Note: We’re blasting out this week’s update a day early given the Good Friday holiday. We hope you have a great long weekend.
WHAT TO DO NOW: Remain cautious. The Cabot Tides buy signal has fallen by the wayside, and bigger picture, few growth stocks have been able to punch out to new (or multi-month) highs without selling off—thus, we remain cautious, holding plenty of cash and not allowing anything to run away on the downside. We do think there’s still a chance we’re in a broad bottoming area for the market, so you shouldn’t stick your head in the sand, but until we see some real strength, we advise caution. Our cash position is currently at 55%; we have no new changes tonight.
Current Market Environment
The market had a solid rally today, lifting the major indexes and growth stocks—around 3 pm EST, the Dow was up 296 points and the Nasdaq was up 257 points.
Despite today’s move, the action of the past couple of weeks has been disappointing—following weeks of gradually improving evidence under the surface, the two-and-a-half-week rally from the early March lows was very encouraging. But the way the market has retreated in the past two weeks has wiped away some of those good feelings, with the brief Tides buy signal falling by the wayside, while most individual growth stocks that were looking good have taken more than a few lumps.
Indeed, beyond the index and sector action, our main thought right now is that, at least when it comes to growth stocks, very few held up or overcome key resistance areas—sure, you’ve had some beaten-down names bounce, but nearly everything that approached multi-month highs has quickly found sellers. That can always change, but until it does, it’s telling you there are still a lot of big investors that bringing supply to market.
To be clear, though, we don’t think everything is doom and gloom out there, or that the latest retreat has wiped away all of the positives from the prior few weeks. We still believe there’s a good chance the market is in some sort of bottoming area—the fact that the major indexes (and even growth funds) haven’t given up any net ground since late January despite a barrage of bad news, worries and uncertainties (rates, inflation, war, yield curve, economic expectations, mortgage rates, etc. etc.) is noteworthy.
Of course, we’re not buying because of that—we’re trend followers, and both the Tides and Trend Lines are negative, and growth stocks are having trouble getting off their knees. But it’s just a heads up that, with sentiment fairly negative and the market as a whole refusing to go down amidst bad news, it’s a good idea to keep your eyes open and head up should the bulls return. Following this growth stock wipeout, the next “real” uptrend should effectively be an entirely new bull phase.
Until then, though, we’re just going with what we see in the here and now: We’ve taken a couple of steps back with the market of late and are sticking with the same general stance (plenty of cash, small positions on any new buys, lots of patience) while we look for signs of a sustained rally. On yesterday’s special bulletin, we sold our half-sized stake in Dutch Bros. (BROS), which leaves us with around 55% in cash. We have no further changes tonight.
We placed Arista Networks (ANET) on Hold in last week’s issue and we still think that’s appropriate, as the stock was one of many that motored back up close to its old peak only to get whacked as the market retreated. To be fair, shares are still hanging around their 50-day line, which is stronger than most growth titles, and we still think the underlying growth story is intact, which should keep big investors interested. Because of that, we’re fine giving ANET more rope, and a couple of solid up days would do a world of good … but much more weakness would make the past few months look like one big top. Hold on if you own some, but we have a mental stop in the low 120s. Earnings are due May 2. HOLD
CarGurus (CARG) certainly hasn’t been immune to the recent selling, but overall, the stock looks normal, still consolidating its huge earnings move from February and holding near its 50-day line. The fear here is that, since business is tied to car dealerships, any recession (or sharp economic slowdown) could crimp business, and that could be true for the firm’s traditional offering, which provides dealerships with consumer leads via its website. But the CarOffer subsidiary’s story is much larger than that and should result in rapid growth even if we hit a few economic potholes this year. If the market keels over from here, anything is possible, but right now we think CARG is buyable if you’re not yet in. BUY A HALF
Devon Energy (DVN) continues to act fine, though not powerfully—the stock actually tagged new highs this morning, but DVN also is basically hanging near levels seen in early March. You could argue the stock, after a big advance, is losing some steam, so we’re not complacent. But as trend followers, up is good, so we have no complaints, and the tightness seen on the weekly chart during the past month (also seen in other leading energy explorers) is usually a good sign. Looking at some (very rough) back of the envelope math, the firm’s Q1 free cash flow was probably north of $2 per share, of which more than $1 should be paid out in dividends (and some of the rest may have been used to buy back shares)—all of which could keep income-oriented investors interested. If shares continue to chill out for a bit (possibly with a little shakeout at some point) and then rip ahead, we could restore our buy rating, but we’ll once again stay on Hold for now. Earnings are due May 2. HOLD
As we wrote in the last issue, at some point we think Dutch Bros. (BROS) will embark on a big, sustained run, as the cookie-cutter story here is too big for the stock not to eventually respond. But whether it’s the market, the valuation, the stock’s newness or something else, shares remain wild and wooly, with a breakout attempt to multi-month highs in late March faltering badly. The chart isn’t a complete disaster, as it’s still etching higher lows since late January, but the rejection in the 60-63 area, its inability to bounce at all and our loss told us it was best to cut bait. We’ll be keeping an eye on BROS and wouldn’t mind getting back in when the time is right, but right now we think it’s best to sell and hold the cash. SOLD
Palo Alto Networks (PANW) continues to be a rare growth stock port in the storm, with today’s action bringing it right up to its old highs. In this environment, that might mean some selling is upcoming, but the longer it can hold up, the greater the chance it’ll have a good run once the market finally finds its footing. The fact that peer CrowdStrike (CRWD) is also acting well is a plus. We think you can buy a small position here (or preferably on dips) if you’re not yet in. BUY A HALF
ProShares Ultra S&P 500 Fund (SSO) is a close call for us, especially as the Tides have technically retreated to a red light. That said, we’re going to leave the stock on Buy as (a) the S&P 500 remains one of the more resilient indexes and is holding near its 50-day line, and (b) while we’re not huge support/resistance people when it comes to indexes, there should be good support around here after the latest decline. If the market slides much from here, we’ll go to Hold and/or consider trimming our position, but if you have a lot of cash, nibbling on SSO here seems like a decent risk/reward. BUY
Pure Storage (PSTG) has come straight down of late, which isn’t great to see, but we look at the action as acceptable so far, with shares “only” down to their 50-day line and still miles above their January/February lows. Still, we do believe the stock is at a critical level—if all’s well, shares should find support around here, and we remain optimistic they will as rapid, reliable growth results from the firm’s transition to a more subscription-based model. Thus, we’re OK holding on here, but like a couple other names, we’re keeping PSTG on a tight leash. HOLD
Halliburton (HAL): We’re still watching HAL, but we prefer to buy on some sort of two- or three-week dip, ideally to the 50-day line.
Halozyme (HALO): HALO has quickly run to near the top of our watch list, as we think the year-long decline is over. The firm made a decent-sized acquisition today that should bolster its portfolio of products—and be accretive to short- and long-term earnings, too.
Inspire Medical (INSP): As opposed to many growth stocks, INSP’s recent pullback was very well controlled, and the stock is perking back up. Our main rub here is the stock’s thinness (just 250,000 shares per day), which can lead to some air pockets occasionally. Still, the story, numbers and chart are lining up here.
Lantheus (LNTH): LNTH remains in good shape but has lost a little steam of late—totally acceptable, but we’re looking at shakeouts/pullbacks more than buying on strength.
Shockwave (SWAV): SWAV took a bit of a tumble early today but bounced back nicely. We’d actually prefer to see it take a breather—if it does, it could set up a legitimate entry point should the market return to health.
Wolfspeed (WOLF): Chip stocks have not been doing well, which is a mark against WOLF—but the stock continues to snap back every time it gets hit. Shares are working on a five-month base, which is part of a larger 14-month rest, and the story here looks golden for many years to come.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, April 21. As always, we’ll send a Special Bulletin should we have any changes before then.
|Stock||No. of Shares||Price Bought||Date Bought||Price on 4/13/22||Profit||Rating|
|Arista Networks (ANET)||1,626||137||12/10/21||132||-4%||Hold|
|CarGurus (CARG)||2,451||45||3/30/22||42||-6%||Buy a Half|
|Devon Energy (DVN)||3,620||28||6/4/21||64||127%||Hold|
|Dutch Bros. (BROS)||-||-||-||-||-||Sold|
|Palo Alto Networks (PANW)||176||620||3/30/22||628||1%||Buy a Half|
|ProShares Ultra S&P 500 (SSO)||3,410||47||5/29/20||63||33%||Buy|
|Pure Storage (PSTG)||3,043||36||3/25/22||31||-13%||Hold|