Cabot Growth Investor Issue: May 1, 2025

A Great Start

In the last issue, we wrote about the preponderance of positive secondary evidence, which is something usually seen near a meaningful low—the panic selling on tariff fears brought with it a bevy of legitimate extremes, ranging from new lows (two straight days of over 1,000 stocks hitting new lows on both the NYSE and the Nasdaq) to breadth (85% percent of all stocks south of their 200-day lines; 95% south of their 50-day lines). And then there was sentiment, with well-respected surveys like the Investors Intelligence survey flashing 17-year lows in bullish sentiment (a good contrary indicator) while many real-money measures also showed big money running for the exits.

In other words, it was likely we had hit a low the market could work off of—though it was an open question how strong any bounce would be. Encouragingly, the rally is off to a great start: The broad market has bounced nicely, with our Two-Second Indicator turning on a dime, and an even bigger highlight was our Three Day Thrust, which triggered a week ago, pointing to good things when looking 6 to 12 months down the road. (See more later in this issue.)

After spending weeks doing nothing on the buy side and sitting on a huge cash position, we finally put a little money to work based on those positives ... but just a little, at least to this point. The reason why is what we have been harping on for the past couple of months: The primary evidence, namely the trends of the major indexes (our Cabot Trend Lines and Cabot Tides) are still negative, and the same goes for individual stocks, where 60% of stocks are still south of their 50-day lines and 70% are below their 200-day lines.

Next week is shaping up to be very important—if the market holds here or advances, it’s likely our Cabot Tides will flip back to green within a few days, which is obviously something we put a lot of weight on. Just as important, gaggles of stocks we own or are watching are set to report earnings as well. Tons of strength from the indexes and gap-ups in leading stocks could tell us it’s “go” time … though renewed selling and many horrible earnings reactions would tell us the market still needs more time to set up.

All in all, the combination of the horrid sentiment (driven by well-known, obvious tariff fears) along with the thrust higher last week has us optimistic the lows of this meltdown are probably in—but in the near term, it’s still uncertain whether the market is going to need more bottom-building action (or possibly an outright retest of the lows, which would be damaging to individual titles) or whether the sellers have left the building.

What to Do Now

Right now, we think going slow is the right approach as we wait for further confirmation from the market and to see the earnings reactions of potential leaders. Thus, we’ll sit tight tonight, having added two half-sized positions last week in Penumbra (PEN) and Take-Two Interactive (TTWO), leaving us with 75% in cash. If things kick into gear next week, we could put a good amount of money to work (our watch list continues to expand), but as always, we’ll wait for the evidence to change before making any big moves. Stay tuned.

Model Portfolio Update

With some improvement in the evidence—namely the Three Day Thrust signal, as well as some great action from our Two-Second Indicator—we did finally put a little money to work last week, adding a couple of half-sized positions in two potentially leading names. And despite some bad headline economic news (negative GDP report, etc.), we’re pleased with the overall action of the stocks we own and most that we’re watching.

That said, while it’s been a great first step, the primary evidence (Trend Lines, Tides, etc.) is still pointed down, and for individual stocks, we’re in the heart of earnings season (three of our names report next week), which is tossing around a lot of names even as most remain south of key moving averages.

Put it all together, we’re comfortable holding a big cash position right here, but the game plan is simple: If the Cabot Tides flips to green and we see potential leaders break out (possibly after bullish earnings reports) we’ll extend our line, possibly quickly depending on how things come together.

Overall, we’re certainly more optimistic than we were two weeks ago, but the market and fresh leadership still have a some proving to do before we conclude a sustained uptrend is underway.

CURRENT RECOMMENDATIONS

Argenx (ARGX)—Argenx is set to report earnings on May 8, with analysts expecting sales to rise a big 91% while earnings come in at $2.42 per share, up from a loss a year ago. Obviously, the reaction to the numbers and any outlook for Vyvgart this year—especially in the wake of the pre-filled syringe approval, though that came this month and won’t have affected Q1 results—will be vital for the stock’s intermediate-term future. But so far, the stock is acting about as well as we could hope: The 23% top-to-bottom correction was more than reasonable given the growth stock implosion that was taking place, and shares found higher-volume support at the lows and have recouped about three-quarters of the drop (albeit on tepid volume in recent days). If the stock can react well to earnings while the Tides turn positive (two big ifs), we’d love to buy more; shares are acting like they want to help the resilient medical field lead the next upturn. That said, we’ll take it as it comes; right now, we continue to hold our small position as we see what the market and earnings bring next week. HOLD A HALF

Flutter Entertainment (FLUT)—FLUT continues to perform more or less in line with the market, rallying recently back into a bunch of resistance, though it did poke a hair above some moving averages today. Like so many stocks, earnings are due next week (May 7), with analysts officially looking for overall sales growth of 11% and earnings of $1.91 per share, but more emphasis will be likely be placed on how competition is shaping up (especially in regards to Kalshi and other prediction markets) and how FanDuel’s user trends (signups, bet amounts, same-state growth, etc.) are going. If FLUT is going to really be a leader of any coming advance, we’d expect to see the stock outperform from here; for now, having held a small position through the wipeout and with the underlying growth story likely intact, we advise sitting tight and seeing if investor perception picks up post-earnings. HOLD

Palantir (PLTR)—PLTR clearly showed relative strength after its February selloff, holding the 80 level for the most part despite numerous bear raids (its relative performance line, not shown here, actually bottomed March 10), then finding huge-volume support at the lows (weekly volume was larger than any of the selling weeks) and, recently, racing back toward its February peak, recouping about 80% of its decline. It’s all to the good, helped along by some news flow (reports of a $30 million deal with U.S. immigration authorities)—but earnings are due out next Monday (May 5), which will likely tell the tale. Analysts see the top line lifting 36% (faster in the U.S.) while earnings of 13 cents grow 62%, and all eyes will be on the pace of uptake of the firm’s AI platforms for businesses and governments around the globe. Back to the stock, we’re optimistic, though after a very deep (40% from high to low on a closing basis), shares could easily need some time to consolidate for a bit and shake out the late buyers. Either way, the post-earnings action will be key; if you own some, continue to hold your shares. HOLD

Penumbra (PEN)—We started a position in PEN late last week after the Three Day Thrust signal as well as the stock’s own reaction to a great earnings report—sales growth accelerated to 16%, and that was mainly due to a 25% lift in thrombectomy-related sales (blood clot removal); within that category, vein-related removal revenues were up a big 42%. Meanwhile, earnings of 83 cents trounced estimates (by 16 cents) and doubled from a year ago thanks to a continued lift in margins. (The top brass said all of its products are made in the U.S., and 75% of its materials and components are sourced here, too, so tariffs shouldn’t be much of an issue.) Shares aren’t totally out of the woods (300 is round number resistance), but they reacted well to earnings on big volume, and that comes after PEN held up great during the entire market selloff. We added a half-sized stake (5% of the total account in terms of value); a drop back to 260 or so would be iffy, but a push higher from here with a healthy market would likely have us filling out our stake. Hold on if you bought some, and if not, we’re OK starting a position now. BUY A HALF

Take Two Interactive (TTWO)—TTWO was our second addition last week, and it’s off to a nice start. Like PEN, this stock held up great throughout the worst of the market downturn, and as soon as the pressure came off the market, shares took off, staging a legitimate breakout last week and rising since. To be fair, the stock still has earnings coming up—due May 15—which is always a risk. But we’re putting more emphasis on TTWO’s action and, of course, what should very well be a bottom-line boom in the coming quarters, thanks to numerous new releases from its video game library, with Grand Theft Auto VI being the crown jewel. (There’s still some debate as to when exactly that title will be released, which could cause some volatility after the quarterly report, but most see it out this fall.) A drop far below 200 should the market gets tedious again would be a yellow flag, but right now TTWO looks great. Sit tight if you bought with us, and if you didn’t, we’re OK starting a small-ish position here or on dips of a few points. BUY A HALF

Watch List

• DoorDash (DASH 197): DASH looks ready to resume its leadership role, as it’s built a very reasonable 11-week launching pad—though earnings are out May 7, so we’ll be watching the reaction closely.
• GE Aerospace (GE 204): GE is back into some resistance, but there’s no question the snapback (both before and after its recent earnings report) is very tennis ball-like. It won’t be your fastest horse, but many aerospace names are looking good and GE quacks like the liquid leader in the space, in part thanks to its excellent near- and long-term free cash flow outlook and ridiculous backlog (north of $140 billion).
• Guardant Health (GH 49): GH is still losing money, but Q1 results easily topped expectations, and the Sheild (its blood test for colorectal cancer) launch was great, leading to a hike in estimates. Shares look good but are still futzing around with resistance near 50.
• Life Time Holdings (LTH 31): LTH has been resilient but choppy, with consistent selling in the 32 to 33 area during the past few weeks. A breakout after earnings (May 8) would be enticing for this long-term growth story.
• Marex (MRX 44): MRX is a growth-oriented Bull Market stock, which makes its recent strength (it’s zoomed to new highs in recent days) so intriguing. The stock remains a bit thinly traded, but it seems to be growing up. Earnings are out May 15.
• Mosaic (MOS 31): It’s as cyclical as they come, but MOS and many fertilizer names look to be coming out of multi-year dry times, and the sector has a history of trending when things turn up. See more below. Earnings are due May 6.
• Rubrik (RBRK 72): It’s still a bit wide and loose (huge swings up and down on its chart), but we like RBRK’s overall action (RP line is near a new high) and its growth story—and it doesn’t hurt that the cybersecurity sector is perking up.
• ServiceTitan (TTAN 116): ServiceTitan has a great-sounding niche cloud software story for the trade industries that should result in a rapid and reliable growth for a long time to come. See more below.
• TG Therapeutics (TGTX 45): TGTX probably tops on our watch list if we do any buying—assuming it makes it through earnings (May 6) in one piece. The firm’s Briumvi treatment for relapsing MS looks like a very big deal as it takes share from the competition, and the stock has moved out to new highs (on quiet trade) ahead of its report.
• Uber (UBER 81): We did well with UBER in late 2023/early 2024, and now, after more than a year of base-building, it’s looking ready to run again … if earnings (May 7) are pleasing. The underlying growth story here for Rides and Delivery is unchanged, and the fears of autonomous taxis taking share are fading (partly due to the firm’s own partnerships in that space).

Other Stocks of Interest

ServiceTitan (TTAN 116)—Here’s an interesting cloud software story: ServiceTitan is the hands-down leading cloud software provider for the trades industry, including businesses like plumbing, roofing, windows, HVAC, landscaping, painting, electrical, even things like elevators and janitorial for companies and schools. As far as the offering, there’s the core platform and tons of add-on modules that provide job booking tools, dispatch technology (notifying clients automatically, scheduling, AI routing and directions), reporting and estimate software as well as payment/invoicing and a bunch of back office (accounting, inventory management) stuff, too. (Its AI-powered offerings help automate a lot of marketing, dispatch and scheduling tasks, with more AI tools on the way.) Impressively, about three-quarters of U.S. trade jobs are non-discretionary, which adds a degree if steadiness to the client base. ServiceTitan has more than 9,500 clients, and more importantly, it serves most of the biggest service outfits around the country that are getting bigger via consolidation … which plays right into Titan’s hands. All in all, It’s a gigantic market ($13 billion addressable market today, growing to $30 billion by 2030; it thinks it’s less than 10% penetrated today on a client basis), and there’s plenty of growth even among its current customer base (if all of its current clients signed up for the full slate of offerings, ServiceTitan’s revenue would double), with plenty of new additions coming on board each quarter with good unit economics (21-month payback in customer acquisition; 10%-ish same-customer revenue growth rate). As for results, they’re rapid and reliable—total revenue has lifted between 24% and 29% each of the past five quarters, with subscription revenue (three-quarters of the total) expanding a bit faster than that. Moreover, while earnings are in the red, operating income has been in the black for the past five quarters, and the top brass sees huge margin expansion over time. Now, to be fair, TTAN is a new and somewhat illiquid name—it trades just under $50 million per day and doesn’t have a ton of sponsorship yet—but after a few weeks of post-IPO selling, shares zoomed to new highs after the market bottom in early April before a little recent selling. It could use some more seasoning, but we’re high on this story.

Mosaic (MOS 31)—We’re growth investors, but we’re also students of the market, and after a humongous year for growth last year (our second best since 2007), we’re open to the idea that the next advance will be more balanced—certainly a lot of growth names that will do well, but some cyclical ideas may also thrive, as that broad theme mostly sat out the 2023-2024 party. That leads us to Mosaic (and, for that matter, some other fertilizer names), which last had a sustained uptrend in 2021 and 2022, and for the past three years it’s been in the doghouse as sales and earnings have fallen off. Still, there are more than a few green shoots here: First, while the numbers have been a mess, things have started to firm up—Q1 is likely to see flat revenues for the first time in many quarters, for instance. Second, even with the dry times, Mosaic has been firmly profitable (thanks in part to cost cuts), with about $2 per share of earnings last year and with all three segments (phosphate, potash and fertilizers) showing positive operating income and EBITDA. (With that money, the company has maintained a solid dividend, 2.9% yield, and the share count is down 2.5% from a year ago thanks to buybacks.) Third and most important, things are likely to start getting better—indeed, phosphate prices were actually up in Q4, and the top brass expects the same in Q1 for potash, while overall production should pick up this year as prices continue to do the same. Obviously, this isn’t some revolutionary growth story, but after years of dry times in this cyclical area, we think it’s likely earnings and cash flow head up from here and, combined with a cheap valuation (15x trailing earnings; the bottom line is expected to rise 23% in 2025), could lead to a big run if things go right—the Q1 report is due May 6, which will obviously be key. It looks like big investors are already thinking positively: MOS hit a low of 24 in mid-September and it never closed more than a point below that in any week since (a long bottoming process), and now shares have rallied to tag 10-month highs. It’s an intriguing turnaround story, though we’ll see how next week’s quarterly report is received.

GE Vernova (GEV 385)—GE Vernova was the institutional investor’s way to play the AI infrastructure movement, as it’s a well-established (north of $35 billion in annual revenue), blue-chip firm that’s a giant player in the power and electrification sectors, which are benefitting from green energy as well as AI and other (like onshoring) factors. In the power area, Vernova has all sorts of offerings for hydro, nuclear and gas plants—the firm’s gas turbines (its newer H-class turbines offer the lowest emissions, quicker installation and lower cost of ownership than competitors) seem to be the big driver, with orders continuing to pour in (29 in Q1, up from 16 a year ago). As for the power division, it’s booming thanks to a variety of products for making the grid more sturdy and allowing it to handle alternative energy sources (power conversion and storage is also big); orders in Q1 here came in at 1.8x revenues for the segment, while the backlog mushroomed 41%. There’s also a wind power business here, but that’s lagging and losing a little money, while Vernova emphasizes the power and electrification. To be fair, top-line growth here isn’t going to be big given the firm’s size, but despite worries about CapEx in recent months, the company continues to deliver in a big way: Q1 revenues lifted 11%, which was actually an acceleration from recent quarters, while EBITDA more than doubled (up 47% in power, and up nearly three-fold in electrification) while free cash flow came in at $1 billion, or nearly $3.50 per share—and the top brass stuck to its 2025 view, too, while the long-term outlook calls for huge EBITDA and free cash flow gains thanks to the enormous backlog ($45 billion of equipment, not to mention service backlog, which is big). Of course, the stock had a tough 44% correction during the growth stock implosion, but (a) GEV essentially held its 40-week line, better than 80% of all stocks, (b) it held its March low during April’s meltdown, again better than most names, and (c) has started to rally back post-earnings. Now, after such a deep downturn, there’s often a few weeks of rest within the overall pattern (“base within a base”), so GEV probably isn’t ready for primetime—but we think shares have liquid leader written all over them, so we’ll be keeping an eye on it for when the market confirms a new uptrend.

It’s the Unusual that Counts Most in the Market

One of the biggest banana peels for investors of all stripes is that similar types of market action can mean completely different things at different times in a cycle. For instance, if a stock with great numbers and sponsorship has been meandering up and down for months and then suddenly gaps up 20% on earnings, that’s often an immediate buy—usually kicking off a major advance. Conversely, if that stock (and the market) had been running higher for six or nine months and then gaps up, it’s much more likely to meet with selling.

When it comes to the market as a whole, many investors subscribe to the view of overbought and oversold—that is, when the market moves too far, too fast, there’s often a snapback. When that action comes on the downside, that view if usually correct—oversold can always become more oversold, but when you see true panic-type selling (like we saw in early April on the tariff fears), it’s often near some sort of market low.

However, it turns out that when you see the opposite—rare upside strength in the overall market, creating “hyper-overbought” readings—it doesn’t usually lead to a big drop. In fact, these super shows of strength often appear near the start of big bull runs! It comes down to what retired top-notch technician Walter Deemer wrote: “The market is the most oversold at the bottom, but is the most overbought at the beginning of a new advance.”

That’s the thinking that underpins what we term Blastoff Indicators, of which we wrote a bit on this page last issue: These measures look for times when the market shows rare strength via price, breadth and/or volume, as those are the times that often mark turning points in the market—or at the very least tell you the market has started a bottoming process that will lead to good things down the road.

Now, if you peruse Twitter/X, you’ll find tons of oddball thrusts and indicators that are often used by short-term traders—but for our part, we’re looking for measures that have stood the test of time and point toward big gains over the next six to 12 months.

And, intriguingly, a couple triggered last week.

One, invented by the famous investor Marty Zweig in the 1980s, is known as the Zweig Breadth Thrust; without getting into all the details, it measures when breadth quickly moves from oversold to overbought. The signal last week was just the 17^th since 1950, and the S&P 500 has never been lower six or 12 months later, with great average gains (up 16% after six months, 24% after a year) for the market, too. Granted, there were some “just OK” signals among the bunch, but there’s no question it’s a good sign.

Also flashing last week is one of the Blastoff indicators we mentioned in the last issue and one we’ve done a lot of work on: It’s the Three Day Thrust, which occurs simply when the S&P 500 rallies at least 1.5% three days in a row. While such a move doesn’t seem like it would be that unusual, it is, happening just 10 other times since 1970, or about once every five-plus years.

Historically, it’s always led to good things: A year after the signal, the average maximum gain in the S&P 500 is 24.5% (even the “worst” signal rose at least 11% from the signal within the next year), while the average maximum loss was just 4.6% during that time. Combined with the horrid sentiment out there (the Investors Intelligence survey saw the bullish reading hit a fresh 17-year low last week), it’s hard not to be optimistic about stocks doing well when looking out many months.

However, there is a potential near-term catch: In about half of the Three Day Thrust signals that occurred south of the 200-day moving average (as this one did), there was still some backing-and-filling for the market to get through … if not an outright retest of the prior lows. The other half tended to simply head straight up.

For example, there was a signal at the very start of November following the 1987 crash—but that led to a (successful) retest of the lows in December before the recovery phase started. Conversely, the February 2016 example (occurred right off the low) saw the market mostly work its way higher for the next few months and, longer-term, saw a big move through 2017. (See charts below.)

Thus, if history holds, the bottom of this selling storm is likely in and good things will happen over time—but we do need to see more evidence from our primary indicators (Tides and Trend Lines) as well as from individual stocks (tons of which are reporting earnings in the next week or two) before concluding it’s “go” time for a fresh bull cycle.

Cabot Market Timing Indicators

There’s been a definite improvement in the market’s tone, highlighted by the Three Day Thrust last week and some excellent action from our Two-Second Indicator, both of which are good signs that the market may have found a sustainable low. That said, the market’s primary trends (both for the indexes and most stocks) are down, so while we’ve started to come off our giant cash position, we want to see added upside confirmation (ideally starting with the Tides next week) to begin a big buying spreee.

Cabot Trend Lines – Bearish
Our Cabot Trend Lines look better than they did a couple of weeks ago, but they still have a ways to go, as both the S&P 500 (by 3%) and Nasdaq (by 4%) are clearly below their longer-term 35-week lines, which have flattened out. Ideally, the March-April tariff plunge will prove to be one big shakeout, but with the indexes (and most stocks) living below longer-term moving averages, it’s best to go slow and allow the market prove to itself on the upside.

Cabot Tides – Bearish
Our Cabot Tides are at an interesting spot: All five of the indexes we track (including the Nasdaq, daily chart shown here) have rallied nicely off their early-April panic lows, moving above their lower (25-day) moving averages. Now we need to see those 25-day lines turn up, which could happen (possibly early) next week … if the indexes hold or strengthen from here. If that happens, we’ll definitely put money to work, but we never anticipate signals—for now, the intermediate-term trend is still down, which argues for caution.

Two-Second Indicator – Neutral
Our Two-Second Indicator has improved rapidly, with eight straight days of sub-40 new lows at this point, including 29 during the brief shakeout yesterday. That’s enough for us to call the measure neutral—though given the intensity of the prior selling wave, we’d like to see a few more encouraging readings (even if the market does dip for a bit) before thinking the broad market is turning healthy.

The next Cabot Growth Investor issue will be published on May 15, 2025.

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