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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 300

The overall market remains healthy, and while we still haven’t received an “all-clear” signal from our long-term timing indicator, we do have a positive signal from the 90% Blastoff Indicator, and that’s good!

Overall, our portfolio stocks are behaving quite well, with none disappointing today. In fact, many are so strong that I expect pullbacks in the future. The only sale today is of a stock that has given us a quick 30% profit. Otherwise, I’m sitting tight.

As for today’s recommendation, it’s a company in the online education industry, where demand is booming thanks to COVID-19.

Full details in the issue.

Cabot Stock of the Week 300

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One of the oldest investing axioms says the market climbs a wall of worry. So it should be no surprise that the market’s performance has been stellar since the March bottom—even in the face of growing global exposure to COVID-19 and now U.S. racial tension. All the way, I’ve worked to provide you with a diversified slate of recommendations and today’s is a “classic” story of an established company that’s pivoted successfully to the internet. The stock was originally recommended by Mike Cintolo in Cabot Growth Investor and here are Mike’s latest thoughts.

Chegg (CHGG)
In many ways, online student learning reminds us a bit of telemedicine—both areas have seen great growth in recent years, and now the effects of the virus are likely to accelerate them into the mainstream. For learning, the industry was nascent a few years ago but keeps growing not just because more of everything is moving online, but because of the unique pressures that are affecting students: the average student in the U.S. is older than ever (25 years old) and many have jobs (40%), the cost is obviously rising (more pressure to make college pay) and many are underemployed even after they graduate (and that was before the current recession).

All of that was good for the industry—and then the virus happened! While the shut-in is easing, nearly every student was exposed to some form of online education in recent months, and we doubt most of them will simply go back to the way the world used to be, mostly because the idea makes too much sense; getting on-demand and personalized (and affordable!) educational content/teachings should have an ever-growing place in students’ lives going forward.

The biggest beneficiary of this trend should be Chegg, which has the largest and most comprehensive online learning platform out there that dominates mindshare (87% of college students have at least heard of Chegg’s services). The company’s roots are in textbook and e-textbook services, and it still offers those services, but operates them on a breakeven basis.

Today the real draw is the firm’s other services. Chegg Study ($15 per month) is the main draw: It’s a homework learning service with a library of 37 million pieces of content and about 31 million (and growing) questions and answers for a ton of fields (biology, business, chemistry, civil, electrical and mechanical engineering, math, physics and science).

Then there’s Chegg Writing ($10 per month), which checks for grammar errors (not just spelling) and plagiarism (citation errors, etc.) and provides a host of writing tools, including the creation of bibliographies.

There’s also Chegg Math ($10 per month), which doesn’t just solve problems but takes students through them step by step; Chegg Tutors (students can work with them via voice, video and/or text); and Thinkful, which Chegg bought for $80 million last year, and provides technology-based skills (data analytics, product design, engineering, etc.).

More important than the breadth of offerings is the effectiveness; they work, with 90% of users saying that Study helps them better understand their work and 92% saying Study helps them get better grades. It’s no surprise, then, that the number of students signed up for at least one product continues to increase; in Q1 2018, Chegg had 1.64 million subscribers (up 44% from the year before), in Q1 2019 it was 2.16 million (up 31%) and in Q1 of this year, the total leapt to 2.9 million (up 35%).

In the U.S. alone, the company sees 36 million high school and U.S. university students as potential subscribers, with another 18 million outside the U.S. in Canada, the U.K. and Australia, where Chegg has set up shop. Thus, there’s no reason to believe the recent sales and earnings growth won’t continue or even pick up steam for a long time to come. As it stands now, analysts see the bottom line growing 24% this year and 20% next year, with cash flow likely growing at far faster rates (EBITDA nearly tripled in Q1, while earnings were up 47%).

Chegg’s great story and numbers drove the stock nicely higher from mid-2017 through March 2019, but then shares began a long consolidation; by late April of this year, the stock had made no net progress, with a couple of major dips (including this March) to shake out the weak hands.

But Q1 earnings changed all that as CHGG exploded to new highs on volume that was 13 times normal, which is a major clue that big investors were fist-fighting for shares. Shares stretched higher and have since consolidated normally during the past two weeks, which marks a solid entry point.


CHGGRevenue and Earnings
Forward P/E: 54Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
Current P/E: 62($mil)(vs yr-ago-qtr)($)(vs yr-ago-qtr)
Profit Margin (latest qtr) 22.0%Latest quarter13235%0.2247%
Debt Ratio: 180%One quarter ago12631%0.3540%
Dividend: NATwo quarters ago9427%0.18157%
Dividend Yield: NAThree quarters ago9426%0.2392%

Current Recommendations

StockDate BoughtPrice BoughtYieldPrice on 6/01/20ProfitRating
AbbVie (ABBV)3/31/20765.1%9120%Hold
Barrick Gold (GOLD)5/19/20281.2%25-12%Buy
Chegg (CHGG)New0.0%63Buy
Fanuc Corp. (FANUY)4/21/20131.4%1833%Sell
GFL Environmental (GFL)5/27/20180.2%2013%Buy
Huazhu Group Limited (HTHT)3/30/1690.0%35278%Hold
Marathon Petroleum (MPC)4/7/20246.6%3649%Buy
NextEra Energy (NEE)3/27/191942.2%25833%Hold
Nvidia (NVDA)3/10/202540.0%35339%Hold
RingCentral (RNG)10/23/191530.0%28385%Hold
Sea Ltd (SE)1/21/20410.0%82101%Hold
Tesla (TSLA)12/29/11300.0%8832879%Hold
Trulieve (TCNNF)4/28/2010.420.0%12.4720%Buy
Tyson Foods (TSN)5/5/20562.7%6311%Buy
Verizon Communications (VZ)5/12/20564.3%560%Buy
Vertex Pharmaceuticals (VRTX)1/7/202240.0%28728%Buy
Virgin Galactic (SPCE)10/11/199.240.0%1891%Buy
Zoom Video (ZM)03/17/201080.0%20388%Hold
Zscaler (ZS)4/14/20650.0%10968%Hold

Until today, I’ve been telling you not to aim for full investment, given that Cabot’s long-term timing indicator (Cabot Trend Line) remains negative. Yet the portfolio has crept closer and closer to full investment simply because I add a new stock every week, and our stocks are doing so well that it’s been difficult to sell many! And now, with today’s addition, if I don’t sell something, the portfolio will be 19/20 invested. Your own portfolio, of course, will look different; I assume most readers own other stocks as well—and not all of these. But the point remains; as we’ve added stocks and ridden the rebound since the March bottom higher, has the portfolio become too risky? On a short-term basis, it’s quite possible. A lot of our stocks are extended to the upside, and the market as a whole is ripe for a correction. Long-term, however, the picture just got a little brighter, as just last week, Mike Cintolo announced that a 90% Blastoff Signal. This is only the 13th time this signal has flashed since 1970; previous signals brought S&P gains averaging 20% over the following 12 months. So, while I’m trying to hold some cash in the portfolio, I’m mainly working on a stock-by-stock basis.

Fanuc (FANUY) moves to SELL

AbbVie (ABBV), originally recommended by Tom Hutchinson for the Dividend Growth Tier of Cabot Dividend Investor, has paused in its ascent over the past week, but all major trends are good. In last week’s update, Tom wrote, “The pandemic-driven recession isn’t even a speed bump for this biopharmaceutical giant. That’s a big deal. This company won’t have to recover. Meanwhile, its new drugs and pipeline continue to excel and they just closed the deal to buy Allergan (AGN), further diversifying the company away from Humira. While ABBV is actually making a run toward its 52-week high of over 97 per share, it is still a long way from the 2018 high of 140. Meanwhile, it pays a huge 5.2% yield.” HOLD.

Barrick Gold (GOLD), originally recommended by Mike Cintolo in Cabot Top Ten Trader and featured here two weeks ago, plunged to its 50-day moving average last week and has found support there over the last three days, so if you like the idea of investing in gold, at least for diversification, this marks a decent entry point. BUY.

Fanuc (FANUY), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is up more than 30% since we bought just six weeks ago, and that pace will almost certainly not continue—so selling here and taking a quick profit is an option. Last week, Carl wrote, “Shares grinded out another small gain this week as the stock closes in on its 2020 high of 19 and Japanese shares continue to outperform the S&P 500.” Long-term, this robot giant should move higher, but short-term, my sense is that the stock is due for a rest (at least), so I’m going to sell and take the quick profit here. SELL.

GFL Environmental (GFL), originally recommended by Tyler Laundon in Cabot Early Opportunities, and featured here last week, has been strong since—and especially strong today, blasting out to a record high. There’s no obvious reason for the strength, and certainly there is room for a pullback, but long-term prospects look great for this acquirer/consolidator of waste management services, so I’ll leave it rated buy and note that if you didn’t buy last week, waiting for a pullback would be prudent. BUY.

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 that I’ve resolved to hold the stock of China’s largest hotel operator through normal technical sell signals. But in recent months I’ve been wondering if this is the best way to serve the majority of readers, given that the stock hasn’t been rated buy for a long time so new readers get little benefit from seeing it here, beyond the knowledge that profits of this magnitude are within reach. If you have an opinion, let me know. Should I drop HTHT to make room for newer recommendations or does it still serve a purpose here? HOLD.

Marathon Petroleum (MPC), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, pulled back slightly last week but remains in a healthy uptrend. In last week’s update, Crista wrote, “The price charts of oil refining stocks appear distinctly more bullish than those of oil majors (e.g. ExxonMobil) and oilfield service companies (e.g. Baker Hughes). MPC continues to ratchet upward. Traders and dividend investors should buy MPC now.” BUY.

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, has come to life, just after I wrote last week that the stock was “going nowhere fast.” It’s now at its highest level since before the crash! In his latest update, Tom wrote, “A regulated utility is a beautiful thing during a recession as they generate steady cash flows in any economy. NEE is a particularly good regulated utility because it operates in Florida, which has a growing population and is a friendly regulator. The alternative energy business adds growth. NEE is the biggest producer of wind and solar in the world. Not only is there a long runway for future projects, but the costs to generate electricity from these sources continue to decline, which further boosts the bottom line.” HOLD.

Nvidia (NVDA), originally recommended by Crista Huff for the Special Situation and Movie Star portfolio of Cabot Undervalued Stocks Advisor, pulled back briefly early last week but has already bounced most of the way back. In her update last week, Crista wrote, “In April, NVIDIA completed the $6.9 billion acquisition of Mellanox Technologies Ltd., an early innovator in high-performance interconnect technology, routinely used in supercomputers and hyperscale data centers. The acquisition, which adds to NVIDIA’s data center and artificial intelligence business, is expected to immediately add to NVIDIA’s gross margins and EPS. NVDA is a high-P/E, aggressive growth stock. Unlike so many other companies this year, NVIDIA’s earnings estimates keep rising. Wall Street now expects EPS to grow 39% and 21% in fiscal 2021 and 2022 (January year end). Revenue expectations are also increasing this year. Many investment firms raised their price targets on NVDA after the company reported first quarter results last week, with 12 of 19 increases landing between 400-425. NVDA shares have had a tremendous run-up since the March market correction, now trading at all-time highs. At this point, I would expect the stock to settle down and rest for a while.” Hold.

RingCentral (RNG), originally recommended by Mike Cintolo in Cabot Growth Investor, is the market leader in the field of Unified Communications as a Service—which means that as more people decide to continue working from home, RingCentral will have the job of ensuring that all their communications systems work together. After plunging briefly through its 25-day moving average, the stock has been strong over the past week and is ready to break out above its mid-May peak of 292. HOLD.

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is an Asian e-commerce and gaming giant whose stock pulled back only briefly in the March market crash and is now a massive 58% above its pre-crash levels! Short-term, taking profits is one of your options. In Carl’s update last week, he wrote, “Shares continue to show great strength and momentum, and are now up more than 90% so far in 2020. We are in a strong position, having sold half our position a month ago at 55 for a gain of 310%. Sea is now a hold but we will be buyers if the stock pulls back. If you have not already sold half your shares, I strongly suggest you do so now.” 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) and the stock remains very healthy. In fact, in last week’s Cabot Growth Investor, Mike added it to his Watch List, writing, “After a crazy advance, decline and rebound in recent months, TSLA is tightening up beautifully. The turnaround story is very much intact, with huge earnings expected in the quarters to come.” Last week there was news about Amazon buying self-driving vehicle developer Zoox, but investors in TSLA didn’t even blink—and today the stock gapped up above 850, heading for its all-time high of 969. HOLD.

Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor, has pulled back minimally over the past week but has the potential to fall to 11—and if it does, you should buy it. In last week’s issue of Cabot Marijuana Investor, I wrote, “Trulieve is not only the market leader in Florida, with 19% of the stores and more than 50% of the revenue, it’s also a contender for biggest seller of marijuana in the entire U.S. Plus, the company is profitable! First quarter results, reported last week, saw revenue of $96.1 million, up 116% from the year before, and EPS of $0.12, for an after-tax margin of 14.6%. Also, the company had $101 million in cash at quarter-end, which will no doubt be used to fuel the company’s out-of-state growth initiatives. Finally, TCNNF is trading above 10 a share, a fact that is appreciated by institutional investors—though admittedly, because of the federal legal issues, few U.S. institutions have been brave enough to venture into the sector yet.” BUY.

Tyson Foods (TSN), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Investor, remains in a basing pattern and is thus still attractive from a longer-term perspective. In last week’s update, Crista wrote, “TSN goes ex-dividend tomorrow, May 29. Investors who own the stock at the close of business today, May 28, will receive the next quarterly dividend, to be paid on June 15. The payout is $0.42 per share, and the annual yield is 2.7%. I know that the ex-dividend date can be a confusing concept, so I want to make this clear: If you own the stock at the close of business today, you will receive the next dividend, even if you sell the stock tomorrow. The price chart is indicating that the stock is likely to rise past price resistance at 64 immediately, barring the impact from any sudden bad news, or a downturn in the broader market. Consequently, I’m moving TSN from Buy to a Strong Buy recommendation today. I think today is a good day for traders, growth investors and dividend investors to accumulate more shares of TSN. Very experienced option investors could consider the June 19th 62 calls. Traders take note: As the stock continues its rebound from the March stock market correction, there’s some price resistance at about 70.” BUY.

Verizon (VZ), originally recommended by Tom Hutchinson for the High Yield Tier of Cabot Dividend Investor, is a solid choice for low-risk diversification, and last Friday the stock popped higher on big volume! In his update just before that, Tom wrote, “Over the past month, the relative performance of VZ has faltered. The S&P 500 is up 4.2% and VZ is down 6.3% over the period. Prior to that, VZ had been a standout performer during the downturn. The most likely explanation is that when investors regained confidence they ditched VZ for sexier plays. But it is probably just an aberration. The Verizon story is the same. People are using cell phones and services like crazy during this pandemic, and business is solid. VZ also has a strong catalyst for growth ahead as 5G rolls out.” BUY.

Vertex Pharmaceuticals (VRTX), originally recommended by Mike Cintolo in Cabot Growth Investor, tagged its 50-day moving average last week but bounced right back and is now basing again, preparing for a an eventual breakout. In his update last week, Mike wrote, “VRTX was close to being downgraded to Hold…but then the stock tagged its 50-day line and ripped back toward its highs! If VRTX has another whoosh lower, we could follow through with a hold rating, but right now the stock continues to attract big investors on dips. We’ll stay on Buy.BUY.

Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, has been in a basing pattern for the past seven weeks, but I’m holding tight because I love the stock’s long-term potential as the company works to commercialize space tourism and launch point-to-point hypersonic flights. In Carl’s update last week, he wrote, “Shares were up 7.3% yesterday and 16% over the past week after being upgraded from a hold to a buy last week. If you have not stepped up yet to buy more shares in this compelling story, I encourage you to do so.” BUY.

Zoom Video (ZM), originally recommended by Mike Cintolo in Cabot Top Ten Trader, zoomed higher today as investors looked forward to an excellent earnings report tomorrow (Tuesday) after the market close. If you haven’t taken profits yet and you’d like to reduce your risk, this is your chance. Long-term, however, prospects remain quite bright. The action after the earnings announcement is likely to be interesting, particularly if management talks about their plans beyond the days of coronavirus. HOLD.

Zscaler (ZS), originally recommended by Mike Cintolo in Cabot Growth Investor, is the hottest stock in the portfolio today, thanks to an excellent report last week that saw fiscal third-quarter revenue up 40% from the year before to $110 million. The stock is up 42% in two days! Mike has already sold the stock, and if you own it, taking partial profits is certainly an option on this strength. I’ll simply hold—in part because the potential for the company’s cloud-centric internet security services is so immense. HOLD.

The next Cabot Stock of the Week issue will be published on June 8, 2020.

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