First off, a quick note since we’ve been getting a bunch of questions: We’ve switched things up a bit this year when it comes to Cabot’s Low Priced Stock Report—we’re not selling it individually, but if you subscribe to Growth Investor (which you do!), you’ll get it for free next Tuesday evening (December 17). So if that is something you’ve had in the past (and even if it’s not!), keep an eye out for it next Tuesday. Enjoy!
WHAT TO DO NOW: Remain bullish, while keep your eyes open as some stocks have hit potholes. The market itself is in good shape, though we continue to think some news-driven ups and downs are likely in the near term. Individual stocks have turned mixed of late, and we’re keeping our eyes peeled for abnormal action (we did sell MasTec (MTZ) on a special bulletin on Tuesday). Tonight, we’re placing Dexcom (DXCM) on Hold due to its recent weakness, but have no other changes. Our cash position is around 24%.
Current Market Environment
Stocks were all over the place today, reacting numerous times to trade rumors concerning the U.S. and China, though they finished nicely on the upside. By day’s end, the Dow was up 221 points and the Nasdaq rallied 63 points, though growth stocks in general lagged the major indexes.
It’s been a news-driven year, so today’s gyrations weren’t all that shocking, and further news-driven moves are possible in the days to come. Shorter-term, then, we think the market is mostly a coin flip.
However, on the intermediate- to longer-term front the market’s underpinnings remain solid. Both our Cabot Trend Lines and Cabot Tides are solidly bullish, and we remain encouraged that (based on both indicators and anecdotal evidence) few investors are greedy right here—usually a good sign that more upside is ahead.
As for individual stocks, it’s been more of a mixed bag—some names have been racing higher, some are sitting around and others are correcting sharply. So far, we’ve seen little in the way of abnormal action, and we’re inclined to think that most (not all) of these “first pullbacks” will end up being buying opportunities.
Of course, we have our eyes open as well—while we’re bullish on the market, some rotation into cyclical stocks or longer-than-expected rest periods for growth leaders are also possible. Still, right now we advise giving those names that have suffered tedious pullbacks a chance to find support.
Earlier this week, we did dump our stake in MasTec (MTZ), which hasn’t been able to get out of its own way. And we’re placing Dexcom (DXCM) on Hold. The Model Portfolio has 24% in cash, which is more than we’d prefer—but tonight, we’re going to hold onto it tonight as we look for some fresh buys at lower-risk entry points.
Model Portfolio
Dexcom (DXCM 202) has had a rough week—there’s been no news to account for the selling, though it’s possible last week’s app outage is causing some big investors to think that will could be stain on the firm’s reputation. (Many other medical stocks have also been weakening, so some of it is a group move.) Of course, anything is possible, so we have a plan in place: A dip below the 10-week moving average (around 190) would be a red flag in our book. That said, while the action isn’t good, it’s not abnormal at this point; shares closed at 195 after their earnings gap in early November, to give some perspective. Right here, we remain optimistic, thinking the big-picture action (14 months of no progress, massive-volume earnings gap and upside follow through) and fundamentals (rapid sales and earnings growth and history of topping expectations) will lead to support showing up in the not-too-distant future. Thus, we’re hanging on, though to respect the straight-down action of late, we will switch to a Hold rating tonight. HOLD.
DocuSign (DOCU 72) reported another very solid quarter last Thursday evening, with most metrics topping expectations—sales rose 40%, billings were up 36%, earnings of 11 cents were up from a penny a year ago, and other sub-metrics looked great too (same-customer growth rate chimed in at 17%, 25,000 new client additions, both of which were well above expectations). The stock did pop to new highs on the news, but it’s since given back a piece of that rally, keeping with the two-steps-forward, one-step-back pattern it’s shown during the past couple of months. If the stock sags much from here, we could go to Hold because DOCU hasn’t been a huge leader since the market got going in early October; its relative performance (RP) line is nearly back to where it was at the market low. That said, we’re not going to overthink it, either—with the uptrend intact and the story still solid we’re staying on Buy. BUY.
Inphi (IPHI 75) had its own tedious pullback in the second half of November, but like most leaders, it didn’t break down (held above the 50-day line and the top of its prior base) and this week it’s pushing nicely higher. One catalyst: An upgrade from a JP Morgan analyst, who said Inphi’s various catalysts (many players set to ramp up their buying of its cloud connectivity solutions as 2020 hits; data center interconnect product demand should surge in the second half of next year and beyond; the recent eSilicon acquisition will help speed up product development) should drive a 25% to 30% annual growth rate over the next few years. Further near-term wiggles are possible, but we think IPHI is likely to head higher over time. BUY.
We pulled the plug on MasTec (MTZ 61) earlier this week on a special bulletin as the stock continued to fade on heavy volume. Of course, it would have been nice to sell it a few points higher, but we wanted to give it a chance to shake off the financing-related news from mid-November. Whether it’s something fundamental (a big slowdown in pipeline-related spending next year?) or just perception, MTZ clearly isn’t a leader. SOLD.
ProShares Ultra S&P 500 Fund (SSO 145) looks fine, popping to new highs today. As we wrote in the first section, we wouldn’t be shocked to see some further consolidation in the near-term; even if a trade deal is struck, some sell-the-news action could occur. Even so, the larger view looks great, with the trends up and few big divergences out there. We’ll stay on Buy, though new buyers should try to enter on dips. BUY.
Qorvo (QRVO 115) didn’t do much for a few weeks after its big gap, but it’s come alive in recent days, as numerous analysts have released positive commentary surrounding the 5G smartphone boom in general, and Qorvo’s role in it in particular. After rallying straight up by 15 points in less than seven trading days, dips could obviously occur. But we continue to have high hopes that the massive-volume breakout on earnings and the exciting fundamental story will drive the stock higher over time. We’ll stay on Buy, but new buyers should aim for dips of a few points. BUY.
Teladoc (TDOC 77) is another leading stock that’s turned sloppy of late, with some disappointing action since a downgrade last Monday. Again, though, the stock hasn’t done anything wrong (still north of its 50-day line and its prior long consolidation), and except for one day, selling volume has been light. Nothing has changed with the story, either, so we’re content to stay on Buy—though a drop below 75 or so would probably have us moving to Hold and putting in a relatively tight stop. BUY.
Vertex Pharmaceuticals (VRTX 221) has finally hit a little resistance in the mid 220s following a persistent two-month run. On the news front, the firm got approval in Europe for one of its cystic fibrosis treatments for infants (six to 12 months), the first approval for kids that young in Europe. Earnings estimates continue to trickle higher, too, as more are buying into the fact that Vertex’s bottom line is about to start a huge growth wave. Back to the stock, we half-expect some dips from here, though the fact VRTX hasn’t retreated with other medical and biotech stocks of late is an encouraging sign. Still, new buyers should start small or aim for weakness. BUY.
Watch List
Axon Enterprises (AAXN 72): AAXN hasn’t truly broken out yet (it came close), but the pullback of the past couple of weeks looks orderly so far.
Carvana (CVNA 97): CVNA remains as wild as ever, but it’s perched near new highs. A controlled pullback from here could have us starting a position.
Sea (SE 37): SE remains within its recent, tight trading range—the longer it holds up here, the greater the chance that it begins to follow-through on its earnings gap from a month ago.
Tesla (TSLA 360): TSLA has perked up nicely in recent days. There’s still some old overhead to chew through, and of course the potential is always there for random shenanigans. But investor perception continues to look like it’s turned the corner.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, December 19. As always, we’ll send a Special Bulletin should we have any changes before then.
