February 8, 2021

First, note that next week’s Presidents Day holiday means we will publish Cabot Stock of the Week a day later, on Tuesday, February 16th.

As for the market. last week’s GameStop affair had the potential to trigger a broad correction—but it didn’t. Thus, the bull market remains intact, the buyers remain in charge and I am happy to recommend a fast-growing company with a great story today.

Sadly, that means I need to sell something to stay at or under 20 stocks, and the victim today (locking in a nice profit) is Qualcomm (QCOM).

Details inside.

Cabot Stock of the Week 334

The market’s main trend remains up, and thus I continue to recommend that you be heavily invested. For the past two weeks I’ve recommended rather conservative stocks, in part because of the potential for the GameStop bubble to trigger a broad market correction. But it hasn’t, so today I’m swinging back to pure growth with a very interesting stock that has a great story—and no direct competition. The stock was originally recommended by Mike Cintolo in Cabot Top Ten Trader and here are Mike’s latest thoughts.

Progyny (PGNY)
As a growth investor, I rarely delve into the increasingly regulated world of health insurance, but I always have an open mind, and Progyny is an insurance-related name that’s easy to enthuse about: It appears to be set for years of rapid, reliable growth if management makes the right moves.

The story here is all about babies, specifically the increasing issues most couples (up to one in eight!) are having conceiving; with financial pressures growing (more two-earner households, etc.) and couples having kids later in life (fertility decreases with age), more are using fertility services. However, that help hasn’t been up to snuff, with outdated plan designs, a lack of coverage and limited access to top specialists, which in turn has led to higher-risk pregnancies and (for employers) a batch of stressed out, less productive workers.

But Progyny has a better way, offering a fertility-centric plan that’s integrated with all of the big, national health insurance carriers. The big attractions include a network of 800-plus fertility experts and 600 clinic locations, personalized and unlimited support services (experienced nurses, embryologists and even clinical phycologists), all-inclusive treatment bundles, pharmacy offerings and no mandates (physicians can implement patient-specific plans).

And the results of this focus have proven out: Compared to the national average of those seeking fertility assistance, Progyny’s clients have enjoyed a whopping 52% higher single embryo transfer success rate, a 14% higher pregnancy rate per IVF transfer and a 30% lower miscarriage rate. Bottom line, patients have a 23% higher birth rate and an 80% lower multiples rate (twins, triplets, etc.) with IVF than the norm—and Progyny claims it’s the only company generating these kinds of outcomes.

Obviously, that’s great for the couples themselves, but there’s money involved here too. Big businesses are increasingly offering fertility plans to attract employees, yet they’re seeing huge costs as employees suffer a lack of success. Progyny’s higher success rate means fewer rounds of treatment and less medication, while lower multiples mean fewer higher-risk pregnancies. Translation: Better outcomes means cost savings to big businesses.

So it’s not a surprise that customers are signing up; Progyny has more than 180 clients that cover about 2.7 million lives today, including Microsoft, PayPal, Under Armour, Cerner, Tyson, Uber, Google, Unilever, Hershey, Genentech and more. Even more impressive, two-thirds of its clients left another carrier to work with Progyny (i.e., they already offered some fertility services but switched—and Progyny’s retention rate has approached 100% in recent years. Moving forward, growth is simply about inking more corporate clients to capture what the company believes is a $7 to $15 billion opportunity.

From a stock perspective, the worry is that some big insurance outfit will replicate Progyny’s offering, but we doubt that will happen—or, if it does, it will take years, at which point Progyny will already have much of the market. Said another way, if building this sort of offering and network were easy, someone would have done it long ago, so we think the first-mover advantage (built over many years) is powerful here.

The numbers are about as good as it gets. Growth slowed a bit during the pandemic-influenced Q2, but ramped 62% in Q3 and analysts see the top line lifting 50% in 2021. And the bottom line is in the black as well, with a seven cent per share profit in Q3 and analysts see 43 cents this year. The next quarterly report is likely out late February or early March.

As for the stock, it came public in late 2019, had a good first couple of months and then fell with everything else early last year. But it went on to build a good-looking nine-month base before breaking out around Thanksgiving. The advance since then has been persistent, with the wobble two weeks ago finding good support near the 10-week line. It’s possible this young corrective phase could run longer, so you might be able to buy on another pullback to 45, but we’ll keep it simple as always and buy here.

Current Recommendations

Overall, our holdings continue to perform very well, with no obvious sell candidates. Still, the addition of PGNY means we need to sell something to stay at or under our cap of 20 stocks, and the victim today is Qualcomm (QCOM). Details below.

Changes
Coca-Cola (KO) to Hold
Qualcomm (QCOM) to Sell
Spotify (SPOT) to Hold
Uber (UBER) to Buy

Arcosa (ACA), originally recommended by Tyler Laundon in Cabot Early Opportunities and featured here last week, was bought on a normal correction and has had a nice bounce since. The infrastructure company is due to report earnings on February 25, but you can buy here. BUY.

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor, hit another record high last Friday, and for good reason. As Tom wrote just before that, “This infrastructure partnership reported solid earnings this morning with adjusted funds from operations per share increasing 11.6% year over year and up 2.3% for the full year versus 2019. That rock solid performance came in a year where a pandemic crippled the global economy. The company goes right on generating consistent revenues even when all Hell breaks loose. The partnership is well positioned going forward with recent acquisitions to boost earnings and plenty of liquidity.” Of the two infrastructure companies, BIP is bigger, has lower-risk and pays a far bigger dividend—but has less capital appreciation potential than ACA. BUY.

Coca-Cola (KO), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor, continues to build a bottom, sitting right on top of its 200-day moving average—so technically it’s attractive for bargain-hunters. But the stock is our biggest loser today, and my concern is that the shift away from sugary soft drinks may damage the company more than investors previously anticipated. In his latest update, Bruce wrote, “The stock has about 30% upside to our 64 price target. While the valuation is not statistically cheap, at 23.6x estimated 2021 earnings of $2.09 and 21.6x estimated 2022 earnings of $2.28 (both estimates slipped a cent in the past week), the shares are undervalued while also offering an attractive 3.3% dividend yield.” The company reports earnings on February 10, so the picture may become clearer then. For now, I’ll downgrade the stock to Hold. HOLD.

Columbia Sportswear (COLM) originally recommended by Bruce Kaser for the Buy Low Opportunities portfolio of Cabot Undervalued Stocks Advisor, shot up to a record high last Friday on big volume after management released an excellent fourth-quarter report. Analysts had expected earnings of $1.29 per share but the company delivered $1.44. Bruce’s target for the stock had been 100, and now the stock has topped that, so selling is certainly possible here—but I’ll wait to see what Bruce advises. HOLD.

CrowdStrike (CRWD), originally recommended in Cabot Growth Investor by Mike Cintolo, bounced off support at 200 last week for the second time this year, so technically, the picture is good. As Mike elaborated last week, “CRWD is definitely showing tennis ball action—not only have shares bounced nicely from last week’s lows, but the weekly chart shows a six-week rest with great support at the 10-week moving average last week. That doesn’t mean the stock is done consolidating; another test of the 200 area is always possible, and if the market really rolls over, a deeper correction is likely. Still, the big-picture evidence (both fundamentally and technically) remains bullish (and earnings aren’t out until March 16) so we’re going to go ahead and fill out our position in CRWD today, adding another half-sized (5%) stake.” Fundamentally, of course, the picture is good, too, with CrowdStrike’s cybersecurity services in high demand. BUY.

Elastic (ESTC), originally recommended by Mike Cintolo in Cabot Top Ten Trader, had a nice run last week and now is very close to breaking out to a new high. As explained last week, Mike has sold the stock in Cabot Top Ten Trader, taking a quick profit, but I’m going to try to ride this provider of powerful and flexible data search and manipulation tools to greater profits. HOLD.

General Motors (GM), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor, hit a record high today, as investors continue to pile into electric vehicle stocks—a category that now is perceived to include both General Motors and Ford. In his update last week, Bruce wrote, “General Motors reports earnings on February 10, with the consensus estimate at $1.69. General Motors said it aspires to completely phase out the production of gas-powered vehicles by 2035. This is an aggressive goal, leaving only 15 years to fully transition from producing 7.7 million internal combustion engine vehicles, or ICEs, to 7.7 million electric vehicles. Given the capital spending, engineering complexities, economics, the need for a fully global charging infrastructure, significant government subsidies and unclear consumer demand, we think this target is more of Mary Barra “setting the right tone” than a hard-and-fast requirement. We see fair value at 62, so the shares have about 19% upside to our target price. On a P/E basis, the shares trade at 8.6x estimated calendar 2021 earnings of $6.04 (up a cent this past week).” HOLD.

Huazhu Group Limited (HTHT), originally recommended in Cabot Global Stocks Explorer, shot up to a record high on big volume last Friday and held onto the gains today. I can’t find any news to account for the move; perhaps it’s just a reflection of optimism about travel returning to normal in China. In any event, I’m holding tight, as prospects look great for the largest operator of hotels in China. HOLD.

Molson Coors Beverage (TAP), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor, has now corrected eight days since it briefly topped 55, and the correction still looks normal. In his update last week, Bruce wrote, “Molson Coors reports earnings on February 11, with the consensus earnings estimate at $0.77/share. TAP shares trade at 11.7x estimated 2021 earnings of $4.21. This valuation is low, although not the stunning bargain from a few months ago. On an EV/EBITDA basis, or enterprise value/cash operating profits, the shares trade for about 8.5 current year 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, hit a record high after fourth quarter results were released, then pulled back normally, and is now advancing again. In last week’s update, Tom wrote, “The combination regulated and alternative energy utility announced fourth quarter results that beat estimates. The company grew adjusted earnings per share 11.1% for the quarter and 10.5% for 2020. Earnings were largely driven by the alternative energy business which grew earnings by 15% for the year. NEE is still very much in a long-term uptrend.” Also, I note that in Fortune’s list of “World’s Most Admired Companies” NextEra was just ranked #1 in the electric and gas utilities industry for the 14^th time in 15 years. HOLD.

Nuance Communications (NUAN), originally recommended by Tyler Laundon in Cabot Early Opportunities, hit a record high today so all is well. Long-term prospects for this voice-recognition giant remain excellent. HOLD.

Pinterest (PINS), originally recommended by Mike Cintolo in Cabot Growth Investor, hit record highs last Wednesday, Thursday and Friday on big volume and pulled back minimally today. In his update on Thursday, Mike wrote, “PINS has stormed back after last week’s sharp dip, making the decline look like a shakeout that may have cleared the decks—indeed, PINS actually snapped all the way back to new price highs this morning before finding some sellers. In isolation, we think this action is very bullish … but this action isn’t occurring in isolation—Pinterest will report Q4 results tonight, with revenues expected to rise 61% from a year ago while earnings are set to chime in at 34 cents per share. The reaction will be key, though we’ll have to see how things play out, as PINS now has plenty of wiggle room to pull back if it wants to. Given tonight’s report, we’ll stay on Hold, but we’ll be on the horn if that changes.” Well, the results were very good, as Tyler Laundon reported Friday: “PINS reported yesterday that revenue was up 77% to $706 million, beating by $59 million, while adjusted EPS of $0.43 beat by $0.10. Monthly average users (MAU) grew another 37% (same as last quarter) and are now at 459 million while average revenue per user (ARPU) grew 29% to $1.57, versus up 15% in Q3. In plain English that means the company is generating more revenue per each user, which is great. Management is talking about the things we want to hear about: improving the shopping environment for users, investing in video and developing a creator ecosystem around Story Pins. All have the potential to keep driving MAU and ARPU and turn Pinterest into a more significant shopping site. In short, I think the growth story has legs. The stock popped on the result but has pulled back a little during the day. Best guess is we may see a few days of bouncing around but that PINS can begin to walk higher still.” HOLD.

Qualcomm (QCOM), originally recommended by Mike Cintolo in Cabot Growth Investor and now recommended by Tom Hutchinson in Cabot Dividend Investor, released a good-not-great earnings report last Wednesday, but Citigroup downgraded the stock after the report and on Thursday the stock gapped down on big volume. Technically, the major uptrend is still intact, but I’m going to sell here and take our profit because the stock has had a big run and could easily correct further. SELL.

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then Carl Delfeld in Cabot Global Stocks Explorer, has been up every month since the March 2020 market bottom and it’s been especially strong over the past two weeks, vaulting from 203 to 268. Short term, it looks high, so traders could take partial profits here, but long term, the future is bright. In his latest update, Carl wrote, “Sea is Southeast Asia’s biggest gaming, e-commerce and payments firm with more than 40 million daily active users in a region populated by 655 million tech-savvy consumers. Sea’s strategy so far is relying on its gaming group Garena to generate sufficient cash to fund surging growth in its e-commerce and digital financial services segment. Shopee, the e-commerce arm of Sea, is scaling up its operations in Brazil and evaluating the long-term potential of Latin American markets. Another growth driver with huge potential is SeaMoney, a digital payments platform that ties together its gaming and commerce segments. I’m maintaining a hold rating on the stock but feel free to take some profits from time to time of this impressive stock that was up over 500% in 2020.” HOLD.

Spotify (SPOT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, released its fourth quarter report last week; revenues were up 27% from the year before to $2.65 billion, but earnings are still in the red, as the company is still investing in growth. In response, the stock dipped below its 50-day moving average and remains there today, sitting on support at 310 where it bottomed a few weeks ago. From here, it could go either way. If it goes south, I’ll aim to get out fast, as we already have a small loss. But for now I’ll simply downgrade it to Hold. HOLD.

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has been treading water between 800 and 900 for the past four weeks, digesting its massive gain from 2020 as its major U.S. competitors (GM and Ford) pull out all the stops in an effort to catch up, product-wise. Traders could cash in some partial profits here, but long-term investors can hold. Tesla still has great growth potential, and may even see its energy business exceed its automotive business someday! HOLD.

Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor, bounced off its 25-day moving average last Monday and has been up every day since. It’s possible the stock will break out to new highs from here, but technically, the odds are that a little more consolidation is likely. Fundamentally, the sector as a whole remains in high-growth mode, and the upcoming earnings reports from the group will be very revealing. HOLD.

Uber (UBER), originally recommended by Mike Cintolo in Cabot Growth Investor, posted a new high this morning (by just pennies), but there’s no reason to believe it won’t achieve a true breakout soon. In last week’s update Mike wrote, “UBER is being placed back on Buy, as last week has all the makings of an early-stage shakeout—the stock plunged on no real news, diving below its 50-day line and its December lows, but has rebounded beautifully thanks to some big news: The firm is buying Drizly (for $1.1 billion of cash and stock), which is a nationwide alcohol delivery service (available in 1,400 cities in the U.S.) and will be integrated into Uber Eats’ offerings. One doesn’t have to be a seer to imagine how this could be huge over time (Drizly reportedly grew 300% last year!), and it continues the big-picture trend of Uber being the delivery option of choice for a widening number of products (groceries, takeout, prescriptions and now alcohol). Back to the stock, the company will report earnings next week (February 10), and the gap from Tuesday’s gap up (in the 53 to 55 area) could be filled. But our guess is that the up-and-down action of the past couple of months, along with last week’s dive, likely shook out most of the weak hands. If you own some, hang on, and if you don’t, we’re OK at least starting a position here (maybe go half-sized given earnings risk next week).” I’ll upgrade to Buy. BUY.

Xcel Energy (XEL), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Safe Income Tier, and featured here two weeks ago, is a little lower today and that just makes it a better buy. In his update last week, Tom wrote, “This smaller and more volatile alternative energy utility announced earnings last week that matched estimates. The utility grew earnings year over year but at a slightly slower pace due to the challenges from the pandemic economy. XEL is near the low point in a pattern that moves up and down on a longer-term uptrend. It’s been struggling of late as investors focus on other things. It is well positioned as a safe stock in a high market and an alternative energy leader with a much more climate change-oriented Administration.” BUY.

Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is what is sometimes called a “concept stock.” It has no earnings but it has huge potential—and if you believe in space tourism, it’s the stock to own. In that way, it’s similar to Tesla (to pick a winner) ten years ago. And now—for better or worse— it’s been swept up in the GameStop/Reddit social media trading movement. In his latest update, Carl wrote, “shares have rocketed from 23 to 57 ahead of all expectations and fundamentals. We recently sold a half position and will let the remaining half position ride. On the positive side, private companies in the space sector are limited and there are three ETFs being planned for this sector, which will clearly generate demand. Given all the uncertainty regarding the timing of tests and then the launch of the spaceplanes, I will keep this stock a hold but you should feel free to sell some shares based on your time horizon and risk tolerance.” HOLD.

The next Cabot Stock of the Week issue will be published on February 16, 2021.

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