June 28, 2021

Note: Because of the Independence Day holiday, next week’s issue of Cabot Stock of the Week will be published on Tuesday July 6.

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 a young and small medical stock that few investors have heard of, but it’s growing fast and the stock is going the right way!

As for the current portfolio, we’re parting company with super-safe Realty Income (O), mainly because something’s got to go.

Details inside.

Also, I hope you’ll join me for the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. We have an incredible line-up of experts ready to share their best picks.

Cabot Stock of the Week 354

The bull market is alive and well, and I continue to recommend that you be heavily invested in stocks that help meet your goals—while remaining prudently diversified. In recent weeks, growth stocks, which had underperformed for a few months, have looked increasingly healthier, and today I’m happy to recommend a young one in the life sciences industry with a strong chart and great growth potential. The stock was originally recommended by Tyler Laundon in Cabot Early Opportunities and here are Tyler’s latest thoughts.

Maravai LifeSciences (MRVI)
Maravai is a newly public, high-growth life sciences company that offers exposure to some of the highest growth areas of the industry, including cell and gene therapy, biologics drug manufacturing and mRNA therapeutics. The San Diego, California-based company was founded in 2014, came public in November 2020 at 27, and has increased in value by 56% since. It currently has a market cap of $11.4 billion.

Select products, services and processes Maravai provides include reagents for DNA and RNA oligonucleotide synthesis, bioprocess impurity detection/analytics and viral clearance, protein labeling and detection reagents, and RNA synthesis and scale up. Most relevant to the here and now, Maravai supplies a critical component of Pfizer (PFE) and BioNTech’s (BNTX) COVID-19 mRNA vaccine through its yield-enhancing CleanCap mRNA capping technology. It also provides a component for CureVac’s (CVAC) yet-to-be approved vaccine.

Capping is a key step in the synthesis of mRNA as it increases the stability of the mRNA molecule during production of therapeutics and vaccines. CleanCap is the market leading solution when it comes to efficiency, a key attribute given the importance of manufacturing vaccine at scale.

Rough estimates suggest Maravai earns around $0.28 per vaccine dose. Given that Pfizer and BioNTech had, as of the beginning of May, shipped 450 million doses, have signed agreements for over 1.8 billion doses in 2021, and are prepared to make over 3 billion doses in 2022, there remains a lot of potential revenue for Maravai from just this vaccine.

Key to this part of the growth story is the landscape around booster shots, variant-specific vaccines, expansion to younger populations and formulations that could increase distribution of this vaccine beyond what has, thus far, primarily been developed economies.

Beyond COVID-19, Maravai’s CleanCap technology has broad applications for other mRNA therapies, which have gained much wider acceptance due to their success fighting COVID-19. Other areas of the business also continue to do well, though they have faded from the conversation given the huge growth from CleanCap.

Turning to the numbers, Maravai generated $284 million in revenue in 2020, up 98% over 2019. Of that, $206 million came from Nucleic Acid Production (up 184%), $55 million came from Biologics Safety Testing (up 24%) and $23 million came from Protein Detection (up 12%). Adjusted EPS rose to $0.34 from a loss of -$0.02 in 2019. When Q4 2020 results were reported in March management guided for 2021 revenue in the range of $580 million to $630 million (up 104% to 122%), including up to $400 million in COVID-19 CleanCap revenue (implied non-COVID growth was around 20%).

After Q1 results came out in May guidance jumped again, to a range of $680 million to $730 million. Consensus estimates currently sit at $710 million, implying 150% revenue growth. Adjusted EPS is seen up 238% to $1.15. Management should report Q2 results around the end of July.

As for the stock, MRVI came public at 27 on November 20, 2020, and jumped 11% the first day. The stock faded some afterward, but never fell below 23.6. From there it worked higher in fits and starts, trading up to 40 in early March after Q4 2020 earnings came out.

A dip to 31 came next, after which MRVI resumed its choppy uptrend, making a series of higher highs and higher lows. Lockup expiration passed without drama on May 19, and soon after, MRVI jumped above 40.

The stock has since rallied as high as 45, then pulled back late last week to close at 42.7 on Friday. At this level it looks modestly extended and I wouldn’t rule out a pullback to the 50-day line (currently at 39.34) within the month of July. However, we can’t ignore the strength of the trend and given the attractiveness of the stock I recommend investors begin to average into a position rather than jumping in at one price.

Current Recommendations

The portfolio as a whole is acting well, with no obvious candidates for sale. But the addition of MRVI means something has to go, and in the end the final candidates for the chopping block were two: our most aggressive stock, CCHWF, which now sits at a 20%-ish loss and our most conservative stock, O, which yields 4% but has made no progress in the eight weeks that it’s been in the portfolio. Neither is a bad stock; both have their uses. But for this portfolio today, I’m attracted to the upside potential of fast-growing CCHWF, so O gets the boot. Details below.

Changes
Realty Income (O) to Sell

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 is very close to hitting a new high. 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, “It’s been a long sideways slog for AVGO, along with the rest of the technology sector. The stock is still bouncing around below the February high. But I believe the recent performance is because of short-term factors that will fade away. Broadcom is ideally positioned as a crucial technology infrastructure leader that will benefit as technology proliferates and 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 three weeks ago. In his update last week, Tom wrote, “The infrastructure partnership has pulled off its recent high a little bit. But the uptrend is still very much intact. The upward trend isn’t a thing of beauty, and it can be hard to notice. It’s very gradual and choppy. But it’s moving in the right direction and has a lot going for it. Earnings are growing and the infrastructure sector is in the news and getting more attention. BIP isn’t sexy. But it’s good.” BUY

Columbia Care (CCHWF), originally recommended in Cabot Marijuana Investor by yours truly, remains the portfolio’s biggest loser, but I believe the bottom has been established, as the sector as a whole showed real strength for a couple of days last week. Columbia’s latest quarterly report saw revenues of $86.1 million, up 227% from the year before, and that’s fast, even for the marijuana sector. If you don’t own it, and you can tolerate volatility, I recommend buying here. 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. The sector has been a bit soft, but the company’s fundamentals look terrific, so patience should pay off here. HOLD

General Motors (GM), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, hit a high of 64 three weeks ago and has pulled back normally since, tagging its 50-day moving average last week and again today. In his update last week, Bruce wrote, “GM shares have 16% upside to our recently raised 69 price target. On a P/E basis, the shares trade at 8.6x estimated calendar 2022 earnings of $6.87 (up about 2.5% this past week). The 2021 estimate rose about 12%.” 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 Thursday, just days after Mike Cintolo featured it in Cabot Top Ten Trader. Here’s some of what Mike wrote. “HubSpot (covered in the March 1 report) is meeting with great success by offering high-end marketing solutions normally reserved for big corporations to smaller and mid-market companies while also providing human-friendly customer relations offerings. HubSpot’s core marketing software simplifies and improves customer acquisition and sales results for its smaller clientele by creating inbound advertising methods such as blogs, videos, landing pages and personalized messages to attract visitors to a company’s website and grow its customer base (in contrast with less effective outbound methods like cold calls and bulk emails). The firm’s primary focus is on companies with between two and 2,000 employees, and the number of its “hubs” (premium products) has recently increased to five (including marketing, sales, service, customer management systems and operations). In the first quarter, revenue blew past estimate, growing 41% from a year ago to $281 million, while per-share earnings of 31 cents were 6% above the consensus. Management sees a “massive opportunity” to expand as companies increasingly turn to a digital-first business model, and given that it was built from the ground up (not cobbled together via acquisitions), it’s perfect for clients aiming to scale operations. The top brass guided for Q2 revenues to around $295 million (up 45% at the midpoint), with 30%-plus top-line growth likely for a long time to come.” 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 61 three weeks ago, and is now building a base in the 55 area. but Bruce is keeping his eye on the target. In his update last week, he wrote, “TAP shares have about 25% upside to our recently raised 69 price target. The shares trade at 14.1x estimated 2021 earnings of $3.90 (unchanged this past week). Estimates for 2022 were unchanged. On an EV/EBITDA basis, or enterprise value/cash operating profits, the shares trade for about 9.4x 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. BUY

Nvidia (NVDA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has had an amazing run over the past 10 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 today. 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 (the latest being one with the FAA) and all signs suggest that those will only increase. In his latest update, Carl wrote, “Palantir is a software company specializing in big data analytics. According to IBM, 90% of the entire world’s data has been generated just in the past two years and Palantir offers those companies cutting-edge software to organize and understand it. Its software is used by government agencies in a wide range of applications and the company sees plenty of room to expand into the commercial sector, as Palantir’s customer base is concentrated with just 149 customers and the private sector currently represents just 44% of its business. I encourage you to buy shares if you have not already done so.” BUY

Progyny (PGNY), originally recommended by Mike Cintolo in Cabot Growth Investor and featured here last week, has pulled back slightly since then but is still attractive. In his latest update, Mike wrote, “Given the May-June advance for the stock (47 to 65), the recent dip isn’t out of the ordinary, especially as the 50-day line (at 57.5 and rising) catches up. Long story short, we’ll cut bait if the selling really gets out of hand, but at this point, we think the dip is an opportunity to start a position if you don’t own any.” BUY

Realty Income (O), originally recommended by Tom Hutchinson for the High Yield Tier of Cabot Dividend Investor, hasn’t done anything wrong in the eight weeks that we’ve had it in the portfolio, but it hasn’t done anything notably right either, so we still have no profit. In his update last week, Tom wrote, “REITs got caught up in the selling last week. I’m not sure why. I guess because they benefit from inflation, and since the Fed is taking such dramatic steps to fight it by insinuating that they might start raising rates in two years, REITs sold off. Nothing has changed about the Realty story except that it’s at a better buy point now.” This stock was bought at a time when I wanted safety, and it has brought us that—and if safety and income are what you want, holding is absolutely fine. But I’m going to sell now because something has to go and there are more growth stocks acting well these days. SELL

Roblox (RBLX), originally recommended by Mike Cintolo in Cabot Growth Investor, is a young and volatile stock, and the good news is that over the past week, that volatility has been to the upside. In his update last week, Mike wrote, “Roblox has bounced in recent days just where it “should,” holding the 50-day line on the pullback. The question going forward is how business will be as the pandemic lessens; were the poor May numbers a one-off or a sign of things to come? As usual, we’ll let the stock decide—a dip back into the upper 70s would probably have us pulling the plug, but as long as RBLX can hold it together, we’re fine holding our half-sized position.” HOLD

Schlumberger (SLB), originally recommended by Mike Cintolo in Cabot Top Ten Trader, remains above its 50-day moving average with an intact pattern of higher highs and higher lows. With cyclical sectors like oil and airlines, the charts are much more important than any fundamental facts. BUY

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then Carl Delfeld in Cabot Explorer, hit another record high last Thursday! In Carl’s latest update, just before that high, he wrote, “Sea shares continued their amazing run, reaching an all-time high of 280. Sea’s 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 two weeks ago, hit a high of 64 in mid-March, and has been building a base at the 60 level since then, but will almost certainly break out to new highs eventually. 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. 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 slipped have about 32% upside to our 75 price target. The stock trades at 14.1x estimated 2022 earnings of $4.04 (down 2 cents this past week). On an EV/EBITDA basis, ST trades at 10.9x estimated 2022 EBITDA.” 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, thinking it was simply too popular. But last week I upgraded it to buy, thinking that both the stock and investors’ opinions had cooled off enough, and since then the stock has gapped up away from its base at 600 in what may be the beginning of a renewed advance. If you don’t own it, you can buy some here. Last week Cars.com rated the Tesla Model 3 as the most American-made car. Coming in second was the new electric Ford Mustang and third was the Tesla Model Y. 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 the company focused solely on Florida in its early years. The sector as a whole had been weak since peaking in February, but last week saw a couple of strong days for the sector, and the result is that TCNNF is once again above its 50-day moving average. Last week Trulieve announced the opening of a dispensary in Tavernier, Florida, its 84th in the state where it is dominant and its 90th nationwide. BUY.

The next Cabot Stock of the Week issue will be published on July 6, 2021.

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