Last man standing: There's only one software stock left on Josh Brown's Best Stocks list
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — In honor of this weekend’s Kentucky Derby, Sean and I are dropping a Triple Crown on you this morning. An urgent update on three of our recent write-ups that have literally taken off down the home stretch. Okay, that’s enough of the racing metaphor, don’t want to beat a dead horse. Oops, just did it again. I’ll quit while I’m ahead and get down to business. Casey’s General Stores, Inc. (CASY) was added to the S & P 500 last week, replacing Hologic Inc. in the index effective April 9. We first wrote about CASY as a potential breakaway on March 19, with the thesis that higher gas prices would drive a jump in revenue and cash flow. That played out. The most recent quarter showed diluted EPS of $3.49, up nearly 50% year over year, and EBITDA of $309 million, up 27.5%. The S & P inclusion was the exclamation point. It sounds crazy, but Zoom Communications, Inc. (ZM) is the last man standing: the only software stock on our list of The Best Stocks in the Market. Nobody could have foreseen this just six months ago. That’s why we obey technicals over narratives. And there is something else going on with this stock that many people were not paying attention to (they are now!). Back in May 2023, Zoom Ventures put $51 million into Anthropic, tucked away in an SEC filing as “strategic investments.” Analysts at Baird now estimate that stake is worth somewhere between $2 billion and $4 billion. The reason it keeps going up: Anthropic has received offers to raise roughly $50 billion at a valuation between $850 billion and $900 billion, which would make it the most valuable private AI company in the world. Zoom also has about $7.8 billion in cash and marketable securities on the balance sheet. There is a lot going on here beneath the surface. eBay, Inc. (EBAY) was already having a good year when Friday evening brought a new wrinkle. The Wall Street Journal reported that GameStop is preparing an offer for eBay , with CEO Ryan Cohen having quietly built a stake in the company ahead of a formal bid (which was announced this morning, at $125 per share). GameStop’s market cap coming into Friday was roughly $11.8 billion, while eBay’s sits at around $46 billion, so this would be a significant reach. If eBay’s board says no, Cohen is reportedly prepared to take the offer directly to shareholders. Cohen may not have the firepower to pull this off, but does his interest put the name in play for larger suitors? Or, at a minimum, does it bolster the investment case for the stock given its highly stable, albeit slow-growing, profitable business? Sean has the fundamentals on all three names below plus a look at the list’s statistics at a higher level. Giddy up As of May 4, there are 192 names on The Best Stocks in the Market list. Top sector ranking: Top industries: Top 5 best stocks by relative strength: Sector spotlight: The Triple Crown Casey’s General Stores, Inc. (CASY) Sean — It’s official. Breakfast pizza is now contributing earnings to the most important stock index in the world. Casey’s General Store is graduating the S & P 400 mid-cap index and moving up to the big leagues, replacing Hologic (HOLX) in the S & P 500. We wrote about CASY on 3/19, earning us a nice 26% return following the news of their new index inclusion this past week. There is a ton of research on what happens to stock prices after index inclusion. It used to be a lot stronger, according to a study done in 2023. It was found that there were abnormal returns of about 3-7% following index inclusion throughout the 90s, but the abnormal return this past decade is down to .3%, despite massive passive flows. It’s likely CASY gets more attention within its new index home, and the response seems to be bucking the latest findings as the stock jumped 7% after the news dropped. Casey’s heads into Q2 operating 2,900 convenience stores, making it the third largest convenience retailer and the fifth largest pizza chain in the U.S. Josh — Not quite nosebleed territory on this one but if you’ve been along for the ride so far, this would be a reasonable place to either trim the position into strength or, at a minimum, roll up stops. But yes, we still like it. CASY is one of the cleanest charts you will find anywhere. The stock has been making higher highs and higher lows since the lows of 2023, and the move accelerated sharply into the S & P 500 inclusion. It is now at $837 (as of this writing), well above a rising 50-day at $720 and a 200-day at $598. RSI at 75 is extended but not unusual for a stock in this kind of momentum phase. This is not a stock that is exhausted. It is a stock that keeps finding buyers at every level. For traders, the 50-day at $720 is your line. You might be saying, “Dog! That’s a hundred bucks lower!” I get it, but I like to think of it this way – picture it as an $83 stock falling to $72. A close below that level puts the uptrend in jeopardy. For investors, this chart has earned the benefit of the doubt as long as it continues making higher lows. The pattern of higher lows goes back years. There is nothing here that changes the character of the trend. If you are a long-term holder, you do not need to do anything. Zoom Communications, Inc. (ZM) Sean — Zoom has had a messy start to the year. The stock was on our list heading into February, but was caught up in SAASmageddon and ended up 24% below 52wk highs. As soon as this stock dropped below its 200-day moving average, it was removed from our list, which happened on 2/25. The benefit to utilizing momentum and technicals is that they allow you to miss the downside when a trend breaks down, but you’ll often miss the first move off the lows. The stock dropped another 15% after getting stopped out, but we missed the 12% run the stock went on before hitting our screen again on 4/29. Zoom is now the lone software stock on our list. The stock finished last week making new 52-week highs. ZM is 25% above its 50-day moving average and 25% above its 200-day moving average with an RSI of 77. This isn’t the first time a name has made our list, stumbled, and then whipsawed us off the lows, and it won’t be the last. Managing risk means accepting this tradeoff: you’ll miss the first leg off the lows, but you’ll also miss the names that never come back. We’d rather buy ZM back at $92 with the trend confirmed than ride it to $75 hoping it finds support. Josh — ZM is a different animal than CASY. This thing has been messy and it’s already whipsawed us once this year. The chart spent most of the past year going nowhere, chopping in a wide range between $67 and $95 while the 50-day and 200-day converged. The stock violated the 200-day on multiple occasions, which is exactly why it came off our list in February. What has changed is the breakout above $100, which is now occurring on meaningful volume and carrying the RSI to 77. The 50-day at $82.50 and the 200-day at $82.95 are essentially sitting on top of each other, meaning that zone around $83 is now thick support. For traders, $83 is the number. That is where the two moving averages sit and where you define your risk. For investors, the question is whether this is a genuine trend change or just a spike driven by the Anthropic story. Given how messy the chart has been, investors should use the $83 zone as their pivot and give it no benefit of the doubt below there. If you don’t believe in Anthopic, then you’re left with the core business as a potential driver. The core business is fine but no one has been impressed with it in recent years. eBay, Inc. (EBAY) Sean — eBay was added to our list of best stocks in early April. It’s been a great start to Q2, with the stock up 14% the past month, vaulting it into the top five consumer discretionary stocks this year, following our first champion CASY, ROST, and SBUX, the latter of which we wrote about last week. On Friday, the Wall Street Journal reported that GameStop is preparing a formal offer to acquire eBay. The deal would be a bit of a size mismatch — GME has a market cap of roughly $12 billion while eBay’s is approximately $46 billion. CEO Ryan Cohen has been quietly building a stake in eBay ahead of a potential bid, which could be submitted as early as this month. Apparently, if eBay’s board rejects the offer, Cohen is reportedly willing to take it directly to shareholders. GME shares rose 7% on the news and EBAY surged 12% in after-hours trading on the news. EBAY has had great performance recently; the stock annualized 33% a year the past three years and 17% the past term, so current shareholders can’t be that frustrated with performance. EBAY also reported earnings last week, beating top and bottom line expectations and announced the expected closing of their acquisition of DePop, a fashion resale marketplace with 7 million active buyers, nearly 90% of whom are under 34, from Etsy for $1.2 billion in cash. eBay’s revenue for the quarter was up 19% year over year and EPS was up 21%. Trading cards were a standout performer in the first quarter with the collectables category representing the largest single contributor to Gross Merchandise Value (GMV) up 24% vs last year. This will be the category to watch as the collectables category heats up again, following a big boom in the early 2020s. Josh — Remember watching me pitch EBAY to the legendary Al Michaels live on the Halftime Report ? Thank god it worked out – would hate to disappoint the GOAT. EBAY’s chart tells you everything you need to know before you even read the news. The stock had been grinding higher in an orderly uptrend for months, with the 50-day at $94.67 and the 200-day at $90.29 providing a tight floor. Then Friday happened and the stock spiked to $116.76 on the GameStop headlines, blowing straight through resistance on the heaviest volume the chart has seen in a year. RSI at 74.76 reflects that spike. The question now is whether the stock can hold these levels or whether this is purely news-driven air. For traders, the level to watch is $100. That was the prior area of resistance before the spike and is now the line between a legitimate breakout and a fade back into the range. For investors, the $90 to $95 zone, where the two moving averages sit, is your floor. As long as EBAY holds above that zone, the trend is intact and the news has simply accelerated a move that was already underway. I bought and sold this one recently in my personal account and took a profit before the Ryan Cohen news hit. Regretting the early sale! It happens. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. 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