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Growth Investor
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December 10, 2020

Stick with the game plan of putting some money to work as opportunities arise. While the near-term path is a bit of a tossup, the major evidence remains bullish, and we’re seeing more and more leaders get moving in recent weeks.


WHAT TO DO NOW: Stick with the game plan of putting some money to work as opportunities arise. While the near-term path is a bit of a tossup, the major evidence remains bullish, and we’re seeing more and more leaders get moving in recent weeks. Tonight, we’re going to start a new half-sized position (5% stake) in CrowdStrike (CRWD), leaving us with around 25% in cash. We’re also moving Novocure (Buy a Half) and Twilio (Buy) into the Buy column, preferably on dips.

Current Market Environment
The indexes finished mixed today though most growth stocks acted very well. When the closing bell rang, the Dow was off 71 points and the Nasdaq was up 66 points.

After a few weeks of great action (and gains), the market and many leaders finally hit an air pocket yesterday, with the major indexes (mostly the Nasdaq) and growth stocks taking a hit. However, today’s snapback was impressive, with many stocks immediately recouping their losses.

Near-term, we think the next move is probably a coin flip. Sentiment remains in nosebleed territory, which usually results in some sudden air pockets. Plus, there are many stocks that are still stretched above even shorter-term moving averages, so some more ups and downs during the next week or two wouldn’t surprise us.

However, as has been the case for many weeks, the key evidence remains quite bullish—our Cabot Tides and Cabot Trend Lines remain solidly posiitve and the action of leading stocks (both growth and cyclical) remains great, with many fresh breakouts holding up and other, early-stage leaders kiting higher.

Overall, then, we’re continuing with our current game plan—we’re steadily putting money to work as opportunities arise, though we’re keeping our feet on the ground and looking for true leaders with great stories, numbers and charts… along with halfway decent entry points.

Tonight, we’re going to continue our step-by-step buying spree by adding a half position in CrowdStrike (CRWD), which has all the makings of a fresh leader in the cybersecurity space (which itself has come alive during the past couple of weeks). That will leave us with around 25% in cash.

Model Portfolio
CrowdStrike (CRWD) is one of a handful of new-age cybersecurity outfits, with its claim to fame being its Falcon platform, which is a cloud-based security system (which includes a proprietary threat graph) that’s rapidly taking share away from the old school firewalls and on-premise security devices. As the firm’s name suggests, Falcon effectively uses crowdsourced information—it looks at trillions of events per week, learns from them (thanks to AI) and then integrates that knowledge into the platform so all customers benefit from it. (Interestingly, two other new-age cybersecurity firms are involved with CrowdStrike—Okta is a customer, while Zscaler is a partner, offering CrowdStrike’s platform within its own solution). We think Falcon is becoming a must-have system for most big companies out there (especially as the firm expands into protecting cloud workloads), effectively making CrowdStrike another or ServiceNow down the road. Growth has been rapid and reliable for many quarters thanks to its subscription model, and Q3 was a barnburner, with sales up 86%, earnings in the black for the third straight quarter and annualized recurring revenue up 81%. The stock gapped to new highs on the report and followed through on the upside for a few days before a sharp dip yesterday. However, CRWD snapped right back today on very heavy volume—short-term, some wobbles are possible, but we think this is an emerging blue chip in the making. We’ll start with a half-sized (5% of the Model Portfolio) position. BUY A HALF.

Five Below (FIVE) continues to act well, pushing steadily higher as investors come around to the view that the world will go back to normal in 2021; indeed, one brokerage outfit upgraded the stock today on that thesis. Analysts currently see next year’s earnings totaling $3.95 per share, which would be up 33% from two years ago, effectively getting the company back on the growth path it enjoyed for years before the trade war/pandemic. We’ll stay on Buy, though aim for dips of a few points (the 25-day line is at 154 and rising quickly). BUY.

Halozyme (HALO) popped to new highs Monday, had a wild downside reversal yesterday, and steadied itself today. The net result is that the stock remains in the 40 area (give or take a couple of points) as it digests its prior advance. Yesterday might mean the stock needs a bit more time to rest, but we continue to think the firm’s unique drug delivery system and huge sales and earnings growth means the next big move is up. BUY A HALF.

NovoCure (NVCR) has caught us by surprise in a good way, as shares have mushroomed in recent days, rallying to north of 170 this morning (up 45 points in less than two weeks!) before backing off a bit by the close. The firm has been quiet on the news front, though today it said it enrolled its first patient in a Phase III trial that’s aiming to expand the usage of Optune to treat glioblastoma. We’d like to fill out our position, but NVCR has gotten away from us on the upside a bit—if you already own some, we think waiting for a consolidation or shakeout is the best course. We will, however, restore our Buy a Half rating for those not yet in; ideally you can start a position on modest weakness. BUY A HALF.

Pinterest (PINS) has lost a little steam of late, but sellers haven’t been able to make any headway yet, with the stock still holding north of its 25-day line. A near-term retreat wouldn’t surprise us, but given PINS’ recent breakout (late September) and powerful story, we think any pullback will prove buyable. BUY.

ProShares Ultra S&P 500 Fund (SSO) remains in a firm uptrend, with the dip of the past couple of days not even bringing the fund down to its rising 25-day line (now nearing 85). Just about all of the top-down evidence out there suggests that (a) a pullback or shakeout is possible during the next few weeks, but (b) that the odds strongly favor nicely higher prices when looking out three to nine months. We’ll stay on Buy, as SSO provides not just upside but also a less-volatile way to play the bull move. BUY.

Roku (ROKU) has been on fire, breaking out above 250 or so three weeks ago (when we filled out our position) and motoring up more than 25% since then. Frankly, even though we recently bought the second chunk of our position, we’re debating booking partial profits on the whole stake because of our healthy profit (up more than 50%) and good-sized position (13%-plus of the portfolio). Still, right here, we’ll just hang on—ROKU still appears to be early-stage to us (just broke out in September), so if management continues to make the right moves, there should be plenty of upside ahead. (Discovery+, which launches on January 4 and includes HGTV, Food Network, TLC and more, will be on Roku’s platform.) We’ll stay on Buy, but if you’re not yet in, start small and/or aim for dips of 10 to 20 points. BUY.

Twilio (TWLO) hasn’t quite broken out on the upside yet (either price-wise or with its relative performance line), but we’re thinking it’s getting ready to—after hacking around for the past two weeks, the stock found some good-volume buying today and approached its old highs. As with everything else out there, we’re not ruling out some short-term shenanigans, but we think the past four and a half months look like a normal digestion period that will give way to another sustained upleg. Hold on if you own some, and we’ll go back to Buy for those that want in. BUY.

Uber (UBER) has been pushed and pulled by a recent $1 billion convertible offering (used in part to purchase a larger stake in a self-driving car maker) and the IPO of DoorDash yesterday (a competitor to its Delivery business), but overall, it remains in great shape, perched right near its highs. If you own some, just hang on; if not, we’re OK buying some here or (preferably) on dips. BUY.

Watch List
Carvana (CVNA): CVNA has been choppy but trending up, though we’d like to see either some tightness (10 to 20 points swings have been the norm of late) or decisive power.

Spotify (SPOT): We gave it a go with SPOT earlier this year (half position) and that didn’t work out, but now the stock is freewheeling on the upside after a powerful breakout.

Zillow (Z): We’ve been watching a few housing-related stocks for signs of a resumption of their overall uptrends, and Z could be leading the way, poking its head to new highs this week. We’re still keeping an eye on Floor & Décor (FND) as well.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, December 17. As always, we’ll send a Special Bulletin should we have any changes before then.

CGI Update Portfolio 12-10-20