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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week Issue: February 27, 2023

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Are you familiar with the story of Sisyphus – the dude in Greek mythology condemned by Zeus to repeatedly push a very large boulder up a hill in the depths of Hades, only to have it roll right back down the hill every time before reaching the top? That feels a bit like the stock market over the last 14 months. Every time the boulder reaches the proverbial top of the hill – or at least out of bear market purgatory – it goes tumbling back down the hill again, forcing us all to start over.

So it was again the last few weeks, as stocks have once again been condemned by the Fed – the Zeus of the present-day market – to yet another steep correction, with both the S&P 500 and the Nasdaq falling about 4-5% from their February 2 tops.

Thankfully, there’s a fundamental difference between the stock market and Sisyphus’ hopeless mission: stocks eventually reach the top of the hill. For the entirety of their history, stocks have kept rising. Sometimes it takes years for them to hit new highs. But they always get there. And they will again – no matter how high the Fed raises interest rates. It’s just a matter of when.

It’s why you should always stay invested, even if you have to trim a few laggards, as we did in last week’s issue. Besides, so far this rally has been fairly orderly, with the indexes thus far only dipping to their 200-day moving averages – a line that for nearly all of 2022 acted as a top. In other words, the “boulder” hasn’t rolled to the bottom of the hill; more like the middle.

And so this week, we add another new stock, and it’s a familiar one. It’s a blue-chip, dividend-paying stock we parted ways with late last summer when it was in free fall. That turned out to be a mistake – it’s up 11% since then, including a 6% bump in 2023. It’s a longtime recommendation of Tom Hutchinson in his Cabot Dividend Investor advisory, and here are Tom’s latest thoughts.

Visa (V)

Visa is a global payments technology company that provides digital currency instead of cash and checks to individuals and businesses in more than 200 countries and over 160 currencies. It is the largest payment processor in the world with systems that can process 65,000 transactions per second.

It’s natural to refer to Visa as a credit card company. But that isn’t really true because Visa doesn’t loan money. You can charge things with a Visa card instead of using a debit, but it is the sponsoring bank that loans the money, not Visa. It’s the bank’s problem if someone can’t pay. Visa simply collects a fee on any debit, credit or mobile transaction. It rings the register every time individuals and businesses all over the world make a digital transaction with its cards.

Cashing in on transactions is practically a license to print money. The dominance of this company and stock in the past is undeniable. Look at the returns for the last 5-, 10-, and 15-year periods for V versus the overall market (with dividends reinvested, as of 2-23-2023).

5 years10 years15 years
Visa (V)83%509%1640%
S&P 500 Index57%224%290%

But we care about the future at this point. And the future looks bright as well. The global trend toward cashless transactions is gaining traction. In fact, digital payments surpassed cash transactions on a global basis a few years ago. The trend will accelerate going forward and Visa is in the ideal position to benefit.

Despite having a commanding market share in the electronics payment industry already, there is still plenty of runway for growth as more people go cashless and the global middle class continues to expand. Visa’s size and scale should allow the company to improve its already sizable margins.

Visa is an unusual stock. The company is an absolute global goliath with $30 billion in annual revenue. But it still has strong growth despite its size. Analysts on average expect the company to grow earnings annually by an average of 15.45% per year for the next five years. You get the security of a blue-chip company and the appreciation potential of a growth stock as well.

There is probably no bad time to buy V for longer-term investors. But the timing is particularly good now because the stock is cheaper than it usually is. V currently sells below its average five-year valuations in every metric. That’s because the stock has underperformed the market over the last three years.

The stock took a beating during the pandemic as global transactions fell off a cliff. Then it was slower to recover than many other stocks because Covid restrictions continued overseas, and international travel was slow to bounce back. But things have turned around in the last year.

The global economy recovered from Covid and travel came back in a big way, especially the very profitable cross-border transaction business. Visa grew earnings by 24% in fiscal 2022. In this year’s fiscal first quarter, Visa beat expectations with earnings per share growth of 21% as transaction volumes continued to rebound.

In 2022, while the S&P 500 returned -19.4% and the Nasdaq fell 33% for the year, V registered a total return of -3.4%. Despite financial and cyclical stocks taking the brunt of the selloff, V held its own in the bear market as pent-up travel demand and the global Covid recovery more than offset any slowdown in the global economy.

The stock should hold up in inflation or even a mild recession. But it can soar when the market eventually turns around. V is always among the first financial stocks to rally when the market moves higher. A turnaround is probably coming before the end of the year. In the first year of the recovery from the last bear market, V shot up 65%. In other good years like 2017 and 2019, V returned 44% and 42% respectively.


VRevenue and Earnings
Forward P/E: 26.0 Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
Trailing P/E: 30.7 (bil) (vs yr-ago-qtr)($)(vs yr-ago-qtr)
Profit Margin (latest qtr) 50.3%Latest quarter7.9412%2.1820%
Debt Ratio: 144%One quarter ago7.7919%1.9319%
Dividend: $1.80Two quarters ago7.2819%1.9833%
Dividend Yield: 0.82%Three quarters ago7.1925%1.7930%

Current Recommendations


Date Bought

Price Bought

Price on 2/27/23



Arcos Dorados (ARCO)






BioMarin Pharmaceutical Inc. (BMRN)






Centrus Energy Corp. (LEU)






Chewy (CHWY)






Cisco Systems Inc. (CSCO)






Citigroup (C)






Comcast Corporation (CMCSA)






Corteva, Inc. (CTVA)






Gates Industrial Corporation plc (GTES)






Kinross Gold Corp. (KGC)






Las Vegas Sands (LVS)






Medical Properties Trust, Inc. (MPW)






Novo Nordisk (NVO)






Polestar Automotive (PSNY)






Realty Income (O)






TELUS International (TIXT)






Tesla (TSLA)






Uber Technologies, Inc. (UBER)






Ulta Beauty (ULTA)






Visa (V)






WisdomTree Emerging Markets High Dividend Fund (DEM)






Xponential Fitness, Inc. (XPOF)






Changes Since Last Week: Medical Properties Trust (MPW) Moves from BUY to SELL

We have another sell this week after high-yielding REIT Medical Properties Trust (MPW) blew up following mixed earnings. That keeps our portfolio at 18 stocks, with today’s addition of Visa (V). Most of our other stocks are behaving themselves despite the recent sell-off; Centrus Energy (LEU), Novo Nordisk (NVO) and Tesla (TSLA) especially stand out for their recent outperformance. A few of our companies could get a boost from earnings this week, though as we saw with MPW, those can go the other way too.

Here’s what’s happening with all our stocks.


Arcos Dorados (ARCO), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor, didn’t budge this past week, and remains in the same 8-9 range it’s been in for most of 2023. Nothing new here. We’re still sitting on a nice double-digit profit in Latin America’s largest McDonald’s franchisee. BUY

BioMarin Pharmaceutical Inc. (BMRN), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has been backsliding ahead of today’s (post-market close) earnings report. Analysts are expecting earnings per share of $0.38, which would be a 1,167% increase from a year ago. Revenue is expected to come in at $533.9 million for the quarter, an 18.7% bump. We downgraded to Hold last week due to the recent weakness, and let’s keep holding through today’s earnings report to see if it can spark a rebound. HOLD

Centrus Energy (LEU), originally recommended by Carl Delfeld in Cabot Explorer, got a big boost from fourth-quarter earnings last week. The nuclear energy company reported earnings per share of $1.42 on Wednesday, ahead of the $1.39 estimates and a marked improvement from the previous quarter when the company suffered a loss of -$0.42 per share. Revenues of $126 million also topped estimates and were 41% higher than in the same quarter a year ago. Wall Street loved the results: LEU gapped up from 42 to 50, though it’s pulling back a bit today. Still, we are now up more than 60% on the stock; if you got in shortly after our July 2022 recommendation and have a similar gain, it makes sense to take advantage of the post-earnings gap and sell a few shares, maybe a quarter of your position at most. For everyone else, it’s a buy. BUY

Chewy (CHWY), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, has retreated sharply the last two weeks, falling from a high of 49 to 40. However, the stock remains just above its 200-day moving line, which appears to be acting as support, and it’s still up roughly 8% year to date. Nothing has gone wrong with the company itself, although a few weak earnings reports from other retailers seem to be weighing on retail stocks as a whole. Keeping at buy, for now. BUY

Cisco Systems (CSCO), originally recommended by Bruce Kaser in the Growth & Income Portfolio of his Cabot Undervalued Stocks Advisor, slipped a bit after a break higher the previous week. The company is coming off a strong quarter that prompted the initial breakout. In his latest update, Bruce wrote, Cisco reported impressive fiscal second-quarter results that were ahead of consensus estimates and raised its full-year revenue and earnings guidance by about 6%. The company raised its dividend by 1 cent per quarter, to $0.39/share. Overall, the company is maintaining its position as a critical provider of a broad array of tech gear and software even as other mega-cap tech companies that focus on only one or two niches are having to retrench. However, we are wary of the ongoing gross margin slippage and the sharp decline in new orders. For now, we will keep our Buy rating.

“The company’s cash flow machine is running at full tilt, with operating cash flow of $4.7 billion nearly double the year-ago pace. Cisco’s balance sheet strengthened despite the $2.8 billion in year-to-date share buybacks and dividends. Cash in excess of debt rose by $3.4 billion, to a total of $13.2 billion.

“We perhaps are seeing the favorable influence of CFO Scott Herren, who joined Cisco in 2020 from the same role at Autodesk. Herren led Autodesk’s successful business model transition and appears to be bringing that leadership to Cisco as it engineers the same transition. Herren also has an impressive reputation for helping restrain costs and sensibly allocating capital. Clearly supporting his judgment is his engineering undergraduate degree earned at the Georgia Institute of Technology and his current role as a chair of the Industrial and Systems Engineering (ISyE) Advisory Board and a member of the College of Engineering Advisory Board at Georgia Tech.

“One clear CFO-related benefit is in working capital. The company released $2 billion in cash, year to date, that was previously tied up in working capital. Last year at this time, the amount was reversed – with $1.6 billion of new cash tied up in working capital. By managing its inventory and other working capital better, Cisco paid for its entire year-to-date buybacks with previously deadweight assets that were converted into hard cash. While no doubt the supply chain improvements helped, this swing is impressive.

“While the company’s revenues, profits and cash balances continue to grow, it continues to struggle with gross margin compression. The adjusted gross margin of 63.9% slid from 65.5% a year ago, although it improved from 63.0% in the first quarter. Cisco may be seeing intensified competition or is motivated to discount its goods to reduce its inventory. Either way, the trend is not favorable.

“Another issue is the decline in new product orders, which fell 22% from the year-ago pace. Much of this year’s sales increase appears related to filling orders in backlog – new orders are the lifeblood of the company and we are concerned at the size of this decline. Partly offsetting this risk is that its backlog increased from a year ago, suggesting that Cisco can sustain its revenues even when new orders slow.

“We will continue to watch these issues.

“In the quarter, adjusted earnings of $0.88/share rose 5% from a year ago and were 2% above the $0.86/share consensus estimate. Revenues rose 7% and were about 1% above estimates.

“CSCO shares … have 35% upside to our 66 price target. The valuation is attractive at 9.6x EV/EBITDA and 13.3x earnings per share. The 3.2% dividend yield adds to the appeal of this stock.” BUY

Citigroup (C), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor, bounced back nicely this week, regaining most of the two points it had lost the previous week. In his latest update, Bruce wrote, “This past week, the yield spread between the 90-day T-bill and the 10-year Treasury bond, which approximates the drivers behind Citi’s net interest margin, narrowed to negative 90 basis points (100 basis points in one percentage point). Interest rates across the board are rising, although short-term rates are rising faster than long-term rates.

“Until inflation relents to a 2% pace for perhaps six months, we see little chance for the Fed to declare ‘mission accomplished.’ The recent CPI and other reports suggest that the six-month clock hasn’t yet started.

“Sentiment is shifting toward higher-for-longer interest rates, as inflationary pressures seem to be abating more slowly than most investors had hoped for. Some commentators are calling for the Fed Funds rate to approach 6%. Such a rate may not fully relieve inflation pressures but would clearly be a depressant for stock prices.

“There was no significant company-specific news in the past week.

“Citi shares trade at 61% of tangible book value and 8.4x estimated 2023 earnings. The remarkably low valuations assume an unrealistically dim future for Citi.

“Citi shares … have 67% upside to our 85 price target. Citigroup investors enjoy a 4.1% dividend yield.

“When comparing Citi shares with a U.S. 10-year Treasury bond, Citi offers a higher yield (4.1% vs 3.9%) and considerably more upside potential (about 70% according to our work vs. 0% for the Treasury bond). Clearly, the Citi share price and dividend payout carry considerably more risk than the Treasury bond, but at the current valuation, Citi shares would seem to have a remarkably better risk/return trade-off.” BUY

Comcast Corporation (CMCSA), originally recommended by Bruce Kaser in the Growth & Income Portfolio of his Cabot Undervalued Stocks Advisor, is down about a point since we last wrote. There was no news. Bruce says the shares still have about 13% upside to his 42 price target. BUY

Gates Industrial Corp. (GTES), originally recommended by Bruce Kaser in Buy Low Opportunities Portfolio of his Cabot Undervalued Stocks Advisor, was mostly unchanged in its first week in our portfolio. In his latest update, Bruce wrote, “Gates is a specialized producer of industrial drive belts and tubing. While this niche might sound unimpressive, Gates has become a leading global manufacturer by producing premium and innovative products. Its customers depend on heavy-duty vehicles, robots, production and warehouse machines and other equipment to operate without fail, so the belts and hydraulic tubing that power these must be exceptionally reliable. Few buyers would balk at a reasonable price premium on a small-priced part from Gates if it means their million-dollar equipment keeps running. Even in automobiles, which comprise roughly 43% of its revenues, Gates’ belts are nearly industry-standard for their reliability and value. Helping provide revenue stability, over 60% of its sales are for replacements. Gates is well-positioned to prosper in an electric vehicle world, as its average content per EV, which require water pumps and other thermal management components for the battery and inverters, is likely to be considerably higher than its average content per gas-powered vehicle.

“The company produces wide EBITDA margins, has a reasonable debt balance and generates considerable free cash flow. The management is high-quality. In 2014, private equity firm Blackstone acquired Gates and significantly improved its product line-up and quality, operating efficiency, culture and financial performance. Gates completed its IPO in 2018, with Blackstone retaining a 63% stake today.

“On February 9, Gates reported an encouraging fourth quarter and provided reasonably strong guidance for 2023 that implied steady-to-rising revenues and profits rather than a recessionary decline.

“Adjusted earnings of $0.25/share fell 19% from a year ago but were about 9% above the consensus estimate of $0.23/share. Core revenues, which exclude currency and acquisition/divestiture effects, rose 16% and were about 5% above estimates. Adjusted EBITDA of $166 million rose 19% and was about 6% above estimates. The adjusted EBITDA margin of 18.6% improved from 17.1% a year ago.

“Guidance for 2023 points to 1-5% organic revenue growth and - (1%) to +8% adjusted EPS growth. The midpoints of these ranges are incrementally above the current consensus estimates.

“The company said demand remains strong in both the Power Transmission and Fluid Power segments. Pricing is moving ahead of higher costs, and the previous drag from supply chain issues is abating, helping drive higher sales and better profits.

“Fourth-quarter free cash flow rose 55% as profits rose and inventory was sold down. Total debt fell about 3%. Leverage remains reasonable at 2.8x EBITDA, although it ticked up due to lower EBITDA.

“Gates continues to follow a common strategy of companies owned/controlled by reputable private equity firms: generating wide profit margins and high free cash flow conversion (free cash flow relative to adjusted net income). We strongly agree with this strategy. While the $329 million in full-year free cash flow was healthy, it fell 19% from a year ago due primarily to weaker profits. Free cash flow conversion fell to 54% from 72% a year ago. Its 2023 guidance is for 100% conversion.

“There was no significant company-specific news in the past week.

“GTES shares … have 15% upside to our new 16 price target. Last week, we raised our price target from 14 to 16 due to the company’s capable management, strong franchise within its market, still-improving fundamentals and reasonable valuation.” BUY

Las Vegas Sands (LVS), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has been holding steady in the 56-57 range for most of February – impressive considering that most stocks have pulled back this month. In his latest update, Mike wrote, “LVS remains very cool, calm and collected during the market’s latest retreat, pulling in a few points on light and decreasing volume before perking up a smidge in the past couple of days. The risk here is that the China reopening runs into trouble for some reason, but there’s no sign of that yet, so barring poor execution there should be little standing in the way of booming (and, eventually new highs in) cash flow in the quarters ahead as Macau visitation picks up. Indeed, January saw Macau as a whole post an 83% hike in gaming revenue (doesn’t include room and food revenue), which is great but also still less than half of January 2019 (the prior peak), so there’s plenty of runway left.” BUY

Medical Properties Trust (MPW), originally recommended by Tom Hutchinson in Cabot Dividend Investor, tumbled about 15% after the company fell short of quarterly EPS estimates last week. Also, the company reported a $171 million impairment charge related to four properties leased to Prospect Medical Holdings in Pennsylvania. With shares dipping below their December lows on the news, let’s step aside. We added the hospital REIT to the portfolio last month in the hopes that it might be a high-yield, high-upside performer, but it’s quickly gone south. So, let’s sell and open up another spot for a better opportunity down the road. MOVE FROM BUY TO SELL

Novo Nordisk (NVO), originally recommended by Carl Delfeld in his Cabot Explorer advisory, is the antithesis of MPW – it keeps hitting new highs! On the heels of a strong fourth-quarter earnings report, the stock has continued to inch its way higher. BUY

Polestar (PSNY), originally recommended by Carl Delfeld in his Cabot Explorer advisory, held firm this week, a welcome change from the stock’s first two weeks in the portfolio, when it fell about 13%. The company reports earnings this Thursday, March 2. Let’s see if that can trigger a rebound. BUY

Realty Income (O), originally recommended by Tom Hutchinson in Cabot Dividend Investor, reported earnings last week and they were a bit of a mixed bag. The good news is that adjusted funds from operations improved 6% in the fourth quarter and 9% for full-year 2022 – well ahead of its usual 5% growth. Revenues were also up 60.7% for the full year. The bad news is that 2023 guidance came in lighter than expected, with the company forecasting a mere 1.8% increase in adjusted funds from operations. So far Wall Street seems more focused on the bad, as shares are down a point since we last wrote, though a lot of that could just be market-related. The stock is still holding just above its 200-day moving average and is up 2% for the year. We’ll keep it at Buy for now. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is holding steady above 200 a share – the kind of resiliency the stock failed to show for most of 2022. The only real news is that the company is now producing 4,000 cars a week at its new German plant just outside Berlin – three weeks ahead of schedule, and four times the number of cars it was producing there last May. It’s quite a turnaround for a production facility that Elon Musk referred to as a “gigantic money furnace” last spring due to its production challenges. The good news has helped keep TSLA shares on an upward trajectory ahead of this Wednesday’s annual investor day. Despite the momentum, shares remain shy of their 200-day moving average, so we’ll keep TSLA at Hold for now. HOLD

Uber (UBER), originally recommended by Mike Cintolo in Cabot Growth Investor, is almost exactly where it was (33) when we added it to the portfolio two weeks ago. To Mike, that’s a good sign, as he wrote in his latest update: UBER has been hacking around, but like many names, it looks fine in retrospect, giving back just a small fraction of its rising-volume ramp so far this year. To us, if the market can get moving, we think this stock is poised to do very well—demand is strong thanks to the overall global economy and the booming travel sector, and management’s renewed focus on cash flow is resulting in that figure accelerating near the end of each quarter. After eight weeks up in a row, a rest could be in order, but we think Uber can be a magnet for institutional investors should the market/economy not implode. We filled out our position last week and are sitting tight, and while a drop down to 29 or 30 would be abnormal, right here we think UBER’s path of least resistance is up. We’re holding onto our position, and if you don’t own any, you can buy some here or on dips of another point or two.” BUY

Ulta Beauty (ULTA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, retreated slightly this past week after hitting new highs. Some recent earnings misses among other retailers have dragged the entire sector down in the last couple weeks. But ULTA remains very much in an uptrend, rising 11.5% year to date and a whopping 38% since reporting stellar earnings in early December. Its next quarterly report arrives on March 9. BUY

WisdomTree Emerging Markets High Dividend Fund (DEM), originally recommended by Carl Delfeld in his Cabot Explorer advisory, keeps holding in the 37 to 39 range. Our lone ETF offers a high dividend yield and some of the highest-quality emerging market stocks. The fund gives broad exposure with an emphasis on income and value. BUY

Xponential Fitness (XPOF), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was up to 25 from 24 ahead of earnings this Thursday, March 2. Analysts are anticipating 35% revenue growth and EPS of 10 cents, up from a 21-cent loss in the same quarter a year ago. A word of warning, though: The company has fallen short of analyst estimates for four straight quarters. Let’s see if this week’s report breaks the trend and sends shares back to their early-February highs near 28. BUY

The next Cabot Stock of the Week issue will be published on March 6, 2023.

Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .