WHAT TO DO NOW: It’s been a typically volatile January, with this week’s huge convulsions among AI stocks the latest crosscurrent to deal with. Overall, the top-down evidence is mostly neutral at this point, and leading stocks are in a similar boat as last week—improving, but without much decisive buying so far. To be fair, we’d like to put some money to work and could do so soon (next day or two) if we get the right setup, but tonight we’ll stand pat and look for signs big investors are getting involved. In the Model Portfolio, we cut our loss in Marvell (MRVL) on a special bulletin Monday, though most of our stocks are acting well and tonight we’re placing On Holding (ONON) back on Buy as it looks to be resuming its overall uptrend. Our cash position is right around 50%.
Current Market Environment
The market was up modestly today, with the S&P 500 up around 0.6% and the Nasdaq up 0.3% near the close of trading.
January is often volatile and tricky, and 2025 has been no different, with a good-sized selling wave soon after the calendar flipped, a nice two-week bounce and then, this week, plenty of tumultuous action, highlighted by the plunge in AI infrastructure stocks on Monday and various crosscurrents under the surface.
From a top-down perspective, we view most of the evidence right now as neutral—there are positives (our Two-Second Indicator remains resilient, and the long-term trend is up) to be sure, but most indexes are basically range bound, including growth measures and our Aggression Index.
Going along with that are individual stocks, many of which have improved their standing during the past week or two (all of our stocks are in good shape right now), but as we wrote in the last issue, we’re not seeing a lot of power, with most still toying with resistance and levitating on light volume. Throw in the fact that a ton of stocks have earnings coming up in a week or so, it makes buying trickier.
Overall, our cash position (51%) is higher than we’d prefer, so we’re certainly looking to buy some resilient stocks, and if we do see strong bullish signs, we could get aggressive in a hurry. But given the evidence (and the fact that big breaks like we saw on Monday often have reverberations), we’re going to stand pat tonight while keeping our eyes peeled for signs big investors are getting involved.
In the Model Portfolio, we were forced to sell our half-sized position in Marvell (MRVL) earlier this week for a quick turnaround, but our other names are doing well and we’re continuing to fine-tune our watch list. We are placing On Holding (ONON) back on Buy, and ideally will have more new adds soon should growth stocks firm up in the days ahead.
Model Portfolio
We continue to sit tight with our remaining AppLovin (APP) position, as the stock tries to repair the damage from the sudden mid-December air pocket—though we are on guard should the past few weeks represent a meaningful top (always possible given the stock’s prior gigantic run); today’s reversal after testing resistance was a bit ugly. Still, we’re certainly willing to give shares a chance to take more time gathering strength for another run given the story and numbers here, though like many names, the intermediate-term tale will be told on earnings, which are due out February 12 (estimates are for revenue growth of 32% and earnings of $1.25 per share, though expectations are likely for more than those figures). We’re not ruling out trimming our stake a bit more ahead of the report, but right here, we’re content to stay the course and sit tight. HOLD
Argenx (ARGX) remains in much the same stance as it has been: Big picture, the stock continues to glide higher above its moving averages, though it’s not exactly outperforming the market much and the mid-January selling wave (three days of very big-volume selling, egged on by an analyst downgrade) is something to watch near term. Of course, we’ve been thinking of adding to our position for weeks and we’re still on the lookout for that (possibly with some shakeout and reversal higher?)—but so far, we’ve never quite seen the proper setup, so we’ve just ridden what we have higher, which isn’t the worst scenario. If you own some ARGX, continue to sit tight. HOLD A HALF
Like all our stocks, we’re optimistic the next major move in Flutter Entertainment (FLUT) will be up as the underlying business is strong, the top brass (via a new share buyback program) is becoming shareholder friendly and, by our measures, the stock is still early-stage (base-on-base breakout in November). That said, while the past eight weeks look totally normal (today shares were likely boosted by a bullish report from Las Vegas Sands—loosely the same sector), there hasn’t been much buying power to this point and the stock is right up into resistance. Thus, we’ll again stand pat here and see if this rebound gathers steam, while looking around for any tidbits on Super Bowl betting amounts and trends. HOLD
The old saying “sometimes you’re the windshield, and sometimes you’re the bug,” comes to mind with our ill-fated trade of Marvell Technology (MRVL), which was acting about as bullish as could be until DeepSeek crushed AI infrastructure stocks. As mentioned above, we’re open to the crash in this group being a “clear the decks” shakeout—but we always go with the odds, and the odds favor that, at the very least, MRVL and others will probably need some time (and earnings reports) to steady themselves. Either way, we thankfully bought “only” a half-sized position (5% of the portfolio), but our maximum loss limit (20% on our cost) was breached, forcing us to quickly exit. Obviously, such a quick downturn isn’t the norm and is never fun, but the damage to the overall portfolio (~1% of equity) wasn’t overwhelming and we think there will be better names to own when the market starts a sustained uptrend. If you still own some, you could possibly hold with a tight stop, but the odds favor MRVL and many of its peers needing time to repair the damage. SOLD
On Holding (ONON) doesn’t light up the sky, but it continues to make progress, with its latest tedious pullback and test of support (in the low/mid-50s) giving way to a good-volume move to new price and relative performance highs. The firm remains quiet on the news front, and earnings aren’t likely out for another month or so, but clearly, investors are taking their cues from management’s fireside chat earlier this month that pointed to continued great results as we roll into 2025. We’re not expecting a runaway upside move, both because of the market environment and the stock’s character (which has been two steps forward, one step back), but we’ll restore our Buy rating here given the action. BUY
Palantir (PLTR) has held onto all of its impressive comeback, likely because the value of the firm’s platform isn’t in developing large language (AI) models, but in taking those models and applying them securely and efficiently to a business’ workflows and applications—and thus, if anything, DeepSeek’s revelations make these models more commoditized, putting more value on Palantir’s platforms. Of course, the company is not the stock, and what will really count is the firm’s quarterly report next Monday evening (February 3—analysts are looking for $777 million and 11 cents per share), as well as the conference call that afternoon. The action is very encouraging—PLTR has probably had among the best snapbacks among high-flying growth titles since the mid-December summit—but we’ll stay on Hold here and see how earnings are received. HOLD
Reddit (RDDT) is a wild child and certainly could hit some potholes here and there, but we love the story and are encouraged by the recent action, as shares barely flinched during the big Monday selloff and then spiked up to new highs the next day. Frankly, we’d consider adding a few more shares here if the market were a bit healthier and if earnings (out February 12) weren’t approaching quickly—analysts are looking for a 62% leap in sales and earnings of 24 cents per share. Back to the stock, there’s obviously risk given the big upmove and with the quarterly report coming, but the fact that RDDT has held up well and poked to new highs while glamour names (in December) and AI names (January) have hit air pockets is very impressive, as are the accelerating growth and earnings/free cash flow trends. We’re OK buying a small position here or on wobbles and will see what comes on earnings. BUY A HALF
Shift4 (FOUR) tagged new high ground today, albeit on modest volume, likely helped along by some positive group action (MasterCard reacted well to earnings), though there’s no question that the overall comeback from the CEO-inspired selloff in December is bullish. There’s still earnings and the firm’s Investor Day coming up, but there’s some time until those (February 18), so we’re fine sticking with a Buy rating, though ideally you can get in on dips of a couple of points in this choppy environment. BUY
Watch List
DoorDash (DASH): Given all the volatility we’ve seen under the market’s hood during January, DASH remains a port in the storm, nosing to new highs last week and rising a bit more this week. Earnings are out February 11.
Duolingo (DUOL): DUOL is a name we’ve watched for a long time (and owned once), but it was tough to get a read on it, with a huge decline into last August followed by a giant recovery from there. Now, though, the stock has based out for eight weeks and is near its highs. Like many potential leaders, shares are hectic (it regularly swings 10% or more every few days), but the story (leading language learning platform, and eventually moving into music and math), numbers and chart all look enticing.
Dutch Bros. (BROS): BROS remains in great shape, as many retailers and restaurants (some stodgy, some growth-ier) attract buying. Earnings are due February 19.
Guardant Health (GH): It’s a bit more speculative than our normal recommendation, but the firm’s Shield and Reveal blood tests have huge promise as they launch across the country and as reimbursement picks up. Shares are acting well after changing character last week.
Rubrik (RBRK): RBRK certainly acts like it wants to eventually head higher, as the stock has handled itself well since the mid-December growth top (and during the past three weeks) and tested new highs today. Volatility is high here, but we think this story has legs.
Shopify (SHOP): We’ve kept a distant eye on SHOP in recent weeks even after it started to get sloppy, as the massive-volume earnings gap in November should bode well down the road. Now shares are perking up again within an eight-week consolidation. Earnings are out February 11.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, February 6. As always, we’ll send a Special Bulletin should we have any changes before then.
Model Portfolio
Stock | No. of Shares | Price Bought | Date Bought | Price on 1/30/25 | Profit | Rating |
AppLovin (APP) | 662 | 63 | 3/1/24 | 366 | 484% | Hold |
Argenx (ARGX) | 196 | 540 | 9/13/24 | 665 | 23% | Hold a Half |
Flutter Entertainment (FLUT) | 959 | 231 | 9/20/24 | 272 | 18% | Hold |
Marvell Technology (MRVL) | - | - | - | - | - | Sold |
On Holding (ONON) | 5,251 | 40 | 5/24/24 | 64 | 58% | Buy |
Palantir (PLTR) | 2,842 | 32 | 8/16/24 | 81 | 154% | Hold |
Reddit (RDDT) | 851 | 184 | 1/23/25 | 199 | 8% | Buy a Half |
Shift4 Payments (FOUR) | 1,675 | 85 | 8/30/24 | 122 | 44% | Buy |
CASH | $1,594,034 | 51% |
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