WHAT TO DO NOW: Stick with a lean-bullish stance as we wait for the market to show its hand. Our Cabot Trend Lines and Two-Second Indicator are still bullish, but our Cabot Tides remain effectively neutral, and until that changes, stocks and indexes will see lots of choppy action. In the Model Portfolio, we’re sticking with our current 30% in cash and our crop of seven stocks.
Current Market Environment
The market followed up yesterday’s losses with some modest gains today as it continues its ping-pong action. At day’s end, the Dow was up 113 points and the Nasdaq had risen 26 points.
The market continues to slosh around based on the news of the day. This week’s action has seen some rotation out of many yield sectors (REITs, utilities, etc.) and some resilient growth stocks have taken some lumps, too. But the overall action from the indexes has been muted as investors wait for the jobs report on Friday.
Beyond that report, of course, there’s uncertainty surrounding the Fed’s next move, the U.S. election and even a likely Italian referendum that could lead to a change in power in that country.
In response, the market continues to chop around—our intermediate-term Cabot Tides remain neutral, with most indexes not much removed from where they were two and a half months ago. A rally of 2% or so from here would probably result in a new buy signal, but so far, the neutral intermediate-term trend is intact.
On the positive side, our long-term Cabot Trend Lines and Two-Second Indicator remain in fine shape.
Thus, our stance remains unchanged—longer-term, we think the next big move is likely up, and it’s a good bet that many of today’s resilient growth stocks can lead that rally. But until the market gets going, there’s still the possibility of a near-term pullback or correction on some “bad” news, so we don’t advise getting overly aggressive right here.
We see our 30% cash position as just right. Should the market get going, it won’t take long for us to get fully invested. And should the evidence meaningfully deteriorate (growth stocks fall apart or our bullish indicators reverse course), we’ll kick out our weakest couple of stocks and turn defensive.
Right now, though, we’re content holding our seven stocks, keeping our Watch List up to date and waiting for the bulls to take control.
Model Portfolio
Abiomed (ABMD 127) made a nice run from the 115 area in early September to around 130 last week, thanks in part to Japan’s thumbs-up for Abiomed to begin selling its Impella heart pump in that country. Should growth stocks lead the next advance, we think ABMD will do very well, especially if earnings growth accelerates in the quarters ahead as expected. BUY.
Alibaba (BABA 107) gapped up to new highs on great volume two weeks ago and has been pulling back since. There was one bad day after reports surfaced that third-party data suggest sales growth could be slowing. We’re not sure about the accuracy of those reports, and big investors don’t seem overly worried, as the stock is still hovering near its highs. We wouldn’t be surprised to BABA fall a bit more if the market or growth stocks come under pressure, but we still think dips are buyable and will lead to higher prices over time. BUY.
Facebook (FB 128) has been treading water similar to the overall market, hovering in the 126 to 131 area over the past few weeks. The selloff following reports that the company overestimated video viewing time among users has been contained, yet the stock is also just a bit above its 50-day line (now near 126.5). A clear break of the 50-day would likely have us moving to Hold, but right here, the main trend is up and the recent tight action is a constructive sign. BUY.
GrubHub (GRUB 41) has been taking on water in recent days, with a valuation-based downgrade from an analyst yesterday adding fuel to the selling. GRUB is close to testing its rising 50-day line (now around 40); a decisive dip below that would be a yellow flag, and probably prompt us to go to Hold and place the stock on a tight leash. But for now, this pullback is reasonable given the environment, so if you don’t own any, you can pick up a few shares here. BUY.
ProShares Ultra S&P 500 Fund (SSO 71) continues its sloppy, choppy action along with the S&P 500. We think patience here will eventually pay when the market’s longer-term uptrend resumes, but we’ll stay on Hold as long as the Tides are neutral. HOLD.
Ulta Beauty (ULTA 236) is holding above its lows, which is a decent first step. The stock’s recent downmove likely wiped out plenty of weak hands, and now it’s a matter of the stock slowly regaining upside momentum, ideally helped out by ever-improving fundamentals. A break below 230 or so would likely have us selling our remaining shares, but right here it’s best to hold your small (5% of the portfolio) position. HOLD.
Veeva Systems (VEEV 40) took on a little water yesterday as a big brokerage house initiated coverage with a neutral rating. The stock has pulled back toward its 50-day line, but like most issues, has been simply chopping sideways in recent weeks (39.5 to 42 range). The company’s analyst day last week went off without a hitch; nothing majorly new was announced, though many analysts gained confidence in the firm’s long-term growth and profit margin outlook. BUY.
Watch List
Las Vegas Sands (LVS 59): LVS remains in good shape—it’s not a hot stock but positive news out of Macau (both industry-wide, and with Sands’ new Parisian Resort) should keep big investors interested.
Nevro (NVRO 98): NVRO took on some water this week along with many glamour stocks, but the trend is up and you won’t find many firms growing as fast as this one.
Parsley Energy (PE 35): PE is back on the Watch List as oil prices and stocks have recovered. The stock nosed out to new highs today.
Shopify (SHOP 44): SHOP has calmed down just south of all-time high territory. The valuation is huge, but so is the potential and current growth.
Twilio (TWLO 61): TWLO has pulled back and likely needs some time to quiet down. But the trend remains up and the story is big.
XPO Logistics (XPO 37): The big idea here is that XPO’s earnings and cash flow should explode as management improves efficiencies following many acquisitions in recent years.
Zillow (Z 34): Z was rejected at its 50-day line last week, but that’s not a death knell—we’re patiently waiting for the stock’s long-term uptrend to resume.
That’s it for now. Your next issue of Cabot Growth Investor will be sent to you next Wednesday, and, as always, we’ll send a Special Bulletin should we have any changes before then.
| Stock | Date Bought | Price Bought | Current Price | Profit | Rating | |||
| Abiomed (ABMD) | 7/11/16 | 116 | 127 | 10% | Buy | |||
| Alibaba (BABA) | 8/12/16 | 96 | 107 | 12% | Buy | |||
| Facebook (FB) | 8/1/13 | 38 | 128 | 242% | Buy | |||
| GrubHub (GRUB) | 9/6/16 | 42 | 41 | -4% | Hold | |||
| ProShares Ultra S&P 500 Fund (SSO) | 5/12/16 | 64 | 71 | 10% | Hold | |||
| Ulta Beauty (ULTA) | 11/6/14 | 121 | 236 | 95% | Hold | |||
| Veeva (VEEV) | 7/7/16 | 36 | 40 | 12% | Buy |