The market’s weakness didn’t last long; the indexes snapped quickly back, though breadth is not quite as good as previously. Still, the market strength restores my confidence that we’ll see higher highs in the months ahead, and I recommend that you invest accordingly.
For today’s recommendation we swing back to the aggressive side. Remember those promises of DNA-based personalized medical treatments from a decade ago? We’re getting closer and today’s recommendation is a leading force in the field.
Cabot Stock of the Week 241
The great bull market of 2019 remains intact, but participation in the advance has become less universal than it was in the first two months of the year, which means that stock-picking and portfolio management have become more important. For this portfolio, which adds one new stock a week and sells (on average) one stock a week, it’s relatively easy to keep the portfolio invested in the right stocks, while remaining diversified in a range of stocks from low-risk dividend-payers to fast-growing momentum stocks. Today’s pick is one of the latter, and was originally recommended by Mike Cintolo in Cabot Top Ten Trader. Here are Mike’s latest thoughts.
We remember in the Internet bubble a couple of companies were promising that you’d soon be able to look up all restaurants in an area and even order a pizza right from your flip phone. They were right, but they were also early, with that capability not becoming the norm for another decade.
We see a similar story playing out in the “revolution” of personalized medicine, which promised that genetic testing would be able to tell each individual what diseases s/he was predisposed to. It didn’t happen right away, but now that movement is getting going—and a little company known as Invitae has pole position to be the leader in this potentially gargantuan industry.
The company’s aim is to take the genetic testing industry from the old days, where tests were done on a case-by-case basis and cost thousands of dollars, to one where costs are much lower and, hence, genetic tests for a variety of cases are becoming more commonplace, giving patients an idea of what conditions they (or, say, their babies) might be predisposed to. The firm achieved this through years of ongoing investments that put all available genetic information onto one platform.
That’s really the key to this story; not only is Invitae taking share in the market from competitors (thanks to the most comprehensive testing at the lowest price), but it’s driving test prices lower (in Q4, the firm’s cost per test fell to $243, down 24% from a year ago and down 67% from three years ago!) and is thus greatly expanding the market itself. For instance, the American Society of Breast Surgeons now recommends that every breast cancer patient have genetic testing performed (guidelines could be revised going forward), with other cancer-related groups making similar rumblings.
The main draw is for people with diseases or family history of diseases; Invitae and other studies have shown that genetics is a main factor in 10% to 20% of cancer patients. The potential here alone is enormous—1.7 million new cancers are diagnosed annually, and many with diseases also have the potential to benefit.
But the company is moving into another big area as well—reproductive health, where of the six million U.S. pregnancies each year, just a quarter are getting genetic tests, and even among those the tests are fairly limited. With a broadening test line-up, including non-invasive prenatal screening (NIPS), Invitae sees a slow ramp this year and, long-term, there’s potential for all pregnant women to get a whole host of genetic tests.
The company also sees preventative care taking off over time, as more than 16% of the general population has a serious health-related genetic risk they’re not even aware of. Invitae is actually launching a patient-initiated testing service in Q2 of this year.
Throw in numerous and expanded partnerships with biopharmaceutical companies, physician networks and hospitals (11 new deals in Q4 alone) and the company’s business is exploding—Invitae’s platform processed 59,000 tests three years ago, 149,700 in 2017 and 303,000 last year. The official estimate for this year is 500,000 tests (and revenue to rise 50%), though management went out of their way to say that figure looks more like a minimum than an actual target.
Looking to 2020, the top brass has an aspirational goal of one million tests! There’s some competition, of course, but Invitae looks like the emerging leader due to its heavy investments, cost advantages and overall platform, driving revenues sharply higher.
And investors are taking notice. NVTA came public in 2015 and did nothing until early 2018, when it finally ramped from around 5 to as high as 18 before last year’s market plunge cut it in half. But shares immediately got going again when the market did, with a persistent, big-volume advance to nearly 26 before the wobbles of the past two weeks (partly due to a share offering).
NVTA could easily consolidate a bit longer, but we think this pullback to the 25-day line marks a solid entry point.
Invitae Corporation (NVTA)
1400 16th Street
San Francisco, CA 94103
The indexes have recovered from last week’s weakness, so the main trend remains up. However, the market as a whole is not keeping up, telling us that selectivity is becoming more important—and that’s fine with me; I’m all about selectivity. As I write we have four stocks hitting new highs this week and many close to it. But we also have laggards, so as part of the ongoing process of pruning the portfolio, today we’re selling General Motors (GM) and taking a small profit. Details below.
AbbVie (ABBV), originally recommended by Tom Hutchinson in Cabot Dividend Investor for the Dividend Growth Tier, today broke out to its highest level yet since in plunged in January on fears of shrinking market share for Humira. In his latest update, Tom wrote, “AbbVie is cheap now, at 34% below its 2018 high, because of increasing overseas competition for its top selling drug Humira. The drug accounts for 60% of revenues and AbbVie has not yet proven that it can overcome the lost revenues from Humira. I believe that between its newly launched drugs and its pipeline, which may launch two new blockbuster drugs this year, the company can easily overcome falling Humira sales overseas. I bought Eli Lilly in 2012 when it was in a similar situation and the stock was slumping. But Lilly had a strong pipeline and record of stellar management, like AbbVie, and LLY has returned 300% since. I see a similar situation for ABBV. It may take some time but the stock pays you 5.4% while you wait.” BUY.
Apollo Global Management (APO), originally recommended by Crista Huff for the Growth & Income Portfolio of Cabot Undervalued Stocks Advisor, has been stuck in a trading range between 28 and 30 since it climbed up to this level in early February. In her latest update, Crista wrote, “Apollo is an alternative asset manager with assets under management (AUM) totaling $280 billion, dispersed among credit, private equity and real estate investments. APO is an undervalued mid-cap growth & income stock.” BUY.
Apple (AAPL), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, sold off dramatically last year as worries about slowing iPhone sales spread, and now the stock is climbing back as optimism about the company’s new services spreads. In Crista’s update today, she wrote, “Apple is a manufacturer and provider of many popular technology devices and services, including the iPhone, iPad, Mac, App Store, Apple Care, iCloud and more. Five new services will roll out in the coming months: Apple News+, Apple TV+, Apple TV Channels, Apple Arcade and Apple Card. There are over 1.4 billion active Apple devices globally, which provide a strong and growing revenue base for Apple Services. AAPL is currently on an uptrend, with price resistance at 230, where it last traded in October.” BUY.
Everbridge (EVBG), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and also recommended by Tyler Laundon in Cabot Small Cap Confidential, hit another record high today! In his update last week, Tyler wrote, “EVBG was founded in 2002, shortly after the 9/11 attacks, to provide fast, automated communications services during life threatening situations and mission-critical business events. The software platform powers apps that help organizations and government entities keep people safe, and businesses running. Customers buy the software to lower the risks to human life and the cost of business downtime due to terrorist attacks, active shooter situations, severe weather events, IT outages and cyber-attacks. The company started with one product, a mass notification solution that it tweaked and expanded for the first ten years of the company’s existence. It now offers a Critical Event Management (CEM) platform and a number of solutions, and that’s helped Everbridge grow its customer base to over 4,400, reaching over 500 million people across 200 countries and territories. Look for 33% revenue growth (to $196 million) and adjusted EPS of -$0.28 (up from -$0.54 in 2018) this year. HOLD.
Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, presents me with a difficult choice. On one hand, the company has a great growth story, as it provides a less intrusive, lower-priced service for early detection of colon cancer, and the stock’s chart is in a long-term uptrend. On the other hand, Mike recommended selling to his readers last week, writing, “EXAS is a stock that looked like a real leader early on, with some bullish volume clues during the Q4 market meltdown and a breakout to new highs in late January, one of the first growth stocks to do so. But the past couple of months saw no real follow-through buying, along with lots of up-down-up-down action, which is a sign buyers and sellers are fighting it out. And then this week, we saw EXAS implode below its 50-day line and plunge to its lowest level in two months. Some of that may have been due to a report on another medical technology company that talked about some reimbursement risks (the entire med tech sector got walloped on Wednesday). One bad day could be acceptable, but when combined with the prior sloppy action, the break of support, our loss and the iffy market, we decided to cut our loss on a Special Bulletin Wednesday evening. We’re holding the cash and will redeploy it into a stronger name when the growth stocks firm up.”
Since then, the stock has bounced back strongly, so that it’s now once again above all its moving averages and only a few points from its high—though the buying volume on any one day has not yet exceeded the one-day selling volume. Still, the odds are looking better that last week’s big selling was the final washout of weak hands before the stock resumes its uptrend. If not, this is probably a great selling opportunity (short-termers can get out now), but if so, hanging on now will bring real rewards. Thus, given that the portfolio is still not fully invested, I’ll hold on a bit longer and see what the stock can do. HOLD.
General Motors (GM), originally recommended in Cabot Dividend Investor for the High-Yield Tier, climbed from 30 to 40 over a four-month period, but Tom Hutchinson says the momentum is gone and it’s time to take profits. Here’s his latest. “American car sales are declining after many years of expanding. The China trade issues continue. And investors are worried about the next recession. In short, the external environment is lousy. But GM is a far better car company than before, with a solid balance sheet that pays a high dividend and sells at a microscopic valuation. Meanwhile, the company continues to invest heavily in the future in self-driving and electric cars. During the next cycle this could be a great stock to buy, but not now. It’s lost its post-selloff momentum.” SELL.
Huazhu Group Limited (HTHT) (previously known as China Lodging Group) gapped higher after releasing a superb earnings report three weeks ago, spent two weeks consolidating those gains, and is now on the move again, as the Chinese market strengthens. Short-term, this is very satisfying, as it validates our long-term hold of this Heritage Stock. But it’s worth noting that the stock peaked at 49 last June, so is likely to face some resistance as it gets closer to that level. Long-term, however, the future is bright for China’s biggest lodging chain. HOLD.
Match.com (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is the world’s largest online dating service and has great long-term prospects. The stock peaked at 58 in September 2018, corrected with the market down to a low in November, but then roared right back to its old high by early February, and it’s been building a base in that area since. If you don’t own it, you can buy now. BUY.
NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, and featured here last week, has pulled back to its 25-day moving average and is a good buy here. In his latest update last week, Tom wrote, “This best in class stock utility stock offers both steady income and a lot more growth than the average utility…It’s a good time in the market for utilities in general and a great time for the best ones. Its Florida Power and Light business operates in a friendly regulatory environment with a growing population. Its NextEra Energy Resources clean energy business offers solid growth as far as the eye can see. Although the stock is at new highs it still sells at a price/earnings ratio well below the five-year average and looks divine from a technical standpoint.” BUY.
Planet Fitness (PLNT), originally recommended by Mike Cintolo in both Cabot Growth Investor and Cabot Top Ten Trader, moved out to new highs last Friday, leaving behind its little base at 68, and has hit higher highs both yesterday and today. It’s great action. In last week’s update, Mike wrote, “We still love the potential here as Planet Fitness is taking a big share of the market. While the industry is being flooded with upscale and personalized gyms, this company is making hay by offering the basics for a low price, appealing to the mass market of gym goers. As for the stock, we are keeping in mind the fact that PLNT has had a big move over the past couple of years, so it’s always possible big investors pull the rug and move to fresher situations. But we also know from history that successful cookie-cutter operations can often (not always) trend for a long time provided management continues to execute, which is what’s happening here. Long story short, sit tight if you own some, and if you don’t, you can pick up some shares here or (preferably) on dips of a couple of points.” BUY.
Rapid7 (RPD), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is holding up well near its high of two weeks ago. The stock was also recommended in Cabot Small Cap Confidential by Tyler Laundon, who last week wrote, “RPD is a $2.4 billion market cap software company that helps protect an organization’s best interests in an increasingly complex, chaotic and interconnected digital world. Customers use its cloud-based and on-premise software solutions to better understand, prioritize and address the threats facing their physical, virtual and cloud assets. With a growing set of solutions to sell as part of its entry into the emerging SecOps movement, which brings together security and IT operations (all hosted on the Insights Platform, which launched in 2015), and a transition to an easy-to-deploy Software-as-a-Service (SaaS) pricing model (largely behind it), Rapid7 is landing larger deals, more multi-product deals, and more customers. In 2019 analysts see revenue up 26% to $308.5 million and adjusted EPS improving to $0.05 from a loss of -$0.41 in 2018. BUY.
STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, continues to impress; the stock hit record highs for five consecutive days before pulling back today. In his update last week, Tom Hutchinson wrote, “STAG is a great REIT and one of the best in the promising industrial space. It has consistently outperformed both the overall market and the REIT index…It’s a good market for REITs but the market seems to have a special affection for this one. There is probably no bad time to buy this stock but I just hate to buy something after a fantastic year at the 52-week and all time high. For now it’s a HOLD.” HOLD.
Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the second Heritage Stock in the portfolio, and I’ll continue to hold as long as I believe the stock has great growth potential. The stock has bounced nicely over the past week, coming off the bottom of the trading range of 250-390 that it’s occupied since mid-2017, but it doesn’t have positive momentum. HOLD.
The Trade Desk (TTD), originally recommended by Mike Cintolo in Cabot Growth Investor, has bounced back strongly over the past few days and is once again near its high of two weeks ago. If you bought last week as I suggested, great. I’m now going to downgrade it to hold and see how it acts as it approaches resistance. HOLD.
Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, is on a normal two-week correction that has taken it down to its 25-day moving average. In his update last week, Mike wrote, “TWLO remains quiet on the news front, but has received some analyst love during the past two weeks, with one analyst talking about Twilio’s huge potential network effects (with a great chance of outpacing estimates for the next couple of years) and another analyst boosting his price target on optimism surrounding the company’s Flex offering, which is the first fully programmable cloud contact center platform. Of course, that hasn’t stopped the stock from taking on some water in recent days, but the action so far looks normal—volume has been average at best on the dips, and TWLO remains near its 25-day line (nearing 124 and rising). As with everything, a deeper correction is possible if the market comes under more intense fire, but the uptrend is intact and the story remains big. We’ll stay on Buy.” BUY.
Van Eck Rare Earths/Strategic Metals (REMX), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, is a diversification play with potential for great growth, as technology requires more rare earths. And the stock is moving in the right direction, heading higher since the December bottom and currently above both its 25-day and 50-day moving averages. In his latest update, Carl wrote, “REMX remains a hedge against U.S.-China tensions and a play on rare metals and rare earths that are undervalued and underappreciated given their importance to high-tech products and markets. We still like REMX and recommend holding onto your position.” HOLD.
Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, has topped at the 50-51 level three times over the past month, and technical analysis says it is likely to eventually break above that level. In today’s update Crista wrote, “Voya is a retirement, investment and insurance company serving approximately 14.7 million individual and institutional customers in the United States. The company is prioritizing share repurchases, and a large dividend increase this year that has not yet been announced. VOYA is an undervalued aggressive growth stock. Analysts expect EPS to grow 34.4% in 2019, and the P/E is 9.4. VOYA is trading sideways between 48-51 after a big run-up. There’s a chance that VOYA could break out of that trading range this week. The maximum upside in the coming months will likely be the stock’s 2018 highs of 54-55.” BUY.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED April 9, 2019
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