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Early Opportunities
Get in Before the Crowd

Cabot Early Opportunities 123

In the July Issue of Cabot Early Opportunities we briefly consider some of the factors making right now a particularly difficult time to make investing decisions, even though markets are near record highs.

To help make life a little easier we once again seek comfort in diversification. This Issue features dissimilar stocks that are bound by a common denominator; each company is either in an early stage of its life cycle, or early in a phase of growth/business model transition that should drive market-beating returns over the coming quarters.


Cabot Early Opportunities 123

Stock NameMarket CapPriceInvestment Type
Concentrix (CNXC)$8.25 Billion158.2Growth – CX Software
FirstService Corporation (FSV)$7.88 Billion178.9Growth – Property Services
iHeartMedia (IHRT)$3.25 billion24.61Growth – Radio/Podcast/Broadcasting
L Brands (LB)$19.9 billion74.46Growth – Retail
Upstart Holdings (UPST)
$9.05 billion117.6Rapid Growth – AI Lending

Seeking Simplicity Through Diversification
As we move through the middle of 2021 investors continue to face an uncertain market that makes it hard to look too far forward.


Current Investing Environment

On the short list of things on my radar screens are the following:

The Fed will need to taper bond purchases at some point and interest rates, at least in a rational market, seem like they can only go up. Yet rates remain low, somewhat confusing the growth vs. value argument (for those that feel a need to go one way or the other).

The booming housing market is a global phenomenon. While the crazy days of spring 2021 may be waning in the U.S. it is still an extremely strong market. People continue to seek out more rural locations as work-from-home is not going away, younger generations are not moving back in with their parents, and the coronavirus pandemic has made densely populated areas somewhat less inviting.

The pandemic is not over. The Delta variant is driving cases significantly higher around the globe. Implications for school-age children and economic/psychological effects on families are concerning, even in highly vaccinated regions.

Economies (mostly) continue to reopen.

Stocks are not cheap, especially if yields rise.

Prices in certain markets continue to be wonky (example: used autos) while there has been some moderation in others (example: lumber). Price volatility creates a challenging operating environment for many firms, though not all are affected at once.

Earnings seasons is about to kick into high gear. Last earnings season was a DISASTER. In the early goings Q2 is better (so far).

A year after an insanely awful two-month recession the economy is booming.

This all boils down to a market that is, generally speaking, trying to figure out the path from pandemic-inspired fiscal and monetary life-support to a state of self-sustaining normalcy (until the next recession), but also aware that COVID-19 cases could roar back this fall and winter.

The game plan during these periods is simple: don’t put all your eggs in one basket.While it can be tempting to try and “figure it all out,” the reality is that there are so many factors influencing the market that even the most sophisticated analysis could spit out strategies that fail miserably.

A better approach is to put that time and energy toward finding attractive stocks that fit your criteria and that are working now. Go with them and see where they take you. If they continue to work, stick with them. If they falter, move on.

If that sounds too simple given all the variables, good! That’s the point.

What to Do Now
Stay diversified and don’t get too hung up on the day-to-day and week-to-week market gyrations. The market is in a transition phase and that means time. Accept that some stocks will falter and need to be let go, some won’t do much of anything, and some will do very well.

The idea is that, over time, we allocate more capital to the stronger ones and lighten up on the weaker ones. This strategy has helped us get our current portfolio to an average gain of 78%, so we’re not changing now.

Be prepared for higher volatility in the coming weeks as earnings season kicks in. We are not making any predictions right now as to how the chips will fall. A better approach is to take things as they come and make decisions accordingly.

All stock ratings have been reviewed and updated. Use those as an indication of my sense of where each position will be trading in the near-term.


Concentrix (CNXC)
Customer experience has become a strategic imperative for companies across the globe as it encompasses the more subtle points of the customer relationship that go deeper than transaction-level interactions. Customer experience gets to the emotional connection and sense of authenticity of a company, which often drives consumer purchasing behavior.

Concentrix (CNXC) is a pure-play customer experience (CX) company. It was previously a part of SYNNEX Corporation (SNX) and was spun out into a standalone company on December 1, 2020. The stock has been performing well as clients across industries outsource aspects of their operations to Concentrix, which has the specialized staff and resources to better handle CX-related activities.

The company has over 250,000 employees and provides services in more than 40 countries and 70 languages across North and South America, Asia-Pacific, Europe and the Middle East.

It is primarily focused on customer lifecycle management, consumer/user experience strategy and design, digital transformation, voice of the consumer, and analytics. Primary modes of communication are voice, chat, email, social media, and asynchronous messaging.

Concentrix stands out from the pack because it is a global player that’s well-recognized among big companies (it counts roughly 100 Fortune 500 companies as clients), has a wide variety of solutions, a top-notch management team, and a history of well-integrated acquisitions.

All the above has helped the company grow faster than the market, while delivering impressive earnings. In its first three quarters as a standalone company Concentrix has grown revenue by 7%, 14% and 28%, respectively.

Demand has been particularly strong in the voice channel as call volumes remain high. Trends are also strong in chat and digital transformation markets. In terms of markets with momentum, management has recently called out technology, consumer electronics, healthcare, financial services and, in the U.S., travel and tourism.

Looking out to the end of the current fiscal year (ends in November), analysts see revenue growing by 17% to $5.51 billion while adjusted EPS is seen doubling to $9.34. The prior acquisition of Convergys has helped those numbers, while also pushing the revenue mix close to a ratio of 60% voice solutions and 40% non-voice.

As we move into fiscal 2022 investors should expect revenue growth of around 7% and EPS growth near 10%.

The Stock
CNXC started trading as a standalone company on December 1, 2020, when it closed at 105. Shares soon advanced to 123.5 before a pullback to 105, then climbed to 163 by the end of March. CNXC has flattened out since then but has remained relatively stable, mostly trading in the 145 to 165 range. With Q3 fiscal 2021 results just released on June 23 investors have a while to wait for Q4 earnings, which are expected at the end of September.


FirstService Corporation (FSV)
In 1989 a teenager named Jay Hennick started FirstService (FSV). Back then it was a small, Toronto-based swimming pool management company. But Jay soon acquired the College Pro Painters franchise and over the years made many more acquisitions, including property management firms in Florida and New York (1996), Paul Davis Restoration (1997), California Closets (1989), Century Fire Protection (2016), Global Restoration Holdings (2019) and more.

A Toronto IPO was held way back in 1993 and the company went public on the Nasdaq in 1995. But 2015 was the year the current form of FirstService came to be. This was when it spun off from Colliers International (CIGI) to become an independent company. Colliers became a pure-play provider of commercial real estate services (brokerage, investment sales, asset management, etc.).

Today, FirstService is a leading North American provider of property management and essential property services to residential and commercial customers. It has a market cap of $7.8 billion and operates under two divisions.

FirstService Residential is the largest manager of residential communities in North America, managing 8,500 properties with over 1.7 million units. This division works with homeowners and community associations, condos and strata corporations to maximize property values and enhance the lifestyles of residents.

FirstService Brands is one of the continents largest providers of essential property services (both franchised and company-owned). You’re likely familiar with one or more of its brands, which include California Closets, CertaPro Painters, Floor Coverings International, Paul Davis Restoration, Pillar to Post Home Inspectors, and TLS.

From an investor perspective, FirstService offers a balance of growth and dependability. The business model features predictable and recurring contracted revenue, which drives steady cash flow and allows for conservative debt management. Like many Canada-based companies FirstService pays a modest but consistent dividend (current yield is 0.4%).

Revenue grew by 25% in 2019 and by 15%, to $2.77 billion, in 2020. Adjusted EPS has grown by 15% in each of the last two years and reached $3.46 in 2020. Looking forward, management has pledged average annual growth of 10%, implying 2021 revenue just north of $3.01 billion. Adjusted EPS should grow by around 10%.

Nobody is going to claim FirstService is a “hot” growth stock. But that’s why I like it in our portfolio right now. The stock should offer consistent performance with limited downside. Given the degree of uncertainty investors are faced with today, that should be an attractive profile.

The Stock
FSV became an independent company in June 2015 and began trading at 19.94. The stock performed well in the years afterward and, just before the COVID-19 pandemic hit, was trading around 110. Shares fell roughly 50% with the market, but FSV bounced back quickly and broke out to new highs above 115 last July. With the exception of a pause last winter, the stock has been moving consistently higher since, mostly above its 50-day line. Pullbacks have been in the -7% to -14% range for the last year, but FSV trades near all-time highs today. Earnings are due out next Tuesday, July 27.


iHeartMedia (IHRT)
iHeartMedia (IHRT) is the leading audio entertainment company in the U.S., reaching roughly 90% of the population every month across 160 U.S. markets, including 48 of the top 50.

The $3.5 billion market cap company was previously known as Clear Channel Communications and was publicly traded, then taken private by Bain Capital during a leveraged buyout in 2008. The $20 billion debt load from that deal proved to be burdensome, especially as shifts in satellite radio, TV and radio markets made for a challenging operating environment. Ten years later, in September 2018, iHeartMedia filed for bankruptcy.

The company emerged from Chapter 11 eight months later, in May 2019, with a new board of directors and a focus on digital programming. It has continued to streamline operations, investing heavily in podcasts. That has proven to be the right move as digital audio advertising demand has gone through the roof.

As a leaner and meaner company, iHeartMedia now generates revenue through several channels, including more than 860 live broadcast radio stations, 250 digital platforms that stream across 2,000 devices (smart speakers, TVs, gaming consoles, smartphones, etc.), media networks, sponsorships and live events, and audio and media services.

Organizationally, the company is split into two groups.

The iHeartMedia Digital Audio Group includes the rapid-growth podcast business, where iHeart has busted out with the #1 market share position. This group also includes the iHeartRadio digital service, as well as digital advertising companies that have been acquired over the years (Jelli, RadioJar, Unified, Voxnest and Triton Digital).

In Q1 2020 (ended in March) the Digital Audio group grew revenue by 70% to $158 million, led by 142% podcasting growth ($38.4 million). Stripping out podcasts, digital grew by 55% as streaming, display and social all surpassed expectations.

The second group is the iHeartMedia Multiplatform Group (860 radio stations spanning 160 markets), the Live and Virtual Events business, the National Sales organization, and the Networks business (Premiere Networks, Total Traffic and Weather Network). This is a larger but slower-growth group that shrunk by 21% to $498 million in Q1 2020. While the revenue contraction wasn’t great, the group was still dealing with Covid-related slowness in Q1. Things should be better in Q2 and in the back half of 2021.

Stepping back, there are numerous positives that should keep IHRT moving higher. On the short list are continuously improving advertising trends, huge demand for podcasts and a new NFL podcasting deal, live events, more restructuring and cost rationalization opportunities, and technology advancements to leverage iHeartMedia’s vast data treasure chest.

Add it all up and analysts see revenue recovering from a 9% contraction in Q1 to jump by 65% in Q2. For full-year 2021 expect revenue to grow 15% to $3.4 billion, and for a similar rate of growth in 2022, when adjusted EPS is seen turning positive ($2.03 expected).

The Stock
IHRT came public in July 2019 and had a few good months before the pandemic struck, knocking the stock down nearly 80% to 4.3. The recovery wasn’t as rapid as with some other stocks, but IHRT made a decisive move back above 10 in November 2020 and walked steadily higher for months, eventually topping out at 28.2 on June 24. Shares have pulled back by 13% over the last month and currently sit on the 50-day line. With analyst bullish on the name and earnings due out in early August this looks like a buying opportunity.


L Brands (LB) - Soon to Be Bath & Body Works (BBWI)
Please note we are waiting to buy this stock until after a planned spin out. Details below.

In its current form L Brands (LB) is the owner of the iconic Victoria’s Secret and Bath & Body Works brands. As such, it is an international retailer of lingerie, personal care and beauty products, and apparel and accessories. Customers have been coming to L Brands for decades for beauty and personal care products because they want to feel pampered and indulge with fun and whimsical products.

The company sells through nearly 2,700 company-owned stores across North America and China, through 700 franchised locations around the world and online at and The company also owns PINK, a lifestyle apparel brand focused on a younger demographic.

Revenue growth has historically been steady but slow, hovering around the mid-to-low single digits. L Brands has a history of dividend payments (current yield is 2.7%) as well as special dividends, and a profitable business has helped the stock do well during periods of economic growth.

On August 2, L Brands will carve out Victoria’s Secret (VSCO) into a stand-alone company. The retained Bath & Body Works (BBWI) brand will replace what L Brands is today, and that is the stock we want to buy.

The high-level pitch is that creating two independent companies with separate management teams will help both VSCO and BBWI to better reach their full potential. At an analyst day early this week the respective management teams laid out their long-term growth strategies, and they sound quite attractive.

BBWI sees mid-to-high single-digit revenue growth, significant share buybacks and dividend payments to shareholders. The company will continue to offer the wide variety of fragrances, body lotions, body creams, body washes, hand soaps and fine fragrance mists.

However, management sees opportunities to add more clean, natural and organic products, as well as expand offerings in skincare, hair care and other home and wellness products. A loyalty program will launch in 2022.

These and other initiatives should help BBWI continue to drive higher customer spend (up 71% to $111 over the last five years) and pull more younger consumers that prioritize organic/natural and domestic ingredient sourcing (80% of products sourced from the U.S.) into the fold. International locations will continue to be franchised.

Turning to VSCO, this brand has struggled and is currently optimizing its store footprint. Out of the current footprint of 867 North American stores around 240 are expected to close in 2020, as are around 150 mall locations. Management is testing a new store layout (brighter lights, new imagery, etc.).

VSCO is working on products, sizes and categories to better align with consumer tastes today, and growth in the PINK brand (younger, more diverse) suggests something of a playbook on how to overhaul an outdated brand image that doesn’t resonate with the modern consumer. The VSCO management team sees high single-digit growth potential moving forward

Stepping back, L Brands was expected to have a nice rebound year in fiscal 2022 (fiscal year ends in January) with 15% to 20% revenue growth ($13.5 - $14 billion) over a depressed fiscal 2021, when revenue fell by 8.3%. Adjusted EPS was seen up 60% to 75% ($5.50 to $6.00).

That plan basically goes out the window given the pending spin out, though at a high level, investors should expect Q2 revenue of at least $400 million for BBWI and $200 million for VSCO.

I find the Bath & Body Works entity to be the more attractive of the two, so that is the business we are going to buy. But we will wait until after the split so we avoid the complexity of buying a stock right before it splits into two different stocks. I will send a Special Bulletin when the time has come to buy what will become Bath & Body Works (BBWI).

Given the potential for value creation we’ll monitor shares of VSCO but have no immediate plans to buy that stock.

Please note that if you wish to buy shares of LB prior to the split you may. If you do so then on August 3 you will get one share of VSCO for every three shares of LB that you own as of the close of trading on July 22, when your LB stock will be replaced by BBWI.

The Stock
LB has had its ups and downs over the years. Most recently the stock experienced a multi-year slide that pulled shares down from 100 in 2015 to 25 just prior to the pandemic. Then the market crash pulled LB down another 68%, to a low of 8. The severity of that event laid the groundwork for the current planned split, which has helped LB rally. Shares broke above 25 last July and have since climbed steadily to around 75. There have been pullbacks in the -10% to -25% range along the way, but LB has consistently found support near the 50-day line. Over the last week the stock has pulled back 5% from all-time highs.


Upstart Holdings (UPST)


Traditional lenders rely heavily on FICO scores to determine which borrowers are creditworthy and which are not. While these models are relatively straightforward and “work,” there are a huge number of potential borrowers that are cast aside even though they’d likely make payments on time.

Upstart Holdings (UPST) is trying to change that. The company operates a cloud-based artificial intelligence (AI) lending platform that goes beyond simple FICO-based models to better match borrowers and lenders.

Upstart-powered banks are better able to identify risk and can generate higher approval rates and experience lower loss rates, while customers enjoy the benefits of a digital-first borrowing experience.

The company is among a handful of firms shaking up the multi-trillion-dollar credit industry by using AI. Its approach allows for continuous improvement as the platform is constantly learning and optimizing itself as daily loan-level repayment and delinquency data pours in.

For consumers the benefits are clear. It is both easier and quicker to get a loan from a bank using Upstart. The company says its platform approves up to 173% more loans than a sample of large U.S. banks at the same loss rate, and that around 70% are approved instantly.

The pitch for lenders is equally attractive. By using Upstart they make more loans (especially to those that fall outside of acceptable parameters from traditional FICO-based models), can tweak credit policies to match their risk appetite, and enjoy the lower lending costs of a digital lending platform.

These benefits have driven rapid growth for Upstart, which had a successful IPO last December and has seen its share price rise since. The company makes money by generating fees from banks and from loan servicing. It has no credit exposure.

Upstart grew revenue by 43% to $233 million in 2020 and is expected to grow by 157% to $600 million in 2021. Earnings are positive as well. Adjusted EPS of $0.11 in 2020 is seen expanding 464% to $0.62 this year. A good chunk of current growth is coming from auto loans, helped by the March 2021 acquisition of Prodigy, a provider of cloud-based automotive retail software.

In the last reported quarter (Q1 2020) revenue was up 90%. Bank partners originated nearly 170,000 loans, worth $1.73 billion (up 102%). Nearly $800 million in vehicles were sold through the acquired Prodigy business in Q1. Conversion on rate requests rose to 22% from 14% in the year ago quarter. Look for Q2 earnings to come out on August 10.

The Stock
UPST came public at 20 in December 2020 and rose 47% the first day. The stock steadily climbed to 105.6 by February 11, then fell by 60% by March 5 during the market crash. A big earnings report later in the month drove shares to a new high of 165, after which UPST completed a secondary offering. The stock cooled off and was trading back below 90 in May, then another run carried UPST to an intra-day all-time high of 192 on June 4. The stock then pulled back to 114 over the next two weeks (into lockup expiration). UPST has traded in a tight range, mostly between 110 and 130, over the last month and could be setting up for another run higher, pending Q2 results in early August.


Previously Recommended Stocks
On June 23 we sold e.l.f. Beauty (ELF) for a 5% loss. On July 7 we sold AppLovin (APP) for a 6% gain and sold Cactus (WHD) for a 10% gain.

There are no new sales today, however I am looking to trim a few positions in the near future to keep our portfolio to a manageable size.

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

Please note that stocks rated BUY are suitable for purchasing now. In all cases, and especially recent IPOs, 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. We may do this when stocks have little trading history (for instance IPOs), when there is more uncertainty in the market or with a stock than normal, or if a stock has recently jumped higher.

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.

Company NameTickerDate
NotesCurrent Rating
10x GenomicsTXG12/17/1966.78181.98173%HOLD
Academy SportsASO6/15/2140.0136.9-8%BUY
Altair EngineeringALTR8/26/2042.7566.7256%BUY
Bentley SystemsBSY4/21/2150.3460.7421%HOLD
CloudflareNET7/15/2035.85107.68200%Took Partial GainsHOLD 1/2
CrowdStrikeCRWD12/17/1949.45252.24410%Took Partial GainsHOLD 1/2
Driven BrandsDRVN6/15/2129.7229.52-1%BUY
& 4/20/21
Fox Factory HoldingFOXF5/19/21154.19158.653%BUY
Kornit DigitalKRNT11/18/2078.0612256%BUY
L Brands/Bath & Body WorksLB/BBWI7/21/21NEW74.46NEWWATCH & WAIT FOR SPLIT
Maravai LifeSciencesMRVI6/15/2144.640.13-10%BUY
Semler ScientificSMLR3/17/21104.4114.510%BUY
Shift4 PaymentsFOUR12/16/2064.3191.6843%HOLD
Sprout SocialSPT2/19/2020.3886.51324%BUY
TELUS InternationalTIXT6/15/2131.7628.34-11%BUY
Upstart Holdings
UpworkUPWK10/21/2020.3153.71164%Took Partial GainsHOLD
Vail ResortsMTN4/21/21313.31309.29-1%BUY
^ Average of high and low price if published intraday, or closing price if published after 4 PM ET

Company NameTickerDate CoveredReference
Date SoldPrice Sold^Gain/lossNotes
ChewyCHWY1/15/2031.225/4/202177.8149%Sold Remaining 1/2
PinterestPINS10/21/2050.435/4/202161.5422%Sold First 1/2
PinterestPINS10/21/2050.435/7/202160.1219%Sold Remaining 1/2
Five9FIVN11/20/1964.376/16/2021166.51159%Sold Remaining 1/2
Montrose EnvironmentalMEG5/19/2149.186/16/202149.140%
e.l.f. BeautyELF5/19/2128.866/16/202127.33-5%
AppLovinAPP5/19/2163.417/7/202167.046%Added/Sold 1/2 Position
^Average of high and low price if published intraday, or closing price if published after 4 PM ET

The next issue of Cabot Early Opportunities will be published on August 18, 2021.

Cabot Wealth NetworkPublishing independent investment advice since 1970.

President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
Cabot Heritage Corporation, doing business as Cabot Wealth Network
176 North Street, PO Box 2049, Salem, MA 01970 USA
800-326-8826 | |

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