WHAT TO DO NOW: Remain defensive, but stay tuned. Despite many crosscurrents and news-driven moves this week, we’re just playing it by the book—our Cabot Tides are close to a buy signal, and if that happens, we’ll take a step back into the market. Until then, though, we’ll stand pat and ride our four remaining stocks, all of which are acting great. The Model Portfolio remains around 70% in cash, though again, we’ll be on the horn (possibly as early as tomorrow morning) if the Tides turn green.
Current Market Environment
The market was up today, with most stocks meandering but growth stocks doing very well. At day’s end, the Dow was up 33 points, but the Nasdaq had risen a strong 139 points.
It’s been a very interesting past few days in the market. From a top-down perspective, we remain on the edge of an intermediate-term green light—our Cabot Tides are right on the fence, and if the major indexes (especially broader ones like the NYSE Composite or S&P 400 MidCap) can hold up or build on their gains, the intermediate-term trend could turn up as soon as tomorrow.
There are other positives out there, too. For instance, despite sloppy action among the broader indexes, today was the ninth straight day of fewer than 40 new lows on the NYSE. Plus, our Aggression Index is on the verge of returning to positive territory, a sign big investors are focusing on growthier issues.
That plays along with what we’ve seen from individual growth stocks, with many having skyrocketed higher, even on days when the major indexes are flat to down. We’re not complaining about that, of course—the Model Portfolio is now solidly in the black this year—though it’s usually better if things are more “in gear” coming off the low.
Still, with all the various pieces of evidence, both bullish and bearish, we’re just playing things by the book—if the Tides turn positive, we’ll take a step back into the water. If not, we’ll stand pat. Simple as that.
Even so, as we wrote in last week’s issue, given that our longer-term Cabot Trend Lines are still clearly bearish and few stocks are hitting new highs, we’d likely start relatively slow on the buy side, most likely putting 15% to 20% of the portfolio to work (including some half-sized positions). That would still leave us with half or more in cash if we pull the trigger.
While we’re sending this update out Thursday afternoon, we could follow it up with one tomorrow or Monday morning if it appears the Tides will flip to green. Tonight, though, we’ll again stand pat in the Model Portfolio as we ride our winners higher (we’re meaningfully in the black this year)—but we’ll be in touch if that changes tomorrow.
Model Portfolio
Dexcom (DXCM 306) has been acting well since the market bottom, and today it briefly tagged new high ground, which is obviously a good thing. One piece of supporting news: It looks like demand for its continuous glucose monitors is on the rise from hospitals as staff looks for ways to track diabetic COVID-positive patients without as much close contact (finger sticks, etc.). It’s hard to know if that will be a meaningful contributor or not, but either way, business is very likely holding its own with tons of growth ahead. As with most growth stocks that have rebounded sharply, some retrenchment is possible, but we’re holding on tightly to our shares. Earnings are due out April 28. HOLD.
While new highs in a downtrend often bring some short-term selling pressure, they’re usually a good leadership sign. And that seems to be playing out with DocuSign (DOCU 101)—the stock briefly pierced new-high ground two weeks ago, only to sink 20 points in three days, but it quickly got back on its horse and has pushed to new highs this week. The wild volatility is likely here to stay for a while, so expect further wobbles (today’s reversal wasn’t shocking), especially when growth stocks have a bad day or two, but the trend is up. The company has been all quiet on the news front, though the “good news” here is that the firm just reported earnings on March 12, so unlike many stocks, DOCU’s next release isn’t coming for many weeks. If you already own some, just sit tight, though while our official rating will remain at Hold, we’re OK nibbling on dips if you’re not yet in. HOLD.
Just about everyone thought the pandemic and shut-in would dramatically boost Teladoc’s (TDOC 174) business, and the company gave some insights into how much on Tuesday evening. According to management, Teladoc is now providing north of 20,000 virtual visits daily, which is more than double the rate seen in the first week of March, and because of that, it now sees sales of around $180 million in Q1, up 40% from the year-ago quarter. (Total visit volume was up 70% or so.) Of course, the surge in demand also boosted expenses (the firm is quickly expanding both the number of physicians on the network and, in some cases, their compensation), but the big opportunity lies ahead—more than 60% of current Teladoc visits are with members new to the platform, representing a massive new reservoir of potential users in the future. (The biggest barrier of engagement is the first use; once people know how to log on and get in touch with a doctor, the odds of them using telemedicine in the future goes up a bunch.) Shares had suffered a couple of rounds of selling, but they held their 50-day line (the second test of that key support area) and have spiked back to new highs this week. Full Q1 earnings (and the outlook) will be released on April 29, which will be key, but obviously business is enjoying a step-function improvement. HOLD.
Vertex Pharmaceuticals (VRTX 265) remains in good shape, bursting to new highs last week and stretching a bit higher since then, despite plenty of volatility. The company hasn’t released its earning date yet, but they usually report before the end of April, FYI. Like many of the strongest growth stocks, VRTX could certainly pull in some, but the overall action is excellent and the story offers both rapid and reliable growth. HOLD.
Watch List
Coupa Software (COUP 164): COUP has been all over the map, as have many of its peers, but it’s approaching its highs once again and the story has long-term winner written all over it.
Chewy (CHWY 45): Part of CHWY’s strength involves its defensive-oriented business, but we view it more as a reliable long-term growth story that big investors will be comfortable building positions in. We’d like to see shares calm down a bit.
Cloudflare (NET 25): NET has had a couple of wobbles, but it remains strong (above all its moving averages) and still has the look of a new leader.
Inphi (IPHI 95): IPHI has shown amazing strength as demand for its high-speed interconnects is ramping through the virus shut-in—and should continue to grow even after the world goes back to normal.
Netflix (NFLX 439): NFLX has leapt to new highs on heavy volume, bursting out of a 21-month zone. Earnings are due out next week, which is obviously a risk, but the story, numbers and chart are all lined up.
Okta (OKTA 147): OKTA has catapulted all the way back to all-time highs. It’s straight up here over the past couple of weeks, so some shakeout is possible (likely), but after a nine-month rest, this leader in Identity offerings looks set to resume a leadership role.
Wingstop (WING 103): We love a good cookie-cutter story, and Wingstop has one of the best, with small-format restaurants (mostly takeout) and a goal of being one of the top 10 restaurant brands in the world. The stock has made a stunning comeback after revealing healthy business trends last week.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, April 23. As always, we’ll send a Special Bulletin should we have any changes before then.
