What to Do Now: The quick rebound in the major indexes and many growth stocks this week has been very encouraging—it doesn’t completely clear the air from some of the abnormal action last week, but it’s definitely a plus. We remain mostly bullish, though we continue to pick entries carefully, especially with so many stocks reporting earnings in the next couple of weeks. In the Model Portfolio, we’re averaging up in CrowdStrike (CRWD), adding another half-sized position, and also restoring our Buy rating on Uber (UBER). Our cash position will now be around 21%.
Current Market Environment
The market continues to advance nicely, with the market up solidly this morning after some positive earnings reports last evening. As of 11 am, the Dow is up 257 points while the Nasdaq was up 72 points.
Last week brought some abnormal action, but the intermediate-term trend of major indexes (Cabot Tides) didn’t crack, and the number of outright breakdowns in leading stocks was relatively small. Thus, we trimmed positions in three names (cash position from 18% to 27%), but didn’t run for the exits.
And we’re glad we didn’t, as the major indexes and growth stocks have come storming back in recent days. Indeed, when combined with some choppy action the prior few weeks, many stocks appear to have suffered early stage shakeouts last week, which is typically a bullish sign (clearing out the weak hands). We’re not drastically changing our stance, but we will fill out our position in CrowdStrike (CRWD) tonight, buying another half-sized (5% of the portfolio) position.
(For those that are new to Growth Investor: A “full” size position is 10% of the Model Portfolio, while a “half” is 5%—and if we buy an initial half, we obviously try to buy a second half to fill out the stake later on, if the stock begins to work in our favor. Just FYI. Don’t hesitate to email me directly mike@cabotwealth.com with any questions.)
While we’re encouraged, we wouldn’t necessarily say that the past three days completely erase last week’s wobbles. For instance, while the Nasdaq kissed new high ground yesterday, the number of stocks hitting new highs was about half what it was when it last hit this area on January 25, a bit of a short-term divergence. And, of course, we’re now in the heart of earnings season, which will probably tell the “real” intermediate-term tale.
Still, just going with the evidence today, things obviously look better than a week ago, and the majority of evidence remains positive. Thus, we continue to tilt toward the bull side, though we’re also wary of pushing it, especially with so many stocks set to report Q4 results in the days or weeks ahead.
Our only new buy tonight is the aforementioned half-sized add-on buy of CRWD, which will leave us with around 21% in cash. We’re also restoring our Buy rating on Uber (UBER), which has stormed back nicely this week.
Model Portfolio
CrowdStrike (CRWD) is definitely showing tennis ball action—not only have shares bounced nicely from last week’s lows, but the weekly chart shows a six-week rest with great support at the 10-week moving average last week. That doesn’t mean the stock is done consolidating; another test of the 200 area is always possible, and if the market really rolls over, a deeper correction is likely. Still, the big-picture evidence (both fundamentally and technically) remains bullish (and earnings aren’t out until March 16) so we’re going to go ahead and fill out our position in CRWD today, adding another half-sized (5%) stake. BUY ANOTHER HALF.
Five Below (FIVE) has also found some support near its 50-day line, though the rebound, while solid, hasn’t been amazing (recouping about half of its recent decline, far less than the indexes). However, beyond the very short-term action, we’re also placing emphasis on the fac that FIVE just had a five-month run with no meaningful selling, so it’s likely the stock needs some time to digest that move. Of course, we’re always willing to be wrong, but having just booked partial profits last week, we’re willing to be patient here and give FIVE room to gyrate. HOLD.
Halozyme (HALO) continues to hit a wall around 50, which is a typical “round number resistance” level, but at the end of the day, the stock is still within shouting distance of new high ground, so we’re not worried. Nothing we’ve seen or read has changed our mind that this company has something special in its Enhanze technology, with recent big product launches by partners seeing great uptake. (Within five months of its launch, 40% of all Darzalex sales, made by a division of J&J, switched to the Enhanze formulation.) Near-term volatility is possible, but we believe the next big move is up. Earnings are likely out in late February. BUY.
NovoCure (NVCR) will report earnings on February 25, so we still have some time before that event. In the meantime, the stock continues act well, holding its 50-day line during last week’s market retreat and bouncing nicely in recent days. True, NVCR has been range bound for about a month and a half, but that’s been the stock’s m.o. (quick, sharp upmoves followed by a few weeks of rest). A break into the mid 150s would likely have us going to Hold, while a dip into the low/mid 140s could have us pulling the plug altogether (our cost is ~142)—but right now, the buyers are in control, so we’re sticking with our Buy rating. BUY.
Pinterest (PINS) has stormed back after last week’s sharp dip, making the decline look like a shakeout that may have cleared the decks—indeed, PINS actually snapped all the way back to new price highs this morning before finding some sellers. In isolation, we think this action is very bullish … but this action isn’t occurring in isolation—Pinterest will report Q4 results tonight, with revenues expected to rise 61% from a year ago while earnings are set to chime in at 34 cents per share. The reaction will be key, though we’ll have to see how things play out, as PINS now has plenty of wiggle room to pull back if it wants to. Given tonight’s report, we’ll stay on Hold, but we’ll be on the horn if that changes. HOLD.
ProShares Ultra S&P 500 Fund (SSO) actually closed just below its 50-day line last Friday but has roared back with most other things this week, nearly recouping its entire slide. As we wrote in the first section, this rebound is encouraging, but it doesn’t necessarily erase last week’s abnormal action, especially as far fewer stocks are rebounding as strongly as the indexes. (New highs have fallen by about half, etc.) Still, there’s no doubt the intermediate-term trend remains up, and the rush of support after last week’s high-profile shenanigans is generally a good sign. We’re OK picking up shares here or on dips of a couple of points. BUY.
Roku (ROKU) remains in good overall shape, with the stock lifting nicely off its 25-day line for the second time since the turn of the year. As with FIVE, we’d be happy to be “wrong” about our recent partial sales and see ROKU soar to the heavens from here—but we’d rather be with the odds than against them, and the huge run in recent months (combined with the lack of any real volume on this week’s bounce) tells us the risk of correction/consolidation is elevated. Earnings are likely out in a couple of weeks, though there’s no set date yet. HOLD.
Twilio (TWLO) is yet another name that’s snapped back very impressively, recouping nearly 90% of its sharp dip last week! That’s definitely encouraging, though volume on the way down (three straight days of above-average volume) was far larger than during the bounce (three up days saw volume 33% below average), at least so far. We’re tempted to flip right back to Buy, but we’re going to hold off and see how TWLO handles itself in the days ahead—big picture, we continue to think all will be well, but near term, another sharp retracement wouldn’t shock us. If you really want to nibble, we won’t argue with you, but officially we’ll stick to a Hold rating and see what the next few days bring. HOLD.
Uber (UBER), however, is being placed back on Buy, as last week has all the makings of an early-stage shakeout—the stock plunged on no real news, diving below its 50-day line and its December lows, but has rebounded beautifully thanks to some big news: The firm is buying Drizly (for $1.1 billion of cash and stock), which is a nationwide alcohol delivery service (available in 1,400 cities in the U.S.) and will be integrated into Uber Eats’ offerings. One doesn’t have to be a seer to imagine how this could be huge over time (Drizly reportedly grew 300% last year!), and it continues the big-picture trend of Uber being the delivery option of choice for a widening number of products (groceries, takeout, prescriptions and now alcohol). Back to the stock, the company will report earnings next week (February 10), and the gap from Tuesday’s gap up (in the 53 to 55 area) could be filled. But our guess is that the up-and-down action of the past couple of months, along with last week’s dive, likely shook out most of the weak hands. If you own some, hang on, and if you don’t, we’re OK at least starting a position here (maybe go half-sized given earnings risk next week). BUY.
Watch List
Axon Enterprises (AXON 172): AXON has been hard to hold onto over time, with lots of fits and starts, but it’s come under strong accumulation and the underlying business is a recurring revenue machine.
Bill.com (BILL 140): BILL found big-volume support last week and has popped nicely so far this week. Following a tedious 28% correction, this snapback could be a sign the next up leg is getting going—if earnings, which are due out tonight, please investors.
Canopy Growth (CGC 44): We still like the marijuana sector, though after the latest stretch higher we’ll be looking for a meaningful dip or multi-week rest.
Farfetch (FTCH 64): FTCH looks somewhat like PINS—a nice shakeout last week and a quick recovery to new highs on good volume before pulling in today.
Floor & Décor (FND 100): FND is choppy, but like many names it’s found support on dips to its 50-day line. We really like this story but would prefer to see a little more stabilization near term.
Teladoc (TDOC 281): TDOC has popped to new price highs, though the long-term relative performance (RP) line hasn’t confirmed … yet.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Wednesday, February 11. As always, we’ll send a Special Bulletin should we have any changes before then.