Housekeeping: We’re sending this note out a day early as the markets and our offices are closed tomorrow for Independence Day (and actually close at 1 p.m. today as well.) Have a great holiday (and hopefully a long weekend)!
WHAT TO DO NOW: The evidence remains mostly the same, with trendless, choppy action among the vast majority of stocks and sectors out there—we’re still overall bullish (especially longer-term), but for now, less seems to be more when it comes to taking action. In the Model Portfolio, we cut bait with Pulte (PHM) earlier this week as the stock (and sector) broke down, leaving us with 37% in cash, and today we’re placing On Holding (ONON) on Hold, as the stock has turned weak. We are seeing more setups out there, so if the buyers can show up, we’ll likely put some money to work, but today we’ll sit tight and see what comes after the holiday.
Current Market Environment
The major indexes are higher by a bit today ahead of a day and a half off (the market closes at 1 p.m. today)—as of 11 a.m. EST, the S&P 500 and Nasdaq are up less than 0.5% and growth stocks are higher, too.
Overall, the narrow, choppy and challenging market environment continues, with most stocks and indexes seeing plenty of trendless action. Our market timing indicators remain mixed, with the long-term trend up, but the intermediate-term trend is sideways and our Two-Second Indicator continuing to show a weak broad market.
When it comes to individual stocks, our main thought is that there simply isn’t any real money being made at the moment: For every stock that acts well, another hits a pothole, and stocks that perk up for a couple of weeks usually run into a wave of selling—a washing machine-type environment where most things are getting tossed around. For now, less is generally more when it comes to activity.
To be fair, while this week has seen a few more air pockets appear as big investors likely reposition their portfolios in the new quarter, we’re still not seeing a rash of breakdowns as most stuff out there is base building (including a couple of names on our watch list that are tightening up—usually a constructive sign). In fact, we’re now seeing a few better-looking setups out there, so if the buyers show up, we do think there could be some names to sink our teeth into.
Thus, we don’t want to get too cautious—remember, this is still a bull market, and the odds favor upside surprises in the months ahead—but we’re not eager to throw good money after bad right this second. We sold PulteGroup (PHM) on a special bulletin Monday, and tonight, we’re placing On Holding (ONON) on Hold, as the stock has gotten caught up in the market’s washing machine action. The sale of PHM left us with 37% in cash—more than we’d prefer, but we’re going to hold onto that today and see what comes.
Model Portfolio
AppLovin (APP) has done a good job holding support and bouncing back after the Apple-related scare of a few weeks ago, and today it’s actually poking above some resistance (near 85) on light volume, which is a hopeful sign. If growth stocks can hold together, we continue to have high hopes here given the super-strong earnings and cash flow here, and the stock’s eight-week rest period looks solid. We’ll stay on Hold for now, but we could go back to Buy if this move holds after the holiday. HOLD
Cava (CAVA) is in the same position it’s been for the past few weeks—unable to get through resistance in the mid-90s, but also unwilling to give up much ground as it holds near its 25-day line. Given the environment, we can’t rule out a dip if resistance doesn’t get taken out; the 50-day line (and the late-May low) is in the 82 area and rising, so there is daylight should any wobbles occur. Big picture, though, the pieces remain in place for this cookie-cutter story to attract more big investors—the early read on Q2 fund ownership shows 387 now own shares, up from 301 in March and 224 in December. We’ll stay on Buy, but new buyers should keep it small for now or look for dips. BUY
CrowdStrike (CRWD) caught a valuation-based downgrade yesterday, with the analyst seeing no near-term catalysts after the recent big run; these sorts of actions usually don’t dent strong stocks much, and indeed, CRWD is still hovering near its highs. We do like the tight trading here over the past three weeks, a sign that big investors are comfortable holding shares at these levels. We’ll stay on Hold here, partly due to the choppy market, but could restore our Buy rating in the days ahead if the stock continues to act well. HOLD
On Holding (ONON) continues to weaken, dipping below its 50-day line, so we’ll put the stock on Hold, using a mental stop in the 34 to 35 area for now (near the prior high). Nike’s quarterly report last week didn’t help the cause—that stock imploded 20% last Friday and hasn’t been able to get off its knees. On, of course, is a different animal (an analyst actually hiked his price target today), so we’re OK giving it a chance, but if all’s well ONON should find buyers soon. Hold for now. HOLD
We gave PulteGroup (PHM) every chance to hold up, but it (and the group) have broken down this week; supposedly the catalyst was another pop higher in Treasury rates, but the action has been sour for weeks now even when rates were fading. We’re not making any grand predictions with homebuilders from here, but there are more signs of slowing business (whether it’s top-down reports like housing starts or some building supply firms seeing lower backlogs among contractors) and it’s clear the momentum has waned and the sellers are taking control. SOLD
Pure Storage (PSTG) was another name of ours that got stuck with a downgrade yesterday, albeit from an analyst who was already cautious, causing shares to retreat but not break any support. We’re open to anything, but Pure Storage’s business remains in great shape and any news of some big wins (AI or hyperscale) could cement perception around an acceleration in growth going ahead. We’ll stay on Buy, though the 60 level should be important near term. BUY
TransMedics’ (TMDX) story remains the same, with the stock inching to new highs every few days before pulling back toward its 25-day line. There’s been nothing new from the firm for a while now—as a small-cap medical firm, there’s obviously risk, but the story is borderline revolutionary, changing the way hearts, lungs and livers are stored and transported pre-transplant. We’ll stay on Buy. BUY
Uber (UBER) saw some sloppy action the first couple days of the month, but it generally held near-term support (69-70) and still has a chance to round out its launching pad. As we wrote last week, the stock obviously still has a lot of proving to do, and Tesla’s Robotaxi unveiling next month could move the stock. But the underlying story and numbers here are hard to beat, and we’d be intrigued by any decisive show of strength. Continue to hold your remaining shares. HOLD
Watch List
AppFolio (APPF): Software stocks are coming back to life, and APPF has the makings of a fresh leader, with best-in-class offerings for property managers. Shares have been essentially resting since February but are starting to challenge their old highs.
Arista Networks (ANET): ANET continues to act well in the wake of Broadcom’s declaration that Ethernet will be the backbone of mega-scale AI systems. We’re not in the mood to chase anything right here, but if we see a controlled dip we could take a swing at it.
ASML Inc. (ASML): ASML continues to set up nicely—the price here is elevated (1,000 per share!), but institutions don’t care, and the firm is almost surely going to see a huge uptick in sales and earnings in 2025 as its latest chip etching machines are gobbled up.
Halozyme (HALO): HALO has held onto its big early-June, patent-related gains, which is about as good as you can ask for in this environment. The longer it can stay up here, the better the odds it heads higher as more big investors start to discount many years of strong, high-margin royalty growth ahead.
Palantir (PLTR): We’ve had an eye on PLTR for more than a year now but have never pulled the trigger—but the third time might be the charm, as the stock has approached its old highs and the story (leader in AI platforms for businesses and agencies) remains strong.
Pinterest (PINS): PINS was testing new highs coming into this week, but it’s been pulled back down, which is par for the course in this market. Even so, the chart looks fine—mostly meandering the past few weeks—and the story and numbers are great.
Robinhood (HOOD): Net-net, HOOD hasn’t gone anywhere since late May, which is the typical pattern of many growth stocks. But the latest exhale has tagged the 25-day line, and we like some of the recent tight action.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, July 11. 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 7/3/24 | Profit | Rating |
| AppLovin (APP) | 2,212 | 63 | 3/1/24 | 85 | 36% | Hold |
| Cava Group (CAVA) | 2,454 | 68 | 3/8/24 | 96 | 41% | Buy |
| CrowdStrike (CRWD) | 452 | 163 | 9/1/23 | 389 | 139% | Hold |
| On Holding (ONON) | 5,251 | 40 | 5/24/24 | 37 | -9% | Hold |
| PulteGroup (PHM) | - | - | - | - | - | Sold |
| Pure Storage (PSTG) | 3,346 | 64 | 5/17/24 | 63 | -1% | Buy |
| TransMedix (TMDX) | 1,576 | 133 | 5/9/24 | 149 | 12% | Buy |
| Uber (UBER) | 1,708 | 44 | 5/19/23 | 72 | 62% | Hold |
| CASH | $779,992 | 37% |
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