WHAT TO DO NOW: Remain bullish but pick your spots. The Model Portfolio is off to a good start this year, which is always a good thing, but we’re not seeing many solid entry points and there’s no question the environment is hot and heavy. Thus, we’re sitting tight tonight, holding onto our 18% cash position and our stocks, most of which are acting very well.
Current Market Environment
The indexes are having another good day—as of 2:45pm, the Dow is up 47 points and the Nasdaq is up 82 points.
Not much has changed with the market’s picture—most stocks (especially cyclical stocks) are very strong, and we’re happy that the Model Portfolio is off to a good start this year after a great 2020. However, things are also quite frothy, few stocks are at attractive entry points and there remains a bunch of crosscurrents (day-to-day rotation, etc.) that’s making timing trickier.
Plus, we’re starting to see some more churning action among growth stocks. As I talked briefly about in my webinar today, the relative performance (RP) lines of the Nasdaq vs. areas like energy, transports and financials is actually below longer-term moving averages (i.e., the Nasdaq has been underperforming cyclical areas for many weeks). That’s not predictive, but it does tell you where the money has been flowing.
Thus, we remain mostly bullish, but given the lack of great entry points (and the fact that the market’s latest pop leaves it fairly extended—the Nasdaq is 1,000 points north of its 50-day line), we’re not in a rush to snap up shares of a bunch of new buys. Last week, we took partial profits in ROKU and averaged up in HALO—tonight, we’ll sit tight, hold onto our 18% in cash and wait to see if the market can cool off a bit and some better setups arise.
Model Portfolio
CrowdStrike (CRWD) has been choppy in the past few weeks (225 to 195 to 240 to 220, round numbers), but it looks fine to us—in fact, a bit more seasoning and we’ll probably move to fill out our position. One item that stood out to us in the firm’s latest investor presentation was its view that, compared to how much firms are spending on cloud software solutions, cloud security spending is very low (just 1% or so of the total). CrowdStrike thinks that figure could jump five- to 10-fold in the years ahead as firms catch up! Whatever the exact numbers turn out to be, it’s clear this is going to be a hot growth area for a while, and we think this company’s Falcon platform will be the go-to offering for medium- to large-sized companies. BUY A HALF.
Five Below (FIVE) has finally pulled back some following a strong run during the first two weeks of the year, but that hasn’t changed the underlying uptrend. Something that could help the firm surprise on the upside going forward is its app—the pandemic in that sense helped, forcing Five Below to launch its app a year ahead of schedule, and that’s likely opened up a huge new sales channel. Back to the stock, it’s still fairly extended, so if you want to buy, we suggest starting small or looking for dips (possibly to the 25-day line, which is around 175 and rising steadily). BUY.
Halozyme (HALO) continues to act well, holding most of its recent, forecast-induced push higher. Earnings estimates have come down a bit ($1.70 per share this year, down a dime from a couple of weeks ago), but that’s still up 85% from last year and we think there’s likely to be upside as the uptake of new Enhanze-enabled drugs picks up steam and some new deals are inked this year. Like most names, some wobbles during the next few sessions wouldn’t shock us, but we filled out our position last week and think HALO has a bright future. BUY.
NovoCure (NVCR) looks fine overall, though to be fair, it has churned a bit in recent weeks—right now, it’s no higher than it was back in the first half of December. That’s hardly a disaster, but we have our eyes peeled in case the sellers really show up. Right now, though, the trend is up, both for the stock and for business, where Wall Street sees sales up 18% (probably low given that Q4 revenues were up 45% and strong in all geographies) and earnings up 78% this year. BUY.
Pinterest (PINS) did bounce off its 50-day line a couple of weeks ago, but that bounce didn’t go very far (or show much volume) before sellers showed up again—a drop back into the mid 60s (under the 50-day and back to its recent low) would probably have us going to Hold. Big picture, though we see no problem here: After the stock’s massive run in the fall, some digestion was necessary, and given the major breakout came in September, we still view the stock as early stage. We’ll stay on Buy, but we’d like to see some “real” buying show up soon. BUY.
ProShares Ultra S&P 500 Fund (SSO) continues its steady ascent, trending up along its 25-day line (now near 91.5) with some down days along the way. At some point, the sellers will take control (earnings season almost always brings some sort of shakeout), but (a) it’s better to wait to see it before taking action, and (b) barring some real abnormal action, the unusual strength in November and early December should portend good things in the months ahead. Today, we won’t overthink it—with the trend up and not many signs of abnormal weakness or extreme exuberance (i.e., moving out of trend on the upside), we’ll stick with our Buy rating. BUY.
We believe Roku (ROKU) is still early in its overall run, having gotten going from a year-long base in September, but as we wrote in last week’s issue, there’s no doubt it’s stretched in the intermediate-term, both price-wise (50-day line is down near 320; the stock is up 150% from its breakout four-plus months ago) and time-wise (hasn’t been below the 50-day line since June!). Thus, we decided to ring the register on one-third of our shares last week and are content to hold and see what comes from here. Remember, the goal with these partial sales isn’t to pick a top; we still have a good-sized position, so upside from here would be great. Instead, we’re putting a good profit in our pocket to be in a stronger position with our remaining shares (with a smaller position size and having already have booked some profits). If you’re following our lead, just sit tight, and for the moment, we think new buyers should look elsewhere for higher-odds entry points. HOLD.
Twilio (TWLO) looks fine, notching new price and relative performance (RP) highs last week, albeit on low volume. If you’re a chartist, you might call the August-January period a 23-week “ascending base” (three pullbacks with higher highs and higher lows along the way), though we try not to get in the weeds—at day’s end, TWLO remains in an uptrend, and the growth story should play out for a long time to come. We’ll stay on Buy, though try to enter on pullbacks. BUY.
Uber (UBER) looks fine overall, but it’s acting a bit funky of late—it had a big-volume selloff a couple of weeks ago (Softbank unloaded a bunch of shares), and it immediately gave up most of its recent breakout. None of that is a major red flag, and we’re holding on to our shares, but we do have our eyes peeled to see if the stock can find some support in the near-term. Still, as with many names, we’re not overthinking it—the trend here for the stock and business remains up, so we’re staying on Buy. BUY.
Watch List
Bill.com (BILL 130): The ups and downs of this stock are tedious, but it’s holding its 50-day line and business should do great in 2021. Let’s see if the stock can find buyers.
Canopy Growth (CGC 34): We think the surge in marijuana stocks is still in its early stages, though the trick is that there are few that are liquid enough to dig in to. CGC is one of them and sports accelerating revenue growth.
Farfetch (FTCH 62): FTCH could need more of a rest, but we think it smells like a new leader and it’s beginning to bounce off its 50-day line.
Floor & Décor (FND 103): FND continues to look just fine, though it’s been all over the place of late. Let’s see if it can calm down a bit.
Teladoc (TDOC 244): Beginning a breakout attempt this week—if it really gets moving we could take another swing at it, but after such a long rest it needs to show real power.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Wednesday, January 28. As always, we’ll send a Special Bulletin should we have any changes before then.
