The indices are a little calmer this morning as they continue to focus on positive Covid-19 data and talk about plans for reopening the economy. There is still very significant concerns about the economic impact that is preventing a stronger uptrend from developing but at least there is a bid under the market.
Before I update my top picks for 2020 I want to discuss Disney (DIS) which I'm using as an example of how I would approach building a longer-term position in a stock that will likely see a strong recovery as the coronavirus crisis comes to an end. So far I have established an initial 'tracking' position and then did a quick flip for another portion when there was a bounce.
At this point, I see no additional action to take on Disney. It is building a trading range in the $84-$108 range and I want to see how that develops. I will consider adding to this position either on a pullback to support or a strong volume move out of the trading range. The key right now is to avoid taking on too much risk while the technical pattern continues to develop. There is no urgency to act on the near term.
In January I discussed six stocks that I thought would do well for 2020. The prospects of every stock in the market has changed dramatically due to the coronavirus crisis but I am still following these names and believe several of them will recover well.
Aurinia Pharmaceuticals (AUPH) remains my favorite pick. The company is working hard on its key drugs for lupus and dry eye syndrome. The coronavirus crisis has likely caused some delays in its programs but there is no 'demand destruction'. The company is well financed and is in good shape to weather the storm. I expect this stock to come back very quickly as we see greater economic clarity.
Personalis (PSNL) reported earnings on March 25 which were better than expected and indicated optimism about greater adoption of its cancer genomics product but it does not have much visibility as to when things will return to normal. The company is in good position to go back to work quickly and I am looking for entries as it develops.
Datadog (DDOG) provides monitoring and analytical platforms that are used in cloud computing. This business may even benefit from the coronavirus crisis but there is not much clarity. The stock is somewhat expensive but it has been a favorite based on its tremendous growth prospects. It is trading in a slightly improving trading range and should offer some entries as it develops.
InMode (INMD) , which offers medical products used for cosmetic surgery was cruising along on 60% revenue growth but it has seen a collapse in sales and has little visibility at this time. There simply is not going to be a big demand for aesthetic procedures until there is some return to normal. However, this company obviously offers a great product and its sales should eventually ramp up again. It is just a matter of timing. Right now the chart is finding some support but the resumption of upside momentum is not likely to begin soon.
Tempur Sealy International (TPX) has collapsed for obvious reasons. Few folks are shopping for new beds right now and it is going to take a while for demand to return. Consumers are likely to see a lingering impact on their buying power for a while so the recovery here could be slow. The stock seems to have found support but I see no reason to be in any hurry to remount a position.
Recro Pharma (REPH) seemed to be the very promising niche of actually manufacturing drugs in the U.S. With the concerns about how dependent the U.S. is on China as a source of drugs, this would seem to favor REPH but the company issued a poor earnings report and that undercut confidence in management. I've removed this name from my list.
As this crisis plays out there will be many more interesting ideas but this is an update on a few that I'll be watching. If we stay vigilant and patient I am confident we will be well rewarded.