Eleven weeks off the market bottom, with the S&P 500 up 45% from its low, the news is finally getting good—which to me says that short-term, investing in stocks is likely to become a bit more challenging. That’s one reason I’m recommending selling two stocks today—and putting another two on hold.
Long-term, however, the future remains bright, especially for companies like the one featured today, which are serving global mass markets with products that they’re (literally) hungry for.
Full details in the issue.
Cabot Stock of the Week 301
With the economic news improving, we now know why the market has been so strong recently. But what of the future? Admittedly, the big-picture fundamentals appear quite challenging—but technically, the picture remains very bright. And among individual stocks, there are plenty of great growth stories that appear bound to succeed regardless of what the economy does. Today’s recommendation is one of them. The stock was originally recommended by Mike Cintolo in Cabot Growth Investor and here are Mike’s latest thoughts.
Beyond Meat (BYND)
Most of the market’s biggest winners throughout history usually had a revolutionary new product or service that changed the way we lived or worked. But coming in a close second are companies that took an already-gigantic industry and, via something new (product, retail model, etc.), took a big chunk of market share.
The latter path is the one that Beyond Meat is traveling. The company is the leader in the so-called “alternative meat” movement, taking non-meat products (most of its burgers and ground beef are pea-based but there’s a bunch of stuff in them) to replicate the taste, look and texture of a real burger or ground beef. Beyond’s patties even “bleed” like a burger! (Interestingly, the firm spends a whopping 7% of its revenues on R&D to constantly improve the product and release new offerings like sausage, breakfast sausage and the like.)
I tried them and I was impressed (far better than the old veggie burgers that were peddled), and while I’m not going vegan anytime soon, this story isn’t dependent on a Beyond Burger being eaten by everyone you know; in the U.S. alone, the meat industry cranks out $270 billion of sales annually (globally it’s $1.4 trillion per year), and given that Beyond has just $355 million in revenue during the past year, capturing just a few percent of those figures as the movement toward healthier living continues will mean Beyond will get much, much bigger over time.
So far, the company’s management has made all the right moves, not just product-wise but (more importantly) in distribution. In the U.S., Beyond can be found at 25,000 retail locations, including Kroger, Walmart, Costco, Meijer, Target and Whole Foods. Beyond is also at about 34,000 foodservice locations in the U.S., including Dunkin’ Donuts, Del Taco and Carl’s Jr. The top brass has moved aggressively overseas, too, with its products found in another 35,000 locations (including Starbucks, KFC and Pizza Hut in China), up from just 1,650 a couple of years ago.
Yes, there’s competition, most notably from Impossible Foods (maker of the Impossible Burger), but again, this isn’t a winner-take-all story. Beyond is definitely the leader in the industry and its mindshare is growing rapidly (unaided brand awareness is up 250% during the past two years), but there’s plenty of room for a few players as the alternative meat category captures a few percent of the overall meat sector.
As for the numbers, Beyond’s have been fantastic. Revenues have been cranking ahead at triple-digit rates, with Q1’s tally rising 141% from a year before, including 100%-plus growth in all three categories (U.S. retail, U.S. foodservice, international). And unlike many growth companies these days, Beyond has been able to grow and be profitable at the same time, with margins steadily picking up over time despite the expansion.
Best of all, from here success is simply a matter of staying on the current path. Some new products will surely help, and the big wild card is if Beyond can land a big deal with a major restaurant. (McDonald’s in Canada did a test with Beyond’s products earlier this year that was ended, but reportedly went fairly well.) But even without a grand slam of a deal, Beyond’s ever-growing mindshare and retail presence is sure to keep growth humming.
As for the stock, it came public in April 2019 and had a massive run for three months (60 to 240!), then had an ever larger eight-month decline that wiped out the entire gain (down to 48 in March of this year). But BYND has changed character since then, and not just because it’s rallied with the entire market; buying volume boomed in April and early May, and now shares have tightened up near multi-month highs, which is usually a constructive sign. While BYND might wiggle around, the odds favor the next big move being up.
Tim’s note: As a man who gave up meat over 10 years ago and no longer has a desire for it, I’m not going to be a big customer of Beyond Meat, either—but the company’s growth story is clear, and I like the chart’s setup coming into today. Last but not least, the good news today is that Beyond inked a deal with Chinese food distributor Sinodis, which distributes imported foods to 4,500 wholesalers, restaurant chains and hotels in China, to expand Beyond’s product distribution in China. As I write, the stock is breaking out of its month-long base.
|BYND||Revenue and Earnings|
|Forward P/E: 890||Qtrly Rev||Qtrly Rev Growth||Qtrly EPS||Qtrly EPS Growth|
|Current P/E: NA||($mil)||(vs yr-ago-qtr)||($)||(vs yr-ago-qtr)|
|Profit Margin (latest qtr) 1.9%||Latest quarter||97.1||141%||0.03||NA|
|Debt Ratio: 5%||One quarter ago||98.5||213%||-0.01||NA|
|Dividend: NA||Two quarters ago||92.0||250%||0.10||NA|
|Dividend Yield: NA||Three quarters ago||67.3||287%||-0.16||NA|
|Stock||Date Bought||Price Bought||Yield||Price on 6/08/20||Profit||Rating|
|Barrick Gold (GOLD)||5/19/20||28||1.2%||23||-17%||Sell|
|Beyond Meat (BYND)||New||—||0.0%||159||—||Buy|
|Fanuc Corp. (FANUY)||—||—||—||—||—||Sold|
|GFL Environmental (GFL)||5/27/20||18||0.2%||20||11%||Buy|
|Huazhu Group Limited (HTHT)||3/30/16||9||0.0%||38||308%||Hold|
|Marathon Petroleum (MPC)||4/7/20||24||5.6%||42||74%||Sell|
|NextEra Energy (NEE)||3/27/19||194||2.2%||259||34%||Hold|
|Sea Ltd (SE)||1/21/20||41||0.0%||91||122%||Hold|
|Tyson Foods (TSN)||5/5/20||56||2.6%||68||20%||Hold|
|Verizon Communications (VZ)||5/12/20||56||4.3%||58||3%||Buy|
|Vertex Pharmaceuticals (VRTX)||1/7/20||224||0.0%||264||18%||Hold|
|Virgin Galactic (SPCE)||10/11/19||9.24||0.0%||17||84%||Buy|
|Zoom Video (ZM)||03/17/20||108||0.0%||209||94%||Hold|
The past 11 weeks have brought a market advance that was virtually inconceivable back when it started—but that’s how the market works. Now that the market is up and the news is improving, I expect the profits to come less easily—and that’s one reason that with today’s issue, I’m selling two stocks and downgrading two to hold. Details below.
Barrick Gold (GOLD) to Sell
Marathon Petroleum (MPC) to Sell
Tyson Foods (TSN) to Hold
Vertex Pharmaceuticals (VRTX) to Hold
AbbVie (ABBV), originally recommended by Tom Hutchinson for the Dividend Growth Tier of Cabot Dividend Investor, resumed its ascent last week and is now very close to breaking out above its February high. HOLD.
Barrick Gold (GOLD), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has not been behaving as expected; in fact, it fell through its 50-day moving average last week. This plus the fact that GOLD is now our biggest loser are reason enough to sell. SELL.
Chegg (CHGG), originally recommended by Mike Cintolo in Cabot Growth Investor, and featured here last week, has pulled back a bit more and is now at an excellent entry point. In last week’s update, Mike wrote, “CHGG is now two-plus weeks into a normal (albeit a bit scary at times) retreat following its huge earnings gap and run in the first half of May. So far, the action is normal (the stock is just below its 25-day line, which is now near 59.5), and the fact that the stock gapped to new highs on more than 10 times its average volume bodes well. Plus, fundamentally, there’s little doubt the firm’s online education platform will see accelerating growth going forward.” BUY.
GFL Environmental (GFL), originally recommended by Tyler Laundon in Cabot Early Opportunities, and featured here two weeks ago, pulled back briefly from last week’s record high (as I suggested it might) but the pullback didn’t last long, so if you haven’t bought yet, I suggest you buy now. 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. Early last week the stock enjoyed several very strong days as buyers looked forward to a move toward increased travel in China and the stock is now consolidating those gains. HOLD.
Marathon Petroleum (MPC), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, may be a big company but its stock can move; we’re up 75% in two months! In a Special Bulletin today, Crista wrote, “MPC continues to have great momentum, but in a show of caution, I’m moving the stock from Strong Buy to a Buy recommendation. Oil prices and stock prices will invariably experience another correction soon, after the huge March-through-June run-up. The best approaches right now would be to either buy MPC for a quick trade; plan to buy low during the next market correction; or use a stop-loss order on your existing position, raising the stop price as the stock continues to rise in the coming days.” Given our quick two-month profit, I lean strongly toward the third; in fact I’m simply going to sell here. You can try to ride it a bit higher if you’re game. SELL.
NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, looks great, and will almost certainly climb higher. In his latest update, Tom wrote, “This regulated utility and alternative energy giant is up about 14% in the past two weeks. There is no particular news of note. It’s simply that investors love this stock and seem to be discovering it again after a tumultuous few months. You get a defensive business with earnings growth as well as dividend growth. It thrives in a recession as earnings remain steady. And it will inherit the future with the alternative energy business.” HOLD.
Nvidia (NVDA), originally recommended by Crista Huff for the Special Situation and Movie Star portfolio of Cabot Undervalued Stocks Advisor, is currently building a tight base in the 350 region. In her update last week, Crista wrote, “NVIDIA is the pioneer and leading designer of graphics processing unit (GPU)-accelerated computing, which then ignited modern artificial intelligence (AI). Target markets include gaming, professional visualization, data center, and autonomous driving. 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. NVIDIA’s data center business now represents about 50% of total revenues. 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 at home, RingCentral will have the job of ensuring that all their communications systems work together. Last week I wrote that the stock was “ready to break out above its mid-May peak of 292,” but in fact it’s pulled back to its 50-day moving average—though volume was modest so not worrisome. HOLD.
Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is an Asian e-commerce and gaming giant whose stock remains red-hot—so taking partial profits is still one of your options. But long-term, the prospects remain bright, and Carl Delfeld of Cabot Global Stocks Explorer remains a fan. In Carl’s update last week, he wrote, “Sea is up 60% in the last month and 12.8% in the last week. I have already recommended selling a half position for a gain of 310%, and it’s still a good time to sell some shares to lock in some gains if you have not already done so. Sea’s business begins with e-commerce and payments in Asia but what’s catching fire around the world, including America, are the company’s Garena mobile video games. Sea’s game Free Fire is a standout performer; it’s the highest-grossing mobile game not only in Southeast Asia and Latin America but the world. And it’s still growing by leaps and bounds: In the first quarter of 2020, the number of daily active users jumped from 60 million to 80 million. Sea has been an incredible stock and clearly has momentum but the company still has not made a profit. This is why I have been encouraging you to sell some shares to take profits off the table. I still like and believe this could be an enduring growth stock but it may have gotten a bit ahead of itself so I rate it a hold at this time.” 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, nearing its all-time high (hit in February) of 969. Today’s good news: Car sales in China rose last month for the first time in nearly a year and Teslas were the best-selling new-energy vehicles in the country for the month, with 11,095 cars sold. HOLD.
Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor has been building a nice base between 12 and 14 over the past month, so buying here is okay if you don’t own it yet. Trulieve is the established market leader in Florida, which is an all-medical market at this point, and just last week the company made further progress toward its debut in Massachusetts (where both medical and adult-use are legal), receiving approval from the Maassachusetts Cannabis Control Commisison to cultivate, manufacture and operate a retail establishment in the state. BUY.
Tyson Foods (TSN), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Investor, enjoyed a strong finish last week after a federal grand jury in Colorado charged executives from two competitors (Pilgrim’s Pride and Sanderson Farms) with price-fixing in the chicken markets. Technically, this move constitutes a fine breakout, but in last week’s update, anticipating the move, Crista wrote, “the breakout could initially carry TSN to about 70”—and the stock is now nearly there. For that reason, combined with the fact that the good news (the grand jury charges) is out, I’m now going to downgrade TSN to hold. HOLD.
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 high income. In last week’s update, Tom wrote, “This stock took a bit of a dip recently as investors gravitated toward riskier stocks as confidence accelerated during the bounce back. But it’s worth noting that VZ has still outperformed the S&P 500 since the market highs of February, down only 2.6%. The basic story never changes—and it’s good. Business is still strong during the pandemic as people rely on cell service more than ever. Looking forward, Verizon has a strong growth catalyst in 5G.” BUY.
Vertex Pharmaceuticals (VRTX), originally recommended by Mike Cintolo in Cabot Growth Investor, has again dipped to its 50-day moving average (just seven days after the first dip), and that’s worrisome. In fact, in his update last week, before the latest dip, Mike wrote, “If VRTX has another whoosh lower, we could follow through with a hold rating.” That’s what I’ll do. HOLD.
Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, remains in a quiet basing pattern while long-term prospects for the business remain bright. In Carl’s update last week, he wrote, “Richard Branson’s sale of 2.6 million shares, which netted in the neighborhood of $500 million and reduced the founder’s stake by about 22%, has taken some steam out of this story. I recommended selling half your shares a month ago for a 146% gain so we’re now in a strong position to ride this momentum forward. Galactic plans to send groups of paying customers on brief flights to the edge of space. Perhaps even more important to its future than space tourism is its plan to launch point-to-point hypersonic flights. SPCE still plans to make its first commercial space-tourism flight this year, and took a step forward with two test flights from its New Mexico spaceport in the first quarter. If you have not stepped up yet to buy more shares in this compelling story, I encourage you to do so and I’m moving my buy rating from a half to a full position for aggressive investors.” Additionally, in Cabot Early Opportunities, Tyler Laundon recently upgraded the stock to buy, writing, “The timeline to launching people into space is getting shorter and the stock has pulled back and consolidated enough. I’m moving back to buy and filling the second half of our position.” BUY.
Zoom Video (ZM), originally recommended by Mike Cintolo in Cabot Top Ten Trader, released an excellent first-quarter report last Tuesday after the close. Revenue was $328 million, up 169% from the year before; the number of customers contributing more than $100,000 in TTM revenue was up 90% year-over-year; and Zoom has roughly 265,400 customers with more than 10 employees, up 354% from the year before. Second-quarter revenue is expected to be between $495 million and $500 million—but clearly, as the economy opens up and businesses work to optimize operations in the post-Covid world, there wil be surprises. As for the stock, it closed at a record high last Wednesday (capping a high-volume surge) and now is due for at least a brief rest. HOLD
Zscaler (ZS) originally recommended by Mike Cintolo in Cabot Growth Investor, was the hottest stock in the portfolio last week thanks to an excellent quarterly report that saw fiscal third-quarter revenue up 40% from the year before; in fact, the action was so favorable that Mike featured the stock in Cabot Top Ten Trader, writing, “Zscaler offers cloud-based cybersecurity and has a very bright present and future as millions of Americans work from home and as the cloud becomes the norm in the business world. Looking ahead, Zscaler sees Q4 revenue growth of around 37% and analysts are looking for 30%-ish growth for the coming (starting in August) fiscal year, with earnings also moving higher. The mobile and cloud movements have pushed cybersecurity into a new era, and Zscaler is one of the new-age leaders in the field. As for the chart, ZS was one of the first to rip back to its February levels after the bottom, and it stair-stepped higher into last week’s quarterly report. The reaction was a beauty, with ZS soaring on six times average volume as it moved to new highs. Yes, it’s extended, but we don’t expect a major retreat following the earnings gap.” If you don’t own it and you’re light on cybersecurity stocks, you could buy on the current pullback. I’ll hold. HOLD.
The next Cabot Stock of the Week issue will be published on June 15, 2020.
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