March 27, 2024

Housekeeping: As a heads up, our offices and the stock market will be closed on Good Friday. We’ll be back at our desks come Monday. Have a great long weekend.

WHAT TO DO NOW: Remain bullish, but continue taking things on a stock-by-stock basis. We’re seeing another round of sharp selling in many leading growth stocks today, though few (if any) have cracked meaningful support. To us, it’s another shot across the bow, not prompting any major moves but putting us on alert with certain names. In the Model Portfolio, we’re making one small move—selling 20% of our stake in CrowdStrike (CRWD)— while doing a quick flip on Celsius (CELH), placing it on Hold after last week’s half-position buy after today’s drop on news. Our cash position will now be 25%, and we’re keeping our eyes on a few names should the selling continue.

Current Market Environment

The major indexes didn’t do much today, but growth stocks took hits as money rotated into other parts of the market. At day’s end, the S&P 500 was up 0.9%, the Nasdaq was up 0.5% but growth measures were down 1% or so while many individual stocks were down a bunch more than that.

From a top-down perspective, everything is as it has been with the market: Our Cabot Trend Lines, Cabot Tides and Two-Second Indicator remain positive, and, big picture, most of the bullish pieces are still in place—meaning the odds favor the market (and many leaders) being higher down the road—and we’re seeing some rotation into the broad market, which isn’t a bad sign.

That said, we think growth stocks are at a key juncture: We’ve written before that starting in early February, we began to see weeks of churning (lots of ups and downs, but not much price progress, which after a big run tells you the selling pressures are stepping up). Encouragingly, last week brought a strong upside move after the Fed meeting … but there wasn’t much follow through, and now we’re seeing leaders again come under pressure, with today showing big declines in many important names.

Now, to be fair, during the recent churning period, we never saw a rash of intermediate-term breakdowns among growth titles—and we still haven’t seen that, so there’s still a decent chance that the buyers will show up at key levels in many recently sluggish names. We also can’t rule out that, as we approach quarter’s end, many big investors (like hedge funds) are locking in some profits, causing short-term volatility.

All in all, we continue to take things on a stock-by-stock basis, and we look at today as another warning shot—not sinking ships are sinking, but we could take some quick action should the selling continue.

In the Model Portfolio, we did some buying last week but still held onto a 23% cash position. Tonight, our one small move is shaving off a few shares of CrowdStrike (CRWD), selling 20% of our position, while doing a quick flip by placing Celsius (CELH) on Hold, as the stock was hit hard on meaningful news. That will leave us with around 25% in cash. Details below.

Model Portfolio

AppLovin (APP) actually released some good news today—its subsidiary Wurl launched an AI-powered advertising solution for the connected TV industry (dubbed BrandDiscovery) that begins what should be a longer-term move to capture share in that gigantic industry. Nevertheless, the stock took a hit today as growth stocks were rotated out of—though, while not a good thing, shares still remain north of even their 25-day line (at 64 and rising quickly). We’re not complacent here and will be watching closely, but right here we’ll stick with what we have, and if you’re not yet in, we’re not opposed to nibbling on this retreat. BUY

Arista Networks (ANET) moved to new price and relative performance (RP) highs during last week’s rally after repeatedly finding support above the 50-day line during the prior few weeks. Thus, while today’s dip back below 300 isn’t fun, it’s “only” back near the top of its prior range and still north of its moving averages. A drop below the 270 to 275 range would be iffy here, at least intermediate-term, but at this point we’ll stay on Buy given that most evidence remains positive. BUY

Cava (CAVA) remains in good shape, with the stock actually nosing to new closing highs tody. Of course, there’s always the chance it hits an air pocket, but this is a fresher leader that we think many big investors will be looking to build positions in over time given the long-term cookie-cutter story. We’re hanging onto our half-sized position; if you want in, you could start small here or (preferably) on dips. BUY A HALF

Most leaders took on water today, but Celsius (CELH) sank on real news—surprisingly, the firm amended its agreement with Pepsi today, giving the big beverage maker more incentives to sell Celsius’ products, and while there weren’t tons of specifics out there, many believe this means lower margins but more volume, which Wall Street didn’t approve of. Of course, the international expansion continues, with the company inking a deal to enter Australia and New Zealand starting in Q4 of this year, but the fear now is that some fundamental upside could be pared back with the new deal. Back to the stock, the action today was ugly, though the overall chart isn’t a mess, with shares closing just below their 25-day line. That said, while we hate to flip-flop our ratings, we’re going to quickly go to Hold on our half-sized position here and see how things play out—given the news, the rejection of the stock’s recent bounce and our quick loss, the onus is on the buyers to offer support soon. HOLD

CrowdStrike (CRWD) has a great, long-term story and has had a big run from the market lows—but not only has the stock stalled out since mid-February, it saw a ton of selling/churning after its big earnings pop and it’s basically a lone ranger in the cybersecurity space, with most peers (like PANW, ZS and S) looking sick. We think the stock can move higher over time, but right here, we’re going to book a little partial profits—because our position isn’t huge, we’ll sell 20% of our shares (one-fifth of what we own) and give the rest room to maneuver. SELL 20%, HOLD THE REST

DraftKings (DKNG) was yet another stock that rested for a few weeks and lifted to new highs last week (on solid volume, too), only to get whacked today, along with other players in the group. The supposed reasons were two-fold: First, one U.S. senator is asking DraftKings and FanDuel how they target big gamblers (in an apparent worry over gambling addiction), while a second piece of (likely less important) news was that the NCAA is looking to outlaw prop bets when it comes to individual college players. To be frank: Today’s action was very ugly for DKNG, though, as opposed to competitor Flutter (FLUT, which owns FanDuel), the stock is holding north of its moving averages and is back in an area of support. We bought a bit more last week and are sticking with a Buy rating tonight, though as with many names, we’re keeping our eyes open and could take action if the selling drives the stock back toward the lows of its recent range near 40. BUY

Nutanix (NTNX) is another name whose long-term trend looks great—after such a persistent run, it would be unusual (never impossible, but unusual) for the stock to simply up and die here. That said, like many things, the near-term is looking iffier—since its earnings move at the end of February, the stock has stalled out and, recently, has seen some distribution. Still, we’ve already taken partial profits here, and the stock is currently less than 10% off its peak, so it’s hardly imploding. We’ll stay on Buy, but like most stocks, we’re watching it closely and would likely move to Hold (and possibly trim further) if the 50-day line (now approaching 60) breaks. BUY

PulteGroup (PHM) looks totally fine, gapping to new highs after the Fed meeting last week and pushing a bit higher since (setting new highs today). With mortgage rates holding about 1% below their peaks from last year, housing activity is picking up a bit—the February housing starts report showed starts up 6% and completions up nearly 10% from a year ago—which, in general, should be a help to Pulte. We’ll stay on Buy, though pullbacks would mark better entry points. BUY

Uber (UBER) has stalled out with many “extended” leaders, but it’s holding near its highs and has seen next to no major selling. While it’s hard to pin down, it looks like analysts see the firm’s free cash flow growing by a huge 59% this year, followed by another 33% gain in 2025, and if management executes, even those could prove conservative. Big picture, we continue to think UBER is an emerging blue chip with lots of upside if the top brass makes the right moves. We’ll stay on Buy, though pick your spots given the trickier environment. BUY

Watch List

Axon Enterprises (AXON): AXON is a great story that’s outside of the tech/AI world (though it is mostly a software play these days), and the stock has now been resting for four weeks following its earnings-induced move to new highs.

Hims & Hers Health (HIMS): HIMS had a bit of a shakeout yesterday and further wobbles wouldn’t be too surprising near-term given the recent run, but the upside power has been impressive and we love this story.

On Holding (ONON): ONON fully recovered from a big earnings dip to kiss multi-month highs before pulling back a bit when Nike fell on its own report. Even so, the stock has a great setup on the chart and growth should remain solid for many quarters to come.

Palantir (PLTR): PLTR has actually quieted down some as the 10-week line works to catch up. We think it’s a matter of time before the AI-related buying spreads to platform providers, and Palantir looks like the clear leader there.

Procore Technologies (PCOR): It’s not showing tons of power, but PCOR continues to nose higher within its firm uptrend. A growth slowdown this year is a worry, but if that proves conservative, we think this long-term story will have many big investors building positions.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, April 4. As always, we’ll send a Special Bulletin should we have any changes before then.

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