Three stocks that outperformed expectations in 2021
Last January, we profiled 14 stocks our traders had identified as top picks for 2021. With the new year around the corner, we figured now is as good a time as any to review some of the winners and dissect the technical patterns behind their breakout.
The biggest winner of our 2021 collection was retail stock Dillard's Inc. (NYSE:DDS). As of this writing, DDS was up 313% in 2021. This featured a channel of higher highs aided by post-earnings bull gaps from of 22.7% in May, and 10% in November. And while the shares have pulled back since an all-time high at $400.23, the 37% haircut has found support at their 100-day moving average.
Back in January, Senior Market Strategist Tony Venosa identified how DDS finished 2020 strong and was consolidating in a rectangle pattern from October of that year. Short interest stacking up also made the stock ripe for a short squeeze. Tony also identified the lackluster analyst view of DDS, noting that all of the analysts in coverage sported "hold" or worse ratings, making the stock a prime candidate for upgrades. Fast forward 11 months and those analysts are still on the sidelines, while 10% of DDS's total available float still remains sold short.
Software stock Datadog Inc. (NASDAQ:DDOG) came in second in 2021, with an 80% return on the year. Senior Market Strategist Matthew Timpane liked DDOG's 20-week moving average and short squeeze potential. But what really drove the shares was the shift among the brokerage bunch. Last January, 10 of 18 brokerages held a tepid "hold" stance. Now, only four rate DDOG a "hold" or "strong sell." Looking at the stock's chart, you can see notable post-earnings bull gaps of 8.3%, 15.3%, and 11.1% following the last three earnings reports that triggered the analyst adjustments. Yet a t the same time, short interest is on the rise again, and a healthy 5% of DDOG's total available float is sold short.
Another big winner for the year was bank stock Charles Schwab Corporation (NYSE:SCHW), which at last check was up 57% in 2021. Founder and CEO Bernie Schaeffer identified the company's October 2020 acquisition of TD Ameritrade as a potentially huge bullish driver for 2021, and the prediction scored. After reclaiming the round $50 level and the $100 billion market cap level – two areas identified in this space 12 months ago – SCHW took off, culminating in a Dec. 16 record high of $85.75. Unlike Dillard's though, Charles Schwab doesn't have much pessimism leftover to be unwound. The majority of analysts rate SCHW a "buy" or better, and less than 1% of the stock's total available float is sold short.
Cracking open the highlight tape for 2021 isn't meant to just pat ourselves on the back. In fact, check back in two weeks and we'll have a postmortem on the 2021 picks that missed their mark. Studying the film of winners highlights the common contrarian threads; short interest, analyst hesitancy, and historically friendly trendlines. When plotting out your course for 2022, let this postmortem serve as a reminder for how an unwinding of pessimism can help an investor mine for hidden gems.
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Subscribers to Chart of the Week received this commentary on Sunday, December 26.