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Growth Investor
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September 15, 2022

As of 2 pm EST, The market was mostly lower, though modestly so, with the Dow up 33 points, but the Nasdaq down 85 points and most growth stocks in the red.

WHAT TO DO NOW: Remain cautious but continue to keep your eyes open. This week’s inflation-induced plunge is obviously a negative, but nothing has really changed with our overall view—the market’s trends are mostly down, and the broad market is unhealthy, so we’re holding lots of cash, but there remain many stocks/sectors that are holding their own, too. In the Model Portfolio, we’re again standing pat with around 65% in cash and four stocks. Details below.

Current Market Environment
As of 2 pm EST, The market was mostly lower, though modestly so, with the Dow up 33 points, but the Nasdaq down 85 points and most growth stocks in the red.

The headline news of the week thus far was Tuesday’s inflation report, which came in hotter than expected and boosted expectations of a big Fed rate hike next week (0.75% most likely, though the market isn’t writing off a 1.0% hike), and in turn, tanked the market, with the Nasdaq falling nearly 5% that day.

Believe it or not, though, nothing has really changed with our overall view: When it comes to the overall market, the intermediate-term trend is neutral-to-down, while the longer-term trend is clearly pointed lower and key secondary measures (Two-Second Indicator, etc.) look worse for wear. That’s why we continue to hold a large cash position as we wait for a new bull phase to get underway.

That said, our view among potential leading stocks is also unchanged—there remain many that continue to hold up well in either multi-month bottoming formations or near their peaks. Don’t get us wrong, these stocks do get tossed around on bad market days, but often not too badly, and few have really broken down during the past few weeks.

Obviously, if the market nosedives from here (possibly to retest its June low), there’s nothing that says many of these resilient names won’t go along for the ride. But the longer we see a decent number of stocks resisting, the higher the odds that they’ve seen their lows for the cycle and are prepping to be new leadership for the next uptrend.

All in all, then, our advice is unchanged: We remain cautious, holding lots of cash (about 65%), but we’re also giving our remaining names (all of which have a good chance to help lead the next real advance) some room to breathe. Tonight, we have no changes, but we’re keeping an eye on the market and are willing to make moves (in either direction) if the evidence moves.

Model Portfolio
Celsius (CELH) tested support in the mid-90s last week and did so again at yesterday’s lows, but each time the buyers showed up; all in all, the stock continues to effectively mark time following the big run and gap on the Pepsi news at the start of August. We remain optimistic the next big move is up, but with the market iffy we’re sticking with our plan: We’re holding on here, but we also have a mental stop in the 90 area (a touch below) in case the market/CELH keels over from here. HOLD

Devon Energy (DVN) was downgraded this morning, but the stock really acts fine, as do most leading oil and gas plays, with DVN rebounding nicely after the recent 10-point dip to the 25-day line. We remain bullish on the stock and the story, and we’re glad to be collecting another big payout soon ($1.55 per share will be paid September 30), though we’ll be interested in seeing investors’ reaction to what will likely be a somewhat smaller payout in Q4; oil prices have averaged “only” $91 so far this quarter, compared to $106 in Q2 (though gas prices are higher quarter over quarter, which will help). There’s always a chance that the stock is etching a multi-month top (resistance in the 75 to 77 area since early June) given the environment, so we’re not complacent—there’s key support in the 57 to 60 area, so a sharp plunge into that would be a yellow flag. Right here, though, the long-term trend is up, and the recent action is acceptable. Hold on if you own some, and if not, we’re OK starting a position here or on dips of a couple of points. BUY

Enphase Energy (ENPH) remains in good shape, with the stock actually notching a new closing high yesterday before pulling in today. Everything we’ve written in recent weeks remains the same: ENPH looks like a liquid leader in one of the top sectors (solar) should the market get off its duff, and fundamentally, demand for its microinverters and various other offerings should soar for a long time to come. A dip to 250 or so (the 50-day line is at 253) would probably be abnormal, but at this point, the buyers are in control. BUY

Shockwave Medical (SWAV) did pull in some at the turn of the month, but it’s held firm during the past couple of weeks, even as the market imploded this week; with the 25-day line at 254 and rising, SWAV remains in fine shape as big investors seem hesitant to let go of such a unique, fast-growing situation. (We’ve also seen some firming up in a few other mid-sized medical device plays, which is a plus.) It’s always possible the stock could retreat further (the 50-day is down near 254), especially if the market gets grumpier, but right here we advise sitting tight. If you don’t own any, we’re OK buying some here or on further dips, assuming you have a good-sized cash position in your portfolio. BUY

Watch List
Albemarle (ALB): ALB is acting great, with a move to new highs this week despite the market’s tumble. The volatility is a bit much (298 to 250 to 305 to 290, all within two weeks), so some tightness would be welcome, but there’s little doubt this institutional-quality lithium play acts like a leader.

Gitlab (GTLB): GTLB looked done for when it fell sharply ahead of earnings (35% in just three weeks!), but it’s quickly recouped a good chunk of that after yet another bullish quarterly report (sales up 74%, including same-customer revenue growth again north of 30%) as its DevOps platform gains traction among thousands of firms. The stock still has work to do, but if it rounds out a launching pad over the next two to four weeks, we’ll be very interested.

Shift4 (FOUR) or Toast (TOST): We continue to monitor these payment platform names, which have great stories and excellent growth. They both have their plusses and minuses, but we think both are destined to get much bigger in the years ahead.

Uber (UBER): A longer (another few weeks) period of consolidation wouldn’t be the worst thing for UBER, which went over the falls during the past 15 months. But the stock actually tagged new recovery highs today, and we continue to think the stock is beginning what could be a long-lasting turnaround as both business lines expand (at a conference this week, the CEO said he expects “a number of best weeks ever coming up” in the Rides segment, driven in part by more in-office work) and the top brass focuses on profits.

Wingstop (WING): WING has surged to new recovery highs in recent days and taken this week’s pothole in stride. We’re not huge fans of the fact that chicken wing prices can mess with earnings so much (the firm has broadened out its offerings into thighs and chicken sandwiches), but we think the underlying cookie-cutter story is the bigger influence, and that seems back on track.

Wolfspeed (WOLF): WOLF’s picture isn’t perfect, as the chip sector as a whole is iffy, and this stock has resistance just above here around 120. But we can’t help but be encouraged by the powerful earnings gap, the recent resilience, the giant estimates and the solid story. We’re close to adding a half-sized position and using a loose leash.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, September 22. As always, we’ll send a Special Bulletin should we have any changes before then.

StockNo. of SharesPrice BoughtDate BoughtPrice on 9/15/22ProfitRating
Celsius (CELH)1,009998/19/221035%Hold
Devon Energy (DVN)2,414286/4/2170149%Buy
Enphase Energy (ENPH)6802918/3/222951%Buy
Shockwave Medical (SWAV)8082457/22/2028516%Buy
CASH$1,289,545