WHAT TO DO NOW: Growth stocks are again under pressure; we never bought much into the recent rally, with 45% cash and today we’ll boost that to near 50% by cutting bait with DraftKings (DKNG). We’re also moving Pinterest (PINS) to Hold given the recent selling. Detail below.
The major indexes are selling off today on various news items. As of 1 pm, the Dow is down 195 points and the Nasdaq is also off 195 points, while the average stock we own or are watching is off around 2.5%.
The major trends of the market are still pointed up, and our longer-term view of the bull market hasn’t changed; we think stocks are headed higher over time. But nearer term, growth stocks are beginning to lose steam again—after a good couple of weeks that saw a lot of hard-hit names rebound and a few titles approach all-time highs, the past two or three trading sessions have seen the sellers back out in force. We’re glad we didn’t plow in during the recent rally, still holding a good chunk of cash (45% or so) in the Model Portfolio.
Despite the sour action of late, we’re not throwing in the towel on this rally—it’s possible this is the final shakeout that wipes out the weak hands and leads to a bunch of earnings-induced breakouts. However, we have to see that to believe it, per se; as growth stock investors, the fact is little money is being made, so it’s best to stay close to shore.
Tonight’s bulletin is in regard to two stocks. The first is DraftKings (DKNG), which we’ve given every chance to hold up, but today it’s slicing our loss limit. Down the road, if the stock can really set up again (and if growth stocks find a floor), we could revisit it, but today we’re going to take our lumps and cut the loss, which amounted to just over 1% of the overall portfolio. SELL.
Then there’s Pinterest (PINS), which was looking as good as just about any growth stock a week ago. But a cautionary note from a small analyst firm (said Q1 had slowed as the quarter went on) supposedly sent the stock spiraling, which continued today. If you happen to have bought it recently, it’s important to respect any loss limit—especially given that earnings are due out next Tuesday. (As a heads up, peer Snap (SNAP) has earnings due out)
As for our position, we’re going to go back to Hold given the weakness—but we’re also not going to panic out of the position here, given that earnings are coming, and the stock is “only” back into the wide range it’s occupied for the past few months. HOLD.
With a cash position near 50%, we’re not anxious to sell more, and we do have a few stocks that are acting relatively well given the environment. We’ll continue take it stock by stock and see where the market takes us.
Your next issue of Cabot Growth Investor will be e-mailed out this Thursday, April 22. Don’t hesitate to email me mike@cabotwealth.com with any questions!