July 20, 2023

WHAT TO DO NOW: Remain bullish, but be prepared for some near-term (and possibly earnings-induced) gyrations. Today’s sharp drop in the Nasdaq and many leaders is a short-term shot across the bow—combined with some other factors, the odds are growing that we may finally see some selling that lasts for more than a couple of days. That said, the overall environment remains bullish, with higher prices likely down the road. All in all, we’re bullish but are taking things on a stock-by-stock basis and expect some further wobbles in the days ahead. Our only change tonight is that we’re placing Celsius (CELH) on Hold. Our cash position remains around 16%.

Current Market Environment

The sellers finally showed up today, driving the Nasdaq and growth stocks to good-sized losses—though the broader market took the selling mostly in stride. At day’s end, the S&P 500 was down 0.7% and the Nasdaq was off 2.1%.

Looking at the overall market picture, not much has changed—all of our key market timing indicators remain bullish, and there’s been very little abnormal action when it comes to leading stocks. We’re optimistic that the last two-plus months are the initial stages in what could play out into a multi-month bull phase.

That said, near-term, we are starting to see a few signs that the huge rally that got moving in early May could hit some speedbumps. Short-term sentiment, for one, has spiked according to many surveys (though longer-term sentiment measures tell us many remain underinvested). Defensive stocks are perking up a bit after being flat on their back. And, while acting fine, we’ve seen more growth stocks stagnate a bit in recent weeks, and of course today’s selling was a shot across the bow.

Throw in earnings season, which always brings some ups and downs, and the odds are growing that (a) the near-term will probably provide some challenges for the Nasdaq, leading stocks and maybe the rest of the market, too, though (b) the odds strongly favor dips leading to upside down the road, for both the market and leaders.

Assuming you’re not overly exposed (heavily on margin and/or having loaded up on stocks the past couple of weeks), it’s best to take things on a stock-by-stock basis—containing losses and putting up mental stops on names that are stalling out makes sense, but so does holding on tightly to names that are acting well while looking for opportunities to enter fresh leaders.

Tonight, our only change is placing Celsius (CELH) on Hold as the stock has stalled out of late. We could have some changes—both sells and buys—in the days ahead depending on how these wobbles turn out. Right now we’re holding our 16% cash position.

Model Portfolio

Celsius (CELH) looked like it was finally ready to power through the 150 area earlier this week but it was quickly corralled—and is now close to its 50-day line (near 140), with no net progress since early June. Such hectic action isn’t unusual for this stock, so we’re not panicking, but given the stalling-out action and the potential for some near-term market gyrations, we think it’s prudent to go to Hold here and see how things play out. Earnings are due August 10. HOLD

DoubleVerify (DV) continues to act just fine, with a shakeout late last week followed by a quick bounce back to its recent highs. The firm is working with Roku to cut back on connected TV ad fraud: DoubleVerify identified a fraud program known as SmokeScreen that worked in the background of screensaver apps of some always-on devices (like streaming sticks and game consoles) and fraudulently placed ads that were never seen, bringing in $6 million of bogus ad sales, and it’s aiming to prevent more in the future (which adds to its platform’s attraction, of course). All that said, earnings are out next week (July 27), which will be key—we’ll stay on Buy, but keep new buys small and aim for dips this close to the report. BUY

DraftKings (DKNG) surged last week and has held very tight so far this week, which is obviously encouraging. We’re in an in-between situation here, where we’d like to average up on our half-sized stake here, but shares are still extended to the upside here, and earnings are also quickly approaching (August 3). If we do see a little weakness, we could layer on some more shares (even if it’s not a full 5%) and let the chips fall where they may—right here, we’ll hold our half-sized stake. If you’re not yet in, we’re OK starting a small position here or (preferably) on weakness. BUY A HALF

Inspire Medical (INSP) bounce back to its highs last week and, while some have tried to bring it down again, it’s holding firm in recent days. Our thoughts on here haven’t changed: Inspire’s growth story is fantastic and the stock hasn’t done anything “wrong,” so we’re giving it a chance to kick into gear—and maybe a little rotation out of mega-cap growth and into other areas will help that. Like everything else, earnings are due out soon (August 1), which will be the key. Right here, we’ll hold our half-sized stake, but a decisive upmove could have us averaging up. HOLD

MasTec (MTZ) was added last week as shares had eased off their highs, and the stock has mostly meandered since then, with a kiss of the 25-day line today. We think the infrastructure theme in general (and the green energy infrastructure theme in particular) has legs, and MTZ’s persistent upside out of the gate bodes well. You can enter here if you’re not yet in. BUY

Monday.com (MNDY) ripped all the way back to its June highs recently—but it’s since hit another pothole as growth stocks have pulled in. The past six weeks looking like a normal rest period after the stock’s huge-volume, pre-and post-earnings run in April/May, so we’re holding on, albeit with a mental stop in the low/mid-160s. Major strength from here could kick off a sustained move and possibly have us averaging up, but of course we need to see it happen first. HOLD

ProShares Ultra S&P 500 Fund (SSO) remains very strong as the S&P 500 is in a strong bull trend. As we wrote above, the near-term will probably see some more ups and downs, but the preponderance of big-picture evidence (including things like our New High Buy signals, written about in the last issue) points to higher prices in the months ahead. Hold on if you own some, and if not, we’re OK buying some here or on dips of a couple of points. BUY

Shift4 Payments (FOUR) has toyed with getting going a few times this week, though it’s been consistently rejected in the 70-72 area (give or take). A strong move up from here would actually have us pretty excited, but until that happens, we’ll stay on Hold and keep an eye on our mental stop, which is current near 62. Earnings are due August 3. HOLD

Uber’s (UBER) looks great, having hit higher highs this week following its 25-day line test last week. Once again, management is using the firm’s heft to ink new add-on deals—it recently inked a deal that allows people to use the Uber Eats app to order delivery from the 3,000 convenience stores that partner with Vroom Delivery. We’ll stay on Buy, though aim for dips, especially with earnings coming soon (August 1). BUY

Wingstop (WING) is again on the edge, testing key support in the mid-180s. Overall, the stock’s base-building effort since early May hasn’t been abnormal at all, but at some point, we need to see the buyers take control—and it’s getting close to that point. We’re holding for now but if shares fall further, we’ll likely take the rest of our profit and look for greener pastures. HOLD

Watch List

Axcelis Technologies (ACLS): We think ACLS is the go-to picks-and-shovels provider for SiC chips, which will be used in EVs and other power hungry apps. Shares have had a big run this year, though have cooled down since mid-June. Earnings are due August 2.

Confluent (CFLT): CFLT has pushed to higher highs of late, though our guess is some more wiggles are in store short-term. Earnings are due August 2.

Delta Air (DAL): Between DAL, NE (see below) or some similar names, we think there’s room for an early-stage cyclical stock in the portfolio. Delta and other major airlines should not only see massive earnings and cash flow this year, but even higher levels in 2024 and beyond as industry conditions have changed in a big way in recent years.

Duolingo (DUOL): It’s very, very volatile, but after a 21% correction (and a three-month period of no net progress), DUOL is showing some signs of getting going again. The online language operator continues to grow fast (revenues up 42% in Q1) and there should be a lot of built-in upside by converting more of its free user base to paid. Earnings are due August 8.

Noble (NE): We’re not going to load up on cyclical names, but oil service stocks look to have just begun a group move—and the group has a history of trending for months (if not a year or two) once things get moving. Earnings are due August 2. Any exhale should be buyable.

On Holding (ONON): ONON has nosed to new highs of late—nothing decisive, and the relative performance (RP) line is still shy of its recent highs, but we think the story is as good as ever, and the May dip now looks like the last gasp of the growth stock bear.

Samsara (IOT): IOT remains wild on a day-to-day basis, but it’s now set up another consolidation (six weeks long, 20% deep) that’s sitting on top of its prior two-month rest … and just shy of all-time highs. Fundamentally, Samsara has emerging blue chip written all over it.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, July 27. As always, we’ll send a Special Bulletin should we have any changes before then.