DOW THEORY
FORECASTS
Vol. 76, No. 42, October 19, 2020
www.DowTheory.com
Earnings roll call
Bank results
■ For the September quarter, J.P.
Morgan Chase ($100; JPM) grew
earnings per share 9% to $2.92,
well ahead of the consensus of
$2.24. Revenue increased 3%, also
topping expectations. Growth was
driven by J.P. Morgan’s investment
bank, where sales climbed 21%. Av-
erage loans crept 1% higher, while
average deposits jumped 30%.
The bank set aside $611 million
for potential loan losses, com-
pared to $10.47 billion reserved
in the June quarter, a signal that
management believes it’s now well-
positioned for any further fallout
from the current recession. Urg-
ing lawmakers to pass additional
fiscal stimulus, CEO Jamie Dimon
said J.P. Morgan may have set aside
$10 billion more than necessary for
soured loans if the economy con-
tinues to recover but may need to
boost reserves by an additional $20
billion if the U.S. enters a double-
dip recession. J.P. Morgan is a Buy
and a Long-Term Buy.
■ J.P. Morgan’s September-quarter
results were stronger than other
large U.S. banks. Bank of America
($24; BAC) reported 16% lower
earnings per share on an 11% drop
in revenue, while setting aside
Continued on page 6
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Sto c k Mar k et Tr end s & Se c uri tie s Re p or t s Sin c e 19 4 6
Time for a close-up
We didn’t pick the name Focus List
for its aesthetics. Focus provides
clarity and detail at the expense of a
panoramic view, which is kind of the
point of the Focus List.
Our Buy List features 29 stocks, all
of which boast superior potential for
year-ahead total returns. The Focus
List, currently at 18 stocks, represents
our favorites from among the Buy
List. Academic research suggest that
portfolios of 25 to 30 stocks provide
adequate diversification. Our in-house
research suggests that by sticking to
high-quality stocks, such as those
with strong Quadrix® scores, you can
achieve excellent diversification with
somewhat fewer stocks, perhaps 20
to 25.
The Focus List sacrifices some di-
versification for a portfolio size most
investors can comfortably manage. To-
day, however, we take an even tighter
FOCUS LIST OUTPERFORMS OVER LONG HAUL
Since inception * †
904.8%
663.7%
Focus List S&P 500 Index
Since its inception in late 1994,
the Focus List has returned 904.8%,
or 9.4% annually, versus 663.7%, or
8.2% annually, for the S&P 500 In-
dex. So far this year, the Focus List
has performed 13.8%, versus 8.7%
for the S&P 500. Returns exclude
dividends and transaction costs.
®
focus. In the following paragraphs,
we review seven stocks that, at this
moment, represent our top selections
from the Focus List.
Seven stocks does not a portfolio
make, so don’t treat this list as all-
inclusive. But if your portfolio doesn’t
already contain these names, give
serious thought to adding the ones
you lack.
The lucky 7
Akamai Technologies ($113;
AKAM) grew per-share profits 17% in
the 12 months ended June and 22%
annually over the last three years.
The company’s revenue and profits
kept rising throughout the pandemic-
driven economic downturn, in large
part because the company facilitates
the delivery of content and services
Continued on page 4
Since 2003 †
373.3%
299.1%
Year-to-date †
13.8%
8.7%
Focus List S&P 500 Index
Note: Returns assume fully invested
portfolios and exclude dividends and
transaction costs. * Initiated Dec. 23,
1994. † Through Oct. 14.
Time for
a close-up
Continued from page 1
over electronic networks — services
that remained in demand as hundreds
of millions of people worldwide stayed
home, relying more than ever on com-
puters and smartphones.
Going forward, we expect network
security to drive most of Akamai’s
growth, offsetting a decline in demand
for traditional content delivery. As
hackers become more sophisticated
and cybercrime picks up, the need for
security services should also increase.
Many of the largest users of data rely
on internal delivery systems, while
cloud-computing giants increasingly
compete with Akamai to distribute
content. However, Akamai is no
stranger to technological advance-
ment, reshaping itself multiple times
over the last 20 years as the world
changed around it.
Analysts project sales growth of
9% this year and 6% next year, with
per-share profits rising 14% this year
and 7% next year. At 23 times trailing
earnings, Akamai trades at a 14% dis-
count to its industry median. Akamai
is a Focus List Buy and a Long-Term Buy.
Analysts target growth of 9%
in sales and 8% in per-share profits for
Charles River Laboratories ($245;
CRL) this year, followed by 10% sales
growth and 18% profit growth in
2021. Next year’s estimates are on the
rise, but may still understate Charles
River’s operating momentum. The
company said drug research started
picking up in June as laboratories
started opening again.
Charles River’s focus on the early
stages of drug development keeps it
out of the way of most of its largest
competitors, which typically work
with human trials. Investments in
manufacturing infrastructure and
cellular research have broadened the
company’s addressable markets in re-
cent years. In addition, the company
4 Dow Theory Forecasts, October 19, 2020
kept operating its laboratories through
the pandemic, in the process grab-
bing share from rivals. While Charles
River likely won’t keep all of those
new clients, we do expect the com-
pany’s availability to yield some new
permanent business and open up new
cross-selling channels. Charles River is
a Focus List Buy and a Long-Term Buy.
Bolstered by massive demand
for videogames as the world hunkered
down at home, Electronic Arts’
($133; EA) per-share profits rose more
than 400% in the June quarter on
21% sales growth. EA’s CEO, Andrew
Wilson, summarized the company’s
competitive position succinctly in
the June-quarter earnings call: “We
sit at the intersection of two fun-
damental secular
trends that have
become increas-
FOCUS FAVORITES
ingly clear. First,
social interactions
in our world are
moving from physical to digital. And
second, the consumption of sports
and entertainment is moving from
linear to interactive. We’ve seen both
of these trends accelerate during the
COVID-19 period.”
Wilson’s words reflect our opti-
mism about EA, which boasts com-
petitive advantages in a fast-growing
market segment. The company has
a history of introducing plenty of
popular new games every year. EA
also controls a number of massive
franchises, such as Madden football,
FIFA soccer, and The Sims, all of
which are seeing large increases in
player usage. The stock is a Focus Buy
and a Long-Term Buy.
Facebook ($272; FB) may
not be bulletproof, but it certainly
seems to recover quickly from even
the most grievous wounds. Over the
last couple years, the company has
faced antitrust scrutiny, lawsuits over
privacy practices, criticism over how
well it monitors user posts, worries
that it has grown too large and power-
ful, plus the recent advertising slow-
down. Yet the shares have returned
13% over the last three months and
32% so far this year, building on a
2019 return of nearly 57%.
The company should return to
operating growth in the December
quarter, with analysts projecting a
per-share-profit gain of 6% on 14%
higher sales. The consensus projects
profit growth of 26% in 2021 and 25%
in 2022, supported by respective sales
growth of 24% and 20%. Such robust
gains seem particularly impressive
when you consider that Facebook
is on pace for $80 billion in annual
revenue this year. Few megacaps can
expand at that pace.
In order to support such growth,
Facebook continues to launch new
services on its so-
cial-media platform
and aggressively
grow membership
in foreign markets.
The company ben-
efits from its innovation in messaging,
video, and chat-focused applications.
Facebook doesn’t need to create the
new apps, but its massive user base
— more than 200 million unique us-
ers in August — pretty much ensures
that new ideas will gravitate toward
Facebook. Facebook is a Focus List Buy
and a Long-Term Buy.
Microsoft ($221; MSFT)
continues to reposition itself in
growth markets. After struggling for
years to move beyond its perceived
dependence on personal computers,
the company now operates in a variety
of high-growth markets, most notably
cloud computing, where it lags only
Amazon Web Services in market
share. Over the years, Microsoft has
moved away from selling one-shot
software packages in favor of licenses,
creating a more stable revenue stream
from the legacy Office business-soft-
ware package.
Cloud software and services ac-
counted for about 14% of revenue
in fiscal 2020 ended June but are ex-
pected to grow at an annualized rate
of more than 40% for the next two to
three years. Other sources of growth
include LinkedIn (7% of revenue, with
annual growth expectations of about
15%) and the Xbox gaming platform
(9% of revenue, with the potential for
annual growth of more than 20%).
Like EA, Xbox is benefiting from
secular trends favoring videogames.
In September, Microsoft announced
a deal to acquire the parent company
of game developer Bethesda Softworks
for $7.5 billion.
The consensus calls for profit
growth of 12% in fiscal 2021 and
14% in fiscal 2022, with estimates for
both years up over the last 90 days.
Microsoft is a Focus List Buy and a
Long-Term Buy.
Progressive ($100; PGR)
earns a 97 Overall in Quadrix, reflect-
ing ranks of 80 or higher in five of
seven category scores. Scores of 92 for
Momentum and 98 for Quality spring
from strong, consistent growth in
sales, profits, and cash flows. Helped
by a decline in driving (and thus
accidents) during the times of stay-
at-home orders, Progressive grew per-
share profits 30% in the June quarter
and 43% in the March quarter. Growth
continued in the September quarter,
with profits up 41%, but analysts
expect profits to decline in 2021, a vic-
tim of extremely tough comparisons
and low interest rates on investments.
The insurer trades at 14 times
trailing earnings, 8% below its own
three-year average and 2% below its
industry median, despite superior
growth potential. Progressive gener-
ates above-peer underwriting margins,
helped by technological advance-
ments in risk assessment. While the
coronavirus-driven tailwinds will
eventually stop blowing, Progres-
sive has managed to push through
premium increases in recent months
despite broad market pressures. We
expect premiums to continue rising in
the year ahead. Progressive is a Focus
List Buy and a Long-Term Buy.
The consensus calls for
Thermo Fisher Scientific ($467;
TMO) to boost sales 21% and per-
share profits 39% in the second half
of 2020, helped by a surge in demand
for medical equipment and supplies
from researchers seeking treatments
and vaccines for the coronavirus.
In the June quarter, Thermo Fisher
generated $1.3 billion in coronavirus-
related revenue, sparking per-share-
profit growth of 28%.
Of course, at some point the
COVID-19 train will lose steam. Most
prognosticators expect a vaccine to
become available in the first half of
2021, with some projecting a first-
quarter release. Analyst targets reflect
that return to normalcy, estimating
sales growth of 7% and profit growth
of 11% in 2021. However, estimates
for both sales and profits have been
climbing for several months, and no-
body can cite a true precedent for the
current situation.
In addition, Thermo Fisher has
aggressively launched new products
and marketed additional products
and services to clients initially driven
to the company by the coronavirus.
We thought highly of Thermo Fisher’s
mix of products and services before
the pandemic, and if it can hold onto
some of the recent market-share gains
after the coronavirus research spend-
ing dissipates, the consensus could
prove conservative. Thermo Fisher is
a Focus List Buy and a Long-Term Buy.

THE FOCUS LIST

Stock- – Growth, Last 12 Months – –––– Quadrix Scores ––––
Market Per- ––– P/E Ratio ––– 12-
Div. Value Share Operating On Next- Factor Reranked
Company (Price; Ticker) Yield (Billions) Sales Profits Cash Flow Trailing Yr. Est. Overall Sector Overall Sector
Akamai Technologies ($113; AKAM) 0.0% $18.4 9% 17% 2% 23 21 79 67 71 Technology
Alphabet ($1,563; GOOGL) 0.0 1,067.4 12 -11 9 34 28 68 61 47 Communications
Apple ($121; AAPL) 0.7 2,072.7 6 12 16 37 31 76 16 76 Technology
Applied Materials ($64; AMAT) 1.4 58.4 9 16 -5 17 14 92 89 95 Technology
Booz Allen Hamilton ($82; BAH) 1.5 11.4 10 14 11 25 20 79 32 83 Technology
Canadian Pacific Rail. ($322; CP) 0.9 57.4 3 13 16 18 16 84 85 57 Industrials
Charles River Labs. ($245; CRL) 0.0 12.2 12 18 41 34 29 81 58 66 Health care
Electronic Arts ($133; EA) 0.0 38.3 19 35 27 22 22 77 76 67 Communications
Facebook ($272; FB) 0.0 774.4 20 2 1 33 27 76 86 55 Communications
ICON ($208; ICLR) 0.0 10.9 2 0 81 32 27 74 31 59 Health care
Kirkland Lake Gold ($51; KL) 1.0 18.4 80 74 63 16 12 94 77 92 Materials
Lam Research ($374; LRCX) 1.4 54.3 4 10 -33 23 16 85 53 89 Technology
Lennar ($67; LENb) 1.5 25.4 4 28 223 12 8 100 30 99 Cons. discretion.
Microsoft ($221; MSFT) 1.0 1,671.4 14 21 16 38 30 74 51 65 Technology
Progressive ($100; PGR) 0.4 58.4 13 30 10 14 18 97 90 83 Financials
Thermo Fisher Scientific ($467; TMO) 0.2 184.7 6 14 6 35 27 89 78 69 Health care
Trimble ($51; TRMB) 0.0 12.7 -3 4 3 25 24 77 52 72 Technology
UnitedHealth Group ($322; UNH) 1.6 305.9 5 33 79 18 17 88 94 86 Health care
Focus List average 0.5 358.5 13 18 30 25 22 83 63 74
Note: Quadrix scores are percentile ranks, with 100 the best.

Dow Theory Forecasts, October 19, 2020 5

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