The market remains in good health, so I continue to recommend that you be heavily invested in a diversified portfolio of the best stocks, both strong momentum stocks (we have several) and lower-risk dividend-paying slower growers. In the portfolio this week, the only change is an upgrade of Vertex Pharmaceuticals (VRTX) to buy.
As for the newest recommendation, it’s unusual in that it’s not one stock; it’s actually an ETF of a market sector that I think holds spectacular promise in the long term.
Cabot Stock of the Week 303
“Bull markets climb a wall of worry,” says the old market axiom, and it remains true today as the market remains healthy even as COVID-19 and the intentional recession continue to scramble our sense of normalcy. Someday, of course, this bull market will end, but at that point the news will be much more positive—so until then the proper course is to cultivate a diversified portfolio of the best stocks. Which brings me to today’s recommendation. It’s not exactly a stock; it’s an ETF (exchange traded fund)—but ETFs trade just like stocks, so there’s no reason to avoid them if they can help you achieve your purpose. And today’s ETF does, as our purpose is to benefit from one of the stongest growth trends in today’s world. The stock was originally recommended by Carl Delfeld in Cabot Global Stocks Explorer and here are Carl’s latest thoughts.
Global X Cybersecurity ETF (BUG)
We have all read about how technology giants like Microsoft (MSFT) and Apple (AAPL) dominate the performance of the indexes. But often overlooked is the fact that storing and protecting the data generated by these giants and others is a big business as well.
Not too long ago, critical information like employee health records and company financial statements were stored in long rows of file cabinets or boxes sitting in musty warehouses.Then came computers and the Internet, and this data was stored digitally.
As the world becomes digitized, protecting valuable and sensitive data is essential. As more valuable data is created, cybercriminals become increasingly motivated to steal the data and sell the data.
A single cybersecurity company can block over 100 million threats per day. That’s equivalent to more than one thousand threats blocked every second. But all it takes is one breach to cause severe damage for companies and users.
For example, in 2013-14, Yahoo had all 3 billion of its accounts hacked in two separate attacks, arguably the worst data breaches of the 21st century. In 2017, Equifax, one of the largest credit bureaus in America, announced a data breach that affected 143 million consumers, including social security numbers, birth dates and driver’s license numbers.
And in late 2018, Marriott International announced a data breach that compromised 500 million accounts, including personal information like passport numbers.
Hackers sponsored by foreign governments such as China or Russia account for about 23% of global breaches while organized crime accounts for another 39% of data thefts.
Spending on Cybersecurity Soaring
Cybersecurity is one of the fastest-growing segments of IT spending. Chief Information Officers consistently rank cybersecurity as their top spending priority. In 2019, the average total cost of a data breach for a company was $3.9 million, with 36% of the cost coming from the loss of customer trust.
Damages from cybercrime could cost the world $6 trillion annually by 2021, prompting individuals, companies, and governments to spend a bundle with cybersecurity firms to provide sophisticated software and services to protect proprietary data.
Cybersecurity is a powerful theme that will be further fueled by the growth of new technologies that offer connectivity to data, such as machine learning, cloud computing, and the Internet of things.
One way to play this growth trend is by investing in the Global X Cybersecurity ETF (BUG). BUG is a basket of cybersecurity stocks of companies developing and managing security protocols to prevent intrusion and attacks on systems, networks, applications, computers and mobile devices.
This ETF has 29 holdings and the top 10 stocks represent roughly 60% of the total market value (see below) of the basket. Seventy-four percent of the companies are incorporated in America followed by 13% in Israel and 8% in Japan.
One of the top holdings in the BUG basket is Palo Alto Networks (PANW). Founded in 2005, it is one of the more established cyber pure plays on the market and has expanded its suite of services and warded off upstart disrupters by purchasing smaller start-ups.
A smaller, more speculative cybersecurity play in the BUG exchange-traded fund is Cloudflare, Inc. (NET), which is currently in the portfolios of both Cabot Global Stocks Explorer and Cabot Growth Investor. This company, which got its start offering internet security and website performance services, went public through an IPO last year, is growing very fast, and appears to be gaining market share. NET has high gross margins but is not yet profitable, though some analysts expect its revenue to double by 2022.
Bottom line: Cybersecurity is a growth theme worth investing in and investing in a basket of these ideas spreads the risk.
Revenue and Earnings
Forward P/E: NA
Qtrly Rev Growth
Qtrly EPS Growth
Current P/E: NA
Profit Margin (latest qtr) NA
Debt Ratio: NA
One quarter ago
Two quarters ago
Dividend Yield: 0.2%
Three quarters ago
Price on 6/22/20
Beyond Meat (BYND)
Brookfield Infrastructure (BIP)
GFL Environmental (GFL)
Global X Cybersecurity ETF (BUG)
Huazhu Group Limited (HTHT)
NextEra Energy (NEE)
Sea Ltd (SE)
Tyson Foods (TSN)
Verizon Communications (VZ)
Vertex Pharmaceuticals (VRTX)
Virgin Galactic (SPCE)
Zoom Video (ZM)
The addition of BUG to the portfolio means we now have 19 stocks, one short of my limit. But once again, there’s nothing that is screaming that it should be sold, so I’ll continue to hold. But I will say that a number of stocks are ripe for a correction, so it won’t surprise me at all if things get a bit more challenging in the weeks ahead—and if you’ve got cash to invest, perhaps wait for a better entry opportunity. In the meantime, the only change today is an upgrade of Vertex Pharmaceutical (VRTX) to buy. Details below.
Vertex Pharmaceuticals (VRTX) to buy.
AbbVie (ABBV), originally recommended by Tom Hutchinson for the Dividend Growth Tier of Cabot Dividend Investor, is very close to breaking out to a new high—though volume is fading, so it may take a little more time. In his update last week, Tom wrote, “The uncertain environment is good for Healthcare stocks. In fact, Healthcare has been the second-best performing sector of the market so far this year, next to Technology. The sector is relatively unaffected by an economic downturn and there is strong growth in the biotech arena. AbbVie is a combination of a big pharma and a biotech company. The stock is also cheap with a high and safe dividend. It is one of very few stocks that I am completely comfortable owning in this environment. The stock is also technically strong here and appears poised to make a new 52-week high, above 99.” HOLD.
Beyond Meat (BYND), originally recommended by Mike Cintolo in Cabot Growth Investor, and featured here two weeks ago, is also very close to hitting a new high—for this cycle. The actual record high was 240, hit last July soon after the company came public and public visibility of this company and the privately held Impossible Foods was very high. Beyond Meat is the global market leader in the field of plant-based meat substitutes, which are better than meat for the health of both humans and the earth. If you haven’t bought yet, you can buy now, but to reduce risk, you could wait for a pullback to the 140 area. BUY.
Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor and featured here last week, is a low-risk way to benefit from the world’s growing infrastructure needs. In last week’s update, Tom wrote, “The infrastructure partnership had broken out into the 40s and appeared poised to continue running towards the old 50 high. BIP pulled back with the overall market last week but has since resumed its ascent. But I like this stock even if the market pulls back. Its crucial infrastructure assets generate reliable revenue in any economy, as about 95% of earnings are contracted or regulated. But it still has chops in a bull market as infrastructure is an increasingly hot sector.” BUY.
Chegg (CHGG), originally recommended by Mike Cintolo in Cabot Growth Investor, closed at a record high last Friday and continued higher today. In last week’s update, Mike wrote, “CHGG came close to the edge a couple of times during the growth stock selloff, but it held near the close of its earnings day (that’s often a key level for big earnings gappers) and has begun to rebound nicely, bolstered by news of a $500 million share buyback. Fundamentally, we also like the firm’s acquisition of Mathway for $100 million earlier this month; the company has a very popular (used in about 100 countries) and comprehensive (400 math topics; solved more than 1.3 billion problems last year) app that should meaningfully expand the firm’s target market. Bottom line, business is good and getting better, and the stock is rebounding nicely after a four-week dip. We are near breakeven, which is good compared to where we were, but not enough to fill out our position. If you own some, hold on, and if you don’t, we’re OK buying a half-sized stake (for us, that’s 5% of the portfolio) here or on dips.” Perhaps Mike will fill out his position this week on the strength of these new highs. BUY.
GFL Environmental (GFL), originally recommended by Tyler Laundon in Cabot Early Opportunities, continues to trade at a level of support, which I think presents a great entry point for North America’s fourth-largest environmental services (waste management) company. Long-term, the prospects are bright. However, as a smaller and lower-priced stock, GFL can be rather volatile, and if the stock falls through support here, it could be trouble. 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. The stock enjoyed its biggest up-volume day since March last week, so the technical picture is definitely improving here, and I wouldn’t be surprised to see the stock break out above its three-week-old high. HOLD.
NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, remains on a minor pullback to its 25-day moving average, which is no problem at all for holders of the stock. As for new buying, Tom may be having a change of heart. In his latest update, he wrote, “This regulated utility and alternative energy giant continues to outperform both its utility industry peers and the overall market in the short, intermediate and long term. The problem is that the combination of steady income and growth from alternative energy is so popular that the stock is almost never cheap. I’m coming around to the view that I’ve been too prissy about the price. I will look to raise this stock to a BUY on any significant weakness in the future.” HOLD.
Nvidia (NVDA), originally recommended by Crista Huff for the Special Situation and Movie Star portfolio of Cabot Undervalued Stocks Advisor, closed at a record high two weeks ago and is very close to eclipsing that mark today. 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). NVDA is a high-P/E, aggressive growth stock. Earnings estimates continue to rise. Wall Street expects EPS to grow 40% and 22% in fiscal 2021 and 2022 (January year-end). Gross margins and revenue are also expected to increase this year. The company has $7 billion remaining in their repurchase authorization as of April 2020. Morgan Stanley raised their price target on NVDA to 380 this week. I’m moving NVDA from Hold to a Strong Buy recommendation. The stock has been trading in a stable pattern since mid-May, largely between 340-370, and touched upon new all-time highs this month.” If you don’t own it and you want a piece of the leading graphics processing chip maker in the world, you could nibble here. 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. I think of it as a more diversified and safer investment than Zoom Video (ZM)—albeit slower-growing. As for the stock, it broke out to record highs in early May, has been consolidating those gains since, and is now very close to exceeding those May highs. HOLD.
Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then Carl Delfeld in Cabot Global Stocks Explorer, is one of those stocks that proves the value of the saying, “Trends often last longer and go farther than expected.” This stock just won’t quit! It hasn’t been even close to its 25-day moving average since early April! In Carl’s update last week, he wrote, “Sea shares have now jumped from a 2020 low of 38 in March to 107, going from 89 to 107 just this past week. While e-commerce and gaming are Sea’s biggest revenue contributors by a large margin, SeaMoney is one of the fastest-growing digital financial service networks in Southeast Asia. Its offerings include e-wallet services, payment processing, micro-lending, and related digital financial services. These services and products are available in various markets across Southeast Asia under AirPay, ShopeePay, Shopee PayLater, and other related brands. Sea is now a hold, but we will be buyers if the stock pulls back. If you have not already sold some your shares, I strongly suggest you do so now to lock in profits.” 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. Having broken out to new highs above 1,000 two weeks ago, the stock is now building a mini-base right at that level. HOLD.
Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor, is the biggest seller of marijuana in Florida, but it’s still a low-priced stock that can make big moves fast. The stock’s last big up move lasted from the market’s March bottom to the stock’s May top (up 133%), and in the month since then, the stock has been consolidating that gain very normally, as its 50-day moving average, now at 11.4, draws closer. BUY.
Tyson Foods (TSN), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Investor, remains in the slow and steady recovery that began in March. In her update last week, Crista wrote, “Earnings estimates for Tyson rose last week. Tyson’s profits are now expected to fall 18.5% in 2020 due to pandemic business disruptions, then rise 35.5% in 2021. The company is expected to deliver record revenues in 2020. The 2020 P/E is 14.0. Last week’s market pullback brought TSN down to strong price support at 60. There’s upside price resistance near 70, where traders should exit.” 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, and if you haven’t bought yet, the current pullback provides a great entry opportunity. In last week’s update, Tom wrote, “Similar to BIP, I like this wireless giant in both an ugly market and a good market. VZ is in the sweet spot of the current situation. It has very limited downside if the market tanks again, yet it can thrive in a rising market as well. People are using cellular service like crazy during the lockdown. This could also lead to higher usage on a permanent basis. And it has 5G as a catalyst in the post-pandemic market. In fact, there is speculation that a new stimulus package will include more 5G funding. You won’t win big with this stock, but you are also highly unlikely to lose.” BUY.
Vertex Pharmaceuticals (VRTX), originally recommended by Mike Cintolo in Cabot Growth Investor, provided a good illustration last week of how stocks can tempt you to sell them—just before they take off to new heights (which is what VRTX did Friday). In his update before that big-volume up day, Mike wrote, “We moved Vertex to hold last week, not because it had done anything terribly wrong, but just because the stock was beginning to lag a bit—it had gone two months without any net progress, which isn’t a sin but did put it behind most growth stocks. We’re not in a hurry to sell, as Vertex’s solid, steady, predictable story from its cystic fibrosis drugs should keep big investors interested, and the firm is even getting some good news from the pipeline, with some positive early-stage results for its gene-editing therapy (in concert with CRISPR Therapeutics) for a couple of major blood disorders. Should the stock get some momentum going, we’re happy to go back to Buy.” Well, the momentum appears to be coming back, so I’ll upgrade the stock to buy now. BUY.
Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, blasted higher this morning after news broke that the company had signed a Space Act Agreement with NASA to “encourage commercial participation in orbital human spaceflight to the International Space Station (ISS) while enabling the development of a robust economy in Low Earth Orbit.” The agreement includes developing a new private astronaut readiness program, identifying candidates for private astronaut missions and procurement of transportation to the ISS and thus increases dramatically the scope of the company’s mission. No one saw this coming and yet this is exactly what you sometimes get when you invest in companies creating the future. In Carl’s update last week (not even Carl saw this coming), he wrote, “I recommended selling half your shares a few weeks back for a 146% gain, so we are now in a strong position to ride this compelling story forward. If you have not yet bought 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, is the second stock in the portfolio (after SE) that just won’t quit—a true momentum stock, and the whole world knows why. Partial profit-taking is certainly a course you should consider here, especially if you’ve become overweighted in the stock, but aggressive momentum players will stick with it while the trend lasts—because trends often go farther than expected. Technically, I’ve got to say that the waning volume of trading is a clue that a top may be near, but fundamentally I can’t ignore the fact that Zoom is in the sweet spot of today’s economic disruption and thus there’s no telling how great the company’s growth will be. HOLD
Zscaler (ZS) originally recommended by Mike Cintolo in Cabot Growth Investor, closed at a record high last Thursday and has pulled back minimally since. If you don’t own it and you want a single cybersecurity stock (rather than today’s ETF, which holds 29 stocks in the sector), you could nibble here. HOLD.
The next Cabot Stock of the Week issue will be published on June 29, 2020.
Cabot Wealth Network
Publishing independent investment advice since 1970.
CEO & Chief Investment Strategist: Timothy Lutts
President & Publisher: Ed Coburn
176 North Street, PO Box 2049, Salem, MA 01970 USA
800-326-8826 | firstname.lastname@example.org | CabotWealth.com
Copyright © 2020. All rights reserved. Copying or electronic transmission of this information is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. No Conflicts: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to its publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved.