Cabot Early Opportunities Issue: June 18, 2025

Stocks in This Issue

Recent Portfolio Updates

Alamos Gold (AGI) stock is ticking sideways on no material news, more or less following the trajectory of the price of gold. Management has been attending conferences in June, helping to get the story out there. BUY

Apple (AAPL) was sold yesterday. SOLD

Dutch Bros (BROS) now has around 1,018 locations in 18 states after opening 30 new locations in Q1. Management spoke at a Baird conference on June 6 and said it hopes to grow to over 2,020 shops by 2029. The company recently launched mobile order and pay and is in the early stages of testing a food program. The stock is about where it was a month ago as it eyes a breakout above the 74 zone. BUY

Freshworks (FRSH) stock has acted about the same as the broader cloud software space (i.e., a little up and down but mostly sideways) and is currently trading right on our blended average entry price. The company offers customer experience (CX) and employee experience (EX) software solutions and is benefiting as mid-market customers try to reduce software costs. The EX business is about one-third new customer growth and two-thirds current customer expansions and leans toward larger customers, while the CX business is a more mature solution set that leans toward smaller businesses. Freshworks’ solutions have improved in recent years and, with the help of AI, are increasingly ticking the boxes that customers are looking for, including ease of use and integrations. BUY

GE Vernova (GEV) stock continues to act very well and has recently made new all-time highs near 500. Its gas power business is going gangbusters while its electrification business is likely to enjoy margin expansion due to rising prices and demand. The wind business remains the thorn in the story, but given how good the other businesses are doing, it’s not diluting the growth story. HOLD HALF

LandBridge (LB) was sold yesterday. SOLD

Microsoft (MSFT) stock has been on fire since reporting results on April 30 and recently made a new all-time high, moving through the July 2024 level of 468 (MSFT traded at 475 yesterday). While headlines this week have centered around some drama with OpenAI, the stock continues to act well. That said, after a better-than-30% rally off the April lows, I wouldn’t be surprised to see MSFT pause and consolidate for a while. The company is innovating across every layer of its technology stack and says newer solutions are more profitable at this stage of the game than during its cloud transition. It’s a buy, but keep new positions small. BUY

Palomar (PLMR) received price target increases from Piper Sandler (to 177) and Evercore ISI (to 168) at the end of May, shortly after completing its annual reinsurance placement. Following that milestone, management raised its full-year 2025 adjusted net income guidance range to a range of $195 - $205 million from the previously indicated range of $186 - $200 million. The specialty insurer is focused on delivering consistent earnings and has made considerable efforts to reduce its continental hurricane exposure. The stock had a lot of momentum when we jumped in a month ago and ran to 176 soon after. PLMR has since pulled back to its 50-day moving average line and trades right near our entry point at 162. BUY

Primo Brands (PRMB) has been picked up by both Barclays (PT of 38) and Bank of America (PT of 42) in the last three weeks, which is sort of ironic given that shares have fallen about 10% over the same timeframe. The biggest slip was last Monday when PRMB fell 6% and broke below its 200-day moving average line. It has since moved back up to that trendline, and just today, PRMB was featured in BofA’s “Best SMID Cap Ideas for 2H25” report. Analysts at the firm say PRMB is a “Cheap stock, margin improvement/EBTIDA story driven by hard cost synergies as they put together legacy Blue Triton and legacy Primo Water businesses.” BUY

Sportradar Group (SRAD) has moved modestly higher since we added the stock and was named an IBD Stock of the Day last Thursday after management announced exclusive rights with DAZN to provide FIFA Club World Cup 2025 betting data and odds. The deal covers all 63 matches. The extra coverage from IBD can help a mid-cap stock like this. Looking for SRAD to break out above 25. BUY

What to Do Now

With everything going on in the Middle East, it’s somewhat surprising just how resilient the stock market has been.

The takeaway is that investors think the conflict between Israel and Iran will pass soon enough, and when it does, Iran’s military capabilities will be significantly reduced.

If only investors could return their focus to the U.S. without a litany of potentially disruptive issues! Alas, we still have immigration issues to work through, Trump’s Big Beautiful Bill, and of course, tariff deals are anything but locked in between the U.S. and major trading partners.

While I would love to believe that investors will continue to be largely unfazed by these macro concerns and that we can look forward to the beginning of Q2 earnings season in July without any lingering challenges, I’m not quite there. In my view, it’s not yet time to be super aggressive in the market.

That said, some buying is perfectly fine. The evidence in front of us – a broad market getting close to all-time highs – shows investors are downplaying risks and are more focused on opportunities. Don’t be blind to that reality.

Today we add a couple of positions that I think can work out very well, and we trim a couple that aren’t doing great. I think this is the right strategy, namely keeping a tight portfolio of stocks that are mostly moving sideways to up (with a few doing very well, like GEV and MSFT), and not letting our portfolio swell in size.

NEW STOCKS

Credo (CRDO): High-Speed Connectivity for the AI Era

Credo (CRDO) is a pure-play high-speed connectivity company offering a broad portfolio of solutions tailored for the data infrastructure market. The company is well-positioned to benefit from a multi-year upgrade and adoption cycle driven by rising demand for power-efficient AI clusters.

The company’s tech is already deployed in next-generation data centers and is expanding into adjacent markets, including 5G telecom and, more recently, automotive Ethernet applications.

A major growth catalyst is surging demand from hyperscalers, including Microsoft (MSFT) and Amazon (AMZN), the latter of which drives approximately 60% of Credo’s revenue. Two other hyperscalers contribute over 10% of sales, and management has indicated that two additional large customers are expected to ramp orders in the back half of fiscal 2026.

At the core of Credo’s value proposition is its leadership in Serializer/Deserializer (SerDes) chips. These specialized chips break down large batches of digital data into high-speed serial streams for transmission through narrow wires and cables, then reassemble the data on the receiving end.

This enables ultra-fast, reliable communication between data center components and AI systems – without data loss or corruption.

Beyond SerDes, Credo offers a range of complementary products, including:

• Optical devices and DSPs
• Retimers and gearboxes (for data traffic management)
• HiWire Active Electrical Cables (AECs), which are self-powered and outperform optical cables in key AI workloads
• The PILOT software platform, which enables real-time link monitoring and predictive diagnostics

Together, these offerings form a comprehensive platform focused on energy efficiency, high-speed performance, and system reliability – key attributes for hyperscalers building out the next generation of AI infrastructure.

Credo’s Q4 fiscal 2025 results, reported on June 2, beat expectations and pushed shares near all-time highs. Revenue rose 180% to $170 million while adjusted EPS of $0.35 grew 400% and beat by $0.08.
Management noted that the AEC market is expanding rapidly and is expected to double over the next two years, driven by increased AI cluster density. While competition from Marvell (MRVL) and Broadcom (AVGO) is rising, Credo remains the market leader due to performance and efficiency.

Valuation is rich given the pace of growth, but with revenue projected to grow more than 85% over the next four quarters and EPS expected to grow more than 115%, there’s a compelling argument that CRDO deserves its premium multiple.

The Stock
CRDO is up about 530% from its closing price on the first day of trading in January 2022. Like many semiconductor and networking names, the stock has a history of volatility. However, a relatively smooth uptrend began to take shape last fall when the company reported quarterly results, sending the stock up 48% in a single session. While CRDO held those gains for a time, it pulled back to around 30 – its October 2024 level – during the sharp Liberation Day selloff in early April. Since that low, CRDO has been clawing its way higher. The stock was trading near 61 just ahead of its Q4 report on June 2 and surged 15% to close near 72 the following day. Over the last two weeks, it’s mostly been consolidating in the 70 – 80 range, closing at 79.2 on Monday. With shares showing strength and potentially poised to break through the January all-time high of 86.7, we’ll jump into a half position today. BUY HALF

Dynatrace (DT): Leader in APM with Strong Momentum ★ Top Pick ★

I added Dynatrace (DT) to our Watch List last month, and with shares still acting well, we’ll add the stock to our portfolio today.

Dynatrace is a software company that helps large enterprises monitor and manage their increasingly complex IT environments. It is a leader in the Application Performance Monitoring (APM) space, meaning its platform ensures applications run smoothly and securely across every layer of a customer’s tech stack, from infrastructure to code.

This comprehensive coverage means Dynatrace plays a direct role in shaping the end-user experience that many people enjoy when using common applications.

Like many modern software companies, Dynatrace is enhancing its platform with AI-driven capabilities. These tools have fueled the growth of newer product areas, including log management (now adopted by a third of customers), infrastructure monitoring, and application security.

A key business model strategy shift for Dynatrace is its evolution toward a consumption-based pricing model called the Dynatrace Platform Subscription (DPS). DPS offers customers the flexibility to scale their usage based on business needs, without worrying about renegotiating contracts or incurring unexpected costs.

On the Q4 fiscal 2025 earnings call (May 14), management noted that over 40% of the customer base is now on DPS, with the customer count doubling year-over-year.

Importantly, DPS customers use an average of 12 platform capabilities, compared to just five for those on traditional licenses. These customers also generate higher revenue, with average annual recurring revenue (ARR) of $600,000 versus $400,000 for traditional users.

Another highlight: the company reported 45% year-over-year growth in strategic accounts. These are large, high-value customers that represent significant long-term revenue potential.

Momentum also continues on the capital return front. Dynatrace repurchased $43 million in stock last quarter, bringing the total buyback to $173 million out of the $500 million authorized.

With strong momentum in the business and a stock that hasn’t truly taken off yet (hopefully it will soon), we’ll add DT to the portfolio today.

The Stock
Despite a notable pullback in December, DT was relatively stable last year. Shares rebounded in January and gained momentum following a mid-January earnings report, which pushed DT to a multi-year high of 63 by the second week of February. However, that strength quickly faded as trade tensions rocked the market. By April 7, DT stock had lost about a third of its value. The recovery began ahead of the company’s Q4 fiscal 2025 earnings report on May 14, which helped lift the stock back above 50 – a level it hadn’t seen since March 26. Since then, DT has been consolidating above its 200-day moving average line, trading in a relatively tight range between 52.5 and 55.6. BUY

Joby Aviation (JOBY): Watching for Certification Milestones

Joby Aviation (JOBY) is a transportation company developing quiet, all-electric Vertical Take-Off and Landing (eVTOL) aircraft. These aircraft are designed for short-distance air taxi service – fast, quiet, and convenient – with a target range of up to 100 miles.

Joby is a first mover in the Urban Air Mobility (UAM) market, which could grow into a $1 trillion opportunity by 2040 thanks to its noise and safety advantages over helicopters.

The company has secured strategic partnerships with major players, including Virgin Atlantic, Uber (UBER), Delta Air Lines (DAL), and Middle Eastern governments (UAE, Saudi Arabia). It also has strong backing from Toyota (TM), which recently completed the first tranche of a $500 million strategic investment aimed at supporting both certification and commercial production.

That said, there is still a ton of work to do before Joby’s aircraft are operational. The company needs to get FAA certification in the U.S. for domestic operations, as well as approvals from the CAA (U.K.) and EASA (EU) to expand internationally.

Regarding FAA certification, Joby is the first eVTOL company to complete Stage 3 of the FAA’s five-stage certification process and is now in Stage 4, which involves comprehensive testing and analysis of all aircraft components and systems.

The company recently completed its first human test with FAA pilots and FAA-conforming simulators, as well as a few flights in the actual aircraft with pilots onboard.

Formal TIA (Type Inspection Authorization) tests with FAA-conforming aircraft and FAA pilots should begin within a few months.

Reaching TIA would mark a major milestone and pave the way for commercial launch. With Uber and Delta supporting Joby’s rollout in New York City and Los Angeles, it appears the pieces are starting to fall into place.

After a U.S. launch, Joby plans to expand to the U.K. (with Virgin Atlantic) and Japan (with ANA Holdings), though timelines will vary based on regional certification.

On the manufacturing front, Joby is ramping production at its 140-acre facility in Dayton, Ohio, which should eventually support up to 500 aircraft annually.

Despite all the progress, several big questions remain.

Will Joby own all its aircraft, lease some and/or have partners?

Will it prioritize sales or taxi operations with the first aircraft?

These questions will be answered over time, but what’s clear is that Joby will require significant capital to scale. On the Q1 2025 earnings call in May, management reported cash use of $126 million for the quarter, meaning the company is on pace to burn $500 - $540 million this year.

With the expected $500 million from Toyota, Joby’s post-Q1 liquidity sits around $1.1 billion. That’s a good chunk, but additional capital will likely be needed, probably from some mix of equity offerings (a strong share price makes this more feasible), prepayments and/or new strategic partnerships.

In short, the Joby story is getting more compelling. While I’m not ready to initiate a position given a recent run in higher-risk momentum names, JOBY is back on the Watch List, and I’ll be looking for a more opportunistic entry point.

The Stock
JOBY came public in August 2020 at 10 during a strong market environment. Shares held up initially but began to fade later in 2021. By the end of 2022, JOBY was trading in the low 3s. Momentum started to rebuild in May 2023, and there was a fierce rally in late June that briefly pushed JOBY near 12. But as things calmed down, the stock drifted lower again, ultimately finishing 2023 just below 7. JOBY spent most of 2024 trading between 4.7 and 6.7 before momentum returned in November. Shares peaked at 10.7 in early January before yet another slide, which pulled JOBY down to 5 by April 7. Trading action, while volatile, has been much better since April. JOBY reached 10.3 on June 11 and, despite a couple of down days, remains above 8.0. Looking for a better entry point. WATCH

Lemonade (LMND): Fast, Friendly, AI-Driven Insurance

Lemonade (LMND) is a technology-driven insurance company that was founded in 2015 and offers a range of personal insurance products in the United States (70% of revenue) and parts of Europe.

The company offers renters, homeowners, car, pet and term life insurance policies. If you visit its website, you quickly notice a clean, user-friendly layout that focuses on instant policy quotes at low prices.

The site reflects Lemonade’s strategy to differentiate through technology, particularly with its AI-powered agent, Maya, which streamlines both policy setup and claims processing.

That said, product availability varies by location. For my address in Rhode Island, I was able to get a quote for term life, but not for homeowners or car insurance. Still, the process of attempting to get all three quotes took just five minutes. The term life quote matched SBLI’s, was 9% lower than Fidelity’s, and 32% lower than USAA’s, highlighting Lemonade’s potential value proposition.

While Lemonade isn’t alone in offering fast digital quotes – competitors like SBLI, Fidelity, and USAA do the same – its pricing and business model stand out. Lemonade takes a fixed fee from premiums, using the remainder to pay claims. Any surplus can be donated to customer-selected causes, pending board approval.

I can’t personally speak to the user experience when a claim is made, but the company gets good reviews and is A-rated.

The company is posting impressive growth. Revenue was up 23% last year and up 27% in Q1 2025, marking the sixth straight quarter of accelerating growth. Management raised full-year guidance with expected revenue growth of 27% in 2025 and 31% in 2026.

Profitability is a challenge, however. Lemonade lost about $3 per share last year and is expected to deliver EPS of -$2.72 this year. Some analysts, like those at Morgan Stanley, say the stock will be held back until it can get on a path to profitable growth.

Management is working to reduce expenses and streamline operations, but a pivot to profitability is still a few years off, barring a major strategy shift.

On the other hand, more aggressive growth investors may like Lemonade’s growth-first strategy. The company is investing heavily in its car insurance segment, which may drive short-term losses but could ultimately pay off through increased cross-selling opportunities across its broader product portfolio.

The Stock
LMND came public at 29 on July 2, 2020, and rallied 139% the first day. In January 2021, it hit an all-time high of 183, then the bottom fell out. LMND endured a long downtrend that pulled the stock below 20 by mid-2022, and it continued to trade in the 10 to 20 range through much of 2023 and 2024. The stock shifted gears in a big way after the Q4 earnings report last October 30, when it closed at 18.8. Within a month, shares were trading north of 50. That proved to be too much, and LMND was back in the mid-20s around Liberation Day in early April, but the big move put LMND back on investors’ radar. The stock acted well before and after the Q1 report on May 6 – it closed at 30.6 the next day – and has rallied up to 42 since. We’ll add LMND to our Watch List today. WATCH

Waystar (WAY): Profitable Growth in Healthcare RCM

Every business needs tools to manage billing and ensure timely payments.

In the insanely complex world of healthcare, these functions are handled by Revenue Cycle Management (RCM) solutions. RCM software platforms track everything from the time a patient makes an appointment to when the doctor gets paid by the insurance company or patient.

One of the rising stars in the RCM space is Waystar (WAY), a $7 billion market cap company that was formed through the 2017 merger of Navicure and ZirMed, with backing from the smart folks at Bain Capital.

Waystar offers a suite of cloud-based tools that streamline financial processes across the healthcare ecosystem, from patient access to claims management and payment processing. The company serves over 30,000 hospitals, physician practices and specialty providers.

While Waystar isn’t the fastest-growing software company out there, it stands out for its stability and profitability. RCM solutions are mission-critical in healthcare, where providers operate under tons of financial and operational constraints.

Management’s goal is to grow revenue by about 10% a year, with half driven by broader industry expansion and half from company-specific initiatives.

The flip side to somewhat modest topline growth is consistently strong profitability. Waystar posts roughly 40% Adjusted EBITDA margins. That puts the company in rarified air as a Rule of 50 software company, defined by the sum of annual revenue growth plus EBITDA margin over 50.

On recent earnings conference calls, management has consistently laid out the growth strategy, which focuses on four pillars: grow the client base, expand within the existing base, pursue acquisitions and create new market opportunities through product development.

On the product development front, Waystar’s latest offering is AltitudeAI a suite of AI solutions that includes AltitudeCreate, an AI-driven denials management solution. Co-developed with Google (GOOG), the suite reportedly supports a dozen generative AI use cases already.

In Q1, reported on May 1, revenue grew 14% to $256.4 million and beat expectations. Adjusted EPS came in at $0.32. Current consensus suggests full-year revenue growth will be about 8% – below management’s target, which raises some questions – but EPS is expected to grow 22%, to $1.33.

The Stock
WAY came public at 21 on June 6, 2024. The stock enjoyed a steady uptrend and more than doubled over the next eight months, reaching an intraday all-time high of 48.1 on February 18. WAY then took a couple steps back, ultimately finding support in the mid-30s in March. The stock rallied to over 40 after the Q1 earnings report and has been consolidating in a relatively tight range between 37 and 42.6 over the last eight weeks. A secondary offering from selling shareholders (i.e., not dilutive) completed on May 20 has likely contributed to the stock’s lack of upward momentum. We’ll keep an eye out for signs WAY is ready to move higher before buying. WATCH

PORTFOLIO CHANGES SINCE LAST ISSUE

Yesterday, June 17, we sold Apple (AAPL) for a roughly 5% gain and LandBridge (LB) for a roughly 4% loss. Today we’ll drop MakeMyTrip (MMYT) from our Watch List.

An updated table of all stocks rated BUY, HOLD and WATCH as well as recent stocks SOLD, is included below.

Stocks rated BUY are suitable for purchasing now. I suggest averaging into every stock to spread out your cost basis.

For stocks rated BUY A HALF, you should average into a position size that’s roughly half the dollar value of your typical position.

Those rated HOLD are stocks that still look good and are recommended to be kept in a long-term-oriented portfolio. Or they’ve pulled back a little and are under consideration for being dropped.

Stocks rated SOLD didn’t pan out, or the uptrend has run its course for the time being. They should be sold if you own them. SOLD stocks are listed in one monthly Issue, then they fall off the SOLD list.

Please use this list to keep up with my latest thinking, and don’t hesitate to email with any questions.

Active Positions

Recently Sold Positions

The next issue of Cabot Early Opportunities will be published on July 16, 2025.

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