Cabot Stock of the Week Issue: May 28, 2024

Note: I have added a new video Quick Start Guide to Cabot Stock of the Week, in which I take you on a guided video tour through the various features of this service, including Issues, Updates, & Alerts and where to email me with questions. Newer subscribers, in particular, may find it helpful. You can find the Quick Start Guide on the right rail of the Cabot Stock of the Week main screen.

Stocks have been running in place the last two weeks, which is no surprise given the run-up to new highs in the first half of May. With Memorial Day in the rear-view mirror, volumes may soon dry up as Wall Street takes its collective summer vacation. But not yet. Last year, in fact, June and July were two of the best months for stocks on the calendar, so it’s too early to be projecting true market malaise. Another breakout may be coming.

Today, however, I want to add a little bit of value as well, since good value is hard to come by with the market hovering near all-time highs. Since taking over our Cabot Value Investor advisory from Bruce Kaser in early April, I’ve made it my mission to find growth stocks trading at value prices, since traditional value stocks have been underperforming for more than a decade now. Earlier this month, I identified a big-name, large-cap stock that checks both boxes. And today, with the market in a holding pattern, I’d like to add it to the Stock of the Week portfolio.

Here it is, with my latest thoughts.

United Airlines (UAL)

People are flying in planes again.

That would have been a weird sentence to type about five years ago. Then Covid happened, and for about two years, people around the world were afraid to travel – and particularly reluctant to travel in tight quarters for hours on end with little ventilation. So, the airlines suffered – all airlines.

In 2019, passenger numbers on U.S. airlines reached a record 926 million. In 2020, the number nose-dived to 371 million. It nearly doubled to 666 million in 2021, but that was still the second-lowest tally this century. But by 2022, passenger numbers had returned to “normal,” pre-Covid numbers: 852 million that year, 863 million last year. The number is expected to swell again this year, with Airlines for America projecting record early-spring (March-April) traveler numbers of 167 million, a 6% increase from the 157 million who traveled on U.S. airlines last March and April.

Internationally, the numbers are even more impressive. Global passenger numbers are expected to reach 4.7 billion this year, topping the 2019 record of 4.5 billion, according to the International Air Transport Association. That would mean a 7.6% bump in total revenues to $964 billion – also a record.

United Airlines is the fastest-growing major U.S. airline. The third-largest airline carrier in the world by revenues behind Delta (DAL) and American (AAL), United is expected to grow sales by 7.4% in 2024 – more than its two larger competitors – and that’s with revenues already topping a record $50 billion in 2023 – 19.6% higher than in 2022, which was also a record year. For United, business has not only returned to pre-pandemic levels; it’s better.

Meanwhile, the stock is cheap. It trades at a mere 5x forward earnings estimates, with a price-to-sales ratio of just 0.31 and a price-to-book value of 1.85. The stock peaked at 96 a share in November 2018; it currently trades at 51 per share. And yet, the stock is having a good year, up 25%. In the last week, however, UAL shares have pulled back from 2024 highs above 54, giving us an even better entry point.

A company that’s making more money than ever before (gross profits reached a record $15.2 billion last year, though earnings were still second to 2019 levels on a per-share basis), and yet its stock trades at barely more than half its peak from five and a half years ago. That’s the definition of growth at a value price.

Let’s step in here, with a price target of 70 – 37% higher than the current share price. BUY

Current Recommendations

Changes Since Last Week:
DraftKings (DKNG) Moves from Buy to Sell
Green Thumb Industries (GTBIF) Moves from Buy to Hold

We swap in United Airlines (UAL) for DraftKings (DKNG), which has been a very strong performer for us but has totally collapsed in the last two weeks, with a hefty 140% tax increase on sports betting apps by the state of Illinois sending the DKNG selling into hyper-drive today. So, we exit with a solid (25%-ish) return, and make room for an opportunity with more momentum down the road.

Most of our remaining holdings are acting well, with several still hovering near all-time highs. Here’s what’s happening with all our stocks.

Updates

Alamos Gold Inc. (AGI), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, pulled back a bit after touching new decade highs above 17. The pullback was in tandem with the 4% retreat in gold prices after they had touched new all-time highs a week ago. The stock is still up 23% year to date, and we have a nice gain since adding it to the portfolio a month ago. As long as gold prices remain elevated, so will AGI. BUY

Alexandria Real Estate Equities, Inc. (ARE), originally recommended by Tom Hutchinson in the Safe Income Tier of his Cabot Dividend Investor advisory, was flat after a nice bump the week before. In his latest update, Tom wrote, “After bouncing around with the interest rate narrative for the past few years, this one-of-a-kind life science property REIT is having a good month in May. It’s up 7% so far and may be approaching the 52-week high if the good vibes last a little longer. The REIT also reported strong earnings earlier this month that beat expectations. Adjusted funds from operation grew at 7.3% over last year’s quarter and raised the quarterly dividend by 5%. ARE is a great income stock selling at the low end of historical valuations while the company is consistently growing revenues and profits from its niche properties.” HOLD

American Eagle Outfitters, Inc. (AEO), originally recommended by Mike Cintolo in Cabot Top Ten Trader, keeps holding in the 23-24 range, with 25 acting as overhead resistance in the last month-plus. The recent dip in consumer sentiment/confidence may also be limiting the stock somewhat. Still, we have a 35% gain in just over six months. And earnings are due out tomorrow, May 29, which could snap AEO shares out of their current slumber. Keep new buys small ahead of the announcement. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, is having a very good May, recovering nearly all of its April losses. After bottoming at 11.44 in mid-April, the stock is up more than a dollar. The number to keep an eye on is 12.7, AVVIY’s high point in late March. A move above that level would be quite bullish. Shares of this U.K.-based life insurance and investment management firm still have 12% upside to our 14 price target. The 6.7% dividend yield makes it even more attractive. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has pulled back sharply as the market has stagnated in the last two weeks, falling from 131 to 123. BX is a Bull Market Stock (Mike’s term), which means it tends to outperform the market when times are good. It’s still a bull market, but stocks have encountered some more turbulence of late after a stellar start to May, and so BX is in a bit of a lull. The bull market is far from over, and BX shares will be back. This dip looks quite buyable if you don’t already own the stock. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, has been hovering around 1,400 the last couple weeks after cresting at 1,436 in mid-May. It got a bit of a boost from Nvidia’s earnings last Wednesday, as Broadcom’s recent success – like Nvidia’s – has been predicated on its new artificial intelligence offerings. Broadcom itself reports on June 12. AVGO shares are up nearly 60% since we added it to the portfolio. BUY

Cava Group (CAVA), originally recommended by Mike Cintolo in Cabot Growth Investor, just keeps rising, advancing from 79 to 85 this week ahead of today’s after-market-close earnings report. In his latest update, Mike wrote, “Cava (CAVA) had a big push higher as soon as the pressure came off the market, with many of its cookie-cutter restaurant peers perking up as well during the past couple of weeks. But CAVA’s big tell will come next week, with the quarterly report due next Tuesday, May 28—analysts are looking for earnings of five cents per share (up from a two-cent loss last year) and sales of $245 million (up 21%). Long term, we’re as optimistic as ever, partly because of the brainpower here—the Chairman of the Board was the founder and former CEO of Panera when it grew rapidly for more than a decade, so the ins and outs of growing the outfit to many-fold its current size aren’t a mystery. As always, though, we’ll just go with the evidence in front of us: Right now, CAVA acts fine, so we’ll stay on Buy, though keep any new positions small this close to the report.” That’s especially true now that the report is just a couple hours away. BUY

Core & Main (CNM), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has sagged back to 59 after touching 62 two weeks ago. There was no news. There’s nothing exciting about this boring maker of pipes and valves for things like wastewater and storm drains, but it’s a solid infrastructure play with plenty of momentum. BUY

CrowdStrike (CRWD), originally recommended by Mike Cintolo in Cabot Growth Investor, was mostly unchanged after advancing to new all-time highs the week before. Here are Mike’s latest thoughts: “CrowdStrike (CRWD) has notched new closing highs a few times in recent sessions, which is obviously a good thing, especially in the wake of a poor quarterly report from peer Palo Alto Networks. We would point out that the relative performance (RP) line is a bit short as shares test round-number resistance near 350, and given the sell-on-strength vibe out there and the fact that earnings are due soon (June 4), some sort of pullback wouldn’t surprise us near term. If you own some, hang on, and new buyers should consider keeping it small and/or aiming for dips.” Good advice. HOLD

DraftKings (DKNG), originally recommended by Mike Cintolo in Cabot Growth Investor, is imploding today, falling 10% after Illinois raised its sports betting tax by 140%. It’s just one state, and the sports betting app is in many others, but it’s a big state, could set a precedent for other states and – importantly – the stock has fallen well below support, dipping to its lowest level since January. Let’s step aside here. DKNG has been a very good stock for us, up more than 25% since we added it to the portfolio last August, but momentum has clearly turned against it, and there’s no sign of a bottom. In a crowded portfolio with many other positions excelling, it’s not worth holding and hoping. Let’s sell, book the profits, and make room for another opportunity down the road. MOVE FROM BUY TO SELL

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, is up another 2.5% since we last wrote to reach new all-time highs yet again! Here’s what Tom had to say about it: “This superstar pharmaceutical company stock hit a new all-time high this week. But LLY has leveled off since the middle of February. Lilly significantly raised guidance for this year in the earnings report. The main reason is that its weight loss drug revenues obliterated forecasts for the quarter. The company is also aggressively expanding production for future quarters and raised its 2024 revenue projections by $2 billion. The weight loss drug is a monster and looks like a mega-blockbuster and the Alzheimer’s drug should get the FDA nod in the next few months.” With a gain north of 140% on LLY, as I wrote last week, if you have not yet booked profits by selling a few shares (a quarter to a third of your original position), I recommend doing so now and letting the rest ride. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up another 1.5% to reach new all-time highs again! The stock has been on a tear in the last six months, advancing 45%. Here’s Tyler on why: “GoDaddy (GDDY) delivered another solid quarter and remains a behind-the-scenes AI play given its role helping companies and creators build and maintain websites. The new AI-powered Airo solution is off to a good start and represents the next potential growth engine for the company.” BUY

Green Thumb Industries Inc. (GTBIF), originally recommended by Michael Brush in Cabot Cannabis Investor, has imploded with the rest of the cannabis sector yet again. Frankly, I’m growing pretty weary of the marijuana sector, which has loads of promise but the stocks still trade well below early-2021 peaks. We’re back to about break-even on this leading cannabis company, with shares up against their mid-March lows. If they fall below 11, we’ll bail. BUT … the pattern with cannabis stocks in the last six months or so has been, every time they collapse and you’re ready to give up on them, they come roaring back based on some morsel of good news (usually related to rescheduling, and that process has now commenced). So, we’ll hang on for another week and see what happens, but let’s downgrade to Hold until the stock can prove itself for more than a week or two. MOVE FROM BUY TO HOLD

Honda Motor Co. (HMC), originally recommended by yours truly in the Growth & Income Portfolio of Cabot Value Investor, was down about 1.75% since we last wrote. There’s been no news. Honda reported another strong, hybrid-growth-fueled quarter a few weeks ago, but so far the stock doesn’t have much to show for it – a common theme this earnings season. Thanks in part to a weak yen, the Japanese automaker saw a 77% increase in its operating profits in the most recent quarter, on a 21% improvement in sales. Hybrid sales were the real star, helping Honda sell 3 million cars globally, up from 2.3 million in the same quarter a year ago.

“Hybrids are our weapon,” CEO Toshihiro Mibe said.

So the company is leaning into deploying its new “weapon,” with plans to produce 2 million hybrids by 2030; an $11 billion investment in a new EV and EV battery plant in Canada should help both with hybrids and electric vehicles – an area in which Honda continues to lag behind other major automakers (the Honda Prologue is the only fully electric vehicle it sells in the U.S.). Meanwhile, the company is using its excess profits to ramp up stock buybacks. Add it all up, and there’s a lot to be encouraged about, and I believe investors will soon catch on, even if they haven’t done so since the report.

HMC shares have 35% upside to our 45 price target. They remain dirt-cheap, trading at less than 8x earnings and just 0.42x sales. BUY

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, held serve at 400, even stretching to new all-time highs above 404 to close last week before pulling back this morning. There was no news. The recent action has been impressive considering how stagnant the market has been the last two weeks. The maker of the da Vinci robotic surgical system is coming off a strong earnings report in late April and received approval for its new da Vinci 5 system in March. Though full-scale launch won’t come until possibly next year, it’s a potential game changer for the company, and investors have taken notice, pushing ISRG shares up 27% in the last six months. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, was flat this week, though it did dip below 48 at one point. The stock has fallen off a bit since reporting strong earnings a month ago, though the damage has been fairly limited considering shares were at new highs just after the report. The trade-off for the recent stagnation is that this business development company pays a very generous monthly dividend (current yield: 8.3%), which it just raised again. So, the stock bears fruit even when its share price is sluggish. BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, is back to all-time highs around 430! The big driver of shares was the success of Nvidia’s earnings report, which bodes well for Microsoft, since it is essentially the co-leader with Nvidia in the AI space. Our gain in this resurgent mega-cap stalwart is now 70%. As one of the more resilient growth titles on the market that keeps reinventing itself, this is a long-term buy-and-hold for any portfolio. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, is acting similarly to MSFT, steadily recovering from an April dip and clawing its back toward early-spring highs – and then some. At 646, NFLX is at its highest point since 2021. Evercore ISI analyst Mark Mahaney reiterated his “Outperform” rating on the stock after encouraging survey results from U.S. and U.K. subscribers. Mahaney upped his price target from 650 to 700. The analyst said in a client note, “Netflix is in the strongest position financially, fundamentally and competitively that we have ever seen. And we see with live events and gaming two very promising long-term greenfield revenue opportunities. And of course, ‘Squid Games 2' is coming soon!” There’s a lot to like here, and even at three-year highs, NFLX stock still has plenty of upside in our view. BUY

Novo Nordisk (NVO), originally recommended by Carl Delfeld in Cabot Explorer, added another couple points this week after breaking out of its 122-to-129 range. In his latest update, Carl wrote, “Novo Nordisk (NVO) shares had a bit of a volatile week after Hims & Hers Health (HIMS) announced a plan to sell legal copies of Novo Nordisk weight-loss drug Wegovy. On the good news front, last week a study found Novo Nordisk’s blockbuster obesity drug cut patients’ risk of heart attacks and strokes. Morgan Stanley researchers last year projected that over the next 10 years, 7% of the U.S. population could be taking these medications.” NVO and LLY are core holdings in our portfolio and have been two of our best performers. They will remain in the portfolio as long as the weight-loss drug boom continues. BUY

Nutanix (NTNX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, held firm at 72 after a big (9%) run-up the week before. Earnings are due out tomorrow, May 29. Here are Mike’s latest thoughts: “Nutanix (NTNX) has had a great run to new highs of late and continues to hold near virgin turf. The firm did drum up a little excitement on the news wires this week, collaborating with Nvidia to integrate that firm’s chips into an offering that should allow more enterprises to hop on the AI bandwagon. Like many names in the portfolio, next week will be key, with earnings due next Wednesday (May 29)—Wall Street sees sales of $516 million (up 15%) and continued strong earnings growth. As always, we’ll see what the report brings—right here, we’ll stay on Buy, but new buyers should keep things small and/or look for dips this close to the report.” Good advice. BUY

PulteGroup, Inc. (PHM), originally recommended by Mike Cintolo in Cabot Growth Investor, had a rough week, falling nearly 5% after getting a nice bump the week before. Here’s Mike: “We wrote in last week’s issue that PulteGroup (PHM) was positive but likely to be news-driven, and we saw that yesterday—not because of any big move in interest rates, but because of a poor reaction from peer Toll Brothers (TOL), which got walloped despite very solid earnings and orders figures. And then today Treasury rates again gained ground (up five to 10 basis points, depending on what bond you’re looking at), which kept a lid on the group. Stepping back, the recent slide itself isn’t abnormal, but it is an expectation breaker of sorts: Despite interest rates being much lower than their mid-April peak, homebuilders weren’t able to get going, and the group (and PHM) haven’t been outperforming the market for a while, either. We hate to flip-flop on our ratings, but we’re going to go back to Hold and use a stop in the mid-to-upper 100s.” With a decent gain on the stock, we’ll keep PHM at Buy for now. But a decisive dip below the 50-day line (where it’s roughly holding now), could have us downgrading to Hold as well. BUY

Qualcomm, Inc. (QCOM), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, is headed to the moon! The stock has been hitting new 52-week highs all month, and has broken to new all-time highs in the last couple weeks, up another 9% in the last week. Why the strength? Here’s what Tom had to say about it: “The mobile device chip maker has gotten sizzling hot. QCOM is up over 28% since late April. Qualcomm reported earnings that beat estimates and the company raised earnings guidance for 2024. But the real excitement is the growing talk about artificial intelligence coming to smartphones and Qualcomm as a major beneficiary of the upgrade cycle. It has been a while since phones had a significant upgrade and sales growth has been dwindling. But more analysts are contending that an AI-driven super cycle is coming soon. Qualcomm is at the leading edge of chips that enable AI for smartphones and PCs and should benefit mightily if such a cycle comes to fruition.” We now have a 43% gain on QCOM in just three and a half months – not counting the 1.6% dividend yield. BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, got knocked back from 73 to 68 this week after the Indonesian government launched an antitrust probe into Sea’s Shopee e-commerce business. The company unfairly favored its own delivery service for orders placed on Shopee, regulators say. Sea will respond to the allegations at a hearing on June 11. To me, this screams “buy on bad news.” I doubt the probe will affect the company much, even if it is found guilty of violating antitrust laws, though it is possible such a ruling might affect its newly announced “on-time guarantee” that helped it deliver 70% of packages within three days in Southeast Asia. But there’s so much to like about this Singapore-based company to sweat the ongoing probe. Its digital entertainment business, Garena, returned to growth last year, and Shopee now features the largest live-streaming e-commerce platform in Indonesia. SE is a play on Southeast Asian economic growth, and the stock was formerly a 10-bagger for Carl and his subscribers in 2019-2021. Shares nose-dived from there (from 357 to as low as 35, gulp), but have clearly rediscovered their footing, up 70% year to date. Plenty more potential upside ahead, and I think today’s news-driven pullback will be little more than a speed bump. I’d buy the dip. BUY

Super Micro Computer (SMCI), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was down about 1% in its first week in the portfolio. That’s not wholly unexpected: the AI-driven company was up 16% the week prior. Thanks to artificial intelligence, the company is expected to improve revenue by 122% to $20.6 billion this year. It’s tethered to Nvidia’s success more than most AI plays: business includes turning Nvidia’s graphics processing units (GPUs) into ready-to-use computer servers for clients. Some analysts project that the AI chip market will go from $30 billion in 2023 to a $45 billion market in 2024, then grow to a stunning $400 billion market by 2027. About half of those chips will be in AI servers, which means Super Micro will have a lot of room to grow if it executes well. Super Micro has also developed proprietary liquid cooling systems that will be needed in more servers going forward in the AI age.

Shares have already more than tripled this year, but trade well below their March highs. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, keeps hovering in its newfound comfort zone in the 170s. The only real news is that proxy advisory firm Glass Lewis is advising TSLA shareholders to reject CEO Elon Musk’s proposed $56 billion pay package – the largest for a CEO in American history, if approved. A Delaware court had previously rejected the excessive pay package, prompting Musk to try and move Tesla’s state of corporation from Delaware to Texas. It’s an interesting little soap opera, but I doubt the outcome will have much of an effect on Tesla the company or TSLA stock. So, we wait for a real catalyst, which likely won’t come until people see that sales and margins have improved after three straight quarters of disappointing revenues and shrinking margins. On the bright side, it’s possible a low in the stock (142) was put in about a month ago. Keeping at Hold until TSLA can rediscover its mojo. HOLD

Uber Technologies (UBER), originally recommended by Mike Cintolo in Cabot Growth Investor, fell another two points, to 63, and is now down 22% from its February highs above 81, with no bottom in sight. Fortunately, the stock had already more than doubled since our February 2023 recommendation, so unless you bought it in the last few months, you’ve likely made money. What to do? We recently downgraded the stock to Hold, and will keep it right there. But a dip below the 200-day line (60-61 range) will likely prompt a Sell. But this stock needs to find a bottom fast. HOLD

UnitedHealth Group Inc (UNH), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, had a down week, falling more than 3%. There was no news, and thus no reason for the pullback other than general market malaise. Overall, this mega-cap health insurance stock looks healthy, with shares well above their early-April lows. 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. Last week, with Brad on vacation, Tyler Laundon of Cabot Early Opportunities fame joined me to share his thoughts on the state of small-cap stocks, his biggest takeaway from Nvidia’s earnings call, the Fed’s real plan with interest rates, and other topics.

The next Cabot Stock of the Week issue will be published on June 3, 2024.

Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.