Cabot Stock of the Week Issue: November 20, 2023

There is a lot to be thankful for in the market this Thanksgiving Week!

After a rough three months, stocks are in the midst of a torrid November, with the S&P 500 up more than 8% this month. More importantly, it’s not just a mega-cap tech stock-driven mirage – the Equal Weight Index is up 7% this month and has just poked above the all-important 200-day moving average. The inclusive nature of this rally continues to be reflected in the Stock of the Week portfolio, where seven of our stocks are trading at either all-time or 52-week highs as of this writing.

Today, we add another big tech name, but one that was hated entering 2023. All it’s done since is rise 68% year to date as the company is resurgent, investing a record $27 billion in new products this year. The company also pays a dividend, which is why it’s been in the portfolio of Tom Hutchinson’s Cabot Dividend Investor for quite some time.

Here it is, with Tom’s latest thoughts.

Intel Corporation (INTC)

Intel is an icon of the technology revolution. The company makes chips or processors that are essentially the brains of the computer. It is one of the largest semiconductor companies in the world with about $53 billion in annual revenue and holds by far the largest market share of the PC and server processor markets.

But INTC has been a dog for a long time.

The stock performance has lagged the technology sector and the overall market badly. Over the last five years, the benchmark Vanguard Information Technology ETF (VGT) has returned 172% and the S&P is up 82% while INTC has only managed a 4.62% total return over the same period. And the numbers are only that good because INTC has moved a lot higher lately.

INTC hit a high of 65 per share in March of 2021 and then fell 60% to 25 by February of 2023. Intel was among the tech-sector superstars for 30 years. What happened?

Technology is a tough business, even for the big boys. If you miss a trend, you can be thrust into a hole that it takes years to work out of. That’s what happened to Intel.

Intel missed the boat on smartphone chips. Competitors cornered that market and Intel was never able to break in. At the same time, the PC market, in which Intel is dominant, has been shrinking every year. The chipmaker has been losing ground to the competition, mainly Advanced Micro Devices (AMD) and Nvidia (NVDA). These emboldened competitors also cornered new markets as Intel struggled. And there was more bad news.

The miss on smartphone chips seemed to send the company spiraling in the wrong direction. It prompted a series of additional missteps.

Last year, Intel announced that production problems would delay the rollout of its next generation of chips due to problems in the manufacturing process. The missteps and shrinking PC market caused company revenues to plunge from $79 billion in 2021 to current trailing 12-month revenue of about $53 billion. Intel also slashed its dividend last year, probably because there wasn’t much downside left in the stock and it wanted to save money for its ambitious plans.

Intel was down, but not out. It still has serious chops in the chip business. And a laser focus on the future is turning the stock around.

Intel is focusing on the future by investing a record $27 billion on new products, compared to capital expenditures of $18.7 billion last year and $14.3 billion in 2021. It has already developed superior chips in the profitable gaming and data center CPU markets and plans to aggressively compete.

Things have been improving for the company and stock of late. Earlier this year, Intel released its new CPU chip for data centers. The release was sooner than expected and did a lot to quell talk of lingering production problems at the company. It also provided more optimism about future chip releases.

The company is returning to profitability and there is growing optimism going forward as its ambitious plans come to fruition. Investors are increasingly optimistic about the future. INTC stock is up more than 12% in the last week, 22% in the last month, 35% in the past three months, and over 68% YTD.

The stock soared nearly 7% on one day last week after it was upgraded by Japanese investment firm Mizuho Securities. The upgrade cited prospects of increased revenue from forthcoming chips and new production facilities. Intel is set to unveil new data center and artificial intelligence chips in 2024 which the analyst expects to be one of the most “prolific product launches in years.”

We’ll see if Intel can slay the competition with its new plan and its new chips. But recent launches are encouraging, and AI should add another growth catalyst in the future. Intel is cheap and now has strong momentum.

Current Recommendations

Changes Since Last Week:

Aviva (AVVIY) Moves from Hold to Buy
Blackstone Inc. (BX) Moves from Hold to Buy

The only changes this week are good ones: AVVIY and BX both get upgrades to Buy after demonstrating sustained momentum in recent weeks. With the addition of INTC, we’re now up to 22 stocks, matching our highs for the portfolio – a reflection of the strength in the market, and in our recommendations, where a third of the existing holdings are hitting new highs.

Here’s what’s happening with all our stocks as we start the holiday-shortened week. Happy Thanksgiving!

Updates

Alibaba (BABA), originally recommended by Carl Delfeld in his Cabot Explorer advisory, semi-imploded after reporting earnings, falling from November highs above 87 all the way to 78 as of this writing. What went wrong? A few things: Revenue, while up 9% year over year, fell just shy of analyst estimates and was down from 14% growth in the previous (fiscal 2024 Q1) quarter. Perhaps most concerningly, Alibaba’s Taobao and Tmall e-commerce businesses slowed to 4% growth, at a time when fast-charging rival Pinduoduo managed 66% revenue growth for the quarter. The other news item that Wall Street didn’t like is that Alibaba no longer plans to spin off its cloud division into an IPO, due to what Chairman Joe Tsai characterized as “uncertainties created by recent U.S. export restrictions on advanced computing chips.” Put it all together, and BABA stock had a bad week – though it’s notably off less than 5% since last week’s issue. Let’s see how the stock responds the next week or two, and whether the selling was overdone, before making any big decisions on BABA. Keeping at Buy for now. BUY

American Eagle Outfitters, Inc. (AEO), originally recommended by Mike Cintolo in Cabot Top Ten Trader, spiked higher ahead of earnings tomorrow (November 21). Up nearly 9% in the last week, AEO is now at new 52-week highs in the high 19s. Analysts are looking for 14.2% EPS growth for the quarter; last quarter, American Eagle beat EPS estimates by 56%. Perhaps another big beat is in the offing, and that’s why Wall Street has been snatching up shares ahead of the report. We’ll find out Tuesday. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, reported revenues (not earnings yet) last Thursday and they were good enough for shares to get a 4% bump, pushing the stock to its highest point since March as of this writing. Shares still have 30% upside to Bruce’s 14 price target. With the stock breaking above eight-month resistance, let’s upgrade to Buy. MOVE FROM HOLD TO BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is acting like a true Bull Market Stock: The market is up sharply in November, and BX shares have raced even higher. BX is up more than 14% this month; the S&P is up roughly 8%. That’s precisely why we have Blackstone in the portfolio. Last week, I wrote that a move above the 50-day line around 103 would prompt us to move BX back to Buy. It’s now at 105, so let’s do just that. MOVE FROM HOLD TO BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, keeps hitting new all-time highs! Here’s what Tom had to say about it in his latest update: “Wow. The artificial intelligence juggernaut has reignited. AVGO has soared over 16% in the past two weeks to a new all-time high and is up nearly 75% YTD. There isn’t really individual company news driving the move and it doesn’t report earnings until next month. Technology stocks have rallied strongly this month as interest rates have moved lower. It seems like a case of AVGO having been held back by the tough environment for tech stocks and being unleashed again.” BUY

BYD (BYDDY), originally recommended by Carl Delfeld in his Cabot Explorer advisory, keeps meeting resistance in the 63-64 range, but the lows also keep getting higher – 55 in August, 59 in October, 61 two weeks ago. BYDDY’s stubborn refusal to break above that 64 top even amidst the market’s three-week run-up has been a bit frustrating given the company’s incredible momentum (though shares are up from 61 to start the month). But that’s likely due more to an absence of new catalysts – the company reported its Tesla-beating Q3 results in October – than any underlying problems with the company. So, it’s still a Buy, and I have faith that it breaks above 64 soon – and has long-term potential that goes well beyond that. BUY

Comcast Corporation (CMCSA), originally recommended by Bruce Kaser in the Growth & Income Portfolio of his Cabot Value Investor advisory, has been between 41 and 43 all month. Not much to report. We still have a solid 33% gain on the stock in just over a year, not including the 2.7% dividend yield, and this remains a steady outperformer despite this month’s neutral performance. BUY

CrowdStrike (CRWD), originally recommended by Mike Cintolo in Cabot Growth Investor, keeps hitting new 52-week highs! In his latest update, Mike wrote, “CrowdStrike will report earnings on November 28, the week after Thanksgiving, which will probably tell us about the stock into year’s end. That said, to this point, the action has been pristine, with shares marching over 200 as investors see not just rapid but increasingly profitable growth (earnings and free cash flow) for years to come. We still have just a half-sized stake, and while we’re not expecting any big correction (if the market rally is the real deal, the leaders may not let many people in for a few weeks), but with the stock temporarily sticking straight up in the air (17% above its 50-day line) and with earnings coming up, we’ll continue to hold off adding more for now. If you don’t own any, try to start a position on a retreat of a few points.” Sage advice from one of the best in the business. BUY

DraftKings (DNKG), originally recommended by Mike Cintolo in Cabot Growth Investor, is in the midst of a great November, tacking on another 8.5% in the last week to reach new 52-week highs. In his update last Thursday, Mike wrote, “DraftKings hosted an Analyst Day on Tuesday of this week, and basically all the news was good in terms of financial projections, market size and even new initiatives. The firm now sees the total opportunity for online sports betting and iGaming (online casino) of $30 billion in 2028 (up from $20 billion this year) in states that have legalized gambling, with potential upside of course as more states give the thumbs up. As for DraftKings itself, its share continues to grow and accelerate (33% for sports betting and iGaming combined), while new users are turning profitable more quickly (five-quarter payback on average for those in states that approved gambling in 2022 and 2023) as handle is increasing and marketing spend is fading. All in all, the firm sees EBITDA lifting from around $400 million next year to $1.4 billion in 2026 and $2.1 billion in 2028—while longer-term forecasts are obviously guesses, the company has had a great history of topping its outlooks for a while now. Indeed, some analysts see some of the embedded assumptions here as conservative (its hold rate should get a boost from new offerings, such as its progressive parlay), which means further beat-and-raise quarters are likely. We filled out our position last week and DKNG remains super strong. Hold on if you’re in, if not, you can buy a small position here or (preferably) on dips of a couple of points.” We now have a 34% gain on this stock in three months. BUY

Dynatrace (DT), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up another 3% on no news. We now have an 11% gain on this mid-cap provider of application performance monitoring software that grew revenues by 26% and EPS by 40% in the latest quarter. BUY

Elastic N.V. (ESTC), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up another 3% on no major news. The company will report earnings on November 30. Elastic is essentially Google for large companies, a search company that develops SaaS solutions for enterprise search, logging, security, observability, monitoring, and analytics use cases. The stock trades at less than half its late-2021 highs (182) despite the recent run-up. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was down for the first time in a while last week, albeit marginally (less than 2%). Still, the news of late has been overwhelmingly positive for this big pharma stock, as Tom wrote last week: “Big news. One of Lilly’s potential mega-blockbuster drugs up for FDA approval received it last week. Mounjaro, its diabetes drug, has been approved for weight loss. Some estimate this could potentially be a $20 billion per year drug. But the stock only moved a little bit higher on the announcement. The approval appears to have already been priced in. Investors are unlikely to sour on LLY because it has another potential mega-blockbuster drug for Alzheimer’s up for FDA approval in the next few months and stellar earnings growth for the next several years.” LLY remains our best-performing stock this year, with gains north of 80%. HOLD

Krystal Biotech (KRYS), originally recommended by Tyler Laundon in Cabot Early Opportunities, has been steadily digging out from the hole created by its mysterious post-earnings sell-off when shares plummeted from 122 to as low as 96. The stock has just nosed above its 200-day moving average, which bodes well. There was no obvious reason for the blowup: Sales came in well ahead of expectations ($8.6 million vs. a $6.4 million consensus estimate). Research and development expenses narrowed (to $10.6 million from $11.4 million in Q3 a year ago). And net income was +$80.7 million – a vast improvement from a loss of $30 million a year ago. So, I merely downgraded KRYS to Hold with the expectation that it would bounce back. It has. And with no news since the earnings report, it appears Wall Street is seeing the error of its ways. Keeping at Hold until we see more though. HOLD

McKesson Corporation (MCK), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, fell sharply (more than 4%) on no news, though the stock was trading at new all-time highs before the pullback, so there’s no cause for concern. The company is coming off a fiscal 2024 second quarter in which revenues improved 10% year over year, EPS jumped 3% and it raised earnings guidance for the full year. A lot to like here, and this dip looks like a buying opportunity. BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up near fresh all-time highs on the headline-grabbing news that it has hired just-ousted OpenAI CEO Sam Altman to its executive staff in an effort to further boost its already-thriving artificial intelligence business. The move itself isn’t likely to boost MSFT shares for more than a day or two, but the addition of Altman and some of his former OpenAI staff members, including cofounder Greg Brockman, should only enhance Microsoft’s AI brain trust. We now have a 48% gain on the stock in just over eight months. BUY

Novo Nordisk (NVO), originally recommended by Carl Delfeld in Cabot Explorer, just broke to 103, which would be a new all-time closing high if it holds. There was no news. Shares of this Danish maker of breakthrough diabetes/weight loss drugs Ozempic and Wegovy have gotten an extra boost since reporting strong earnings earlier this month. Revenues improved 29% year over year, with Ozempic sales jumping 56%. Wegovy did only about half the sales Ozempic did in Q3 ($900 million to $2.1 billion) but is expanding at a much more rapid clip, up from a mere $100 million in the third quarter a year ago. With both drugs growing at a fevered pace, the company raised its full-year sales growth outlook to a range of 32% to 38%. We now have a 54% gain on the stock. BUY

Nutanix (NTNX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has recovered all of its late-October losses, and is just off of 52-week highs. In his latest update, Mike wrote, “We started a half-sized position in NTNX two weeks ago, and we filled out that position earlier this week as the stock acts properly. Obviously, we’re willing to change our mind if something goes awry—a drop below the October low (and 50-day line) near 34 would be very iffy, but while some near-term wobbles are possible, the main trend here is up. Earnings are due November 29, which will be key, but we’re thinking the solid story, free cash flow story and powerful breakout in September (along with a healthier market) should lead to good things.” BUY

Pinterest (PINS), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up to 32 from 31 in its first week in the portfolio. There was no news. Pinterest is a visually driven social media platform, in which users (called Pinners) find, post and share visual images, called pins. The fundamental driver of any social media business is its user base, which for Pinterest continues to show solid growth trends. In the latest quarter, reported last week, the company reported global monthly average users of 482 million (most are international, with “only” 96 million in the U.S.), up 37 million from a year ago and well ahead of expectations. That expansion reflected itself in better-than-expected financials, too, with sales handily coming in over consensus at $763 million and earnings per share at $0.28 (vs. 21-cent expectations). BUY

ServiceNow (NOW), originally recommended by Mike Cintolo in his Cabot Top Ten Trader advisory, was up another 3.8% to hit new 52-week highs! There was no major news. Shares are likely still riding the wave of the company’s strong third-quarter report, which came out in late October. In the quarter, revenue climbed 25% (to $2.29 billion) while earnings jumped 49% year over year to $2.92 per share. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up another 4.5% this past week, continuing its November recovery after a semi-disastrous third-quarter earnings report in late October. One potential threat to TSLA’s recent momentum is a familiar one: CEO Elon Musk’s words. Musk is catching heat for his backing of an antisemitic claim on X (formerly Twitter), which has prompted several big-name companies to boycott the social media platform. Granted, that has nothing to do with Tesla, other than the fact that Musk also owns Tesla. But it’s something to keep an eye on – especially as some Tesla owners are reportedly considering ditching the brand over Musk’s latest inflammatory comments. Some good news from Tesla itself would help. For now, shares have been little affected. HOLD

Uber (UBER), originally recommended by Mike Cintolo in Cabot Growth Investor, was up another 5% this week to hit new 52-week highs! In his latest update, Mike wrote, “UBER remains very powerful, with the snap back before and after earnings, which has taken the stock out to new highs (and above resistance near 50)—the action is so powerful that we added some shares back (a 3% position) to the stock earlier this week. … UBER looks like a real institutional leader that may take aim at its all-time highs in the low 60s down the road.” 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. Mike Cintolo and options expert Jacob Mintz joined us this week for a lively discussion on everything from the rapidly-improving state of the market to the rapidly-declining state of our sorry NFL teams. I highly recommend it!

The next Cabot Stock of the Week issue will be published on November 27, 2023.