The market strength of the past week has turned our intermediate-term market timing indicator positive once again, so it’s a good time to buy, especially if you focus on the leaders, like this week’s recommended stock, which has a novel and effective treatment for cancer.
As for our current holdings, some are hitting new highs today, while some have taken a hit, as investors sell stocks (like Zoom) that benefitted from the pandemic. But one day does not a trend make; we’re selling nothing today.
Cabot Stock of the Week 323
The news that Pfizer has a promising Covid vaccine, combined with the weekend news that Biden/Harris won the presidential election, triggered a wave of buying (and selling) on Wall Street this morning, rewarding both large caps and small caps while penalizing (at least temporarily) stocks that had benefited from the COVID shutdown. Coming on top of last week’s strength on the realization that Congress would remain divided, this action is enough to turn our intermediate-term market timing indicator back to the positive side again, and thus I recommend that you be heavily invested in stocks with great growth potential, like this week’s featured stock. It was originally recommended by Mike Cintolo in Cabot Top Ten Trader and here are Mike’s latest thoughts.
Healthcare stocks in general can be tricky, as regulatory changes (including those involving payments from government programs) or rumors of competition can send prices lower. But if you find a company with a unique offering, it can produce dependable, rapid growth for many years as its product is adopted across the industry. That looks to be the case with Novocure, which has what could be a major advancement in the treatment of many types of cancer if all goes according to plan.
The company’s product is known as Optune, and instead of using a chemical or drug to attack cancer, it uses what are known as tumor treating fields—basically, electrical fields that exert force on molecules from a distance. At the right frequency, Optune has shown the ability to inhibit cancer cell growth and eventually kill off cells. Today, it’s mostly used as an add-on to other forms of treatment (chemo, radiation, immunotherapies), having been shown to improve the effectiveness of those treatments.
The delivery system for Optune is also unique; this isn’t something you sit in the hospital to get. Instead, patients carry around the device in a backpack or over-the-shoulder bag, able to go about their daily activities just like normal, which is key given that treatment can often go for hours at a time.
At this point, Optune is approved for two indications. The first is glioblastoma, a deadly brain tumor that, even with treatments, has a median survival rate of just 16 months. However, when combined with Optune’s electrical fields, 86% of patients saw some survival benefit, with increases in survival seen all during the following five years. (Just 31% survived without Optune after two years, vs. 43% with, etc.) And the more a patient used Optune, the greater the benefit.
The second indication is for mesothelioma, a cancer often known in relation to asbestos cases. It was the first new treatment of any kind for this cancer in 15 years, and again has shown solid survival benefits.
Those two indications (almost all glioblastoma at this point) have resulted in excellent growth as Novocure has penetrated markets in the U.S., Europe, Japan and now China. While they’re relatively niche indications, the company has treated north of 17,000 patients and has more than 3,300 patients currently using the device, up 22% from a year ago. The consistent growth has pushed revenues up between 34% and 44% each of the past four quarters, while earnings are creeping up from breakeven (9 cents per share in Q3, up from two cents a year ago).
That’s all to the good, and analysts see solid growth next year, albeit slowing a bit (low 20% sales growth, though earnings should be up more than 80%), which should keep buyers interested. But the real payoff could come from numerous studies Novocure is undertaking to prove Optune works on various other cancers. All in all, there are expected to be five key data readouts in 2021, including two Phase II sets of results (for advanced liver cancer and gastric cancer) and three interim readouts of Phase III data (non-small cell lung, pancreatic and ovarian cancer). Whereas right now Optune’s indications address a market of around 15,000 new diagnoses per year in the U.S., if all goes well that will grow to 90,000 within three years and 350,000 or so in five years.
Of course, there’s always risk with these trials; if data comes back uninspiring, investor perception could hit the skids. That’s the medical industry! But there’s no question Optune has proven useful in a couple of relatively rare, tough-to-treat cancers, so management is obviously optimistic.
As for the stock, it topped out in the summer of last year and had lots of ups and downs after that; even after the crash this March, the stock languished for months. But buyers began to show up in July, the stock lifted to new highs in September and then boomed as high as 141 in October before a tough pullback with growth stocks (and a convertible share offering). Even so, NVCR did nothing wrong—it held its 50-day line—and has begun to bounce, offering what looks like a solid entry point.
|NVCR||Revenue and Earnings|
|Forward P/E: 323||Qtrly Rev||Qtrly Rev Growth||Qtrly EPS||Qtrly EPS Growth|
|Current P/E: 664||($mil)||(vs yr-ago-qtr)||($)||(vs yr-ago-qtr)|
|Profit Margin (latest qtr) 7.0%||Latest quarter||133||44%||0.09||350%|
|Debt Ratio: 69%||One quarter ago||116||34%||0.02||300%|
|Dividend: NA||Two quarters ago||102||39%||0.04||131%|
|Dividend Yield: NA||Three quarters ago||99||42%||0.04||124%|
|Stock||Date Bought||Price Bought||Yield||Price on 11/9/20||Profit||Rating|
|Agnico Eagle Mines (AEM)||9/22/20||79||1.0%||77||-3%||Buy|
|B&G Foods (BGS)||7/28/20||27||7.0%||27||0%||Buy|
|Columbia Sportswear (COLM)||7/21/20||79||0.0%||81||2%||Buy|
|Digital Realty Trust (DLR)||9/29/20||147||3.2%||141||-4%||Hold|
|Eli Lilly & Co (LLY)||9/1/20||148||2.1%||143||-3%||Buy|
|General Motors (GM)||11/3/20||35||4.4%||39||10%||Buy|
|Huazhu Group Limited (HTHT)||3/30/16||9.28||0.0%||45||389%||Hold|
|Molson Coors Brewing Co (TAP)||8/25/20||38||0.0%||42||9%||Buy|
|NextEra Energy (NEE)||3/27/19||49||7.2%||78||60%||Hold|
|Nuance Communications (NUAN)||11/27/20||33||0.0%||35||4%||Buy|
|Quanta Services (PWR)||—||—||—||—||—||Sold|
|Sea Ltd (SE)||1/21/20||41||0.0%||171||318%||Hold|
|Taiwan Semiconductor (TSM)||8/18/20||80||3.2%||89||11%||Buy|
|Virgin Galactic (SPCE)||10/11/19||9.24||0.0%||21||126%||Buy|
|Zoom Video (ZM)||3/17/20||108||0.0%||428||297%||Hold|
The addition of Novocure brings the portfolio to a fully invested (20 stocks) position, and that’s where it will stay for now. While this morning’s sharp moves may signal some trend changes, we need some more time to be sure. So as always, we’ll watch the charts and act accordingly. The only change this week is an upgrade of Columbia Sportswear (COLM) to Buy.
Columbia Sportswear (COLM) to Buy.
Agnico Eagle Mines (AEM), originally recommended by Mike Cintolo in Cabot Growth Investor, was down sharply this morning but remains in the trading range that’s confined it for nearly three months, still ripe for an eventual breakout to new highs. If you haven’t bought yet, and you worry that economic policies both in the U.S. and globally will send gold prices higher, you can still buy here. BUY.
Azek (AZEK), originally recommended by Tyler Laundon in Cabot Early Opportunities advisory, has pulled back substantially over the past few weeks, but technically, it hasn’t turned negative yet. And fundamentally, I will believe that the pandemic-related spending on home improvement—rather than travel and entertainment—will work in Azek’s favor as time goes by. HOLD.
B&G Foods Inc. (BGS), originally recommended by Tom Hutchinson for the High Yield Tier of Cabot Dividend Investor, released a fine third quarter report last week, showing revenues of $496 million, up 22% from the year before, and EPS of $0.74, up 37%. Neverthless, the stock sold off this morning as the market shuffled the deck, with BGS temporarily breaking through September support levels, though buyers quickly stepped in and now the stock is back in its consolidation pattern. In his update last week, Bruce wrote, “The stock is not only a good defensive play for the rest of the pandemic but it should be good on the other side as well. It’s still cheap, it pays a massive yield and it is now a company with solid long-term growth prospects.” BUY.
Columbia Sportswear (COLM) originally recommended by Bruce Kaser for the Buy Low Opportunities portfolio of Cabot Undervalued Stocks Advisor, gapped up this morning, but is still below its highs of mid-October, which preceded the disappointing third quarter report of two weeks ago. In his update last week, Bruce wrote, “Overall, it appears that the company is struggling with weak brick-n-mortar store sales as customers have remained generally leery of in-person shopping at Columbia stores and the wide range of third-party retailers that carry Columbia merchandise. Also, there have been some supply constraints that have limited shipments to retailers, as well as volatility in retailer orders due to their uncertainty surrounding the pandemic. Sales in Latin America and Asia Pacific (China, Korea, Japan) were unexpectedly weak, as well. Encouragingly, e-commerce sales jumped 55% (to a still-small 12% of total sales). Columbia’s balance sheet remains solid, holding $315 million in cash and no debt, providing it with considerable financial flexibility. As price-sensitive investors, we are moving Columbia shares back to a BUY. The shares are now modestly below our initial recommendation price, driving their renewed appeal. Columbia’s long-term earning power appears unimpeded but is being pushed out into the future compared to what we had initially anticipated. Also, we think the company is being exceptionally conservative with its forward guidance, given the wide range of uncertainties and the danger that another significant “miss” would more severely damage their credibility. From a technical perspective, the shares are likely washed out, yet would benefit from any post-election stimulus.” I’ll upgrade to Buy. BUY.
Digital Realty Trust (DLR), originally recommended by Tom Hutchinson for the Dividend Growth Tier of Cabot Dividend Investor, dipped below its 50-day moving average this morning but remains in a slow, long-term uptrend. In his update last week, Tom wrote, “This data center REIT announced earnings last week that disappointed investors. The stock fell as earnings missed the target. However, analysts maintained their price projections for the stock as they built in a very small effect going forward, which is likely why DLR appears to be rallying back. This is still a rock solid REIT with a tremendous niche that will continue to prosper going forward.” HOLD.
Eli Lilly & Company (LLY), originally recommended by Tom Hutchinson for the Dividend Growth Tier of Cabot Dividend Investor, gapped down two weeks ago when the National Institute of Health halted the trial of its most promising COVID treatment, surged higher last week when the realization that we’ll have a divided Congress put to rest fears of massive changes in our health care system, and now is pulling back normally from that surge. In his update last week, Tom wrote, “Lilly is riding the post-election health care euphoria wave big time. The stock got knocked back when its most promising COVID drug failed, and now it’s on fire. But all these recent events are mostly nonsense. The real reason that LLY is a great stock is because the company has a fantastic pipeline and a proven ability to execute amidst the powerful tailwind of an aging population. I think the stock should get a move on now that the sector is being reawakened.” BUY.
General Motors (GM), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor and featured here last week, reported third quarter results last week, revealing revenues of $35.5 million, unchanged from the year before, and EPS of $1.72, down 28% from the year before but better than analysts’ consensus of $1.43. In his update last week, Bruce wrote, “The stock has about 26% upside to our 45 price target. The target price implies 8.2x multiple on 2022 estimated earnings of $5.50. GM shares trade at 12.8x estimated 2020 earnings of $2.80 and 7.5x estimated 2021 earnings of $4.79. Both estimates moved up from a week ago. GM remains an attractive cyclical stock.” BUY.
Huazhu Group Limited (HTHT), originally recommended in Cabot Global Stocks Explorer, is China’s largest hotel operator, with 6,507 hotels and 637,087 hotel rooms in operation in 16 countries—and we’re in it for the long haul, as the long-term prospects are great. Last week the company announced preliminary results for the quarter ended September 30, writing, “During Q3 2020, despite some mini-outbreaks in several cities, our occupancy rate recovery continued, thanks to China’s effective control of the COVID-19 pandemic. In addition, our average daily room rate had also recovered gradually along with the occupancy rate. More importantly, leisure traveling was the key driver to lead this recovery, which had resulted in outstanding performance of our upper-midscale and upscale brand hotels.” The stock gapped up to new recovery highs this morning. HOLD.
Molson Coors Beverage (TAP), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor, spiked sharply higher this morning, and then pulled back a bit, but overall, the picture looks great here. In Bruce’s update last week, he wrote, “Recent financial results have been encouraging. Molson Coors results showed that the company is making progress with its turnaround and that investors underestimate this progress. Net revenues of $2.75 billion fell 3.1% from a year ago, but about 4% better than consensus estimates. Adjusted per share earnings of $1.62 were nearly 60% better than estimates. Underlying EBITDA of $713 million was 1% higher than a year ago. We anticipate that the company will resume paying a dividend mid-next year. A $0.35/share quarterly dividend is possible, which would provide a generous 3.6% yield on the current price. The company produced $433 million in cash from operations and reduced its net debt by $266 million. In many ways, these are the most two important statistics for the Molson Coors story – if cash flows and debt repayment remain healthy, eventually the company’s underlying value will become obvious to the market, as will its ability to pay a respectable dividend. The shares have about 53% upside [now 44%] to our 59 price target. The shares trade at 9.3x estimated 2020 earnings of $4.15 and (the same) 9.3x estimated 2021 earnings of $4.15. Both estimates rose from last week. These valuations are remarkably low. On an EV/EBITDA basis, or enterprise value/cash operating profits, the shares trade for about 7.3x estimates, among the lowest valuations in the consumer staples group and well below other brewing companies.” BUY.
NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, gapped up to record highs this morning, leaving behind a solid four-week base. In his update last week, Tom wrote, “This combination regulated utility and alternative energy juggernaut is a superstar. The market recovery has not been kind to the utility sector. But NEE is up over 25% YTD. In fact, this utility stock has provided an average annual return of 20% over the last 10 years and 26% over the last five. You can own a conservative utility and still generate the outsized returns from a promising alternative energy company. NEE is the best of both worlds and investors will continue to heap piles of love on this stock. Go baby go.” HOLD.
Nuance Communications (NUAN), originally recommended by Tyler Laundon in Cabot Early Opportunities and featured here two weeks ago, dipped briefly below its 50-day moving average two weeks ago but is back above it now and within spitting distance of breaking out to record highs. If you want to invest in the leader in conversational artificial intelligence, it’s not too late. BUY.
Pinterest (PINS), originally recommended by Mike Cintolo in Cabot Growth Investor, gapped up two weeks ago after releasing an excellent third quarter report and shares have chopped around since, while the stock’s 50-day moving average way down at 45, works to catch up. In last week’s update, Mike wrote, “We’ve written many times that Pinterest has the story, numbers, and chart to be a powerful new leader, and that looks to be playing out after the firm’s blowout Q3 report. The headline numbers (sales up 58%, earnings of 13 cents per share up from a penny a year ago) and sub-metrics (user growth of 37%, continuing the prior quarter’s strong trends) were impressive, but just as encouraging was some of the commentary from the top brass: New users this year, for instance, have shown higher retention and engagement than prior new-user cohorts; video uploads were up seven-fold, boosting sticky content; and, sales-wise, new ad tools (automatic bidding for conversions launched in July and has been a huge hit) and more shopping-related links have helped. Looking ahead, Pinterest’s one-of-a-kind offering for both users and advertisers should produce tons of upside, especially as revenue-per-user (just $3.85 in U.S., which is low compared to other properties; Snap’s comparable figure is nearly $5.50) lifts as ad tools continue to improve. The stock soared after the news and, while there have been a few wiggles since then, PINS remains in great shape—it may consolidate further, but we’d bet big investors will be building positions in what looks like one of the next hot online stories.” BUY.
Qualcomm (QCOM), originally recommended by Mike Cintolo in Cabot Growth Investor and now recommended by Tom Hutchinson in Cabot Dividend Investor, released a superb third quarter report last week, which sparked a gap up from 130 to 145, and the stock has held up in that region since, inching a little higher today. In brief, revenues were $6.5 million, up 35% from the year before, while EPS was $1.45, up 86% from the year before. I’ll give you Tom’s full analysis next week. BUY.
Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then Carl Delfeld in Cabot Global Stocks Explorer, was up every day last week—and then sold off this morning in the growth stock turmoil, though the damage was minimal. In his update last week, Carl wrote, “Shares jumped from 165 to 177 over the last week as the company announced its next earnings report is scheduled for November 17. Sea’s last quarterly report underlined the company’s soaring online activity in Southeast Asia just like it did in the rest of the world, and their revenue grew by more than 100%, year over year, with strength from both their profitable gaming business and their unprofitable e-commerce platform Shopee, which you might think of as sort of like Shopify for that region of the world. Sea’s gaming division, Garena, is their cash-flow generator, thanks mostly to their Free Fire game, which is wildly popular in Latin America and Southeast Asia. More recently, it has entered the Latin American and Indian markets. No change in my hold rating but aggressive investors can add to their position and if it pulls back with a weaker market, I will consider moving this back to buy.” HOLD.
Taiwan Semiconductor (TSM), originally recommended by Carl Delfeld of Cabot Global Stocks Explorer, was up every day last week and was even higher this morning before turning down! In his update last week, Carl wrote, “Shares made a nice move this week from 84 to 89 as China announced major investments in its semiconductor industry. China is light years behind this company, which dominates global chip fabrication with a market share of 56% while delivering an impressive return on equity of 31%. The new Apple 5G phone is powered by Taiwan Semiconductor’s A14 bionic chipset, and features an incredible 11.5 billion transistors – 40% higher than the A13. I maintain a buy rating on this stock.” BUY.
Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, remains in the consolidation pattern that has occupied it over the past two months, but there’s little doubt in my mind that higher prices are ahead. And Mike thinks so too, as he added it to his Watch List in Cabot Growth Investor last week, writing, “Our general take on leading stocks is that (a) most of the best names already got going after the March implosion (there will be some fresh ones going forward, of course, but the spring/summer leaders likely won’t up and die), but (b) most are still in rest periods after massive March-August runs. TSLA fits squarely in that category, as it’s 10 weeks into a consolidation like the market itself. There remains a lot of short interest here (53 million shares or more than 5% of the company) as many focus on a pickup in competition; upstarts like Nio in China and even stodgy GM in the U.S. are investing in the industry, and there are plenty of others out there. But there’s no question Tesla is the leader (in terms of features, market share and sex appeal), and after years of snafus, the firm has finally turned the operations side of its business around—in Q3, for instance, vehicle production rose 51% to 145,000—and the company is busy boosting capacity (its Fremont facility can now make a half a million Model 3s and Ys annually; in Shanghai, Model 3 capacity is up to 250,000 annually) as demand continues to skyrocket. And, for the first time in years, that’s led to stunning profits: Earnings are expected to rise to north of $2.00 per share this year (up from basically breakeven a year ago), with free cash flow possibly larger than that, and 2021 is expected to show another big (60%) increase. The solar and battery businesses also have long-term upside, but the immediate future will likely come down to the car side of things. Back to the stock, it could easily chill out a while longer, but we like the fact that TSLA hasn’t given back much of its massive advance and now we see volume and volatility declining. We think it can enjoy another good run if/when it starts showing some decisive strength.” HOLD.
Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor, is one of the leading vertically integrated multi-state operators in the U.S.—with particular strength in Florida, where it has roughly 50% market share. And it’s one of the most well-run as well, posting profits since 2017—while many peers are still losing money. And now the stock has gapped up to a record high, surpassing its peak of August! Fundamentally, last week was huge for the legal marijuana industry, with voters in every state where it was on the ballot (Arizona, Mississippi, Montana, New Jersey and South Dakota) voting yes by clear majorities, and all the leading stocks in the industry are now looking strong. Third quarter results will be released November 17 before the market open. Technically, I’ll leave TCNNF rated buy, because the main trend is up, but with all the good news out, it may be wise to wait for a pullback. BUY.
Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, was up strongly today. In his update last week, Carl wrote, “As the only pure play space tourism stock in public markets, this remains your best way to gain exposure to this megatrend. Analysts at UBS said this emerging industry could produce revenues of $38 billion per year by 2029. Therefore, this company has big-time potential and is just one or two flights away from completing all of its necessary Federal Aviation Administration (FAA) milestones. If the next two missions run smoothly, Virgin Galactic plans to send founder Richard Branson up in the first quarter of 2021. Aggressive investors should be buying at these levels ahead of 2021 developments.” BUY.
Zoom Video (ZM), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has benefitted enormously from the pandemic shut-in, but the possibility that a Covid vaccine will crimp growth of the video service brought out the sellers this morning—and they gapped the stock down below its 50-day moving average. If you haven’t taken partial profits in this big winner yet, I recommend that you do it now. The stock could be in for a prolonged consolidation. HOLD.
The next Cabot Stock of the Week issue will be published on November 16, 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.