June 8, 2023

WHAT TO DO NOW: Remain optimistic. The market has steadily shown improvement during the past two or three weeks, with even yesterday’s rotation helping the broad market—and today’s snapback in leading stocks is good to see. Our Cabot Tides have effectively turned positive, and our Two-Second Indicator is close, too. Having just put a slug of money to work (including three new half-sized buys on Tuesday’s special bulletin), we’ll sit tight tonight, but if the good vibes continue, we’ll probably add more exposure next week. We have no changes tonight. Our cash position stands around 50%.

Current Market Environment

The market is mostly green today, as are leading stocks—as of 1 pm, the S&P 500 is up 0.5% while the Nasdaq is up around 0.8%.

Yesterday saw a big bout of rotation, with the strong Nasdaq and emerging growth leaders hitting a pothole, while the rest of the market (namely the lagging small and mid-caps, etc.) perked up. While rotation is never pleasant and makes you want to chase your tail, we’re relatively optimistic for a couple of reasons.

First, many leaders took hits, but this generally comes after big moves up—at this stage, these dips look more like trend knockout-type moves (big, scary one- or two-day drop after a big run to scare out weak hands and entice eager shorts) rather than anything abnormal. Of course, given the on-again, off-again environment, we’re certainly keeping our eyes open, but so far, the action seems normal.

The second reason is that the broadening out of the rally has helped our indicators: Our Cabot Tides are now technically positive, and our Two-Second Indicator has recorded five straight sub-40 readings (that includes a likely sub-40 reading today). Again, there’s no surety, but that is a good thing.

Overall, then, we remain encouraged enough to have put some money to work of late, though we’re not cannonballing into the pool, either. If this week’s dip in the leaders does turn out to be just a hiccup (and if the indexes don’t unravel), we may add more exposure next week—though if things fall apart, we’ll ride the wave and trim.

Right now, we’re going to sit with what we have and see how things go. In the Model Portfolio, we added three new half-sized stakes yesterday (averaging up in two names and starting one new position), leaving us with a cash position just over 50%.

Model Portfolio

Celsius (CELH) can be wild, but the stock remains strong, and we like the recent upside follow-through from its earnings gap in May. Interestingly, while increased distribution (number of locations, including different sectors) thanks to the PepsiCo deal is helping, there should be a very long runway of growth: Giant Monster Beverage currently averages 30 items per store (and 35 in convenience stores, which is a key channel), Celsius is only averaging 12 per store (and 8 in convenience stores). Thus, rapid and reliable growth should be the case for many quarters (if not years) to come. We’ll stick with our half-sized stake for now, though we like the action. BUY A HALF

DoubleVerify (DV) was added on Tuesday, and despite yesterday’s wobble, it remains in a firm uptrend. We’ve written about the company before and the big idea hasn’t changed—with digital ads and programmatic ad buying taking over, the need for ad verification (fraud prevention, viewability measurements, brand safety and much more) will only go up. (One of our favorite stats here is that two-thirds of DoubleVerify’s contract wins are with clients that don’t have any ad verification system at all.) We started with a half-sized stake and will give the stock a few points of wiggle room in the near term. BUY A HALF

Inspire Medical (INSP) has whipped between 290 and 315 (give or take) the past couple of weeks but has held north of its 25-day line and remains solid north of its breakout level in the 280 range. We think the company’s sleep apnea solution is just scratching the surface, and as Inspire boosts its training force, there’s no reason the number of procedures can’t rise many-fold down the road. A drop below 270 or so would be a yellow flag, but we’re OK nibbling here or on further dips. BUY A HALF

ProShares Ultra S&P 500 Fund (SSO) leapt above resistance last week, which, combined with other positive tidings, had us buying more of this leveraged long fund. We’ll probably write more about it in next week’s issue, but yet another bullish study emerged, and this one uses some classic momentum measures for the S&P 500; the index’s recent action turned it green and that’s led to very solid gains when looking out nine months, dating back to 1970. Of course, this has been something of a rule-breaker market, so as we wrote in the first section, we’re not taking anything for granted—but we think the risk/reward of adding more exposure to the general market makes sense here. BUY

We still harbor high hopes for Shift4 Payments (FOUR), which has the story, numbers and overall chart (past many months) to drive a sustained run. That said, the stock is now 10 weeks into a new launching pad and is approaching some key levels—the 70 area looks like obvious resistance, and there’s been little volume buying when FOUR has perked up. A few good days from here would be very encouraging; in fact, something like that could have us adding a few shares back to our currently small-ish position. But right here, the burden remains on the stock to shape up. HOLD

Uber (UBER) has certainly jumped around with the market of late, but at day’s end, it’s one of many names that has remained north of its 25-day line, with today’s snapback from yesterday’s dip a good sign. We think the overall resilient economy and long-term growth trends here should keep bookings at healthy levels, and management seems to have found the elixir to boost margins and free cash flow. A drop below 35 would be iffy, but we averaged up on Tuesday and the path of least resistance is up. BUY

Wingstop (WING) has dipped right to its 50-day line, continuing its slow descent since earnings a month ago. Having taken partial profits, we’re OK giving WING a bit of rope (if it wants to nose below the 50-day line, etc.), but in general, if all’s well here, we’d expect the stock to find buyers soon. Hold for now, but we’re watching it. HOLD

Watch List

Axcelis Technologies (ACLS): ACLS remains super impressive, rallying even through this recent bout of rotation. We’re not chasing it here, but big picture, the stock’s early January breakout means it should have plenty of upside down the road.

DraftKings (DKNG): DKNG remains super volatile, thrashing around in the 23 to 26 range, though it’s also remained above its 25-day line the entire time. We’re optimistic that the combination of a far more reasonable valuation (shares are still nearly two-thirds down from their all-time high) and rapid and reliable growth (most analysts see 20%-ish top-line growth and faster EBITDA growth for the next few years) should keep buyers interested.

Duolingo (DUOL): DUOL stretched nicely to new highs earlier this week before a sharp retreat on Wednesday, partly due to a valuation-based downgrade—but, like most fresh leaders, the decline didn’t really damage the chart. We love the fundamentals, though we’d like to see the stock settle down for a bit before jumping on this bucking bronco.

HubSpot (HUBS): HUBS had a very persistent run from earnings in early May through Tuesday, with a normal-but-sharp dip on Wednesday. The valuation is up there, but the firm quacks like an emerging blue chip as tons of small, mid-sized and (increasingly) large firms use its sales and CRM platform.

MasTec (MTZ): We’re all for tech, medical and other growth areas, but if the market does broaden out, we’d also like to own a stock in a “down-to-earth” sector. MasTec is one of our favorites in the infrastructure space, though its focus isn’t on roads and bridges but building telecom, power, oil and gas and clean energy projects that have strong tailwinds. The backlog here is big and growing fast, earnings look set to take off—and the stock is moving to new highs.

Monday.com (MNDY): Monday.com isn’t as well-sponsored as we’d like (just a couple hundred mutual funds own shares), but the numbers and story are terrific and there’s no doubt the stock has shown impressive power of late. We’d be tempted to start a position on a bit more of a rest.

Palo Alto Networks (PANW) or CrowdStrike (CRWD): PANW and CRWD have pulled back normally of late. If the cybersecurity group gets moving, we think both of these names will do well.

Samsara (IOT): IOT has been all over the map in recent months, and it is a thinner name, too. But the stock has gone bananas following its recent earnings report, with two giant-volume up weeks (Double Skyscrapers, as we call it) as shares test all-time highs.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, June 15. As always, we’ll send a Special Bulletin should we have any changes before then.