Cabot Stock of the Week Issue: December 11, 2023

One last big week of “macro” data to close out a 2023 full of weeks like that. Tomorrow morning, the November Consumer Price Index (CPI, i.e., inflation) number comes out. On Wednesday, the Producer Price Index (PPI) will be released, and we’ll hear from the Fed for the final time this year. Unlike most months this year, there’s not a whole lot of fear entering this week’s round of inflation numbers and Fed-speak – economists are 98.4% sure Jerome Powell and company will again hold firm on interest rates. Perhaps a hawkish word here or there by Powell will throw a bit of cold water on the current rally, which has largely been fueled by declining bond yields and the possibility (likelihood?) that the Fed is done hiking. But I wouldn’t expect too many fireworks.

On to stocks, the Cabot Stock of the Week portfolio continues to thrive, with 10 of our holdings now trading at either 52-week or all-time highs! So we will continue to try and strike while the iron is hot, adding another growth position with high upside. It’s a new biotech recommendation from Carl Delfeld, who added it to his Cabot Explorer portfolio just last week.

Here are Carl’s latest thoughts on it.

10x Genomics, Inc. (TXG)

10x is a leader in the emerging field of “spatial biology,” a cutting-edge life science for making new discoveries about human health and disease.

Founded in 2012 and based in Pleasanton, California, 10x builds tools for scientific research to advance human health. Its instruments, reagents and software allow researchers to examine cells and molecules at a resolution and scale never imagined or experienced before.

10x helps researchers look at the roots of biology through three separate platforms. Two of them – Visium and Xenium – allow researchers to see with high resolution and enable the mapping of cells and molecules relative to one another much more clearly.

Each cell is enveloped in its own droplet, where an individual reaction occurs to detect the profile of that cell.

The company’s products, protected by more than 1,750 patents, are used by all the top 100 global research institutions and by all the top 20 global pharmaceutical companies.

They have also been cited in more than 5,000 research papers. Another good sign is that Harvard University’s endowment has an equity stake in 10x.

A quantum leap in computing power and better resolution, data, and miniaturization of technology has converged with the outbreak of artificial intelligence (AI) to make life sciences a major interest of both the medical field and venture capitalists.

Biology is the front line of research and development because each of us is made up of an average of 40 trillion individual cells. This makes us both complex and fragile.

Until recently, when cells went off course and diseases emerged, the only option was to treat the disease. Now, we increasingly have the ability to cure major diseases.

This is where 10x comes in, by building the tools and machines the life sciences community needs to obtain the right resolution and scale to see and understand complex organisms.

Scientists use its machines to research treatments for Alzheimer’s disease, cystic fibrosis, several cancers and many more diseases.

Beyond the hardware, 10x also sells consulting services and the cartridges that allow them to run properly.

This is an aggressive idea and sector but somewhat mitigating the risks is that 10x has $390 MM of cash and only about $100 MM of debt. In the third quarter, revenue increased 16% and the stock is in an uptrend; it’s up 34% year to date, with all the gains coming since the start of November. Still, shares are trading at roughly a quarter of their early-2021 highs (197).

This is an exciting and promising field and 10x Genomics is a leader with an opportunity to stay at the forefront.

Current Recommendations

Changes Since Last Week: None

No changes this week as our portfolio is in very good shape, with only a couple true laggards – both of which are bouncing off key support. With 10 stocks hitting new 52-week or all-time highs, there are plenty of stars here – none more so than Uber (UBER), which has suddenly become our best performer outside of Tesla (TSLA). I guess it pays to invest in ground transportation!

Here’s what’s happening with all our stocks as we enter the last few weeks of a good year for the market.

Updates

American Eagle Outfitters, Inc. (AEO), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has not only recovered from its brief (undeserved) earnings blowup two weeks ago; it’s at new 52-week highs! Shares topped 20 for the first time in nearly two years on no news other than continued improvements in the U.S. economy and retail space (see today’s $5.8 billion buyout offer of Macy’s) – and this being the best month of the year for retailers. Still trading at a mere 12 times forward earnings, plenty of upside remains, especially while the good holiday shopping vibes linger. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, keeps hanging out in the high 10s, which is impressive after the big gaps up from the low 9s since the start of October. Nothing new here. Any break above 11 would be super-bullish. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, dipped from 115 to 112, which is no cause for concern considering the 115 was a 52-week high. In fact, dips like the current one are a great time to buy a stock that tends to thrive in bull markets and has been doing exactly that since the start of November, up 22% even after this mini-pullback. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, has recovered all of its late-November/early-December retreat in just a matter of a few trading days and could close at new 52-week highs should this morning’s gains hold. The quick recovery was spurred on by a strong earnings report, in which the semiconductor giant beat top- and bottom-line estimates and raised its dividend by 14 cents, to $5.25. That prompted one analyst, Kinngai Chan of Summit Insights Group, to upgrade AVGO to Buy from Hold; 23 of the 31 analysts that cover the stock now rate it a Buy, even at 52-week highs. So, we’ll keep it at Buy too. BUY

BYD (BYDDY), originally recommended by Carl Delfeld in his Cabot Explorer advisory, is holding firm at multi-year lows at 53. Given the uninspiring performance in Chinese stocks of late – the Shanghai Stock Exchange was actually down in the last week – it’s perhaps no surprise. There’s certainly nothing wrong with the company, which appears on track to sell more EVs than Tesla this quarter. And with China’s economy slowly recovering, I’m betting that Chinese stocks will wake up soon – and that BYDDY’s stock performance will finally catch up with the company’s. BUY

Comcast Corporation (CMCSA), originally recommended by Bruce Kaser in the Growth & Income Portfolio of his Cabot Value Investor advisory, remains in the 41 to 43 range that it’s been in since the start of November. In his latest update, Bruce wrote, “Peacock is now available as a free streaming service to Instacart+ members. For now, at least, Peacock is the only streaming service with this arrangement. We see this as an incremental positive – it will almost certainly boost Peacock’s subscriber count yet also shows some creativity on Comcast’s part to expand its reach.

“Comcast shares rose 3% in the past week and have 6% upside to our 46 price target.” With the stock so close to Bruce’s price target, he downgraded CMCSA shares to Hold; we’ll keep them at Buy in the hopes that any break above 43 resistance could lead to a much longer rally. BUY

CrowdStrike (CRWD), originally recommended by Mike Cintolo in Cabot Growth Investor, just keeps rising to new 52-week highs! The stock was up another 4.5% since we last wrote, pushing our return north of 50%. Here’s what Mike had to say about it in his latest update: “CrowdStrike (CRWD) remains in terrific shape, not only reacting well to earnings but pushing higher since. Business here is obviously great, but it doesn’t hurt that other peers (Zscaler (ZS) and SentinelOne (S)) have also reported great numbers and reacted well to their reports. The firm got right on the conference circuit after its report, and there’s some buzz about the firm’s Charlotte AI offering, which should be released in Q1 and that management thinks can start impacting new deals pretty quickly. Management also reiterated many of the newer fields it’s diving into and gaining traction, like identity ($200 million of recurring revenue, growing at triple-digit rates) and log workloads (over $100 million). Back to the stock, we’d like to fill out our position, and while we’re not anticipating a huge decline, we think it’s prudent to hold off right now as shares are very extended (20%-plus above their 25-day line). Hold on if you own some, and if not, start small and aim for dips.” With such a big gain in just over three months, we similarly advise selling a few shares – maybe a quarter of your position – if you bought shortly after our early-September recommendation. For everyone else, CRWD remains a buy, but preferably on dips, as Mike suggested. BUY

DraftKings (DKNG), originally recommended by Mike Cintolo in Cabot Growth Investor, ticked down another point, from 37 to 36, though it’s still not far from its highs (39). In his latest update, Mike wrote, “DraftKings (DKNG) has been losing altitude this week with a sharp dip back toward the top of its prior base. There’s been no obvious news to account for the selling, though some hubbub about the ESPN Bet launch could be prompting traders to hedge. To be fair, the stock ran from 28 at the start of the market rally to 39 and is now down to (36)—not a massive change in trend. Right here, we’ll stay on Buy if you want to grab some shares, but we want to see some support show up soon.” Support appears to be forming, so this looks like a good place to start a new position or add to an existing one if you bought shares early after our recommendation. BUY

Dynatrace (DT), originally recommended by Tyler Laundon in Cabot Early Opportunities, held firm at 54. There’s been no news of late. Dynatrace is a provider of application performance monitoring software that grew revenues by 26% and EPS by 40% in the third quarter. BUY

Elastic N.V. (ESTC), originally recommended by Tyler Laundon in Cabot Early Opportunities, tacked on another few points even after gapping up 37% on earnings the week before – an incredibly bullish sign. In the quarter (fiscal Q2 2024), revenue improved 17.5% as, in Tyler’s words, “Elastic’s generative AI capabilities are driving a resurgence of interest in search and opening up new use cases across a wide swath of end markets. That makes sense when we frame Elastic as the Google of large company enterprise data and consider how, in this era of increasing productivity, workers are trying to do more work, more efficiently and with better end results.” Elastic’s status as the Google for large companies is already an enticing hook. Its continued growth, buoyed by AI, is making it increasingly attractive to investors. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, is right about where it was a week ago. The stock appears to be taking a well-earned breather after being one of THE stories of 2023, thanks to its breakthrough weight-loss/diabetes drug Mounjaro. With a 75% gain on the stock in nine months, we will keep it at Hold and see which direction it goes after this monthlong pause. HOLD

Intel Corporation (INTC), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, keeps ping-ponging between 42 and 44, with the arrow pointed up again after the past week. In his update last week, Tom wrote, “Earnings indicate that Intel’s turnaround is well on track. It has promising new chips coming out in high-growth areas and its foundry business could be huge. The stock got dirt cheap, and investors are increasingly willing to bet on the company’s future. I believe in the company’s future. But the stock is likely to take a breather.” BUY

Krystal Biotech (KRYS), originally recommended by Tyler Laundon in Cabot Early Opportunities, held firm at 105, so we’ll hang on to it for another week. But our patience is starting to run out with this one. A dip below 100 would almost certainly convince us to sell. HOLD

McKesson Corporation (MCK), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was flat in the past week, but still not far from 52-week highs (470). In his latest update, Tom wrote, “This massive pharmaceutical distributor hasn’t done much since it was added to the portfolio in October. Other sectors have taken the spotlight in the market rebound. But MCK has returned over 23% YTD in a year when most healthcare and other defensive stocks have struggled mightily. It has a business that will continue to thrive even if the economy slows next year. It’s a defensive and growing business and the stock should be a great holding in any environment.” BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, held firm this week as the “Magnificent Seven” seem to be on pause after a huge run-up. There’s been no major news or catalyst of late. Shares are up 53% year to date, and we have a 44% gain in nine months. While I don’t expect MSFT to match those returns next year, I do expect shares to keep rising given the company’s leadership position in the artificial intelligence boom thanks to ChatGPT, which launched AI into the mainstream a little over a year ago. If you don’t own shares, it’s worth buying a few now on this mini-dip. BUY

Novo Nordisk (NVO), originally recommended by Carl Delfeld in Cabot Explorer, slipped another 5% in the last week and is testing monthlong support at 95. But the good news keeps coming for this Danish pharmaceutical, which Yahoo Finance just named its company of the year, as Carl wrote in his latest update, “Rival Pfizer announced a setback with disappointing data on its obesity pill, opening opportunities for others to develop their own oral weight-loss drugs. Pfizer expects the market for new obesity pills to be $90 billion per year and this will be shared with Lilly, Novo, and other biotechs. Novo is working on a high-dose version of its current weight-loss pill which is popular and in high demand.” BUY

Nutanix (NTNX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is up at fresh 52-week highs! Mike explained why in his latest update: “Nutanix (NTNX) looks great, holding right near its highs following a nice pop in the days following last Wednesday’s quarterly report. While top-line growth here is just OK (up 18% in the October quarter), annualized recurring revenue rose 30% and a lot of that is falling to the bottom line—for the fiscal year ending in July, free cash flow should come in around $1.20 per share (likely conservative), well above earnings expectations of 92 cents. Like a lot of strong stocks, NTNX could easily exhale a bit in the near term, especially as the stock challenges old resistance from late 2021 in this area. But there’s little doubt the buyers are in control.” BUY

Pinterest (PINS), originally recommended by Mike Cintolo in Cabot Top Ten Trader, inched up from 34 to 35 – a new 52-week high! – after receiving another analyst upgrade, this time from RBC Capital, to Outperform. The company’s new partnership with Amazon is a big reason for the optimism. In his research note, RBC analyst Brad Erickson wrote, “With investors thirsty for non-megacap ideas for (2024), PINS stands out as a way to play the shift of intent-based ad platforms chasing impulse shopping’s $241 billion ad spend.” Erickson set a price target of 46, about 30% higher than PINS’ current price. BUY

PulteGroup, Inc. (PHM), originally recommended by Mike Cintolo in Cabot Growth Investor, had a very good first week in our portfolio, jumping 5.5% to reach new all-time highs! In his latest update, Mike wrote, “PulteGroup (PHM) looks great, clearly bolstered in part by the unexpectedly large drop in interest rates, with mortgage rates falling nearly a full point since their peak. Also helping was this week’s quarterly report from Toll Brothers (TOL), which, while definitely operating at the high end of the market, confirmed that housing demand remains solid. Tomorrow’s employment report could always shake rates up a bit near term, but overall, Pulte’s earnings power looks to be headed higher. We filled out our position on yesterday’s special bulletin, adding another 5% stake.” We added PHM just last week, so if you haven’t bought yet, you may want to wait for the next dip before starting a position. BUY

ServiceNow (NOW), originally recommended by Mike Cintolo in his Cabot Top Ten Trader advisory, has broken to new all-time highs, racing past 2021 closing highs above 697. There was no news. Shares are likely still riding the wave of the company’s strong third-quarter report, which came out in late October. In the quarter, revenue climbed 25% (to $2.29 billion) while earnings jumped 49% year over year to $2.92 per share. We now have a 26% gain in six months. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has been uncharacteristically quiet, along with the other Magnificent Seven (see MSFT above) at the end of a year of major, market-moving gains. Perhaps snake-bitten by a surprisingly weak third quarter, investors seem to be in wait-and-see mode until another quarter of data gets released, which won’t happen until next month. So, we’ll hold too – with a 13,000%-plus return since Tim Lutts’ initial recommendation, we have the luxury of being very patient! HOLD

Uber (UBER), originally recommended by Mike Cintolo in Cabot Growth Investor, just keeps hitting new highs, advancing more than 7% for a second straight week! What’s going on? Here’s Mike with the latest: “Uber (UBER) has gotten a pop this week after it was announced last Friday (after the close) that the stock would be added to the S&P 500 prior to the open on December 18. Short term, that’s a good thing and should keep buyers interested as all the big index funds will have to plow in later this month—that said, just a heads up that there’s often a post-index-addition fade that occurs, so be aware of that. Obviously, this is all short-term stuff—UBER remains very strong and the fundamentals here are pristine, which is likely to keep big investors interested. We’ll stay on Buy but aim for dips if you’re starting a new stake.” With an 85% gain in 10 months, UBER has very quickly become our single best-performing stock not named TSLA. Given those gains and the recent run-up, it’s time to book some profits and take a few shares off the table. I recommend selling anywhere from a quarter to a third of your original position if you haven’t already done so. We’ll let the rest ride (pun intended!). BUY

Varonis (VRNS), originally recommended by Tyler Laundon in Cabot Early Opportunities, tacked on another point, moving to 44 from 43. There was no news. Varonis sells security software that’s used to protect enterprise data, from sensitive files and emails to confidential customer and patient records, financial data, strategic and product development plans and so much more. The company is on track to grow earnings per share by 78% this year, on 5% revenue growth. Right now, Wall Street is loving the story. BUY

If you have any questions, don’t hesitate to email me at chris@cabotwealth.com.

Here, too, is the latest episode of Cabot Street Check, the weekly podcast I host with my colleague Brad Simmerman. This week our guest was Cabot’s own Tyler Laundon, as we discussed the promising prospects for small-cap stocks in 2024.

The next Cabot Stock of the Week issue will be published on December 18, 2023.