Cabot Stock of the Week Issue: June 2, 2025

It was a relatively boring holiday-shortened week for the market. And these days, boring is good.

While tariff headlines haven’t gone away, they’re not dominating the market and causing daily flip-flops the way they were a month ago. As a result, volatility is back to normal levels (VIX below 20) and stocks have been in a holding pattern for the last couple weeks, with the S&P 500 setting up shop around 5,900, give or take 50 or 60 points. Eventually, a breakout will come. But in which direction? We don’t know the answer – “my crystal ball is in the shop” is the long-standing Cabot company line. But it’s still a bull market, and for now the economy remains in decent shape, with inflation at multi-year lows, employment numbers mostly steady and first-quarter earnings quite strong (north of 14% among large caps). Thus, there’s a decent chance that the next major move will be up … there just could be more growing pains along the way.

So today we add a stock to the portfolio that’s a lot like the market: Pleasantly boring, but with upside on the right catalyst. It’s a mid-cap insurance stock recommended by Tyler Laundon to his Cabot Early Opportunities readers last month. Here it is, with Tyler’s latest thoughts.

New Recommendation

Palomar Holdings, Inc. (PLMR)

Property and casualty (P&C) insurance stocks tend to hold up, and often do very well, when macro concerns ignite. We’ve seen this pattern begin to play out in 2025.

One of my favorites among the smaller players is Palomar (PLMR), a specialty insurer serving residential and commercial clients. It was started in 2014 when it began selling earthquake insurance in California and 11 other markets.

Today, earthquake makes up 39% of gross written premiums (GWP), inland marine and other property makes up 23%, and casualty, fronting and crop make up 18%, 16% and 4%, respectively.

In the early days Palomar stood out from the competition because it went after geographic markets where there was little interest from carriers that used one-size-fits-all pricing strategies across large areas. That left the door open to reach customers who needed something specific to their area. Palomar developed a proprietary data analytics and tech platform and walked right through.

Over the years Palomar has added more products and geographies – crop, environmental liability and excess and surplus (E&S) casualty are all relatively new lines. A reinsurance program has also been added to provide protection from large loss, low frequency events.

While California remains its largest market by far at 43% of 2024 GWP (Texas, the second largest, is 8%), Palomar is now licensed in 44 states.

Like most insurance companies Palomar generates a significant proportion of earnings by investing premium reserves in fixed securities (95% of its portfolio), including Treasuries, mortgage-backed securities and corporate debt.

The company has been profitable since 2016, growing net income at a compound annual growth rate of 43%. In 2024 net income grew by 48% to $117.6 million. That works out to adjusted EPS of $5.09, up 38% from the year before.

Turning to the Q1 2025 report, the main takeaway is that net premium growth continues at a healthy clip across nearly all insurance categories, while claims remained relatively low.

GWP grew by 20% to $442 million in the quarter, with earthquake (+23%), inland marine (+29%) and casualty (+113%) the standout performers; fronting (-43%) was the only notable weak spot.

With new lines helping to diversify Palomar beyond the limited market for earthquake insurance (CA, WA and OR make up 75% of the market, and earthquake coverage is discretionary) it’s reasonable to expect GWP to keep growing at 20% or better.

The strong topline results helped push EPS to $1.87, well above consensus estimates of $1.58. Granted, there were a few significant adjustments (lower than expected taxes and prior catastrophe losses) that, when stripped out, implies a more normalized Q1 EPS of around $1.62. But a beat is a beat, and a little extra icing on the cake isn’t a bad thing, so long as you don’t come to expect it every quarter.

At the time of the earnings report, management boosted its full-year 2025 outlook modestly, pushing adjusted net income up by $6 - $8 million to a range of $186 - $200 million.

Just last week, on May 30, the company completed its reinsurance placement at favorable prices. Management said this should help drive earnings growth and, accordingly, raised full-year 2025 adjusted net income guidance by another $5 to $9 million, to a range of $195 million to $205 million

While there is certainly some room for catastrophe losses to grow, and we can’t predict the weather perfectly, it’s more than reasonable to think there’s ample room for Palomar to exceed expectations through the next three quarters.

Regarding PLMR stock, its action was totally acceptable, though not particularly notable, through much of 2024. But momentum has picked up since the fiscal Q3 2024 earnings report on February 12.

That event sent PLMR +15% to close at 125 the next day. The stock has pushed persistently higher to 170 since, steadily bouncing off its 25-day moving average line, with the exception of one quick dip to the 50-day around Liberation Day. BUY

Current Recommendations

Changes Since Last Week:

Penumbra (PEN) Moves from Buy to Sell

We maintain our de facto 21-stock cap on the Stock of the Week portfolio, as our pattern of one-in, one-out continues, with Penumbra (PEN) being this week’s odd man out. The stock simply hasn’t performed, so it gets a quick hook after just a month in the portfolio. The rest of our stocks are mostly in a holding pattern similar to the market the last couple weeks, but with several of them gaining traction (AEM, DASH and NFLX, to name a few). If the next big market move is to the upside, many of our stocks could get going again in a hurry. For now, here’s where things stand.

Updates

AbbVie (ABBV), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was flat this week on no major news. Healthcare stocks are starting to shake off the cobwebs after President Trump had set his sights on big pharma companies for jacking up drug prices and using so-called “middlemen.” Now that those headlines have mostly faded, healthcare-related stocks are no longer taking it on the chin. But they may need a catalyst to actually get going. So let’s keep holding ABBV until one emerges. HOLD

Agnico Eagle Mines (AEM), originally recommended by Carl Delfeld in his Cabot Explorer advisory, continued to rebound, up more than 2% this week as gold prices remain buoyant, and are back near their highs above $3,400 an ounce. As Carl noted in his latest update, “Gold has risen with inflation and uncertainty over tariffs and growth. Central bank purchases have been the primary factor driving up gold prices in recent years, but growing exchange-traded fund (ETF) holdings are fueling demand.” BUY

Airbus (EADSF), originally recommended by Carl Delfeld in his Cabot Explorer advisory, held firm this week as the company got some unflattering headlines about delivery delays and raccoons infiltrating one of their factories. Overall, though, the business is healthy, as the aircraft maker grew sales by 5.5% and earnings by 33% in its most recent quarter. We’d like to see more strength develop soon, otherwise we may have to reexamine our rating. For now, it’s still a Buy. BUY

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, pulled back from 25 to 23 on no news. The stock is up more than 9% year to date and 178% in the last year. It’s one of our best performers but is in a bit of a lull after reporting earnings last month. Its next satellite launch is set for July, and the company plans to build six new satellites a month starting next quarter, so look for the headlines – and potential stock catalysts – to start ramping up for this potentially revolutionary company that’s trying to build a worldwide straight-to-smartphone satellite-based internet service. BUY

Banco Santander (SAN), originally recommended by Carl Delfeld in his Cabot Explorer advisory, is holding at 8, taking a well-earned pause after running up 75% through the first five months of the year. The Spain-based bank announced the opening of its first Openbank location in the U.S., with a branch opening in Miami. Launched in 2017 in Europe and last October in the U.S., Openbank is a primarily digital banking option; this is its third physical location in the world. Since launching digitally in the U.S. last fall, Openbank has already brought in over 100,000 customers and $4 billion in deposits. The Openbank push comes at a time when Santander has been closing some of its physical branches, including 18 in the U.S. by the end of August and 95 in the U.K. by the end of June. Due to its digital component, Openbank has far less overhead than physical Santander locations. The company’s U.S. success with Openbank is one of the many reasons the stock has been on a tear of late. BUY

BYD Co. Ltd. (BYDDY), originally recommended by Carl Delfeld in his Cabot Explorer advisory, has run into a brick wall in the last 10 days, falling roughly 16% since notching new all-time highs above 118 on May 23. The reason behind the (over-)selling is two-fold: BYD announced up to 34% price cuts on 22 of its electric and plug-in models in China until the end of June after April sales rose “only” 21% – the company’s slowest monthly year-over-year growth since the pandemic. The second reason behind the sharp pullback is that China’s economy may be on the brink of deflation, as economists have lowered their estimates on Chinese consumer price growth to a mere 0.3% this year. Obviously the two headwinds the company is facing are interlinked, as BYD’s aggressive – albeit temporary – price cuts are partly contributing to deflation fears.

But I think the selling is overdone considering how well the carmaker’s transformation into a global brand is going—the company topped Tesla’s EV sales in Europe for the first time ever last month, for instance. Sales in Europe improved 169% year over year, with 7,231 battery electric vehicles registered; Tesla’s European sales slipped 49% last month. When you factor in BYD’s hybrid sales, its April haul in Europe was a whopping 359% higher than it was last April.

So while BYD may be dealing with a temporary slump in consumer spending at home – which coincided with peak angst over U.S.-China tariffs, I should note – its overseas sales are accelerating. The stock will be back. And to put things in perspective, it’s still up 44% year to date and nearly the same amount since we added it to the portfolio last December. I’d treat this sharp pullback as a buying opportunity in one of the global stock market’s great growth stories. BUY

Carnival Corp. (CCL), originally recommended by yours truly in my Cabot Value Investor advisory, has been in a holding pattern between 22 and 23 for the past three weeks after recovering nicely from a dip to 16 at the early-April market bottom. It trades well below its early-January highs of 28.

I recommended the stock because its sales are at record highs and have fully recovered from the damage Covid did to the cruise industry … but the share price has not. As long as the U.S. economy remains in reasonable shape, Carnival should continue to report record sales, and its share price should play catch-up and get back to pre-Covid levels. Shares have 21% upside to my 28 price target in Cabot Value Investor, which is already seeming too modest from a fundamental viewpoint. BUY

Coeur Mining (CDE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, had a nice debut week for us, leaping 7% to a new recovery high today. Coeur is a silver miner that’s a play on the out-of-whack gold-silver ratio potentially portending a big catch-up rally in silver stocks. Coeur is a mining company that explores gold, silver, zinc, and other related metals in the U.S., Canada, and Mexico. Also helping the bull case for Coeur: The company announced a buyback plan authorized by its board of directors, allowing the company to repurchase up to $75 million worth of shares through May 2026. BUY

DoorDash Inc. (DASH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, tacked on another 1.5% this week and is back flirting with its February highs after a massive pullback in March and April. The firm has been quiet on the news front since last month’s quarterly report, in which EPS of 44 cents easily topped estimates of 38 cents and was up from a net loss the previous year. Also, the company announced two big acquisitions worth roughly $5 billion. DoorDash is buying London-based Deliveroo for $3.9 billion, plus hospitality tech company SevenRooms, for $1.2 billion. The stock is now up 25% year to date, and our gains are now north of 60%. BUY

Dutch Bros (BROS), originally recommended by Carl Delfeld in his Cabot Explorer advisory, gave back another point this week, down from 70 to 69, and has lost a bit of momentum since getting back above 73 late last month. There’s been no news. The upstart drive-through coffee/beverage outfit could make headlines this week, however, as it presents at William Blair’s 45^th Annual Growth Stock conference in Chicago tomorrow (Tuesday), at TD Cowen’s 9^th Annual Future of the Consumer Conference in New York on Wednesday, and at Baird’s Global Consumer, Technology & Services Conference in New York on Thursday. If a catalyst is going to emerge to get BROS shares back on track after a fast start to the year (it’s still up 32% YTD), this might be the week. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, finally had a decent week, up more than 1.5%. In his latest update, Tom wrote, “Things are still great at the company, but the stock has been struggling. LLY has been on a downswing and has returned (-4%) YTD and (-10%) over the last year. Drugs are likely soon to be targeted for tariffs, and inputs for Lilly’s weight-loss drugs come from Ireland. However, the administration indicated that time would be given to relocate facilities to the U.S., and Lilly has already begun that process. Tariffs are unlikely to sting Lilly that much. There’s also the issue of ‘most favored nation’ drug pricing. But it’s unclear how that will work and how much other nations will reduce their prices.

“Lilly is still knocking the cover off the ball with huge demand for its weight-loss and other drugs. There is also likely approval for an oral version of the weight-loss drug later this year. But until there is more clarity on these issues, LLY is unlikely to generate lasting upside traction. That’s why it’s rated ‘HOLD’ for now. But the stock should soar on the other side of this uncertainty and make up for lost time.” Let’s keep our rating at Hold as well as we need to see more momentum. HOLD

Freshworks (FRSH), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, keeps running in place in the 14-16 range, where it’s been for the last month. There’s been no news. The last big bump in the stock price came after the April earnings report. Here’s what Tyler had to say about it in his latest issue: “Freshworks (FRSH) stock has pulled back over the last week as the rally in cloud software stocks has faded. The company has appeared to benefit from mid-market customers looking for robust but lower-priced services versus the bigger players, and here FRSH has delivered. The macro environment hasn’t been an issue for the company, at least not through mid-April. Keeping a close eye on this one as we’re down slightly and there’s not much momentum. I’m a little concerned we need another good quarterly report to really get FRSH going, and that means waiting until August. That all said, rates have jumped lately and, given the significance of that move, FRSH has held up relatively well.” Tyler is keeping the stock at Buy for now. Let’s do the same. BUY

Kenvue (KVUE), originally recommended by Clif Droke in his Cabot Turnaround Letter, is down slightly in the last week, but remains in the same 23-24.5 range it’s been in for the last month. The only news is that the company, a recent Johnson & Johnson spin-off, was named to the Fortune 500 list. This remains an all-weather stock that should hold up well even in a recession, and the 3.5% dividend yield helps. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, keeps holding in the mid-50s. In his latest update, Tom wrote, “The BDC reported basically solid earnings with higher net asset value (NAV) and higher distributable income. Although earnings slightly exceeded expectations, they were slightly lower than last year because of rising costs. The investment outlook is cautious because of rising expenses and tariff concerns, like most other companies. MAIN has delivered a solid return of 32% since being added to the portfolio in March of last year, which is more than double the S&P return over the same period.”

Shares are up about 23% in the 14 months since we added MAIN to the portfolio, but share price movement is essentially a bonus for this high-yield, monthly dividend-paying business development company. It currently yields 7.5%. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, keeps advancing to new all-time highs, if only slightly this week. The only real news was that Citigroup raised its price target on the stock from 1,020 to 1,250, though it did maintain a “Neutral” rating. That comes on the heels of JPMorgan and Canaccord Genuity raising their price targets. This remains one of the more reliable growth stocks out there, and it has now more than doubled in the 15 months since we added it to the portfolio. For those who haven’t yet bought the stock, I’d wait until the next dip of 3% to 5% (ballpark) to start a new position given the elevated share price. BUY

Penumbra (PEN), originally recommended by Mike Cintolo in his Cabot Top Ten Trader advisory, just keeps falling, and it’s time to get rid of it even after only a month in the portfolio. There’s been no news to prompt such a selloff, and the company could get a bounce this week after presenting at the William Blair Growth Stock Conference tomorrow. But I’m not going to hold and hope. A 12% pullback in a month is just not something I can abide in this portfolio, in this market. MOVE FROM BUY TO SELL

Planet Fitness (PLNT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is up from 103 to 104; a push above 105 resistance will tell us the stock is back for real. There was no news this week. Two weeks ago, Stifel raised its price target from 82 all the way to 120 and upgraded the stock from Hold to Buy. The analyst note highlighted the steady membership growth and long-term sales potential as reasons to be bullish on this low-priced fitness center chain. The analyst also likes that the company is raising prices on its Black Card Spa experience, which could juice comparable-store sales by about 3-4%. There’s a lot to like here, and the stock is off to a solid start for us. BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was down a tick this week as the stock hits the pause button after a blazing start to the year (+52%). The Singapore-based conglomerate is coming off another strong quarter in which it reported net income of $410.8 million compared with a year-earlier loss. Sales climbed 30% to $4.84 billion, roughly in line with estimates. EPS of 86 cents fell short of estimates but more than quadrupled the 21 cents it earned in the first quarter a year ago. Broken out by segment, Garena (gaming/entertainment) generated $495.6 million in revenue, up 8.2% year over year; Shopee (e-commerce) brought in $3.1 billion, up 28.7% year over year; and Monee (formerly SeaMoney, its fintech wing) generated $787 million, the fastest-growing segment at 57.6% growth. So the three-pronged Singapore-based conglomerate is seeing strong growth in all three segments. And for all its momentum, the stock still trades at less than half its 2021 highs. BUY

Stoxx Europe Total Market Aerospace & Defense (EUAD), originally recommended by Carl Delfeld in his Cabot Explorer advisory, held steady at 41 this week but is off to a fast start for us. This ETF, the only one in our mostly stock-centric portfolio (hence the name), is a play on the strength of European stocks and Europe’s increased focus on defense spending as its economy improves. European stocks are up more than 8% year to date, while U.S. stocks are basically flat. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, finally encountered some turbulence after a month of nothing but gains, giving back 6% this week. Overseas sales continued to crater after seeing a huge downturn in April. Sales in France plummeted 67% year over year in May, with the 721 cars sold there the lowest tally since July 2022. They are now down 47% year to date in France, the second-biggest electric vehicle market in the European Union. The German numbers for May are due out this Friday; April’s sales in Germany, the largest EU market, were not good. Still, the pullback in the share price was modest considering the 59% run-up in the five weeks prior. And now that CEO Elon Musk is doing a publicity tour assuring shareholders that he will be turning his full attention back to Tesla and his other companies, rather than performing his duties in President Trump’s cabinet, perhaps it will bring some much-needed stability, though it may do little to improve the company’s slumping sales until Musk fully distances himself from DOGE. HOLD

Toast Inc. (TOST), originally recommended by Mike Cintolo in his Cabot Growth Investor advisory, was unchanged at just under 43 this week. In his latest update, Mike wrote, “After a big earnings gap and upside follow through, TOST has pulled back three and a half points on low volume, which is normal to see—though, like many titles, now we’d like to see the post-earnings strength resume. The company has been quiet on the news front since the early-May earnings report, which revealed not just steady expansion among its core small- and mid-sized restaurant cohort, but increasing traction in other areas like enterprises (it inked its largest ever deal by hooking up with Applebee’s in Q1; it also signed up Topgolf), food/beverage retailers and international locations—all of which is keeping recurring revenue growth brisk and producing big gains in EBITDA and free cash flow. A drop into the upper 30s would be iffy and call into question whether TOST has really changed character after years of mostly choppy action. But right now, we’re holding what we have, and ideally shares can hold in here near-term and then thrust higher; such action would likely kick off a fresh upmove and have us filling out our position. Sit tight if you’re already in with a half-sized stake, and if not, we’re OK grabbing a few shares around here.” Good advice. 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. With Brad out this week, I welcomed on Cabot Turnaround Letter Chief Analyst Clif Droke to talk market, gold, silver and healthcare stocks.

The next Cabot Stock of the Week issue will be published on June 9, 2025.

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