Note: We’re sending out our Thursday bulletin a day early because of the Thanksgiving holiday; we have cocktails to test out and stuffing to make after all. Our offices will be closed Thursday and Friday but we’ll be back at it the following Monday. Have a great holiday and long weekend!
WHAT TO DO NOW: Remain optimistic but pick your stocks carefully. The overall market is in good shape, and there’s definitely more good than bad among individual stocks, though it’s also tricky, with plenty of rotation and news-driven moves. We’re still holding a good amount of cash but are OK with a little buying here and there. In the Model Portfolio, we’re buying a half position in Halozyme (HALO) today, which will leave us with a still hefty 36% cash position.
Current Market Environment
The market is mostly lower this morning, with the Dow off 187 points and the Nasdaq up just 6 points as of 11:45 am.
Our thoughts haven’t changed much from last week’s issue: Overall, the market as a whole is in good shape, with our trend-following measures and other blastoff-type indicators pointing to higher prices in the months ahead. And we’ve generally seen an increasing number of growth stocks (especially some fresher names) begin to perk up during the past two weeks.
That said, under the surface, things remain tricky—there’s still a good amount of selling on strength among growth titles (stock XYZ rallies 8% one week but falls 5% the next, etc.), and yesterday saw another relatively severe bout of rotation, with money pouring into cyclical names. Moreover, sentiment measures are elevated, too, with yesterday’s tagging of Dow 30,000 and Nasdaq 12,000 sure to lift investors’ spirits.
To this point, this latest wave of rotation hasn’t been overly extreme, with fewer stocks really taking hits than we saw two weeks ago and even those that are remain north of their lows from the prior selloff. But the general message is still the same: It’s OK to do some buying but picking your spots (and stocks) is vital, as there remain a bunch of crosscurrents out there.
In last week’s issue, we put a little money to work, leaving us with a (still hefty) 41% on the sideline. Today, we’re going to start another half position in Halozyme (HALO), a medical name with the story, numbers and chart that all line up. That will leave us with a 36% cash position.
Model Portfolio
Five Below (FIVE) remains in good shape, pushing mostly higher ahead of earnings next week. We have no new thoughts here—big picture, we think the rapid, reliable cookie-cutter growth story is back on track, though near-term, the quarterly report (December 2) will be key. We’ll stay on Buy but keep any new positions on the small side this close to the report. BUY.
Halozyme (HALO) isn’t at a pristine entry point, and it can be a bit thinly traded, so we’d expect some ups and downs. But as we wrote in last week’s issue, the biotech/medical space features a bunch of new leaders, and HALO is our favorite—in fact, the story got even better since last week, as the company inked a deal with Horizon Therapeutics (HNZP) for one of its big-selling drugs and upped guidance as a result. (As is typical, the deal features an upfront milestone payment, further one-time payments based on clinical progress and eventually mid-single-digit royalties on sales.) Near-term, HALO is extended but very strong (a bit of a coin flip), but overall the stock has all the characteristics of a top performer. We’ll start with a half position today. BUY A HALF.
NovoCure (NVCR) found some buying late last week, but yesterday’s market rotation erased that in a hurry—the stock plunged on above-average volume down toward the lower ranges of its six-week consolidation. There was no official news for the decline, though it sounds like some hospitals are again putting off elective surgeries given the spike in Covid cases; less non-Covid doctors visits would likely be a negative. As usual, instead of guessing and wondering, we’ll put most of our emphasis on the chart—the question is whether yesterday’s action was more of a one-or two-day shot across the bow or the start of a deeper retreat. Given the fact the stock has now seen two sharp selloffs, we’ll go to Hold, though our loss is small (just a few points) and given the overall pattern, we’re OK giving the stock some wiggle room (mental stop 110-113 area) from here. HOLD.
Pinterest (PINS) has pulled back this week, but that comes after a very promising recovery; shares rallied from a low of 52 during the big rotation two weeks ago all the way back to 68 (including eight days in a row of advances). Thus, while the current dip could go further (the 25-day line is nearing 60 and advancing quickly), the odds strongly favor higher prices ahead, especially as this looks like relatively rare merchandise for big investors. Hold on if you own some, and if you don’t, you can pick up shares here or on further dips. BUY.
ProShares Ultra S&P 500 Fund (SSO) has been hacking around a bit during the past two weeks, which is fine by us; more important is the fact that the fund has refused to give up any of its post-election rally and is still perched right near its highs. As we wrote in last week’s issue, there are many reasons to expect higher prices from the major indexes in the months ahead, including the Three Day Thrust and New High Buy signals earlier this month, and SSO (which moves twice the S&P 500, up or down, each day) is a direct way to play that. BUY.
Roku (ROKU) has decisively broken out on the upside, and while volatility here can be extreme (don’t be shocked to see some wiggles), we’re thinking a much bigger rally is possible as the move to connected TV (by users, yes, but also by big advertisers) gains steam. Last week’s deal that brought AT&T’s HBO Max to Roku’s platform again reinforced the importance of the company’s offering given its reach and growth momentum. If you filled out your position with us last week, just sit tight and give the stock room to breathe; if you’re looking to add, there’s a gap in the mid 260s that could be revisited on the next retreat. BUY.
Twilio (TWLO) is still lagging some of its peers, but we’re fine giving it some rope; as we wrote in last week’s issue, TWLO looks to be about four months into a rest period following its tremendous spring/summer advance. Of course, we’re not complacent—maybe growth will slow as the pandemic eases or the firm’s increased share count (from offerings and acquisitions) will hinder it. But until proven otherwise, we think TWLO is a liquid leader, with a story and long-run potential, something that big investors won’t easily let go of. HOLD.
Uber (UBER) smells like a fresh leader both fundamentally and technically (having just come out of a year-long post-IPO base), so we’re optimistic it can work its way nicely higher in the weeks ahead. If the stock can hold up here and push higher, we wouldn’t mind quickly filling out our stake, but as always, we’d prefer to have a little profit cushion under our belt first. If you don’t own any, we’re fine picking up some shares around here or on dips. BUY A HALF.
Watch List
Carvana (CVNA 237): CVNA has had some pops (and drops) over the years, but it’s totally changed character since the March lows, with growth expected to accelerate through next year. Shares have consolidated for three and a half months and are nearing their highs.
Cloudflare (NET 69): NET has refused to pull in at all, which is good (sign of strength) and bad (it’s still levitating far above any support). A pullback from here would likely offer a high-odds entry.
Shockwave Medical (SWAV 99): We love SWAV’s product, though shares are a bit thin and are currently extended. Any two- or- three-week rest in December could have us stepping in.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, December 3. As always, we’ll send a Special Bulletin should we have any changes before then.
