June 21, 2021

The bull market rolls on, and our portfolio continues to deliver, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is making a repeat appearance, because we lost it on a shakeout earlier this year and I think it’s worth trying again.

As for the current portfolio, Tesla (TSLA) and Trulieve (TCNNF) are upgraded to buy, but we’re selling Coca Cola (KO), mainly because something’s got to go.

Details inside.

Cabot Stock of the Week 353

One of the consequences of capping this portfolio at 20 stocks is that I have to sell stocks just as fast as I recommend them—on average once a week. This process means I’m regularly forced to identify the weakest prospects and kick them out, and this is usually good; one of the most common mistakes of beginning investors is holding on to stocks that should have been sold long ago. But sometimes the process backfires, and such is the case with today’s stock, which I first recommended on February 8 of this year. By March 29, it was the biggest loser in the portfolio, down 15%, so I kicked it out. But since that very day, the stock has performed splendidly, and because I still think highly of the company’s story, I’m taking another whack at it today. (Kudos to subscribers who have held firmly since February.) The stock was originally recommended by Mike Cintolo in Cabot Growth Investor and here are Mike’s latest thoughts.

Progyny (PGNY)
These days, when you think of “growth stocks,” it’s hard for your mind not to go to cloud software, cybersecurity, e-commerce and online help for small and mid-sized businesses. Progyny doesn’t fit in any of those categories, but that’s fine by us—the company has a unique, one-of-a-kind growth story that we think can take it just as far as the sexiest software or Internet stock.

Progyny is all about babies, specifically the increasing number of hiccups couples are having in conceiving. The main reason for this is obvious to anyone who’s had kids: For a variety of reasons, people are choosing to have kids later in life, and fertility decreases with age. Throw in the added stresses of the world (more two-earner households, etc.) and more people are in need of fertility services.

But there’s a lot of room for improvement in many of those services—the health plans are generally outdated, with many having a lack of coverage and limited access to top specialists. That’s not only led to worse outcomes (fewer babies), but also an elevated number of higher-risk pregnancies (twins, triplets etc.), which is bad for patients and for companies that want happy, productive workers.

Progyny has stepped into this gap with its own offering, and it’s proving to be a hit. Its health plan is fertility-centric and offers things others don’t, including access to the largest network of fertility specialists (more than 800) and 600 clinic locations (many of which don’t participate in standard carrier networks), unlimited and personalized support services and some innovative, all-inclusive treatment bundles that users can choose from. There’s also pharmacy services, and Progyny can be integrated into most any insurance carrier.

It all sounds good, but what really counts are the results, and that’s really where Progyny shines. In the latest data (updated in Q1 of this year), users of the company’s offerings saw a pregnancy rate 16% above the national average, while the miscarriage rate was a whopping 26% lower, which obviously means happier and healthier customers. Possibly more impressive is that the multiples rate (twins, etc.) is a huge 72% below average, which translates into far fewer high-risk pregnancies. All of that is good for the parents to be, but it’s also a boon to employers; higher success rates mean fewer IVF rounds need to be funded, and fewer high-risk cases means a more productive workforce.

Translation: It’s a win-win for all involved, which is why Progyny’s offering is catching on fast. At the end of Q1, the firm had 198 clients after onboarding 44 new ones in Q1 (like most insurance companies, most new business comes in on January 1). And that includes a bunch of big names like PayPal, Microsoft, Cerner, Tyson, Uber, Google, Genentech and many more. Possibly most impressive is that once firms sign on, they stick around—the firm says its renewal rates have been near 100% for the past few years.

There’s always the possibility that another big insurance carrier will try to replicate Progyny’s offering, but this isn’t something you just put together in a few months, especially if you get into the details of the company’s various options it offers consumers. Competition or no, there’s no question Progyny is in the lead, and we think the demonstrated improved “performance” is a big pull.

Growth here has been both rapid and reliable—sales growth has slowed a touch but still was up 51% in Q1, while earnings are well into the black and projected to boom this year (up 171%, granted off a low base) and more in the years ahead (up 39% in 2022). We don’t see any reason the firm can’t increase its user base many-fold going ahead.

As for the stock, it came public in October 2019, had a good first few months then built a big launching pad for many months. The breakout came last November, and PGNY had another nice run before getting caught up in the growth stock correction. Still, the action, while choppy, wasn’t bad—PGNY etched higher lows in March, April and May, and then burst ahead to new highs as soon as growth stocks perked up. Shares have since rested for three weeks, which we think marks a solid entry point.

Current Recommendations

Last week a reader wrote, “I’m a relatively new subscriber to your stock of the week program. I’m trading what now appears to me to be a relatively small account - $120,000 (although it’s not small to me). Some of the recommendations you make are for some pretty high dollar stocks, like Tesla, ASML and Broadcom, where buying a 100 share round lot would be 50% or more of the account in one stock, which I know would be a bad idea. What I’m asking your opinion on is whether it would be better to skip the high priced stocks for now, or buy 5 or 10 shares when possible (about 5% of the portfolio) to have some exposure to every name? Right now I’m tending to skip the expensive ones.”

My answer: You should focus on dollars, not shares. With most brokers, there’s no advantage to buying round lots these days. The only time I consider price is when it’s below 10, because stocks down there tend to be higher risk. So generally I avoid them.

As for our portfolio today, generally things look good, but the addition of PGNY to the portfolio means we now have to sell something, and the victim is Coca-Cola (KO). Details below.

Changes
Coca-Cola (KO) to Sell
Roblox (RBLX) to Hold
Tesla (TSLA) to Buy
Trulieve (TCNNF) to Buy

ASML Holding (ASML), originally recommended by Mike Cintolo in Cabot Growth Investor and featured here two weeks ago, is a Dutch manufacturer of high-end photolithography machines in high demand by semiconductor manufacturers—which, as we all know, are working full speed to fill the world’s demand for chips. The stock hit a new high last week and has pulled back since. BUY

Broadcom (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, peaked at 495 back in mid-February, and the stock has been working to break through that level since. In his issue last week, Tom wrote, “I believe this beast is being held back temporarily by the consolidation in the technology sector. Beyond this short-term noise, Broadcom is ideally positioned as a crucial technology infrastructure leader that will benefit as technology proliferates and also as 5G rolls out. It could bounce around for a while, but it is still a good buy for the longer haul.” BUY

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, has pulled back normally since hitting a record high two weeks ago. In his update last week, Tom wrote, “Brookfield is in a bidding war with Canadian midstream company Pembina Pipeline (PBA) for Canadian oil infrastructure company Inter Pipeline (IPL). Acquiring IPL could be a needle-mover and the stock may bounce around a bit as news on this acquisition comes out.” BUY

Coca-Cola (KO), originally recommended by Bruce Kaser for the Growth/Income Portfolio of Cabot Undervalued Stocks Advisor, has pulled back normally since hitting a new high three weeks ago. In his latest update, Bruce wrote, “Coca-Cola and other companies including Amazon, Apple and Nike, were mentioned in a recent Senate hearing as being complicit in Chinese forced labor. While we expect no direct immediate effect on any of these companies, the hearings are but one of many indicators of rising risks for companies that have significant operations or source raw materials or components from China (basically a large swath of publicly traded American companies). While verbal skirmishes between the U.S. and China have been unofficial and mild, they are becoming more official and less mild, as seen in the recent G-7 statements. While outright hostilities would seem a long way away, they are not getting any further away. KO shares have about 16% upside to our 64 price target. While the valuation is not statistically cheap, at 25.4x estimated 2021 earnings of $2.18 (unchanged in the past week) and 23.5x estimated 2022 earnings of $2.36 (unchanged), the shares remain undervalued given the company’s future earning power and valuable franchise. Also, the value of Coke’s partial ownership of a number of publicly traded companies (including Monster Beverage) is somewhat hidden on the balance sheet, yet is worth about $23 billion, or 9% of Coke’s market value. This $5/share value provides additional cushion supporting our 64 price target. KO shares offer an attractive 3.0% dividend yield.” Thus, there’s a good argument for holding. However, I’m going to sell here, because I’ve got to sell something and this stock has made almost no progress since our November buy. SELL

Columbia Care (CCHWF), originally recommended in Cabot Marijuana Investor by yours truly, last week announced an agreement to acquire Medicine Man Denver, which has four dispensaries and one cultivation facility in the Denver area. The deal, expected to close in the fourth quarter of this year, will be immediately accretive to Columbia’s gross margin, adjusted EBITDA and free cash flow. But the stock doesn’t look good here, as it’s fallen below its 200-day moving average as well as previous support at 5.25. Plus, it’s the portfolio’s biggest loser. Thus, the simplest course is to sell. But I’m going to give it more rope, partly because with low-priced stocks, higher volatility is to be expected, and partly because on a fundamental basis (price/sales ratio) this stock looks like a better value than many of its larger competitors. BUY

Five Below (FIVE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continues to work at breaking out above resistance at 200 that has constrained it since January. In his update for Cabot Growth Investor last Thursday, Mike wrote, “Five Below’s growth story is very much intact, as was revealed in the recent quarterly report. We’re encouraged to see earnings estimates kite higher since then, not just for this year ($4.74 per share now expected vs $4.22 before the report) but next year as well ($5.54 vs $5.12), which is important given that some of the Q1 beat came from a lower tax rate—Wall Street is coming around to the view that the company should have higher margins in the post-COVID world as the firm’s spending slows and its digital efforts bear fruit. Even so, the stock remains stuck in the mud; the positive earnings reaction ran into resistance near the 50-day line (not abnormal) and has backed off, but net-net, not much has changed with the chart. The sector has become a bit of a worry (many ’turnaround’ retailers have stalled out, which could present some near-term uncertainty), but all told, the odds continue to favor the next big move being up as the best-in-class growth story plays out. Back to the chart, a plunge below longer-term moving averages (lower 170s) would certainly be a red flag, but right here we advise continued patience as we wait for the overall uptrend to resume.” HOLD

General Motors (GM), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, has pulled back normally since its record high of two weeks ago. In his update last week, Bruce wrote, “The company announced that it will build additional electric vehicle battery factories in the United States. Also, would-be competitor Lordstown Motors appears to be collapsing. GM shares have 14% upside to our recently-raised 69 price target.” HOLD

Huazhu Group Limited (HTHT), originally recommended in Cabot Explorer, remains a long-term hold, as growth prospects remain great for the largest operator of hotels in China. The stock has been trading in a consolidation zone between 50 and 60 for a few months, but will almost certainly break out to the upside in time. HOLD

HubSpot (HUBS), originally recommended by Tyler Laundon in Cabot Early Opportunities, broke out to a record high last Friday on good volume and can still be bought here. BUY

Molson Coors Beverage (TAP), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, has pulled back sharply from its record high of two weeks ago, but Bruce is keeping his eye on the target. In his update last week, he wrote, “TAP shares have about 16% upside to our recently raised 69 price target. The shares trade at 15.3x estimated 2021 earnings of $3.90 (up a cent this past week). Estimates for 2022 were unchanged. On an EV/EBITDA basis, or enterprise value/cash operating profits, the shares trade for about 9.8x current year estimates, still among the lowest valuations in the consumer staples group and below other brewing companies.” HOLD

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, peaked at 88 in January and bottomed at 68 in February and though the stock has not been strong lately, the pattern of higher lows that it’s established since that bottom is encouraging. In his latest update, Tom wrote, “This combination regulated and alternative energy utility is down but not out. After relentlessly forging higher for a long time, this juggernaut lost its mojo. It’s still down about 15% from the high in January. But nothing has changed fundamentally, and the environment ahead will likely be even better for NEE than before as the new Administration showers clean energy companies with subsidies and tax breaks and other goodies.” BUY

Nvidia (NVDA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has had an amazing run over the past ten years, zooming from 12 to over 700, and it’s not done yet! The company’s graphics processing chips are in high demand from video game makers, data center managers and automobile manufacturers, and the stock reflects this demand, hitting another new high just last week. BUY

Palantir Technologies (PLTR), originally recommended by Carl Delfeld in Cabot Explorer, has been trending higher since releasing an excellent first quarter report on May 11, but still has a long way to go to match its January high of 45. The company’s bread-and-butter is big government contracts and all signs suggest that those will only increase. BUY

Realty Income (O), originally recommended by Tom Hutchinson for the High Yield Tier of Cabot Dividend Investor, has pulled back normally since hitting a record high two weeks ago. In his update last week, Tom wrote, “This legendary income stock also made a new post-pandemic high within the last week. It too is still well below the pre-pandemic price despite higher earnings. Realty deserves a higher price, and it is benefiting from the high demand for income and value in this sideways market.” BUY

Roblox (RBLX), originally recommended by Mike Cintolo in Cabot Growth Investor, is a big mover, and for the past two weeks it’s been moving down. In his update last week, Mike wrote, “Roblox had been pulling back sharply but normally for a few days; despite that action, the overall chart (including three huge-volume up weeks), story and numbers all pointed to good things. But in this environment, nothing is certain, and the company’s business update for May (released Tuesday evening) caused some abnormal reaction—bookings per user actually slipped from a year ago, while overall users were down from the prior month. On a positive note, Roblox said revenues were likely up 125% from May 2020, but on the whole, the May update was pretty much the polar opposite of the bullish April figures (released with the Q1 report a month ago), altering perception (at least for a time) that Roblox’s offering will continue to grow nicely even as the pandemic vanishes. Long term, we still think the firm’s unique platform has a ton of applications that will drive growth, but the near term is obviously less certain. More important, the stock’s dive on Wednesday brought it back to its breakout level—seeing the entire breakout and subsequent follow-through completely evaporate is not the type of action a new leader typically displays. On the plus side, the stock has so far held support in the 79 to 80 area (that’s generally our mental stop at this point), so we can’t say all hope is lost, but if the recent dip was just a shakeout, RBLX should start recovering from here. We’ve switched our half position to a Hold rating and are watching it closely.” HOLD

Schlumberger (SLB), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continued pulling back from its recent highs last week, but Friday saw the stock tag its 50-day moving average and today the stock is up. BUY

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then Carl Delfeld in Cabot Explorer, hit a record high on Friday! In Carl’s latest update, just before that high, he wrote, “Sea Money, Sea’s fintech division, saw adoption accelerate throughout the quarter. Mobile wallet payments volume more than tripled year over year to $3.4 billion, while quarterly paying users grew 145% to 26 million. We have taken profits several times over the past two years with this impressive growth stock. It benefits greatly as a fintech leader in the fast growth markets of Southeast Asia.” BUY

Sensata Technologies (ST), originally recommended by Bruce Kaser for the Buy Low Opportunities of Cabot Undervalued Stocks Advisor, and featured here last week, has pulled back further since then so it’s a better buy now. In his update last week, Bruce wrote, “Sensata is a $3.8 billion (revenues) producer of an exceptionally broad range (47,000 unique products) of highly engineered sensors used by automotive, heavy vehicle, industrial and aerospace customers. Nearly two-thirds of its revenues are generated outside of the United States, with China producing about 21%. Sensata also benefits from rising secular demand for improved fuel efficiency, safety, emissions and customer conveniences like lane-keeping and other advanced driver-assist systems. As the light vehicle market is thriving, Sensata’s core business should ride along at a healthy clip. Its heavy vehicle/offroad segment (about 17% of sales) is also seeing strong growth, helped by the early stages of a cyclical rebound. Revenues this year are projected to increase by about 24%, driven by a cyclical rebound, then taper to a 6% rate in future years. Despite the apparent strength, this year’s results are being constrained by the semiconductor shortage. Expected profit growth of 54% in 2021, also boosted by the recovery, is estimated to taper to about 10-20% in future years. ST shares have about 27% upside to our 75 price target.” BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is a stock I’ve had rated hold for a long time, reasoning that it was simply too popular. But the pullback from 900 to 600 has helped cool investors’ ardor a bit, as has the rise of competitors large and small. And now, with the stock looking technically rather solid at 600, and supported by its 200-day moving average, I’m starting to feel more optimistic, so if you don’t own it, I think you could nibble here. (Full disclosure: I bought my first Tesla Model S in 2013. This year I had two Tesla Powerwalls installed in my garage to store power from the solar panels on my roof. And I have a new Model S on order. So I can’t pretend to be unbiased. But I try.) Going forward, I expect great things from Tesla in the automotive business, but I’m particularly optimistic about its disruptive potential in the energy industry. BUY

Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor, is one of the four leading cannabis companies in the U.S., as measured by revenues, but the number one leader as measured by profitability, mainly because it focused solely on Florida in its early years. The sector as a whole has been weak since peaking in February, even while fundamentals are great, but I’m seeing good basing action in most of the leaders, and now with TCNNF testing both its prior low and its 200-day moving average, I think this stock is an attractive buy for venturesome investors, so I’m upgrading it to Buy. BUY

The next Cabot Stock of the Week issue will be published on June 28, 2021.

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