September 13, 2018
With just a few weeks left in the third quarter, we're fast approaching one of my favorite times of year. Historically, fund managers use the last couple weeks of September to do their quarter-end house cleaning. They unload their underperformers and replace them with the fundamentally strongest stocks from the past quarter.
This is called "window dressing," and it's a powerful trend.
But, it's not just the fund managers that are doing their quarter-end house cleaning. In the final days of September, smart Beta and equally weighted ETFs typically rebalance before the quarter ends. Typically, these ETFs also load up on fundamentally superior stocks that have performed well in the third quarter.
All of this portfolio realignment sparks a massive flight to quality on Wall Street. I expect that this flight to quality will kick off next week and continue for the final ten days of September.
This is great news for the fundamentally superior stocks in my premium newsletters. For my current subscribers, now is a great time to add any New Buys or top-ranked stocks from the Buy Lists.
If you're not a subscriber, but would like to participate in this flight to quality, this blog post is for you.
Last week, I highlighted three all-American refiners that are excellent buys at current prices. HollyFrontier Corp. (HFC), Marathon Petroleum Corp. (MPC) and Valero Energy Corp. (VLO) are all fundamentally superior stocks to buy before quarter's end.
This week, I'd like to talk about three high-flyers in the technology sector. Each of these companies has logged double-digit gains for the third quarter, so they'll be targeted by fund managers and ETF operators over the next few days. In addition, each has phenomenal forecasted sales and earnings growth, so I expect that they'll keep up the momentum in the fourth quarter and beyond.
I currently recommend each of these stocks in my Growth Investor newsletter, which means they're handpicked for strong fundamentals and steady capital appreciation potential.
So, without further ado, here are my top three tech stocks to buy before September 28…
Companies are growing more dependent on fast and secure networks to do business safely and smoothly. And that's where my first recommendation, Fortinet, Inc. (FTNT), comes in.
Fortinet provides unified security solutions that can be deployed over digital networks to protect users against malware, spam and network intrusions. The company provides its security solutions to data centers, enterprises, carriers and distributed offices around the globe. Fortinet currently has a portfolio of over 530 patents worldwide.
The company has had a meteoric rise since its founding in November 2000. Over the past 18 years, it has shipped more than four million units to over 360,000 customers. And since 2002, its revenues have surged from just $2 million to nearly $1.5 billion.
Clearly, the company's products are in high demand. For the third quarter, Fortinet is forecasting revenue between $445 million and $455 million, or 18.9% to 21.6% annual sales growth. Third-quarter earnings per share are expected to be between $0.41 and $0.43, or 46% to 54% annual earnings growth. Looking even further out to fiscal year 2018, Fortinet expects revenue in the range of $1.77 billion and $1.79 billion, and earnings per share between $1.63 and $1.67.
Fortinet's third-quarter and full-year forecasts were nicely higher than the Street view at the time of its latest earnings report. So, analysts have revised their earnings estimates substantially higher in recent weeks. This is a good sign that Fortinet will continue outpacing expectations.
After all, it has a history of doing so. For the past several quarters in a row, Fortinet has posted double-digit earnings surprises.
FTNT is an excellent cybersecurity play and a strong growth stock. I also recommend FTNT in my Growth Investor and Accelerated Profits newsletters. Current subscribers can view my Buy Below prices on the High-Growth Investments Buy List here, or on the Ultimate Growth Trades Buy List here.
GrubHub Inc. (GRUB) is revolutionizing the food delivery industry, one order at a time. The company, as we know it today, was created through the merger of two very likeminded companies—Seamless and GrubHub. The founders of both companies were fed up with out-of-date paper menus and wanted an easier way to order food.
Their answer was GrubHub, Seamless and Eat 24, all ordering platforms that connect hungry customers in 1,600 cities with 80,000 local restaurants. With a few keystrokes on the keyboard, or a few pushes of the button on a smartphone, users can place their orders and track their delivery's progress. The company also operates two online menu websites—Allmenus.com and MenuPages.com. Together, these websites are helping to make paper takeout menus obsolete.
These easy-to-use apps are becoming very popular. Last quarter, active diners surged 72% year-over-year to 15.1 million. Of those, nearly a half a million users were Daily Active Grubs, which meant they placed orders every single day. Given this phenomenal growth rate, it's no surprise that GrubHub is entering dozens of new markets every quarter.
And restaurants are taking notice. A few months ago, Yum! Brands announced a national partnership with GrubHub. GrubHub's apps will now include online ordering for pickup and delivery at thousands of KFC and Taco Bell restaurants across the country.
This deal builds upon an already strong base for fundamentals. This quarter, the company expects sales between $232 million and $240 million, or 42% to 47% annual sales growth. This was above the Street view of $230.7 million.
This year, GrubHub's sales target is between $966 million and $983 million, or 41% to 44% annual sales growth. This was also above analysts' consensus estimate of $960.4 million in revenue.
I currently recommend GRUB in my Growth Investor newsletter. Current subscribers can view my Buy Below price on the High-Growth Investments Buy List here.
My final recommendation for today is a promising cloud computing play. In May, Forbes crowned it the world's most innovative company, and "America's hottest IT-services company." In 2004, ServiceNow Inc. (NOW) launched as a platform to help companies manage their IT help desks. In other words, when an employee has a question about a software update or a lost password, they can boot up a ServiceNow app on their phone to fix the problem. ServiceNow's products help companies empower their employees to find solutions to everyday problems.
Nowadays, ServiceNow has applications to manage a variety of internal departments—from IT to Security to Human Resources to Customer Service. These apps can be tailored to each company's specific needs and organizational structure. They are designed to reduce the amount of time that employees need to hunt around for answers, saving them time and money.
So it's no surprise that ServiceNow has an impressive customer roster, including 850 of the Forbes Global 2000. Its big-name customers include Adidas, Broadcom, General Electric, Overstock.com, Siemens and T. Rowe Price. The company has 575 customers with multi-million dollar contracts. And ServiceNow is adding more customers by the day.
This is driving strong top- and bottom-line growth. For the third quarter, ServiceNow expects subscription revenues of $610 million to $615 million, or 36% to 37% annual growth. For FY 2018, the company expects subscription revenues of $2.41 billion to $2.42 billion, or 38% to 39% annual growth. So ServiceNow clearly expects to keep up the momentum.
I also recommend NOW in my Growth Investor newsletter. Current subscribers can view my Buy Below price on the High-Growth Investments Buy List here.
To summarize, there's another big flight to quality just around the corner. If you want to participate, today's three technology picks—or last week's energy plays—are a great place to start.
That's all for this week. I'll be back in touch on Monday with the latest upgrades and downgrades in Portfolio Grader.