Cabot Stock of the Week Issue: July 15, 2024

The Magnificent Seven-centric rally of 2024 is starting to show signs of sharing with others.

Last week, long-ignored swaths of the market like small caps and Chinese stocks finally got some love, and the Dow and the Equal Weight S&P 500 outperformed the S&P 500 and the Nasdaq for the first time in a while. It’s a good sign for the longevity of this bull market, which has been great for mega-cap tech and certain AI stocks, but not much else, especially in the last couple months. And it was great for our portfolio, as most of our stocks were up this week.

Retail has been one of the more unloved sectors this year, with the XRT flat since February as U.S. retail sales have slowed. But one big-name company has been remarkably resilient through all economic and market environments, including during Covid. And it’s undervalued enough that I added the stock to the portfolio of Cabot Value Investor, the other advisory I run, earlier this month.

Today, I’d like to add this growth-and-value name to our portfolio. Here it is, with my latest thoughts.

Dick’s Sporting Goods (DKS)

Dick’s Sporting Goods has been growing steadily for years. From 2016 to 2023, the sporting goods chain’s revenues have improved 64%, from just under $8 billion to just under $13 billion. This year, the top line is on track to top $13 billion for the first time. It should top $13.5 billion next year.

Dick’s, in fact, has grown sales in each of the last seven years – including in 2020 and 2021, when most other retailers saw sales nosedive due to Covid restrictions. But Dick’s all-weather ability to keep growing no matter what’s happening in the world or the economy speaks to its versatility. It has something for everyone. It sells basketball equipment, baseball equipment, football equipment, lacrosse equipment, soccer equipment, ice hockey equipment, field hockey equipment, etc., for all ages. It sells running shoes, tennis shoes, basketball shoes, soccer, baseball and football cleats. It has an entire golf section, a hunting and fishing section, it sells exercise equipment, clothing for all sports, Ping-Pong tables and yard games like Cornhole. You name it, they have it. Thus, even when team sports shut down for a year, Dick’s kept on growing due to a spike in demand from people trying to stay in shape during Covid by doing solo activities like running, bicycling, or improving their at-home gyms.

Since Covid ended, however, Dick’s sales have entered another stratosphere. As youth sports returned in 2021, Dick’s revenues jumped from $9.58 billion to $12.29 billion. They’ve been rising steadily each year since, and are expected to do so again this year.

In its fiscal first-quarter 2025 earnings report in late May, the company raised full-year earnings guidance after comparable-store sales (5.3%) more than doubled estimates (2.4%). Transactions improved by 2.7% while spending per person increased 2.6%. Meanwhile, the company was more profitable than expected at $3.30 per share, well above the $2.95 analysts anticipated. For the year, EPS is expected to improve by 6.4%, on 2% revenue growth; next year (fiscal 2026), both numbers are projected to accelerate, to 7.3% EPS growth and 4.5% revenue growth.

Accelerating earnings and revenue are perhaps the number one characteristic we at Cabot look for most when identifying strong growth stocks. But Dick’s isn’t purely a growth stock—it’s also undervalued, thanks to the recent selling in retail stocks on the heels of the underwhelming May retail sales report.

After peaking at a closing high around 230 in late June, DKS shares retreated more than 13%. Now they’re starting to rebound again. And yet, they currently trade at 16x forward earnings estimates and at 1.42x sales. That’s not excessively “cheap.” But given the growth and the recent sharp downturn on no company-specific news, I think this is the perfect time to pounce on a very good stock that has been outperforming the market for the past three years, since the post-Covid sales spike. DKS shares are up 64% in the last year, 150% in the last two years, and 494% in the last five years. Again – not a true value stock. But I do think it has value in light of the recent mini-selloff.

I think the combination of accelerating sales and earnings (not to mention a history of earnings beats), the potential extra boost to the consumer from the Fed if/when it starts to cut interest rates and Dick’s proven knack for growing revenues every year, regardless of economic conditions, that DKS shares can rise to 250 and beyond. And I think it could happen rather quickly. BUY

Current Recommendations

Changes Since Last Week:
BellRing Brands (BRBR) Moves from Buy to Sell
United Airlines (UAL) Moves from Buy to Hold

One more sell this week, as BellRing Brands (BRBR) gets a quick hook after just a month in the portfolio due to its sudden implosion in the last 10 days. With the addition of DKS, that still leaves us with 26 stocks, one above our preferred limit of 25. So with plenty of our companies reporting second-quarter earnings in the coming weeks, I’ll be particularly vigilant in trying to weed out one or two more stocks on any signs of weakness – earnings-related or otherwise.

Thankfully, as the market’s breadth has improved, many of our stocks are acting well, with at least a handful of them reaching new 52-week or all-time highs as of this writing.

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

Updates

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, had a good first week in the portfolio, rising from 12 to 13. There was no news. AST SpaceMobile (ASTS) is a pure-play, low-earth orbit (LEO) broadband communications company. AST is on a mission to build the world’s first space-based cellular broadband network that can provide uninterrupted smartphone coverage across the globe.

This is a potentially huge market given that over 40% of the global population lacks cellular broadband and 90% of the earth’s surface has no cellular coverage at all.

AST’s most direct competitor is Starlink, a SpaceX subsidiary that has deals with T-Mobile in the U.S.

The company’s network is called SpaceMobile, and in the not-too-distant future, you may just tap a few buttons on your cell phone to connect. It’s designed so ordinary mobile phones can connect at 4G/5G speeds whether on land, at sea or in flight. Mobile phones and other cellular devices connect to the satellites via frequencies that are shared with wireless customers.

AST currently has the BlueWalker 3 test satellite in space. In September of last year, it worked to connect calls from Hawaii to Spain via the AT&T (T) spectrum.

The company is working with major mobile network operators and wireless ecosystem players, including AT&T, Vodafone (VOD), Orange (ORAN), Google (GOOG), American Tower (AMT) and Bell.

Its business plan is to work with these operators, which have over 2.8 billion existing subscribers, under a revenue share model designed to allow users to sign up with a simple text message for a day pass, a monthly rate, an emergency connection or an IoT connection.

To date, AST has raised over $1.2 billion.

The stock is up 160% year to date but trades well below its early-2021 peak above 20 per share. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, has broken to new highs above 12.8! After months of being rebuffed every time it neared 12.7, the stock finally beat down the door last Thursday, topping 12.8 for the first time since May 2022. Why the sudden strength? It finalized a 249 million-pound deal to buy Probitas, which should expand Aviva’s market reach in its global corporate and specialty division. For a company that rarely has any relevant news, it was enough to push AVVIY shares to a two-year high, up 4% in the last week. Still, shares of the U.K.-based life insurance and investment management firm remain cheap, trading at 12x earnings estimates, with a price-to-sales ratio of 0.42. Shares have 9% upside to our 14 price target. The 6.5% dividend yield adds to our strong total return thus far. BUY

BellRing Brands, Inc. (BRBR), originally recommended by Tyler Laundon in Cabot Early Opportunities, has dipped below six-month support at 54, prompting Tyler to sell the stock in a Special Bulletin to his subscribers this morning. Let’s do the same before our modest loss turns into a bigger one. MOVE FROM BUY TO SELL

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up forcefully ahead of earnings this Thursday, July 18. Shares are touching 130 for the first time since May, as this “Bull Market Stock” (Mike’s term) got a nice bump from the broadening of the market rally late last week. Analysts are expecting good things from the earnings report: 13.6% revenue growth and 7.5% EPS growth. Blackstone has beaten EPS estimates in three of the last four quarters. Given the run-up in the last few days, I’d keep new buys small prior to the earnings report. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, today completed a 10-for-1 stock split, like its idol, Nvidia. The stock hasn’t budged much in the few hours since (similar to NVDA), though shares were already near all-time highs prior to the split, so it’s possible the split was already baked in. This dividend-paying play on AI has been one of our better performers, having nearly doubled since last August. Now, with a share price in the 100s rather than 1,700s, it’s potentially more accessible to retail investors. HOLD

Cava Group (CAVA), originally recommended by Mike Cintolo in Cabot Growth Investor, fell from 91 to 86 after showing signs of breaking above 93 resistance the previous week. In his latest update, Mike wrote, “You won’t find many long-term stories as enticing as Cava inside or outside of retail, with a leading position in Mediterranean fast-casual fare, along with proven management that has a history of creating huge players in this industry (the founder and CEO started Panera) and tons of white space for expansion over the next eight years (aiming to increase the restaurant count to 1,000 from 325 in April—simply put, the company is a good bet to get much, much bigger over time. The stock, though, has had a good-sized run this year and, as has been the case for so many names, stalled out for many weeks (resistance near 95), and now the sellers are stepping up, driving shares down to their 50-day line on a pickup in volume. We decided to sell one-third of our stake on a special bulletin earlier this week given the action (and the iffy environment), and like other situations, we’ll aim to give our remaining stake some wiggle room.” With a sizable gain on the stock in just three months, we’ll keep our rating right at Buy. But a dip below 84 support could be a yellow flag. BUY

CrowdStrike (CRWD), originally recommended by Mike Cintolo in Cabot Growth Investor, was off about 2% this week on no news. Here’s Mike with the latest: “We’ve kept CRWD on Hold even after shares surged to new highs following its addition to the S&P 500, and so far that’s proven to be a good move, as the stock (stop us if you’ve heard this before) has made no net progress since the pop in early June. However, while our trust level in this divergent market environment isn’t super high, we’re thinking this could provide a decent entry point ... if the stock finds support soon. Fundamentally, CrowdStrike continues to extend its reach, boosting its distribution in Latin America and striking a deal to integrate its Falcon platform with Hewlett Packard Enterprises’ (HPE) observability solution and AI workloads—and, more broadly, the top brass continues to mention the $10 billion target for annualized recurring revenue within five to seven years (up from $3.65 billion in the latest quarter), so they’re thinking big. All in all, we view this week’s dip as normal—we’ll stay on Hold for now but a show of support could have us restoring our Buy rating.” Sounds like a good plan. HOLD

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, just keeps hitting new all-time highs! This week, shares of the biopharma giant added another 4%, and the stock has now nearly tripled since we added it to the portfolio 16 months ago. Here’s what Tom had to say about it: “Being the best drug company at a time when the population is aging at warp speed is a good thing. LLY performs like a hot AI stock. … The catalyst for the latest surge is good news from its Alzheimer’s drug donanemab. Between the need for the drug, the prior approval of Novo Nordisk’s (NVO) inferior drug, and the recent rave from the FDA panel, it is now a near certainty the drug will gain FDA approval, and probably soon.”

Of course, donanemab would effectively be a cherry on top, since LLY’s run has been mostly about Mounjaro and Zepbound, its infinitely popular weight-loss/diabetes drugs. So its run is likely far from over, at least in the intermediate to long term. When LLY reached a double for us, I advised booking profits on anywhere from a quarter to a third of your shares. I recommend you sell a few more shares now with the share price this elevated. But officially, we will stay on Buy. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up another 2% this week to reach fresh all-time highs! There was no news other than that the company will report earnings on August 1. The stock joined the S&P 500 (along with CrowdStrike) on June 24 and has continued to tick upward since. Tyler calls this stock a “behind-the-scenes AI play” thanks to its launch of Airo, an AI-powered solution to help companies and creators build websites, late last year. GDDY shares have been on a tear since. BUY

Green Thumb Industries Inc. (GTBIF), originally recommended by Michael Brush in Cabot Cannabis Investor, keeps bouncing around between the low 11s and the high 12s. The good news is the cannabis stock appears to have bottomed just below 11 in late May, as the lows are now becoming higher. The company is set to open a new Rise cannabis store in Florida at the end of the month, which would take its Florida store count to 17 and total national count to 94. Recreational-use cannabis is on the ballot in Florida this November, so that could be a major potential catalyst for GTBIF shares if approved. We’ll keep it at Hold until a clear trend develops. HOLD

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, reports earnings this Thursday, July 18. The stock has been mostly flat the last couple weeks ahead of the report. Analysts are looking for 13.4% revenue growth and 8.5% EPS growth. The company has surprised to the upside on earnings in each of the last four quarters. Stay tuned. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, mostly held firm at new highs around 52. In his latest update, Tom wrote, “Some of the best income stocks are rallying again as the rally has broadened. This Business Development Company pulled back somewhat after making a high in early May, but it moved higher again in June and just made a new 52-week high. It’s still in an uptrend that began last fall and has been steady for weeks. MAIN paid the regular monthly dividend of $0.72 per share in the second quarter, marking a 6.7% increase year over year, as well as a $0.30 supplemental dividend. The current yield is reflected above as 5.5% because I only include the regularly scheduled dividend. Including the supplemental dividends, the yield is 8.0%.” BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, gave back about 2% after hitting new highs above 465 a week ago. There was no major news. The company reports earnings on July 23. We’ll see if that can keep the momentum going for a stock that’s up 21% year to date. Regardless, because of its leadership position in the artificial intelligence boom and its ability to evolve with the times over multiple decades, MSFT is a long-term must for any portfolio. BUY

Neo Performance Materials (NOPMF), originally recommended by Carl Delfeld in his Cabot Explorer advisory, has been mostly hovering around the 6 level, quickly recovering from a brief mini-dip to the mid-5s. An upgrade from metals firm Stifel had a hand in the quick recovery. It’s a little-known, small-cap rare earth stock with a lot of cash, low debt, and gaining in importance as rare earth prices start to rise again. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, pulled back 3% this week ahead of earnings on July 18. The pullback appeared to be part of a larger drawdown in mega-cap tech stocks as the rally has broadened to many of the unloved, non-tech sectors and stocks. But big things are expected from Netflix’s Q2 report: 16.4% revenue growth and 44% EPS growth. And the company has beaten estimates in three of the last four quarters. It could be right back to new 52-week highs with another better-than-expected report. BUY

Novo Nordisk (NVO), originally recommended by Carl Delfeld in Cabot Explorer, has been trading in an increasingly narrow range between 139 and 143 this month. As Carl notes, “Demand remains high, but Lilly’s Mounjaro product is gaining some market share at Novo’s Ozempic expense.” However, Novo “recently announced plans to invest $4.1 billion in another U.S. factory to meet the demand of its biggest market.” Not much movement lately, but this remains one of the top dogs in our portfolio thanks to its co-leadership position with Eli Lilly in the weight-loss drug movement. BUY

Ollie’s Bargain Outlet (OLLI), originally recommended by Mike Cintolo in his Cabot Top Ten Trader advisory, had a good second week in the portfolio, rising about 6% to reach its highest point since 2020! There was no news for the bargain retailer, though the stock may simply be attracting more attention from institutions now that the rally appears to be broadening. Last week, we wrote that there was a good chance that the next major move would likely be up after weeks of trading in the 98-99 range, and it appears that’s exactly what’s happening. BUY

On Holding (ONON), originally recommended by Mike Cintolo in Cabot Growth Investor, lost another point, from 38 to 37. In his latest update, Mike wrote, “One of the characteristics of the market of late is that not much is sticking on an intermediate-term basis—a stock or group might run for a couple of weeks, but it usually runs into some trouble soon after. Retail stocks are a classic example, with many starting to emerge in May and early June from a variety of areas (restaurants, apparel, payments, etc.), but now consumer-related names have turned weak, with the selling kicked off by Nike’s horrid earnings reaction two weeks ago. ONON has been caught up in this, with what was basically a picture-perfect breakout and follow-through leading to a few down weeks, as the stock is now testing key support. If shares can hold up (which many names have been doing even in this tricky environment), we still think the potential is as good as ever—but we went to Hold last week, respecting the action, and will stay there here with a stop in the 35 range, give or take a few dimes.” We’ll keep our rating at Buy for now, but a move close to 35 would likely prompt us to reconsider. BUY

Qualcomm, Inc. (QCOM), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, held in place at 208 after a nice recovery from a dip to 195 the week prior. In his latest update, Tom wrote, “After a big dip in June following a huge surge in the spring, QCOM appears to have bottomed out and is crawling back. QCOM soared 39% from May 1 to June 18. But it fell 15% after that. Not to worry, it’s still up 48% YTD. The recent stock performance reflects profit-taking in the AI space after a big surge from the last round of earnings reports. But QCOM should continue to deliver as several analysts see a major smartphone upgrade cycle for AI next year. Qualcomm is at the leading edge of chips that enable AI for smartphones and should benefit mightily.” BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, keeps bouncing around between 69 and 76, with no net movement in the last two months. Some good news: Sea’s e-commerce Shopee delivery network (SPX Express) delivered 70% of orders within three days and reduced its cost per order by 15% across Asia. Despite its recent stagnation, I still love this Singapore-based stock as a play on Southeast Asian growth, and we have a very solid gain on it thus far. Trading at a fraction of its 2021 highs, there’s plenty of upside ahead. BUY

Super Micro Computer (SMCI), originally recommended by Carl Delfeld in his Cabot Explorer advisory, added another 2%, which qualifies as a quiet week for this super-volatile AI stock. Prior to that, it was up 7.5% the previous week, down 10% the week before that, and up 20% the week before that. Yet, even with all that movement, we’re at exactly breakeven since we added the stock to the portfolio two months ago. Hopefully, it will find some direction soon – preferably to the upside. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has been on a rollercoaster ride in the last week but mostly held its early-July gains. The real litmus test will come on July 23, when the company reports second-quarter earnings. Q2 deliveries came in slightly stronger than expected, which sparked the 31% rally in TSLA shares this month. Chances are, good news on the earnings front may already be baked into the report, but a surprise couldn’t hurt. We moved our rating on TSLA to Buy for the first time in months last week, so if you don’t already own the stock, you could buy it now, or wait until after the report. BUY

Uber Technologies (UBER), originally recommended by Mike Cintolo in Cabot Growth Investor, briefly touched four-month highs above 73 before pulling back to 72. But the stock is trending in the right direction again. Mike explained why: “After a shakeout with most everything consumer-related yesterday, UBER found some big-volume buying today on news/rumors that Tesla is delaying its Robotaxi reveal into October (from early August), which removes some near-term event risk for the stock. Of course, earnings (likely due around the turn of the month) will also be key, especially after a so-so Q2 outlook three months ago; investor perception likely hinges on whether the slight slowdown in bookings that was forecast is the start of a trend, a one-quarter hiccup—or whether it simply turned out to be overly cautious guidance. Stepping back, the reason we’ve held a piece of Uber is that it smacks of being an emerging blue chip, with a dominant position and huge, growing sales, earnings and free cash flow. If you own some, we advise sitting tight, albeit with a stop in the mid-60s near the 200-day line.” We will keep our Hold rating as well. HOLD

United Airlines (UAL), originally recommended by yours truly in the Growth/Income Portfolio of Cabot Value Investor, keeps falling, down from 55 to just under 45 in the last two months. There’s been no good reason as to why, and earnings are due out later this week, so we’ll hang in there for now, but let’s downgrade to Hold given the persistent weakness. MOVE FROM BUY TO HOLD

UnitedHealth Group Inc (UNH), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was up about 4.5% ahead of earnings tomorrow, July 16. Analysts are looking for 8.5% EPS growth. Stay tuned. BUY

United States Steel Corporation (X), originally recommended by Matt Warder in his Cabot Turnaround Letter, was up another point and is off to a flying start for us. Part of the premise here is that there’s a very near-term catalyst for a turnaround, as Japan’s Nippon Steel is attempting to acquire it. If you haven’t already bought, I’d do so now, as a deal may not be far off. 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 we had on Stock of the Week contributors Tyler Laundon, Tom Hutchinson and Michael Brush, along with options guru Jacob Mintz, as we discussed all things market. I highly encourage you to check it out.

The next Cabot Stock of the Week issue will be published on July 22, 2024.

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