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Growth Investor
Helping Investors Build Wealth Since 1970

April 12, 2023

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Note: We’re sending this a day early as I’m heading out on a family trip tomorrow—though I’ll still be monitoring things from afar should any changes need to be made. Next week’s issue of Cabot Growth Investor will be sent as usual next Thursday, April 20.


WHAT TO DO NOW: Continue to play things in the middle, as the on-again, off-again environment remains in place. We are seeing some improvement from our Cabot Tides and Two-Second Indicator, which is a plus, but most of the evidence is stuck in the middle, so we think having a good chunk of cash as well as a few resilient growth names makes sense. We have no changes in the Model Portfolio tonight; our cash position remains just under 50%.

Current Market Environment

Stocks were volatile today after the March inflation report, but overall most indexes are up a bit as we head toward day’s end. As of 2:20 pm, the S&P 500 is up 0.4% and the Nasdaq is up 0.1%.

From a top-down perspective, our indicators are at an interesting point. Our Cabot Tides could technically turn green by week’s end, as a third index (the NYSE Composite) could re-enter an intermediate-term uptrend. Moreover, our Two-Second Indicator continues to improve, with new lows not blowing up last week (near 40 most days) and, now, are starting to dry up. Throw in the fact that many growth stocks that got hit last week have bounced back this week, the action of the past few days has obviously been a plus.

That said, when looking at everything, it’s still a stuck-in-the-middle environment: Some major indexes are looking OK, but some are sickly, and none are truly trending up; financial stocks have found support, but are still buried on their charts; growth stocks are also generally holding support, but most are getting tossed around; and defensive stocks have been picking up steam as more investors want to hide in safety. To this point, in other words, it’s still an on-again, off-again situation.

Like we’ve written before, the action isn’t necessarily bearish—in fact, longer-term, the odds (Cabot Trend Lines, multiple studies we mentioned in the last issue) favor the next big move being up in the market, and as we’ve written before, a very strong week or two (big volume, lots of breakouts, good breadth, etc.) could do wonders.

But right here, holding both a good amount of cash and also a few resilient stocks makes sense … all while staying flexible to deal with whatever the market might throw our way in the near-term. We’ll stand pat in the Model Portfolio tonight.

Model Portfolio

Academy Sports & Outdoors (ASO) has bounced excellently from its sharp one-day selloff during its Investor Day last week, soaring all the way back to new high ground. After going through the presentation, the firm did say margins would tighten a bit during the next few years, which may have caused the selling—but that was mostly expected as some (not all) of the margin gains of the post-pandemic period will be given back. But at day’s end, the firm is forecasting consistent store growth during the next few years, all of which is self-funded, which will result in growing earnings from an already-elevated level ($7.50 to $7.75 per share this year to $13-plus in 2027) while free cash flow piles up. Given the on-again, off-again market (and the straight-up move this week in ASO), we’ll stick with our Hold rating for now, but the rebound is obviously encouraging. HOLD

Chip stocks have been losing a bit of altitude, which has pulled Allegro Microsystems (ALGM) down, though the damage has been limited—shares are still above their 50-day line, and more important, are only a couple of points from virgin turf. (Translation: Shares haven’t given up any of their big breakout and advance from February.) As always, we’ll see how it goes—if the stock cracks support, we’ll likely go to Hold (or sell if things are really ugly), but ALGM still has the makings of a real, fresh leader, with best-in-class products and big sales and earnings growth likely for a long time to come. Earnings are due May 9. BUY A HALF

Axon Enterprises (AXON) looks fine, with a reasonable dip that never closed below their 25-day line—and now shares have pushed right back close to their highs. Beyond the day-to-day wiggles, the powerful action in recent months and the good-looking, earnings-induced breakout (on March 1) should bode well, and as we’ve written before, there’s unlikely to be much in the way of continued excellent growth should management execute on its plan—indeed, even in its most mature markets with its most mature products, just 30% to 35% of the opportunity has been penetrated by Axon, and with newer products (like its cloud offerings) penetration is in only in the mid-single digits. We’ll hold what we have, and are fine picking up a small position if you’re not yet in. BUY A HALF

On Holding (ONON) might need a bit of time to catch its breath after its huge earnings move and last week’s sharp decline—but at the end of the day, we’ve seen just one down day, which is hardly the end of the world. We continue to think On may be one of the next big consumer athletic and lifestyle brands—we’re holding onto our half-sized stake and giving it plenty of wiggle room. BUY A HALF

ProShares Ultra S&P 500 Fund (SSO) has done an admirable job of rallying back to within a couple of points of its February (and multi-month) highs. That said, the key will be what happens from here: Our Cabot Tides and Two-Second Indicator are improving, but not yet positive, and there’s still resistance just above here (which, in this sell-on-strength market environment, could be tricky). Don’t get us wrong: Up is good, and the fact that the S&P 500 (and SSO) has been resilient through the banking issues, worries over a recession and continued Fed jawboning is a good thing. Now let’s see if this rally can morph into a legitimate bull move. HOLD

Shift4 Payments (FOUR) is another growth stock that lifted to new highs, pulled back a few points last week but has quickly rallied back in recent days (albeit on light volume). Obviously, economic hopes and worries will have an effect here, but the bigger story surrounds the resilience of its core restaurant and hospitality clients and the move into many other industries that should drive transaction growth going forward. We’ll stay on Buy, but given the market, expect more wiggles in the near-term. BUY

Wingstop’s (WING) got hit a bit early last week, but overall it’s hovering in a relatively tight range above its 50-day line and just a few percent below all-time highs. Nothing has changed here—the story, chart and numbers tell us that the odds favor higher prices, but given the market and WING’s own choppiness, we’ll stick with a Hold rating here. HOLD

Watch List

Axcelis Technologies (ACLS): ACLS looks a lot like ALGM, with a big breakout and run early in the year and a choppy, (mostly) sideways phase in recent weeks. Shares are sitting right on their 50-day line—frankly, a powerful rally from here would be intriguing, though obviously a big dump would be a yellow flag.

Arista Networks (ANET): ANET remains in a pullback phase, though to this point it’s only down to its 25-day line. The question here is whether the upgrade cycle for the firm’s wares is near the end (i.e., much slower growth ahead), but so far big investors don’t seem to think that’s the case.

DoubleVerify (DV): DV has traded nicely in recent days, ignoring the washing machine-type action in the market and growth stocks. The growth outlook isn’t jaw-dropping, but it’s solid (mid-20% revenues and faster earnings growth) and we think the ad verification sector could be in the early stages of a rapid, reliable growth phase.

Duolingo (DUOL): DUOL is finally giving up some ground, but it looks fine. Frankly, a bit more weakness would offering a tempting entry point following the moonshot post-earnings advance.

Freshpet (FRPT): FRPT is an intriguing turnaround play, with demand that should remain robust no matter what the economy or Fed does, and the cost and execution issues of the past two years look to be (mostly) in the rearview mirror.

Impinj (PI): We’ve been keeping an eye on Impinj for weeks as the stock has chopped around, but it’s starting to show signs of firming up. Growth is fantastic and the company’s endpoint ICs have giant potential, though customer concentration is an issue.

Palo Alto Networks (PANW): PANW resisted the bear market for most of last year, and it’s ripped right back to its old highs so far this year. Cybersecurity isn’t our favorite area right now, but this name has the numbers and story to continue higher.

Samsara (IOT): IOT is now six weeks into a normal consolidation following its giant early-year run. Projected growth here is good, not great (low 20% range), but we think the underlying story has huge potential as every big truck, construction and municipal operator of heavy equipment could be a customer.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, April 20. As always, we’ll send a Special Bulletin should we have any changes before then.

StockNo. of SharesPrice BoughtDate BoughtPrice on 4/12/23ProfitRating
Academy Sports & Outdoors (ASO)3,091591/13/236816%Hold
Allegro Micro (ALGM)1,965463/24/2345-2%Buy a Half
Axon Enterprises (AXON)4082234/1/232230%Buy a Half
On Holding (ONON)2,956313/24/2330-4%Buy a Half
ProShares Ultra S&P 500 Fund (SSO)2,143491/13/23513%Hold
Shift4 (FOUR)1,949621/13/237419%Buy
Wingstop (WING)1,31914410/7/2218025%Hold

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.