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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 267

The market remains healthy, with all major indexes in uptrends and no major signs of divergence, and thus I continue to recommend heavy investment in stocks that meet your portfolio’s goals.

However, the recent market rotation has seen growth stocks struggling while high-yielding safe stocks thrive—and our portfolio has been adjusting accordingly, week by week. And this week the trend continues, as we sell two more growth stocks.

This week’s recommendation is a small company with a valuable piece of the world’s mobile communications infrastructure, as its trading symbol makes so clear.

Cabot Stock of the Week 267

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Headlines of impeachment and tariffs and inverted yield curves have kept investors nervous in recent months, but the simple fact is that the bull market is alive and well, with most major indexes near their recent highs. Furthermore, all Cabot’s market-timing indicators remain positive, telling us the odds are high that the market will be higher in the months ahead. Thus, I continue to recommend that you remain heavily invested in a portfolio of stocks that meet your investment needs. Today’s recommendation is a small company you’ve probably never heard of that is growing very fast by providing valuable services to companies in the mobile device universe. The stock was originally recommended by Tyler Laundon in his new service, Cabot Early Opportunities, and here are Tyler’s latest thoughts.
Digital Turbine (APPS)

Digital Turbine is a $580 million market cap software company that offers a mobile delivery platform for the Android OS that helps consumers find apps on their mobile devices. The Austin, Texas-based company is diversified globally, with 70% of revenue coming from North America, 18% from EMEA, 9% from APAC and the remaining 3% from Latin America.

Digital Turbine’s customers are mobile device operators, app developers and original equipment manufacturers (OEMs)—who all want to capture the attention of consumers., and can generate revenue by linking us all up with the apps we use, then facilitating advertising campaigns that flow from brands to eyeballs.

Since its founding in 1998 Digital Turbine has delivered over 2.3 billion app pre-loads on over 300 million devices. Yet it’s only penetrated around 10% of the global Android smartphone market.

One growing OEM partnership is with Samsung, which should span 50 countries this quarter, up from 12 last quarter. A partnership with Telefonica should also drive new devices to launch this year. Other OEM customers include Acer, Lenovo, Motorola and ZTE.

Digital Turbine has deals with major mobile operators too, including Verizon (VZ), AT&T (T), TracFone, U.S. Cellular (USM) and American Movil (AMX). Verizon is a major customer and accounted for 42% of revenue in Q2, while AT&T/Cricket Wireless accounted for 33%.

Digital Turbine’s core product is Ignite, a software platform that lets these mobile operators and OEMs control, manage and generate revenue through app installation, both when the device is activated and over time by the consumer. Ignite can also recommend apps, send notifications to engage users, and, with the recent release of Single Tap, help them easily install apps from mobile ads.
Single Tap, one of the latest product enhancements, greatly reduces the risk that consumers will get side-tracked or discouraged from installing recommended apps by stripping friction out of the app install and opening process.

The key drivers of the business are the products that Digital Turbine adds to the platform (like Single Tap, Dynamic Installs, etc.), the number of devices the platform gets installed on, and how much advertisers are willing to pay to use it.

The trends have been bullish. In fiscal 2019 (ended March 31) Digital Turbine’s revenue jumped by 43% to $100 million and EPS of $0.08 turned positive from a loss of -$0.05 in 2018. In Q1 fiscal 2020 (reported August 5) revenue rose 38% to $30.6 million and EPS of $0.05 beat by $0.02.

Revenue should be up 31% in Q2 fiscal 2020 (just ended on September 30). And looking to full-year 2020, analysts see revenue up 30% to $130 million and EPS surging 125% to $0.18.

APPS has been public for years but only began to perform as the business and business model firmed up. It didn’t break out of the true penny stock category until late-2017, when shares eclipsed a dollar per share.

After a run to 2.6 in March 2018 the stock headed back toward the one dollar mark. But APPS roared back in 2019 and has been steadily climbing all year, making a series of higher highs and higher lows mostly above its 50-day line. Shares peaked at 7.84 in late-August and pulled back to just below the 50-day line late last week.

So far, this looks like a normal and buyable pullback. APPS is trading 16% off all-time highs, has strong fundamentals, and what appears to be a long runway of growth in front of it.

Digital Turbine (APPS)


111 Nueces Street
Austin, TX 78701


APPS data




Overall, our portfolio looks good, as we work our way back toward a fully invested position of 20 stocks, but it’s clear that defensive and high-yielding stocks have been the stars recently, while growth-oriented issues have been struggling. Happily, our policy of diversification means we have plenty of the former, and our policy of cutting losses means we have fewer of the latter. And today, as we continue to work to stay in synch with the market, we sell two more of our growth stocks! Hopefully, you are being equally disciplined in your own portfolio. Details below.

Alaska Air (ALK), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, built a tight base over the past two weeks and is now trying to resume its uptrend. In her update today, Crista wrote, “Alaska Air has the second-lowest average age of aircraft when ranked with eight major airlines, and the second-highest fuel efficiency. Alaska Air does not operate any Boeing 737 Max jets. Beginning in January 2020, Alaska Air will launch eight new routes serving destinations in the Pacific Northwest and California. ALK is a mid-cap stock, expected to achieve aggressive earnings growth rates of 32.5% and 17.3% in 2019 and 2020. The 2020 P/E is low at 9.4. ALK rose past short-term price resistance at 65 this month, and could easily trade anywhere between 63-72 this year.” BUY.

Alexandria Real Estate Equities (ARE), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Safe Income Tier, looks great, trading very close to last week’s record high. In his latest update, Tom wrote,This stock continues to slowly forge to new all time highs no matter what the market throws at it. High occupancy rates for its in-demand unique laboratory properties make this stock a favorite in the current environment. It has significantly outperformed both the overall market and the REIT index in every measurable period over the last five years. Falling interest rates should be a tailwind for the stock going forward.” BUY.

Apple (AAPL), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, attained its highest point of the year today and is now very close to last year’s high of 230. In today’s update, Crista wrote, “Gene Munster, longtime Apple watcher and managing partner at Loup Ventures, says more merchants are adopting Apple Inc’s digital wallet Apple Pay, citing the firm’s annual Apple Pay merchant adoption check. Munster estimates overall adoption now ranging between 23% and 36% in 2019, vs. 14%-24% last year. Wall Street expects an EPS drop of 2.1% in 2019 (September year end) followed by an increase of 9.2% in 2020. The stock emerged from a trading range on September 5 and is now approaching my price target of 230, where it last traded in October 2018. I’m therefore moving AAPL from Strong Buy to Hold. Upon reaching 230, I’ll likely retire AAPL from the portfolio in favor of a new Buy Low Opportunity. (And yes, I still love AAPL as a long-term hold for people who prefer to minimize portfolio turnover.)” HOLD.

Bandwidth (BAND), originally recommended by Tyler Laundon for Cabot Small-Cap Confidential, fell through its 200-day moving average last week but rebounded back above it today as bargain-hunters stepped in. Given the magnitude of our loss, selling here is a possibility, but Tyler is sticking with the stock, so for now I’ll follow his lead. In his latest update, he wrote, “BAND has pulled back to its 200-day line for the first time since last December. With the stock trading near 67 now, and 64.5 looking like the last zone of support before shares slide off and into the abyss, this is a critical time for BAND to start firming up. Risk tolerant investors can still step in here. But if the stock falls much below 65 I will likely cut it loose. Recall that in the last quarter new active customers jumped by 34% as an expanded sales force kicked into gear. We also saw dollar-based net retention jump to 113%, vs. 111% in Q1. That means CPaaS customers are using the platform more.” HOLD.

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his High-Yield Tier, gapped up to a new high last Thursday when the company announced it would create a new Canadian entity, named Brookfield Infrastructure Corporation—and it has remained elevated since, confirming that investors like this news. Basically (I’m not a tax expert), the transaction will be similar to a unit split, and will not result in changes to cash flows or values. However, the new entity, structured as a corporation rather than a partnership, is expected to be more attractive to investors who for various reasons wouldn’t buy the partnership. In fact, I think there’s a chance that BIP (the partnership’s stock) might suffer after the completion of the event. But I’ll wait for Tom’s evaluation. In the meantime, it’s too risky to buy up here, but I’ll hold tight. HOLD.

Carvana (CVNA), originally recommended by Mike Cintolo in Cabot Growth Investor, is a well-run company with a great growth story, but it’s important to remember that the company is not the stock—and when the stock goes the wrong way, it’s better to sell than argue. So selling is what Mike now recommends. In his latest update, he wrote, “We still think that, whenever growth stocks get their act together, CVNA could have a great run, as all the positive near- and long-term fundamentals we’ve written about are still in place. But we don’t own the story, we own the stock, and the selling pressures have been unrelenting of late, driving CVNA below its 50-day earlier this week and, today, below our stop in the upper 60s, which we intentionally left fairly loose to give shares plenty of room to wiggle. Obviously, it’s possible shares find support here and bounce, but it’s also possible that the weakness is growth stocks that began earlier this month continues, too. Long story short, we’ll keep an eye on CVNA in case it sets up in the weeks ahead, but the stock’s sharp decline of late has cracked its intermediate-term uptrend and will likely take time to repair—and that’s if buyers step in soon. We’re cutting the loss tonight.” SELL.

Citigroup (C), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Growth & Income Portfolio, has traded tightly around the 69 area for the past two weeks, and is likely to resume its uptrend soon. In today’s update, Crista wrote, “Strength in consumer lending, and lower expenses, tax rate and share count contributed to second quarter successes. Citigroup is an undervalued, large-cap growth & income stock. Wall Street expects Citigroup’s EPS to grow 14.3% and 10.9% in 2019 and 2020. The 2020 P/E is 8.2. I love the Citigroup price chart right now. Not only do I expect the stock to promptly return to short-term price resistance at 72, where it traded in July, but barring a correction in the broader market, I think we could see the stock travel back to its January 2018 peak at 77 within 3-6 months. Buy C now.” BUY.

Coupa Software (COUP), originally recommended by Mike Cintolo in Cabot Growth Investor, has broken down through both its 25- and 50-day moving averages, so the big question now is whether the uptrend remains intact or whether it’s time to sell and move on. In Mike’s latest update he wrote, “Cloud software and cybersecurity stocks remain in the outhouse; Twilio, Workday and Okta, three stocks we owned during the year (and made solid money with), have all fallen around 30% from their highs, with each diving below their longer-term 200-day lines! Amidst this wreckage, COUP has been doing its best to hang in there, actually climbing to the 150 level earlier this week before retreating anew in recent days. The firm’s been quiet on the news front, and our thoughts haven’t changed—we still believe this stock can be a favorite of institutional investors if the software group can find its footing and the environment for growth stocks improves. But that’s a big if at this point, with the sector’s weakness dragging the stock back toward its August and September lows. We’ve already taken partial profits, and we’re OK giving the stock a bit more wiggle room; if you own some and have modest gains, we advise holding on. But we have a mental stop in the mid- to upper 120s for the rest of our position—a break of that would make the past three months look like a top.” We don’t have the profits Mike has, but our loss is minimal, and with real upside still possible, I’ll hold. HOLD.

Designer Brands Inc. (DBI), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Buy Low Opportunities portfolio and featured here last week, has been trending higher since its last-August low, though volume on the advance has been fading. In her update today, Crista wrote, “Designer Brands is one of North America’s largest designers, producers and retailers of footwear and accessories. The company operates DSW Warehouse, The Shoe Company and Shoe Warehouse stores with nearly 1,000 locations in 44 U.S. states and Canada; and Camuto Group. DBI is an undervalued, small-cap growth stock with a huge dividend yield. Expected EPS growth rates are 14.5% and 14.7% in 2019 and 2020 (January year end). The 2019 P/E is low at 9.1. Note that woes within most retail apparel businesses are not harming Designer Brands’ 2019 performance. Most famous-name apparel retailers are experiencing a drop in profit this year, while Designer Brands continues to deliver double-digit earnings growth. In mid-September, investment firm Susquehanna raised their target price on DBI from 18 to 27–a huge increase! The stock is on an uptrend, with short-term price resistance at 19, and a secondary near-term target of 22.5. Buy DBI for outsized total return potential in 2019 and beyond.” BUY.

Enterprise Products Partners (EPD), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his High Yield Tier, sold off a bit early last week, but remains on a slow uptrend—which is just fine for a stock yielding 6.1%. In his latest update, Tom wrote, “This energy infrastructure giant is also getting in on the LNG craze. It announced it is expanding a pipeline system to bring gas from the shale regions to LNG facilities in the Gulf of Mexico. While the stock has been stuck in the mud between 28 and 30 for some time, it has done so in a lousy market for energy stocks. This is a blue chip energy company that is growing earnings as new projects come on line. The stock price is still 30% below the 2014 high while earnings have grown 11% per year over those five years and should accelerate going forward. Eventually the market will figure it out and it’s easier to be patient with a 6% yield.” BUY.

Grocery Outlet (GO), originally recommended in Cabot Growth Investor by Mike Cintolo, and featured here two weeks ago, is a discount grocery store with a “treasure hunt” format that’s growing fast by expansion. However, the stock, which only came public in June, just fell below support at 34, and the odds are that it will now go lower—perhaps to its IPO price of 28. We have no reason to stick with it. SELL.

Huazhu Group Limited (HTHT), originally recommended in Cabot Global Stocks Explorer, is one of the portfolio’s Heritage Stocks, meaning our profit is so great and the potential so large (it’s China’s largest hotel chain) that I’ve resolved to hold the stock through normal technical sell signals. Last week the stock fell below its 25-, 50-, and 200-day moving averages, but it should find support in the 30 area, if not higher. Leaving aside the issue of China trade relations—this is primarily a domestic company serving Chinese citizens—all is well here fundamentally, with analysts expecting EPS of $0.80 this year and $1.08 in 2020. HOLD.

Luckin Coffee (LK), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, has great fundamentals—chief among them its rapid growth as it works to undercut Starbucks in the Chinese coffee market. But the stock’s action is less than impressive, as it continues to build a base at 19—and if it breaks down from here I will probably sell, so today I’m downgrading it to Hold. In his latest update, Carl wrote, “Keep in mind that Luckin is an aggressive stock that has only one quarter of operations under its belt since its IPO earlier this year. Despite its breakneck pace of opening new stores and stands, its CFO has publicly stated it plans to be at breakeven by the end of next year. Its second quarter had high sales and marketing expenses, which can be dialed back in the future. According to one estimate, Starbucks China sold 400 million cups in 2018, which implies only 311 cups per day per store. Luckin currently operates at 345 orders per store at the day level, an increase of 18% from a year ago and 41% from the previous quarter.” HOLD.

MakeMyTrip (MMYT), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is also strong fundamentally, but weakening technically. In his latest update, Carl wrote, “Shares were moved to a hold last week due to uninspiring albeit positive performance over the last month against a backdrop of a softening India economy. I believe that MMYT offers exposure to a high growth consumer market in India and our other India position (IBN) surged nicely this week so we’ll show some patience.” HOLD.

Meritage Homes (MTH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, hit a new high last Thursday and has pulled back normally since, as investors perceive good times for this homebuilder. If you haven’t bought yet, try to buy on a pullback. Home orders through the first two months of third-quarter 2019 grew 24% from the year before to 1,549 units. BUY.

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, has been very strong over the past couple of months and hit another new high yesterday. In his update last week, Tom wrote, “This largest of all utilities, with more growth than its peers courtesy of its alternative energy business, continues to forge to new all time highs with a flawless chart. The market continues to fawn all over safe dividend paying stocks, but especially the best ones. NextEra’s combination of reliable income from the regulated side combined with the growth in the alternative energy business is a recipe right in the current market’s wheelhouse. It’s getting a little pricey and that’s why it’s only rated a HOLD, but the stock is showing uncanny momentum with no signs of slowing.” HOLD.

Snap (SNAP), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has pulled back normally over the past week and currently sits just below its 25- and 50-day moving averages. In last week’s Cabot Growth Investor, Mike wrote, “SNAP certainly has the feel of a stock that is ready to go up if the market can get out of its own way. Following a six-week pullback to a low of 14.5, the stock actually challenged its yearly highs this week before the market yanked it back down. Another analyst came out with positive commentary this week, saying usage of its app remains strong and long-term revenue potential should keep buyers interested. (Remember, Snap got $1.91 of revenue per user in Q2, which is less than one-fifth of what Facebook gets, and while Snap isn’t likely to approach that lofty level, even a doubling or tripling of this metric would be huge.) We’re not against nibbling here if you don’t own any, but as with most of our stocks, it’s unlikely a sustained upmove will start until the environment improves so we’ll stay on Hold.” HOLD.

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the portfolio’s second Heritage Stock (big profits and big potential) so while it hasn’t been a market leader for years, the fact that the company is still growing at a good rate and is still far ahead of all its competitors by many measures means that long-term prospects are still very good. CEO Elon Musk recently told employees that they were within reach of achieving deliveries of 100,000 cars in the third quarter, which would be a new record. In Europe, the Model 3 was the best-selling car in the third quarter in both Norway and the Netherlands, where it topped the VW Polo. And the stock of Chinese electric car competitor Nio (NIO) continues to sink, as investors increasingly realize the future will bring either bankruptcy or a bailout. HOLD.


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