April 25, 2024

WHAT TO DO NOW: Remain cautious, though remain flexible. The market’s initial bounce this week was good to see but it didn’t offset the recent weakness, and today’s Meta-inspired selloff didn’t help the cause. All told, our Cabot Tides remain negative, and most growth stocks are still in rough intermediate-term shape—though the long-term picture is still positive. After selling the rest of our Arista (ANET) position last Friday, our cash position is 44%—we’ll sit tight tonight with our remaining names and our cash and see how earnings season continues to play out.

Current Market Environment

The market is down today after some poorly received quarterly reports, though the damage has been cut as the day’s wore on. As of 115 pm EST, the S&P 500 is off about 0.8% and the Nasdaq is down 1.1%.

The market has held its own so far this week, with some modest upside the past couple of days and, even after poor earnings reactions from Meta (META) and ServiceNow (NOW) last night, many stocks have shown some support.

Even so, the bottom line hasn’t changed—the intermediate-term evidence is pointed down, with our Cabot Tides and Two-Second Indicator both negative, while most growth stocks are in the same boat, and that goes whether you’re looking at individual stocks or broader measures (like our Aggression Index). Throw in the fact that interest rates remain a problem (Treasury rates reached new multi-month highs today) and we’re playing things cautiously, holding a good amount of cash and using some tight-ish stops on our remaining names.

That said, the long-term trend of most everything remains up, and numerous recent studies revolving around the market’s action of the past few months tell us the odds favor higher prices in the months down the road.

In terms of what we’re keying off, it’s mostly about earnings season over the next two or three weeks: Because of the churning that began in February, many growth (and other) stocks have been resting/correcting for six, eight, sometimes 10 weeks. Thus, if we do see some powerful earnings moves, they could be buyable, and if not, they would go a long way toward suggesting a bottom is in for these names.

Still, at this point, we’re just taking it as it comes—if the market and growth stocks can power ahead from here (making the recent action look like a big shakeout), we’ll be ready to put money back to work, ideally in some refreshed leading names. Until then, though, we’re content to hold a good-sized cash position (about 44% of the account) and wait for the near-term selling to play out. We have no changes tonight.

Model Portfolio

AppLovin (APP) remains all over the place, though it continues to hold support near the 50-day line. Earnings are due May 8, which, along with the market, will hold the intermediate-term key for the stock—especially if there are results (or even tidbits on the conference call) about its Axon ad platform expanding beyond mobile gaming. As with many names, we have APP on a relatively tight leash, but we’re holding on here, and a couple of good up days could make all the difference. HOLD

Arista Networks (ANET) was sold in a special bulletin last Friday, as the stock knifed through support in the 250 area. It has bounced a bit this week, bolstered today by news that Meta would be hiking CapEx spending (good for Arista and some other AI plays), so if you want to hold with a tight stop, that’s your call—but, overall, the bounce hasn’t come close to offsetting the straight-down action on volume during the prior two weeks. We sold, are holding the cash and think there will be peppier names to own when the market snaps out of its funk. SOLD

Cava (CAVA) doesn’t look great, but the pullback has been normal and, so far, the stock is holding near-term support. Fundamentally, the firm just entered the Midwest for the first time, opening up a restaurant in the Chicago area—that gives us 325 locations in 25 states (and D.C.), with the firm reiterating its expectation of at least 15% growth in the restaurant count both this year and next, as well as a target of 1,000 stores by 2032 (about 10% annual growth over the whole time frame). Like everything else, we won’t just hold and hope, but with “just” a half-sized stake we’re willing to give CAVA more rope. If you don’t own any, we’re OK nibbling on this dip, though with a relatively tight loss limit. BUY A HALF

CrowdStrike (CRWD) has bounced a bit this week after a four-week, very low-volume dip. The negatives here are that the group has turned very weak—peers like Palo Alto (PANW) and Zscaler (ZS) look poor—though CRWD has been the hands-down leader, with its super-bullish long-term outlook likely to keep big investors involved. Our patience isn’t limitless, but having already sold some, we’re willing to grit our teeth and give this stock a chance to round out a new launching pad. Earnings here aren’t out until late May. HOLD

DraftKings (DKNG) is dancing around support, with earnings (due May 2) likely to tell the tale. In our heart of hearts, we think there’s upside here—one analyst started coverage recently, saying it expects solid 20%-ish top-line growth for many years with EBITDA likely to top forecasts for the next couple of years with improving unit economics and, of course, opportunities from legalization in more states. That said, we’ll play it by the book: We’re holding DKNG here but it needs to find support soon. HOLD

Nutanix (NTNX) is now seven weeks into a tedious, but normal-looking, rest period, which comes after a near-straight-up run in November-February. Having sold some weeks ago, we’re giving NTNX some rope, as its tech platform should see strong demand for years (helped by share gains at the expense of VMware, which was acquired by Broadcom), with booming cash flow thanks to its subscription model. Hold on if you own some, and if not, we’re OK grabbing some shares here, though it’s probably best to keep it small given the environment. BUY

PulteGroup (PHM) is still doing very well, though mortgage rates continue to push the stock around. In the first quarter, sales (up 10%) and earnings (up 32%) easily topped estimates, while net new orders lifted a solid 14% thanks in part to a sharply lower cancellation rate (10% vs 13% a year ago). The stock popped on the news, which was obviously welcome, though it’s backed off the past couple of days as rates have ratcheted up (10-year note yield hit its highest level today since November 1)—but, overall, the action is acceptable. Like a few other names, we sold some of our PHM stake and are OK holding the rest here to give it a chance to resume its overall advance. A drop back toward the century market would be a yellow flag. HOLD

Uber (UBER) hasn’t bounced much this week, though some of that was due to Tesla’s quarterly report, with the top brass there talking a lot about launching a taxi service (with autonomous vehicles) to compete with Uber and Lyft, with a reveal likely in August. It’s always possible that really changes the game, but that firm is years behind when it said it was looking to launch the offering, and it’s also possible a firm like Uber, with a huge market share and with investments in autonomous technologies, too, continues to squash the competition. (We also wonder how big the uptake will be of people wanting to hop in a car with no driver.) Right now, UBER is about 15% off its high—not fun, but not crazy after the big fall/winter rally. HOLD

Watch List

Axon Enterprises (AXON): AXON got a bit sloppy last week, but net-net, the stock is less than 10% from its high and has a long-lasting growth story that should keep big investors interested. Earnings are due May 6.

Core & Main (CNM): CNM continues to act great, and its steady, reliable infrastructure-centric growth story should play out for many years. Earnings here aren’t out until early June.

Datadog (DDOG): DDOG is still chopping around but has a nice base in place as well as a solid, reliable growth story. Earnings are due May 7, and a big gap up could be buyable.

Dexcom (DXCM): We’re more interested in newer, fresher names, but we have to say that old friend DexCom, which is a leader in continuous glucose monitoring (CGM) systems continues to post solid growth while the stock looks resilient—and there’s a new product here (Stelo) for Type 2 diabetics that doesn’t require a prescription! Earnings are due tonight.

Natera (NTRA): NTRA held its 50-day line and has bounced decently this week, albeit on soft volume. Still, the overall pattern looks sound and growth has been accelerating as adoption of its various cell-free DNA tests expands. Earnings are due May 2.

Robinhood (HOOD): You’d expect a bull market stock to get mauled during a sharp market pullback, but so far HOOD has held its 50-day line, though, again, it hasn’t bounced much. Assuming the bull market in stocks (and in popular vehicles like crypto) continues, Robinhood’s earnings should have plenty of upside, with the higher-for-longer rate picture also helping. Earnings are due May 8.

Tidewater (TDW): TDW is up against round-number resistance (near 100) here, but after years of underinvestment, the company’s bold M&A moves have made it the clear leader in high-spec OSVs for offshore work, which are seeing booming dayrates. Earnings are likely out May 6.

TransMedics (TMDX): TMDX remains somewhat thinly traded and volatile, so it can get jerked around by the market. But it’s in a solid position as earnings (due April 30) approach.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, May 2. As always, we’ll send a Special Bulletin should we have any changes before then.

Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.