WHAT TO DO NOW: Remain bullish, but stay tuned. The market’s recent Brexit-induced dip has put our Cabot Tides back on the fence, though our Two-Second Indicator and Cabot Trend Lines are still bullish. A Tides sell signal would cause us to raise more cash, but tonight we’re mostly standing pat; our only change is moving Facebook (FB) to Hold. The Model Portfolio is holding about 20% in cash.
Current Market Environment
The market fell modestly today after the Federal Reserve kept interest rates unchanged. At day’s end, the Dow lost 35 points and the Nasdaq fell nine points.
It’s been an eventful past few days, with the market selling off on renewed fears that Britain will vote to leave the E.U. (June 23 is the vote; results on June 24), which could throw a monkey wrench into the world financial system. Let’s get right to our thoughts.
First, the recent dip has brought the major indexes down to their 50-day lines, which means our Cabot Tides are on the fence. Any new sell signal wouldn’t be the end of the world, but it would be the third signal in just a few weeks, which would effectively tell us the intermediate-term trend is neutral. That said, we don’t anticipate signals, so the recent buy signal remains intact.
Our Two-Second Indicator recorded 46 new lows yesterday, just four days off the recent market peak. It’s not ideal action, but one day doesn’t make a trend (today’s reading dried up markedly). Both the Two-Second Indicator and the longer-term Cabot Trend Lines remain positive.
Moreover, there have only been a couple of leading growth stocks (liquid or otherwise) that have broken their 50-day lines; others pulled back normally, if at all.
Of course, all this is more descriptive than predictive—nobody knows exactly how next week’s vote will go, how it will affect the global economy, how central banks will react, and how the market will react.
We want to point out that, historically, these “date-based” events often cause a selloff before the event (as investors hedge and cut risk), and a rally after (as they reposition themselves). We’ve seen this with the Y2K issue, the start of the Gulf Wars and other times. There are no guarantees that will happen with Brexit, but it’s worth keeping in mind.
As always, we’ll simply go with the evidence, which remains more bullish than not. Tonight, we have no new buys or sells in the Model Portfolio, though we are switching Facebook to Hold because of some recent sluggishness.
Model Portfolio
Adobe Systems (ADBE 97) has pulled back normally during the past couple of weeks, retreating from 100 to 96, which is where the 50-day line stands. The action looks fine, so we’ll stay on Buy, though the big event will be earnings, which are due out next Tuesday (June 21)—analysts are looking for $1.4 billion in revenue and earnings of 68 cents, though also important will be updates on subscriber totals for the firm’s creative and marketing suites. BUY.
Facebook (FB 115) has taken a hit after a short-selling outfit said the stock is overvalued. Long-term, we don’t see any abnormal action in the stock (it’s only down 5% from all-time highs!), so if you have a good profit, sit tight. But we are moving the stock to Hold to respect its recent dip below the 50-day line, and if you have a small profit or a loss, a mental stop in the 108 area makes sense. We’ll be giving it more rope because of our big profit. HOLD.
Five Below (FIVE 46) is acting excellently, lifting to new price highs today. We think the cookie-cutter story has huge potential, with management seeing the opportunity for 2,000 locations in the U.S. (up from 458 at the end of April) over the long term. We’ll stay on Buy, but in this environment, try to buy on dips of a point or two. BUY.
ProShares Ultra S&P 500 Fund (SSO 65) looks like the market—it was making good progress chewing into long-time resistance in the 67-69 area before the latest selling wave brought it back down. Obviously, a continued slide would be a yellow flag, but if you don’t own any, we’re OK buying a small position here—it’s at its 50-day line, while the longer-term trend is pointed (slightly) up. BUY.
Sabre (SABR 27) continues to act sluggishly, this time it’s being yanked down by some horrid action in the airline sector following the Orlando attack. We have the stock on the tightest of leashes, and should our Tides turn negative, we’ll likely dump it and hold the cash. For now, though, we’ll hold on with an extremely tight leash. HOLD.
Salesforce.com (CRM 82) looks like a lot of other leading stocks—it hit new price and relative performance peaks in May and has dipped normally in recent days. One analyst had positive comments on the stock today, saying the firm should benefit from customers who want to buy integrated solutions (Salesforce’s software line is so broad that it’s nearly a one-stop shop), and the analyst also has high hopes for the firm’s new e-commerce suite, which will be bolstered by the acquisition of Demandware. We’ll stay on Buy. BUY.
Ulta Beauty (ULTA 238) remains in fine shape as it basks in the glow of its outstanding quarterly report at the end of May. We still favor trying to buy on dips, especially in this uncertain market environment. But long-term, we remain optimistic ULTA has more gas left in the tank. BUY.
Vulcan Materials (VMC 114) fell back to its 50-day line—we think it’s a good buy around here. VMC could be more vulnerable than other stocks if the market reacts poorly to the British vote, which would hike fears of an economic slowdown. But as we’ve written before, the odds strongly favor a continuing upturn in construction activity, which will boost demand and prices for Vulcan’s aggregates. BUY.
Watch List
Abiomed (ABMD 103): ABMD is consolidating quietly after lifting toward the top of its 10-month consolidation. Sales of the company’s Impella heart pump are growing fast, and with just a fraction of the potential market, the future is bright.
Amazon (AMZN 714): AMZN remains a cool character, hardly pulling back during the market’s recent dip. Earnings estimates ($5.39 per share this year, $9.92 next) continue to creep higher.
Nvidia (NVDA 47): Nvidia has consolidated for a couple of weeks after a strong run. The firm’s chips are becoming standards in some extremely fast-growing areas like gaming, auto infotainment systems, autonomous driving systems, and data center applications.
Veeva Systems (VEEV 34): VEEV is the kind of new leader we hunt for. The firm is technically another cloud software player, but its niche in the life sciences space and its expansion into other industries should keep growth humming for many years.
Zillow (Z 33): Z settled a lawsuit with Move.com, and that could be a big deal—the stock gapped up on the news and has traded very tightly since. This is a big, mass-market story, and another couple of weeks of calm trading could present a good entry point (if the market cooperates).
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 | |||
| Adobe (ADBE) | 5/26/16 | 100 | 97 | -3% | Buy | |||
| Facebook (FB) | 8/1/13 | 38 | 115 | 205% | Hold | |||
| Five Below (FIVE) | 4/7/16 | 40 | 46 | 14% | Buy | |||
| ProShares Ultra S&P 500 Fund (SSO) | 5/12/16 | 64 | 65 | 1% | Buy | |||
| Sabre (SABR) | 2/26/16 | 27 | 27 | 0% | Hold | |||
| Salesforce.com (CRM) | 5/26/16 | 84 | 82 | -2% | Buy | |||
| Ulta Beauty (ULTA) | 11/6/14 | 121 | 238 | 97% | Buy | |||
| Vulcan Materials (VMC) | 2/26/16 | 99 | 114 | 15% | Buy |