Cabot Stock of the Week Issue: July 29, 2024

Midsummer volatility continues on Wall Street, with the VIX spiking above 18 for the first time since April last week. The accompanying swoon in the two major tech-driven indexes has now stretched into a third week, with the S&P 500 nearly 4% off its mid-July highs while the Nasdaq is down more than 7% since July 10. That qualifies as a real mini-correction. The question is: How much longer will it last?

I don’t love getting into the prediction game (the Cabot company line on predictions is – say it with me now – “my crystal ball is in the shop”), but on my podcast with Brad Simmerman last Friday, I said I thought the market would bottom in July. I stand by that. There’s simply too much going for stocks right now for them to stay down much longer. For starters, the bull market is only 21 months old, which would tie it for the shortest bull market in history if it ended now. Also, there’s now a 100% chance (according to the CME Group’s FedWatch tool) that the Fed will cut rates by September – and a 4% chance they’ll start cutting them this week. Combine that with a surprisingly resilient U.S. economy (GDP growth came in at 2.8% in the second quarter, higher than anticipated), a record amount of cash on the sidelines ($6.4 trillion and climbing), and a major catalyst in artificial intelligence, and I think this pullback – like the one in April – will be short-lived.

So, let’s add a recent IPO with an increasingly recognizable brand to our portfolio, shall we?

Today’s addition came public just three months ago and is already up 35%. Mike Cintolo just featured it in his “5 Best Stocks to Buy in August” report, and it’s been on his Cabot Growth Investor watch list. If you’ve traveled overseas in the past few years, it’s a company with which you may be quite familiar.

Here’s Mike with the details.

Viking Holdings (VIK)

Leading cruise liners such as Royal Caribbean (RCL) have had great runs as the initial post-pandemic cabin fever and travel boom has had legs, driving sales and earnings higher, and bookings remain strong looking into next year. Viking Holdings (VIK) looks like a potential follow-on play to that: It’s a leader in the sector with just over 90 vessels on the water, albeit with a focus on luxury river cruises (80 owned and on the water) with just a couple hundred passengers, no gambling and usually no kids, as well as a general focus on cultural vacations (especially as these cruises often dock at major cities in Europe). That focus, as well as far less competition than ocean cruises, leads customers to book well in advance (11 months ahead on average), which promotes more stable pricing and better gains in revenue per passenger than most peers. The firm is also diving more heavily into ocean cruises (9 ships as of now), and altogether, business is good (revenues up 14% in Q1, occupancy was over 92% for both river and cruise voyages) and the future looks bright, with 91% of 2024 and 39% of 2025 capacity already booked as of mid-May. Indeed, ocean and river bookings for next year are running 30% and 19% (respectively) above their levels from the past year! Combine all of this with some expansion (5% this year, 12% in 2025) and the future should be bright.

As for the stock, VIK just came public in May and has been steadily advancing since then, and gaining liquidity, too (market cap of around $16 billion). The stock debuted at 24 per share and has since risen to 35 a share, pulling back a bit the last couple weeks after touching as high as 37 on July 19. The uptrend looks solid, and the current dip toward the moving averages could be a nice entry point. Earnings are likely out near the end of August. BUY

Current Recommendations

Changes Since Last Week: None

No changes to the portfolio today, though a couple stocks are hanging on by a thread, caught up in some of the recent selling. And yet, most of our stocks have not only held their own these last few turbulent weeks, but some have made HUGE strides. Conveniently, that starts with our very first stock in alphabetical order – a stock we added just three weeks ago and which is already up more than 50%!

Let’s get right to it…

Updates

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, is up 47% since we last wrote! Why the strength? Here’s what Tyler had to say about it: “AST SpaceMobile (ASTS) announced that the first five satellites (Bluebirds) are built and ready to be shipped to Cape Canaveral in early August to be ready for the 7-day launch window in September.

“We’ve been waiting/expecting this announcement, but confirmation is still a big positive (ASTS is +20% today!). This will be the biggest commercial communication array in low Earth orbit and a big step forward in helping Verizon (VZ) and AT&T (T) blanket the continent with cell coverage.

“Lots of speculation in this stock, but if things go as planned strength should continue. Keeping at buy half, but please realize these momentum/speculative stocks can move a lot, in both directions, depending on news flow and sentiment. We are up around 40%, factoring in today’s move.” We will keep our rating at Buy as well, though if you got in right after our July 10 recommendation, it wouldn’t be the worst idea to book profits on a few shares with ASTS trading at such highs. We already have a 50%-plus gain in less than three weeks! BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, broke back above 12.7 resistance and is now trading at 12.9, its highest point in two years! There was no news. Earnings aren’t due out until August 14. This U.K.-based life insurance and investment management company has been a steadying force in our portfolio, with little fluctuations week to week but, over time, inching its way higher. Hitting a new high in the midst of a turbulent market is exactly why you own a boring stock like Aviva. The 6.5% dividend yield further adds to its appeal. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, tacked on another couple points after a big move the previous week, touching new 52-week highs above 143 before easing back to 142. Here’s what Mike wrote about the stock last week: “Blackstone is the granddaddy of Bull Market stocks, with its fingers in many different portfolio cookie jars that bring in lots of fee-related income—at the end of June, the firm had assets under management of $1.08 trillion, including $809 million that were fee-related, which has led to solid cash flows (91 cents per share of fee-related earnings in Q2, $3.64 per share during the past 12 months). However, the stock has been lagging likely due to the fact that real estate is still the largest part of business ($336 billion in assets) but performance has been underwhelming (down during the past 12 months), which has kept a wrap on growth (real estate assets up just 1% over the past year while fee-related earnings are down 4% so far in 2024). Growth has also been slow at private equity, another big component of business. Even so, business has been solid overall (the variable dividend totaled $3.39 per share during the past year, which doesn’t hurt), with total assets up 7% from a year ago, and the stock has changed character as Fed rate cuts—and what should be an improved environment for everything, especially real estate—come into view. To be fair, there are some other Bull Market stocks that have acted better since last fall, but Blackstone has the potential to be a vacuum for institutional money if the environment truly turns up. Indeed, the stock was very flat for the first six months of the year but has come alive in recent weeks, bursting to new highs on solid volume, the start of what we think will be a sustained run.” We have a solid gain on BX shares already. And as Mike said, if the bull market can get back on the tracks, there may be plenty more juice left to squeeze. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, was down another 5.5% and has clearly lost momentum, along with most other AI stocks. Semiconductors in particular have had a rough go. In his latest update, Tom wrote, “This AI chip and software giant took a gut punch last week when reports of new AI chip export restrictions to China by the current administration triggered a steep selloff in semiconductor stocks. There may also be some concern about trade relations with China in the event of a Trump presidency. But things like this have happened periodically. AVGO is already recovering from the recent low and I believe it is highly likely that the price creeps back to a new high, especially with earnings reports in the weeks ahead.” Keeping at Hold until the stock can get its act together. HOLD

Cava Group (CAVA), originally recommended by Mike Cintolo in Cabot Growth Investor, held on for dear life in the 79-80 range after a big drop-off from 95 earlier in the month. Here’s what Mike had to say about it: “CAVA remains weak in the short term along with most peers (including growth-oriented restaurants; Chipotle (CMG) has knifed below its 200-day line!) on some fears of slowing traffic and sales; the stock has been living under its 50-day line as volume dries up. (Even yesterday’s down day as the Nasdaq plunged saw volume 40% less than its average.) We had sold a third of our stake and are eyeing the late-May spike low in the mid-70s (when the stock gapped down the morning after earnings before ramping) as a logical line in the sand. Big picture, we are convinced Cava is probably as close to “the next Chipotle” as you’re going to see, with rapid, reliable growth likely for years to come—but we’re also not going to simply ‘hold and hope’ if the sellers stay at it.” Because we still have a solid gain on the stock, and it appears that the selling may be slowing, we’ll keep CAVA at Buy for now. But any further slippage, perhaps to below two-month support at 77, could prompt a downgrade to Hold. BUY

Dick’s Sporting Goods (DKS), originally recommended by yours truly in my Cabot Value Investor advisory, responded nicely after a rough first week in the portfolio, clawing its way back to 209 after dipping as low as 201. There was no news. Dick’s remains one of the more resilient, steadily growing retailers out there, with both earnings and revenue accelerating. On top of that, it trades at a discount at just under 16x forward earnings estimates, which is why I selected it in Cabot Value Investor. It’s a growth-and-value play that’s up 43% year to date, with more potential upside ahead. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was down another 6% this week and has now lost all its June and first-half-of-July gains. Earnings are due out August 8, which could potentially right the ship if they surprise to the upside as they have in each of the last four quarters. In his latest update, Tom wrote, “It’s been a rare pullback for this superstar. LLY fell over 10% in a week after Roche Holding (RHHBY) reported strong clinical results for its new weight-loss drug. It could be significant competition that could limit future sales. But this was inevitable, and the weight-loss market is massive. Meanwhile, Lilly’s weight loss drug, Zepbound, was just approved in China. The competition news is a given for any pharmaceutical company, and LLY has already been moving off the recent low. Everybody wants to get into this lucrative market and there will be more competition. We’ll see how good these drugs are and how long it takes to get them to market. Lilly also has its Alzheimer’s drug up for FDA approval soon.” Despite the sharp decline the last two weeks, I’m keeping LLY at Buy, as the long- and intermediate-term arrows (+36% year to date) are still very much pointing up. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, pulled back about 2%, which is pretty limited damage considering it came on the heels of the stock touching new record highs above 147. The company reports earnings this Thursday, August 1. Analysts are looking for 6.3% revenue growth with earnings per share nearly doubling from a year ago. If the company can clear such a lofty bottom-line hurdle, this mini-dip will surely be temporary. 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. Green Thumb reports earnings next Monday, August 5, so perhaps that will snap the stock out of its recent stagnation. HOLD

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, gave back some of its post-earnings gains, falling from 461 to 443. In other words, it’s back trading where it was for most of July. There was no news, so there’s no reason to start doubting the stock after one bad week. Thus, if you don’t own shares already, this looks like a good entry point. The maker of the da Vinci robot surgical system is coming off a very strong quarter. The company beat earnings estimates as worldwide procedures with the da Vinci increased 17%. The company is benefitting from all the “catch-up” surgeries people are having after a couple years of not being able to do elective surgeries due to the Covid pandemic. The da Vinci is now in 341 medical facilities, 10 more than in the same period a year ago. On top of that, the company is starting to roll out its new and improved da Vinci 5 system quicker than expected, and that’s already accelerating sales; the company sold 70 of them in the second quarter, up from just eight in Q1. The fast rollout prompted this research note from William Blair analyst Brandon Vazquez: “Frankly, this was well ahead of our expectations. Despite supply constraints and upcoming system upgrades, management expects sequential growth in da Vinci 5 placements through 2024, which we think demonstrates the end-market demand for this system.” There’s a lot to like about Intuitive Surgical. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, held firm at 51. The 8.1% yield, on top of the double-digit share price gain, makes this business development company an excellent all-weather holding. Earnings are due out August 8. BUY

McKesson Corporation, originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, had a very good debut week in our portfolio, up 3.5% in a down market. In his latest update, Tom wrote, “The supply chain pharmaceutical giant stock hasn’t made a new high since late June. In fact, it moved 5% below the high. That’s OK. Nothing goes straight up all the time. MCK is still very much in an uptrend that began after the pandemic, and it’s still up over 27% YTD. McKesson indicated earnings growth of 14% to 17% for this year. The pharmaceutical supply chain Goliath dominates a market that grows all by itself because of the aging population. The next earnings report (on August 7) could reignite MCK.” Tom wrote that last Tuesday, and the stock has already started to get in gear. We’ll see if it can continue its ascent with earnings looming. BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, was down another 3.5% ahead of the earnings report tomorrow, July 30. Analysts are anticipating 14.5% revenue growth with almost no earnings growth. The company has beaten EPS estimates in each of the last four quarters, so chances are those bottom-line expectations are a tad pessimistic. We’ll find out very soon. BUY

Neo Performance Materials (NOPMF), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was down about 4% to fall to a new July low around 5.7. The dip did come on the heels of three straight weeks of (admittedly modest) gains for the rare earth stock, however. Neo is a key Western leader in rare earths and critical metals because of its global operations. Neo remains a good value stock despite a pullback in commodity prices due to its strategic importance and sizable cash position coupled with low debt. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, hasn’t gotten much traction from another solid earnings report two weeks ago, as the stock is down slightly since. Both earnings per share and revenue topped estimates; sales improved 17% year over year, and the company raised full-year guidance slightly; and membership of its new ad-supported service expanded by 34% year over year. That’s helped the streaming giant become more profitable, as EPS came in at $4.88, up 48% from the $3.29 it earned in Q2 a year ago. The lack of movement in the share price since the encouraging report could mean it was already baked in, with the stock up 35% year to date. Given its growing domination of the lucrative streaming space, NFLX is a long-term buy for any growth-oriented portfolio. BUY

Novo Nordisk (NVO), originally recommended by Carl Delfeld in Cabot Explorer, was down another 3% as the weight-loss drug stocks (see LLY, above) have retreated the last couple weeks after going nowhere but up for months. Competition from drug maker Roche has muddied the water for Novo and Lilly, but competition was inevitable given how popular the weight-loss drug market has already become. Eventually, the leaders will win out, and Ozempic is undoubtedly one of the leaders in the GLP-1 space. Earnings are due out August 7, which could potentially turn the tide. BUY

Ollie’s Bargain Outlet (OLLI), originally recommended by Mike Cintolo in his Cabot Top Ten Trader advisory, was mostly flat this week. The fact that this bargain retailer hasn’t given back much of its gains after exploding from 65 to 100 since April shows how in favor it is with investors. Earnings are due out August 7. BUY

On Holding (ONON), originally recommended by Mike Cintolo in Cabot Growth Investor, was up another point this week. In his latest update, Mike wrote, “ONON certainly still has work to do, and when the market is weak, shares are still getting tossed around pretty good. But after a tough retreat (44 to 36) as retail stocks (and Nike) went cold, the stock not only perked up last week but did so on accelerating volume, a sign that big investors were buying the dip. The Olympics are a possible near-term catalyst given that On is supposedly going to lean forward on the advertising front, but more likely, it’s simply going to come down to the market as a whole; if the broad market can find support, we think ONON can do very well, but if not, the recent lows make for a logical stop. At this point, ONON is in the middle of a normal, seven-week base-building effort, so we advise holding your shares.” We’ll stay on Buy. BUY

Qualcomm, Inc. (QCOM), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, has taken on water along with other AI plays the last couple weeks, falling more than 6% this past week. After topping out at 227 in mid-June, QCOM shares have now fallen to 180, a two-and-a-half-month low. Earnings are due out this Wednesday, July 31, so there is a potential turnaround catalyst on the immediate horizon. Analysts are looking for 10.6% EPS growth, and the company has beaten estimates in each of the last four quarters. Keeping at Buy, though I’d keep new buys very small ahead of Wednesday’s report. BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, held firm at 67, at least in the aggregate. There’s been no news. This Singapore-based conglomerate remains a versatile play on Southeast Asian growth – and an undervalued one, with shares trading at just a fraction of their 2021 highs above 357. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, had yet another disappointing quarter, and shares fell accordingly, down roughly 7% in the last week. Profits were down a whopping 45% year over year, though sales improved 2% thanks mostly to sales doubling in batteries designed to store and discharge power on electricity grids. (Pure electric vehicle sales declined 4.8%). Its operating profit margin in the second quarter was down to 6.3%, well shy of the 9.6% operating margin in Q2 a year ago. When Q2 deliveries came in slightly higher than expectations, it energized the share price and gave investors hope that Tesla had put its recent struggles behind it. But last week’s report shows that those struggles remain. The promise of a new driverless taxi service is keeping enough investors intrigued, for now, and the share price is still 37% higher than it was six weeks ago. But soon, Elon Musk will need to take a break from his busy Tweeting schedule and produce results if he wants to keep investor interest. TSLA remains a Buy for now, but we’ll see how the next couple weeks go. BUY

Uber Technologies (UBER), originally recommended by Mike Cintolo in Cabot Growth Investor, kept falling, dipping to 64. The stock is still above its June lows in the mid-63s, and with earnings due out next Tuesday, August 6, we’ll keep it at Hold. But more than any other stock in the portfolio, UBER is on thin ice and needs to rebound quickly. If the earnings aren’t good enough to do the trick, it may be time to say goodbye to what until a few months ago was one of our best-performing stocks. HOLD

United Airlines (UAL), originally recommended by yours truly in the Growth/Income Portfolio of Cabot Value Investor, gave back some of its earnings gains, falling from 48 to just under 47. In the second quarter, earnings per share were down 17.7% year over year but did handily top even more pessimistic estimates. Revenues, meanwhile, improved 5.7% year over year but fell just short of estimates. Third-quarter guidance also came in a bit light, though full-year EPS guidance ($9-$11) remained the same. And yet, shares initially got a bump from 44 to 48, perhaps because recent selling has been overdone and because the stock is dirt cheap, trading at a mere 5x earnings estimates and 0.28x sales. I have a 70 price target on the stock in Cabot Value Investor but let’s keep it at Hold for now, until it can develop a clear uptrend. HOLD

UnitedHealth Group Inc (UNH), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, kept rising, adding another 1% after a double-digit gain in the previous two weeks, fueled by a strong earnings report. In his latest update, Tom wrote, “The previously beleaguered healthcare insurance giant got a new lease on life. After wallowing in oblivion for seemingly forever, UNH soared about 18% in less than two weeks and made a new 52-week high. Earnings drove the stock. UnitedHealth beat earnings forecasts as it added more patients and pharmaceutical customers despite a continuing negative effect on profits from the February cyberattack. UnitedHealth also reaffirmed its previous guidance for 2024. The market is apparently happy and reassured.” BUY

United States Steel Corporation (X), originally recommended by Matt Warder in his Cabot Turnaround Letter, tacked on another couple points ahead of earnings this Thursday (August 1), going from 38 to 40 – a three-month high. Don’t expect a strong report, as both earnings and revenue are estimated to be down considerably year over year. Fortunately, earnings are almost beside the point for U.S. Steel these days, as the real driving force behind the share price is the pending (though not finalized) takeover by Japanese steel giant Nippon Steel. Japan’s largest steelmaker is attempting to acquire U.S. Steel for $14.9 billion, which would be an instant boost to shares should it happen. But the deal is currently caught up in regulatory hurdles from the U.S. government, plus opposition from the United Steelworkers union, which fears the merger could cost its members jobs. Oh, and Donald Trump and Joe Biden have said they would block the deal … although we don’t know yet what Biden’s presumptive replacement, Kamala Harris, would do. A lot to consider here. But the bottom line is, X shares are up double digits since we added the stock to the portfolio a month ago. Approval of the Nippon deal could send them much higher. 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.

The next Cabot Stock of the Week issue will be published on August 5, 2024.

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