Please ensure Javascript is enabled for purposes of website accessibility

Lessons Learned from My Top Stock Pick of 2017

You can learn a lot from studying your winners, analyzing the factors that led to your top picks. And there’s a lot to learn from my top stock pick of 2017.

Sign dollar and the books on scales. 3D image.

Sign dollar and the books on scales. 3D image.

Sign dollar and the books on scales. 3D image.

I’ve been busy as all get out since the calendar flipped (and even before that), and I’m still analyzing some of my moves and advice from last year, looking for nuggets (both positive and negative) on what I could improve.

Even though it was a good bull market year, there are still lessons to be learned. But it’s not just about avoiding mistakes, of course. Some of our best investing lessons come from studying our winners, analyzing the factors that led us to our top picks. And there’s a lot to learn from my top stock pick of 2017.

In my case, I want to talk about Shopify (SHOP), which I recommended for the Cabot Growth Investor Model Portfolio on January 12, 2017. The stock went on to do yeoman’s work for the first nine months or so of 2017. Here was my thought process at the time (some of this is from memory, but much more is from notes I jotted down).

My Top Stock Pick of 2017: Shopify (SHOP)

Shopify in Early 2017

MARKET: The overall market was still basking in the glow of the post-election rally, but for growth stocks, it wasn’t a great time—many stocks were just building bases while commodity and industrial stocks went nuts. The environment was conducive to new buying, but I was being choosy, looking for some clear, powerful breakouts while so many growth stocks were lagging.

[text_ad use_post='129627']

SHOPIFY STORY: I thought Shopify had what I call a “business mass market” story—its leading e-commerce platform had the potential to attract hundreds of thousands of users (mostly small- and mid-sized businesses) in the coming quarters. In fact, that turned out to be a growth theme I was picking up on in the market, with companies like Square (SQ), PayPal (PYPL), and others helping small(er) players take advantage of selling online (and offering valuable services like short-term lending). Another big plus was that Amazon (AMZN) had tried to offer a product similar to Shopify’s but instead decided to exit the business—and recommended its customers use Shopify! That was a big confidence-booster for investors.

As for the business model, it was terrific, with multiple avenues of growth (subscription revenue for using the product, a cut of gross merchandise sales from its customers and some newer capital offerings like cash advances) that would expand as their customers did. This wasn’t about one-time sales, but about an ever-growing amount of business from every customer they signed up.

SHOPIFY NUMBERS: Shopify was unprofitable, but I emphasize revenue growth (and estimates) a bit more than earnings, and on that front, Shopify’s track record was outstanding—revenues had grown between 89% and 99% each of the prior four quarters, and analysts saw that figure rising about 65% in 2017 (which I thought was conservative, and it was). As for earnings, the red ink wasn’t ideal, but it wasn’t like the company was losing boatloads of money. Losses were modest and stable, and this industry is very sticky (once a customer signs up, the barriers to leave are tall), so it made sense to grab as many clients as possible early on.

SHOP CHART: A couple of things were very attractive about SHOP’s technical picture. First, it was early-stage, as the stock was sitting just on top of its post-IPO high from a year and a half before. Yes, the stock did have a big run from its lows in early 2016, but that came during an overall mini-bear market, so an extreme move (first down, then up) wasn’t unusual. Plus, the weekly chart showed some big positives, with a stretch of 10 weeks up in a row after Brexit, much of it on huge volume. And the stock gave up basically none of those gains, moving straight sideways into 2017 as volume dwindled (a sign the sellers had moved on).


On the daily chart, I wanted to see a powerful breakout on big volume, and make sure the stock held the move a few days after. (There had been a ton of false breakouts in the prior few months among growth stocks, where they’d poke to new highs and then quickly reverse lower.) SHOP obliged on the second trading day of January, lifting to new highs on volume that was five times average. And in the days ahead, it inched higher, decreasing the odds that it was a false move.


We recommended it a couple of days later and the stock doubled by the early summer! While you don’t want to “overlearn” things in a great bull market year (many things worked in 2017 that might not work in a trickier environment), things like a mass market, rapid revenue growth, an early-stage chart and a big-volume breakout are all characteristics that lead to finding big winners.

Shopify (SHOP) Today

What about my top stock pick of 2017 today? Are SHOP’s glory days already behind it? It’s possible, but I’m still optimistic. Here’s why.

First, the story remains outstanding. If anything, it’s grown stronger. Revenue growth remains rapid (72% in Q3), two straight quarters of record new client additions and great strides in all the company’s key metrics: gross merchandise volume rose 69% in Q3, subscription revenue was up 65%, and the company turned its first pro-forma profit (five cents per share), with analysts expecting 26 cents in full-year earnings this year.

The stock was looking great in September, but then a short-selling outfit attacked the shares, which drove them sharply lower (from 120 to 90 in just a few days!). Since then, though, the stock has held support in the 90 to 100 area multiple times, and as I explained in a recent Cabot Weekly Review video, each successive selling wave (late October, early December and then late December) since that initial downmove came on lighter and lighter volume—a possible sign that SHOP is sold out.


Sure enough, since the calendar flipped, SHOP has perked up, rallying on light trading volume back toward its highs. I’d like to see some big buying volume appear, but the action fits with the theory that the sellers are out of ammo.

I still own a small-ish position in Cabot Growth Investor, and could buy more if the stock continues to act well. Remember that, from its breakout to its top, the stock only ran for about nine months; leaders usually run for longer than that if management makes the right moves.

The bottom line is that I’m encouraged by the multi-month consolidation and I’m not opposed to nibbling on some SHOP here if you’re not in yet. But I’m more interested in seeing whether some real upside power develops (possibly on earnings, which are likely out in mid-February). If so, then the past few months will look like one big launching pad. Stay tuned!


A growth stock and market timing expert, Michael Cintolo is Chief Investment Strategist of Cabot Wealth Network and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.