WHAT TO DO NOW: We’re putting a little cash back to work tonight, buying a half-sized position in Dynatrace (DT), which will leave us with around 23% on the sideline.
The market had another solid day, with the Dow gaining 116 points and the Nasdaq surging 84 points. Nothing has really changed with our overall market view—we’re mostly bullish, though aware that some yellow flags out there (things are certainly getting frothy) could lead to potholes, rotation or some outright retreats, and thus are searching for some fresh leadership and decent entry points.
One name that we’ve been watching (it was on our watch list last issue) is Dynatrace (DT), which looks like a new leader in the application performance management field. (It’s also a cousin stock to Datadog (DDOG), which is also acting well.) It has solid and accelerating revenue growth as it moves to the cloud, and encouragingly, earnings and cash flow are both growing nicely.
DT broke out a few weeks back and accelerated higher after earnings, though yesterday and today it pulled back some after announcing a secondary offering of closely-held shares. It should be noted that none of these are “new” shares so they don’t represent dilution; they’re shares from early (pre-IPO) investors that are cashing out.
Such a secondary isn’t unusual in recent IPOs, and they rarely crater a stock’s nascent uptrend. Of course, there’s never any certainty, but we think taking a half-sized position (5% of the Model Portfolio) here makes sense. We’ll use a stop in the 28 to 29 area, and will look to average up if this weakness proves short-lived. BUY A HALF.
We’re still looking for further new buys, with Redfin (RDFN) and Zillow (Z—earnings tonight) possibilities. We’re also looking at old friend Carvana (CVNA), which went nuts today. But for tonight we’ll take a stab at DT and then see how the market and other stocks play out going forward.