regulus Therapeutics (RGLS:Nasdaq; $0.38; 1.34%)

1- Wk. Price Change: -9.5%

WEEKLY UPDATE: No news since Regulus Therapeutics reported yet another quarter last week without any revenue. Readers know by now that the portfolio would like to exit this name, but does not see the value in selling the shares at these prices.

INVESTMENT THESIS: The portfolio has downgraded this stock to a "three" and is working toward exiting the position as gracefully as possible.

Price Target: N/A.

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