Note: We’re shooting out this update one day early to get on with our vacation. Merry Christmas to those who celebrate! We’ll be back in touch next week for your next issue of Cabot Growth Investor.
WHAT TO DO NOW: Remain mostly bullish, but keep your feet on the ground. The market continues to handle itself well despite some iffy news headlines this week, with some growth stocks going vertical. How it plays out once the calendar turns will have to be seen, but there’s no question most of the evidence remains positive. Today, we’ll stand pat in the Model Portfolio, which holds around 19% in cash.
Current Market Environment
The market is relatively flat so far this week as more traders head home for the holidays. Coming into Wednesday, most major indexes were within 1% (up or down) of where they closed last week, though many growth stocks have picked up steam.
The market’s uptrend remains intact, impressively tossing aside weekend worries over the new strain of the virus (and accompanying travel restrictions) over in Europe, as well as last night’s shenanigans involving the stimulus bill. Impressively, even with some heavy early-morning selling, we saw just 26 combined new lows on the NYSE and Nasdaq Monday. And some growth stocks have gone vertical (even more vertical than before) as the everything-from-home area gets a bid.
Net-net, not much has changed with our thinking—the market and leading stocks are strong, so we’re mostly bullish, but risk is rising, with sentiment elevated and many stocks sticking straight up in the air. (Plus, there are often some reverberations felt after an initial news-related selloff like Monday.) Thus, we’re moving ahead in steps, starting with small positions, and are generally content not to push it as we head into the New Year.
That doesn’t mean we can’t make a move next week (possibly buying the second half of CRWD if it pulls in some), but we’re being discerning in the near-term, especially with the possibility (based on history) that we might see some early-January gyrations as people book profits. Today, we’ll stand pat in the Model Portfolio, which is around 19% in cash and handily outperforming the indexes this year.
Model Portfolio
CrowdStrike (CRWD) is off to a great start for us, with a mini-buying panic occurring after the major breach of state and federal networks last week—CrowdStrike’s endpoint protection platform was actually deployed by SolarWinds after the breach, and many are betting the firm’s best-in-class positioning will mean a big hike in business going forward (from the government but also from firms that must prioritize security spending). Bigger picture, this show of strength is very bullish, and if you don’t own any, you can start a small position here or on dips of a few percent. However, if you already have a stake, we’re OK waiting for CRWD to cool off a bit before filling out our position (similar to what we did with NovoCure recently). BUY A HALF.
Five Below (FIVE) continues to ease, and to be fair, volume has been elevated during four of the recent down days; it’s possible shares may rest as investors wait for clarity on whether there will be a new wave of shutdowns. Still, price-wise, it’s hard to get too upset, as the stock is around 7% off its highs after a good run, and the 50-day line (now nearing 149) is approaching. If the weakness persists, we could go to hold, and if things really get ugly, we won’t take a loss (cost basis near 137) on the trade. But at this point, we still see the path of least resistance being up—if you don’t own any, you can take a position on this dip. BUY.
Halozyme (HALO) has been slowly stretching higher on generally light volume as it remains north of its 25-day line (now near 41 and rising quickly). Overall, we remain very bullish here on the story and the stock, though we’d like to see a bit more power (and possibly a market hiccup) before averaging up. BUY A HALF.
NovoCure (NVCR) is still hacking around, with a wild, big-volume down day last Friday (when we filled out our position), a big up day Monday and a low-volume reversal lower yesterday. If this sort of thing goes on for another two or three weeks it could represent churning, but three days isn’t a cause to worry. We’ll stay on Buy, but as with many names would prefer new buyers get in after a dip of a few points. BUY.
Pinterest (PINS) remains stuck near the 70 level, but the very light volume and tight ranges of late (as well as the fact that the stock is still holding above its 25-day line) means this is likely a digestion phase and not a distribution phase. We still have high hopes for PINS—you could nibble here if you’re not yet in, or look to buy on a dip of a couple of points. BUY.
ProShares Ultra S&P 500 Fund (SSO) is actually flat-ish since the first day of December, as the S&P 500 cools off a bit following its big November advance. We have no new thoughts here—short-term, some reverberations from the U.K. virus news could be in store, but big picture, the terrific breadth readings in November bode well for the intermediate- to longer-term. BUY.
Roku (ROKU) continues to levitate higher, supported by the buoyant market environment and a ton of analyst love as we head into the New Year. The official deal with HBO Max (now finalized) has one analyst thinking Roku will get a cut of HBO’s subscription revenues purchased through Roku’s platform and possibly get a cut of any ad-related revenue should WarnerMedia (which owns HBO) launch a lower-priced, ad-supported version next year (as is expected). ROKU stock is certainly extended to the upside, but it’s also “only” three months into a fresh advance. We’re debating booking partial profits and holding the rest, but for now, we’ll just stand pat. We’ll stay on Buy, but start small and aim for dips of 10 to 20 points from here. BUY.
Twilio (TWLO) hasn’t staged the most explosive breakout of all time, but the evidence suggests the stock is joining the bull market party. Interestingly, while TWLO is mostly lumped in with the stay-at-home-themed stocks, it does have lots of exposure to cyclical areas, with many big leisure, travel and hospitality clients; because its communications service charges on a usage basis, Twilio’s top line could get a boost as those industries get closer to normal business conditions. We think TWLO’s path of least resistance is again pointed up. BUY.
Uber (UBER) has found encouraging support so far this week, raising our hopes that the stock’s mini-correction has come to an end. Of course, shutdown-related fears could still impact the stock, but nothing has changed our thoughts that UBER is likely a fresh leader of this advance. BUY.
Watch List
Bill.com (BILL 153): We think BILL has finally grown up—any shakeout of a few days (possibly alongside a market pullback) would be tempting.
Floor & Décor (FND 100): Similar to BILL, we like FND’s decisive breakout of late—it’s not going to be the fastest horse but we think the stock provides a rapid, reliable growth story play on the housing market.
Spotify (SPOT 332): SPOT has paused nicely for a couple of weeks following its massive-volume breakout, though its RP line is just OK at this point.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Wednesday, December 30. As always, we’ll send a Special Bulletin should we have any changes before then.
