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Growth Investor
Helping Investors Build Wealth Since 1970

June 23, 2022

The major indexes are up today, led by the Nasdaq, while growth stocks are beginning to perk up. As of 3 pm EST, the Dow is up 46 points and the Nasdaq is 132 points, while some growth funds are up 2% to 4% today.

WHAT TO DO NOW: With our primary indicators remaining negative, we continue to advise keeping your powder dry—however, we are seeing more growth names form higher lows in recent weeks and months, and while that certainly isn’t enough for a big buying spree, we could re-jigger the portfolio a bit, including adding a small position or two in a new leader. Tonight, we’ll again sit tight and grit our teeth, but we’ll be on the horn with any changes in the days ahead. Our cash position stands at 89%.

Current Market Environment
The major indexes are up today, led by the Nasdaq, while growth stocks are beginning to perk up. As of 3 pm EST, the Dow is up 46 points and the Nasdaq is 132 points, while some growth funds are up 2% to 4% today.

Big picture, nothing has changed with the overall market—the major indexes are off their lows and today was a nice day, but the intermediate- (Growth and Cabot Tides) and longer-term trends (Cabot Trend Lines) are down, while the broad market (Two-Second Indicator) remains unhealthy.

We do see some positives out there underneath the market’s hood, though, the biggest of which is that it’s becoming easier (not easy, but easier) to find names that, while not necessarily ready to skyrocket, are etching higher lows in recent weeks and months. And a lot of that is being seen in the growth arena, with many biotech and even Chinese names continuing to work on bottoming formations, along with some other areas.

All in all, there’s not much to do on the buy side here, so we continue to advise you to wait for the fastball down the middle instead of trying to pick up a bunch of nickels in front of bulldozers.

Even so, while major moves are off the table for now, we’re warming up to the idea of re-jiggering the Model Portfolio—possibly trimming what we own a bit more (see our comments on DVN below) but replacing it with a small position or two in potential leaders, all while still retaining a ton of cash. Frankly, for the first time in a while, we like the look of many stocks (not as hard to find things for our watch list), though it’s early.

Thus, tonight, we have no changes; patience has treated us relatively well so far, so there’s no harm in staying patient a bit longer. However, if the market can hold its own for a bit longer, we could have a couple of moves in the days ahead; we’ll send out a special bulletin if we make some moves.

Model Portfolio
Devon Energy (DVN) and all oil names have finally been caught in the bears’ claws, with very sharp declines during the past many sessions as oil prices have skidded (though, to be fair, oil prices remain fairly resilient north of 100). We have a few thoughts: First, we always listen to what the market is saying, and after a huge run and some overbought signals (out of trend on the upside three weeks ago), it’s a good bet that DVN and the group has topped for the intermediate term. Second, though, we’re not willing to say the overall uptrend has gone up in smoke and that the names are going down another 30%; chart-wise, longer-term moving averages are still intact, and of course, the cash flow stories haven’t changed and are likely to attract some bargain hunters—even at $80 oil (still ~20% below here), the firm is likely to crank out $7-ish annually of free cash flow, with a lot of that used for dividends and share buybacks. Put that together and here’s our plan: Right now, we’re going to hold what we own of DVN given the decline and given that we already sold 2/3 of our initial stake—we think the odds of a bounce are growing, though we’re not complacent, either, and will use a mental stop in the 49 to 50 range (near the 200-day line) in case the meltdown gets out of hand. Now, if we do see a bounce, we may trim the position further and use some of the proceeds to add a new name (as talked about in the first section), but let’s see how things go. Bottom line, right now, we’re gritting our teeth, but the next few sessions could bring some changes, so stay tuned. HOLD

ProShares Ultra S&P 500 Fund (SSO) has bounced modestly with the market in recent days, but like so many issues it’s still buried below its moving averages. We trimmed our stake last week, and we’re fine holding on to what we have here, partly due to our giant cash hoard but also because of some washed-out readings usually seen near major lows; last Thursday, for instance, just 2% of S&P 500 stocks closed above their 50-day line, while various sentiment measures (both surveys and money flows) indicate many people have bailed out. As we wrote last week, holding some SSO is really a portfolio management decision, preferring to have a toe in the door rather than sitting totally on the sideline. All that said, let’s see how things go the next few days—re-jiggering the portfolio is something we think could be worthwhile, especially if more growth stocks find their footing. Right now, we’ll just sit tight but we’ll be on the horn if we have any moves. HOLD

Watch List
Bumble (BMBL): BMBL quacks like “the next”, with what looks like a dynamic stemwinder and a few key differences that’s attracting daters. Growth is solid and the stock has etched a bottoming area for the past few months. Analysts see revenues up 20% to 25% both this year and next while earnings pick up steam.

Celsius (CELH): CELH has spent all year building a low-level launching pad (still shy of all-time highs from last November) between 40 and 75; shares were dented earlier this month but are beginning to bounce back (there was a rumor Pepsi could be interested in Celsius today). The stock could use some more seasoning but the mass-market story (possibly “the next” Monster Energy) and numbers (triple-digit sales and earnings growth) are enticing.

CrowdStrike (CRWD): CRWD needs work, but it’s showing some relative strength—the stock closed near its 50-day line today (better than 80%-ish of stocks out there) and is 15% above its January lows (while the market and most growth stocks are well below its prices from that time). While old leaders usually aren’t our favorite plays, we think there’s a good chance CRWD resumes a leadership role in the next bull market.

Enphase Energy (ENPH): ENPH has now been in a wide (very wide) range for 17 months but has been etching higher lows since January, with a growth story and numbers that are as good as any stock in the market. Volatility here is extreme (a 20% move can happen in just a few days), which is a challenge, but we remain very high on ENPH.

Halozyme (HALO): HALO looks fine—in fact, a few more points of upside could bring a legitimate breakout from a huge launching pad. We’re not predicting that, but the stock checks most of the boxes of new leaders. It remains near the top of our watch list.

Pure Storage (PSTG): All in all, PSTG is 28% off its high, which isn’t bad at all, and the stock is holding its late January levels, which, again, is miles better than most stocks. Admittedly, we’re looking for a change in perception here with big investors recognizing the growing value of its storage subscription services (adding reliability to its results)—if it happens, we think the stock can have a great run.

Shockwave Medical (SWAV): SWAV is also “just” 27% off its high and is now eight months into a big base. Similar to CRWD, we think this stock has a good shot to resume its leadership role during the net bull move due to its unique products, sterling sales and earnings growth and growing sponsorship (522 funds now own shares vs 457 six months ago, despite the bear phase).

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, June 30. As always, we’ll send a Special Bulletin should we have any changes before then.

StockNo. of SharesPrice BoughtDate BoughtPrice on 6/23/22ProfitRating
Devon Energy (DVN)2,413286/4/215494%Hold
ProShares Ultra S&P 500 (SSO)1,705475/29/2045-5%Hold