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Stock of the Week
The Best Stock to Buy Now

October 11, 2021

It’s been over a month since the major indexes hit their peaks, and while there’s been no major move to the downside yet, the odds of one grow with time, particularly considering that we’re still in October (often a difficult month). Thus, I have no trouble recommending a slightly more cautious attitude at the moment.

But there’s always something attractive to buy, and this week it’s another stock in the vast and complex semiconductor industry. This will be our fourth in the industry.

As for selling, I’m working to hold a bit of cash until the climate improves, and the easy choice to sell today is our biggest loser, Global-E Online (GLBE).

Details inside.

Cabot Stock of the Week 369

Long-term market trends remain positive, but short-term trends have become troubling in recent weeks (last week we sold three stocks), so I’m now recommending scaling back on your market exposure. If this trouble passes and the short-term trends improve, I’ll swing back to fully invested—but if instead, the short-term trends worsen and pull down the long-term trends, I’ll recommend retreating even further into cash. But I’ll keep recommending one stock per week! Today’s stock was originally recommended by Carl Delfeld in Cabot Explorer and here are Carl’s latest thoughts.

Veeco Instruments (VECO)
Semiconductors are one of the most strategically important technologies because they are the materials and circuitry needed to produce microchips that are at the heart of everything from smart phones to advanced satellites. You might think of these microchips as the brains inside all advanced technology. The more you explore the semiconductor market, the more complex it can seem. But roughly speaking, there are three different types of firms in this sector.

The first are the chip designers such as Nvidia (NDVA). Chip designing is a very competitive space with low capital requirements and huge profit margins. America leads the world in chip design. It is a wildly popular business with seemingly endless growth and rising stock prices.

At the other end of the industry is the actual making of the chips in what are referred to as fabrication plants. The advanced chip-making industry, which is extremely capital and talent intensive, has gone through a rapid consolidation as the number of companies producing cutting-edge, high-performance chips has declined from 25 firms to just 3. Taiwan Semiconductor (TSM) which I recently sold because the political risk became too high (for a profit of 35%), is the king of the hill in fabrication and is planning to spend $100 billion in the next three years to maintain its lead, especially in the high-margin premium end of the business. The United States has about a 10% global share of the chip-making business while Asia dominates.

But today we’re interested in the market segment that hardly ever gets talked about.

The middle leg of the industry, in which America has the lead for now, is semiconductor equipment used to make and process wafers as well as test and assemble the final chipsets. According to the U.S. International Trade Commission, U.S. chip equipment firms, which have roughly 60,000 domestic employees, account for about half of global production. America is even more dominant in chip design software, controlling about 80% of the global market.

Veeco, founded in 1945 and based in New York state, is a play on this middle-leg market as an American high-quality provider of state-of-the-art semiconductor fabrication equipment. The company delivers the leading-edge technology to U.S.-based and international high-end-class chipmakers, some of which are 100% reliant on Veeco technology to deliver the next-generation chips.

If you walked the factory floor of one of those billion-dollar-plus fabrication facilities, you would likely read the Veeco name on the machinery that fabricates the microchips. Therefore, they are more of a secondary play on the continuing growth and complexity of semiconductor production.

Plus, they sell the equipment and services that let semiconductor fabricators make better, faster, more sophisticated semiconductors. Thus, they’re best described as a semiconductor capital equipment company, which ought to be a big growth business these days, with more fabs being built and with a strong focus on expanding U.S. semiconductor production.

Veeco has been through a few restructurings and strategic shifts over the years as well as a number of acquisitions, most recently the purchase of Ultratech in 2017.

On the numbers side, analysts expect revenue to pick up nicely in 2021, with revenue growth close to 30% and with up to 50% earnings growth, from 86 cents per share to $1.29, and then to grow further in 2022. If this comes to pass, Veeco is growing earnings at a solid 20% plus rate but is valued at about 18X current year earnings and about 15X forward earnings estimates.

Finally, there’s no question that demand for chips is booming; one high-end electric vehicle can require 3,000 microchips! With revenue growth, accelerating profitability, and strong market position in a market of growing demand, Veeco has the makings of a winner. The stock has been stuck in a trading range between 20 and 25 since March, and the past month has added support from the stock’s uptrending 200-day moving average, so technically, the stock is ripe for a renewed uptrend.


VECORevenue and Earnings
Forward P/E: 13.8Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
Current P/E: 124.4($mil)(vs yr-ago-qtr)($)(vs yr-ago-qtr)
Profit Margin (latest qtr) 1.8%Latest quarter14648%0.35218%
Debt Ratio: 79%One quarter ago13428%0.2514%
Dividend: NATwo quarters ago13923%0.30173%
Dividend Yield: NAThree quarters ago1123%0.22340%

Current Recommendations

StockDate BoughtPrice BoughtYieldPrice on 10/11/21ProfitRating
Ambarella (AMBA)9/14/211470.0%1566%Buy
ASML Holding N.V. (ASML)6/8/21Sold
Broadcom (AVGO)2/23/214652.9%4987%Buy
Brookfield Infrastructure Partners (BIP)1/12/21513.4%5611%Hold
ChargePoint (CHPT)8/31/21Sold
Cisco Systems (CSCO)7/27/21552.7%550%Buy
ConocoPhillips (COP)9/28/21682.5%7510%Buy
Dexcom (DXCM)8/245150.0%5364%Buy
Floor & Décor (FND)7/13/211080.0%11910%Hold
General Motors (GM)11/3/20352.6%5967%Buy
Global-E Online (GLBE)9/7/2021740.0%60-19%Sell
HubSpot (HUBS)5/18/214900.0%69241%Hold
Marvell Technology (MRVL)8/10/21600.4%648%Buy
NextEra Energy (NEE)3/27/19497.1%7962%Buy
Nvidia (NVDA)4/27/21Sold
Sea Ltd (SE)1/21/20410.0%324692%Hold
Sensata Technologies (ST)6/15/21590.0%57-4%Buy
Signet Jewelers (SIG)10/5/21860.9%84-2%Buy
Tesla (TSLA)12/29/1160.0%79313275%Hold
U.S. Bancorp (USB)9/21/21572.9%6311%Buy
Veeco Instruments (VECO)New0.0%23Buy

The never-ending kaleidoscope of stock movements means there’s always a new attractive stock to buy—and always something that deserves to be sold. But as buying is more fun than selling, portfolios tend to creep up in size (by stock count, if not by assets). But here in Cabot Stock of the Week, I am diligent about keeping the portfolio focused, which means holding the stock count at a maximum of 20. And now with the market less constructive, we’re down to 17 stocks, and will keep it that way by selling one stock today, Global-E Online (GLBE). Details below.

General Motors (GM) to Buy
Global-E Online (GLBE) to Sell

Ambarella (AMBA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, makes state-of-the-art computer vision chips that are in great demand by intelligent vision systems. In Cabot Growth Investor last week, Mike wrote, “AMBA has pulled in nearly 25 points, but that came on the heels of a 70-point post-earnings move; indeed, shares are still north of their 25-day line. It’s very likely the firm has just begun a multi-year period of surging earnings thanks to its computer vision chips.” BUY

Broadcom (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, is still in a long-term uptrend and still working to break out above (and stay above) resistance at 500. In his update last week, Tom wrote, “The market seems to think that inflation is bad for technology stocks. I guess it is. It’s bad for most companies. But I don’t really get why the market picks on technology especially during inflation. We’re in a technological revolution that is in the middle of a spurt as 5G rolls out. Technology is where all the longer-term growth is. We’ll hang on to this perfectly positioned industry giant while the market goes through its stages of grief. Eventually, AVGO should get moving and make up for lost time.” BUY

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, tagged its 200-day moving average three weeks ago and has been trending up since, aiming for its old high of 58. In his update last week, Tom wrote, “This infrastructure partnership doesn’t move fast but it’s clearly trending the right way. It characteristically pulled back after making a new high in early September. It seems to be slowly climbing back towards that high recently. However, further weakness in the market could delay the recovery over the next couple of weeks.” HOLD

Cisco Systems (CSCO), originally recommended by Bruce Kaser in the Growth/Income Portfolio of Cabot Undervalued Stocks Advisor, dipped as low as 53 last week before bouncing on light volume to 55. It’s not a strong stock, but Bruce says it’s a good value; In his latest update, he wrote, “CSCO shares have about 9% upside to our 60 price target. The shares trade at 16.0x estimated FY2022 earnings of $3.43 (unchanged in the past week). On FY2023 earnings (which ends in July 2023) of $3.68 (unchanged), the shares trade at 14.9x. On an EV/EBITDA basis on FY2022 estimates, the shares trade at a 11.2x multiple. CSCO shares offer a 2.7% dividend yield. We continue to like Cisco.” BUY

ConocoPhillips (COP), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor for his Buy Low Opportunities Portfolio, and featured here just two weeks ago, has become a hot stock in recent weeks! And today we have two analysts to comment on the reasons. In his latest update, Bruce wrote, “At its meeting on Monday, OPEC+ (which includes Russia) made no changes to its plans to gradually increase oil production. The plan is to increase production by 400,000 barrels per day each month. This appears insufficient to stem the surge in oil prices, which are trading up about 1.5% on Tuesday, to about $78.80 for West Texas Intermediate, and $82.54 for Brent Crude. For our ConocoPhillips position, the ideal scenario would be for oil to remain about where it is. Much higher (perhaps above $90 or $100), and the prices could both threaten the recovery and drillers’ restraint. Much lower (perhaps below $60), ConocoPhillips’ cash flow gusher would look less appealing at the current $72.40/share price.

We estimate that just under 20% of ConocoPhillips’ revenue is generated from natural gas sales. Domestic natural gas prices continue to surge, now trading around $6.20/mmbtu, nearly double the May 2021 price. Exceptionally tight supplies in Europe and Asia are driving up natural gas prices there, which in turn is drawing supply from the United States via LNG exports and helping raise U.S. natural gas prices.

Natural gas previously was an entirely landlocked product, trapped in North America, as there was no feasible way to economically export it across the vast oceans. In a testament to the ingenuity of markets, engineers and investors have developed an export market by super-cooling natural gas into liquid form, called LNG, or liquified natural gas. LNG is loaded on special cargo ships for distribution around the globe. As natural gas currently trades for around $15 in Europe and as high as $32 in Asia, LNG exports can produce exceptional profits. While LNG export volumes are small, they are high enough relative to daily local production to at least partly narrow the price spread.

ConocoPhillips shares have about 11% upside to our 80 price target. The shares trade at 12.5x estimated 2022 earnings of $5.75 (up 2% this past week) and 12.6x estimated 2023 earnings of $5.73 (up 7%). On its recurring $.46/quarter dividend, COP shares offer a 2.6% dividend yield.”

Additionally, last Monday, Mike Cintolo recommended COP in Cabot Top Ten Trader, writing, “ConocoPhillips needs no introduction: It’s the world’s largest oil and natural gas exploration company based on production and proven reserves. Its recent strength was prompted by reports that the EPA is mulling major cuts to the nation’s biofuel blending requirements for refiners (which boosted sentiment on the energy sector as a whole). But an even bigger boost came from its announced purchase of the Permian Basin assets of Royal Dutch Shell, placing Conoco firmly in the ranks of other top-tier Permian players like Exxon Mobil and Chevron and making it the second-largest oil and gas producer in the lower 48 states (behind Exxon). The deal is further expected to generate billions in additional free cash flow for Conoco in the coming years and has cemented what has already been a solid 2021 for the firm. In Q2, Conoco saw revenue of $10.2 billion increase 154% from a year ago, while per-share earnings of $1.27 rose from a 92-cent loss in the year-ago quarter and, more importantly, was the highest since 2018. Excluding Libya, Conoco’s adjusted oil production rose 3% to 1.55 million barrels per day, while its total average realized price in the quarter more than doubled to $50 per barrel from a year ago. Third-quarter production is forecast to be around 1.5 million barrels a day, reflecting seasonal turnarounds planned in the Alaska and Asia Pacific region, and Wall Street sees earnings not just exploding higher this year but lifting to nearly $6 per share in 2022. An added bonus is that as part of a 10-year plan to grow its production at a 3% compound annual rate, Conoco plans to return $65 billion to shareholders (fully funded from operations), recently upping its stock buyback authorization by $1 billion for the remainder of 2021.

Like most energy stocks, COP exploded higher late last year and early this year, doubling in four months and peaking at 60 in March. The going since then has been choppy, with shares spending the last few months stuck in a lateral range between 53 and 63. But COP experienced a character change with last month’s acquisition announcement, and the stock has since taken flight again, with three straight weeks of accelerating buying volume as shares have shot to new highs. It’s not going to double overnight but we think you can enter on dips.” BUY

Dexcom (DXCM), originally recommended by Mike Cintolo in Cabot Growth Investor, is a leading maker of diabetes monitoring and controlling tools and the stock has been very strong for months, but the past two weeks have brought a correction that’s brought the stock down to its 50-day moving average. In his update last week, Mike wrote, “DXCM is more of a liquid leader than a glamour name, but that’s fine by us—shares have taken on some water but are still near their 50-day line, which is heroic in this environment.” BUY

Floor & Décor (FND), originally recommended in Cabot Growth Investor by Mike Cintolo, broke below its 50-day moving average two weeks ago, and rallied a bit last week. In his latest update, Mike wrote, “As of yesterday morning, we were set to place FND on Hold given the fact that the normal-looking retrenchment early last week gained steam, driving shares into the mid-110s. But as with so many names, the stock’s rebound the past two days has been very impressive, recouping half of its sharp decline in just the past two days. It’s far from out of the woods (the 50-day near 123 will be a barrier), but it’s been in the stock’s character to have deep, tedious pullbacks only to emerge to new highs soon after. If this bounce rolls over in a hurry, we’ll move to Hold and likely use a mental stop a couple of points below the recent lows (110 to 112 area), but right here, we’re going to again stick with a Buy rating, thinking there are decent odds the recent dip was more of a shakeout than a lasting top.” If you’re feeling aggressive, you can buy here, but I’ll keep it rated Hold. HOLD

General Motors (GM), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, is back above all its moving averages, heading for its June high of 64—and with good reason! In his update last week, Bruce wrote, “GM said it is investing in next-generation battery technologies, to be centered in a new facility called the Wallace Battery Cell Innovation Center based near Detroit. Engine No. 1, the new activist investment firm that rattled ExxonMobil and its shareholders enough to gain three board seats, has purchased a tiny (<1%) equity stake in GM and is supportive of the company’s EV efforts. The upstart activist said it has had conversations with GM head Mary Barra. Engine No. 1’s interest and confidence has helped push up GM’s shares. GM shares have 27% upside to our 69 price target. On a P/E basis, the shares trade at 7.9x estimated calendar 2022 earnings of $6.90 (unchanged this past week). On estimated 2023 earnings of $6.79 (unchanged), the shares trade at about 8.0x. Raised to Buy.” And soon after that update, GM management announced its ambitious goal of doubling revenue by 2030. With all trends good (even though I’m skeptical the aging behemoth can double revenue), I’ll join Bruce in the upgrade to Buy. BUY

Global-E Online (GLBE), originally recommended by Tyler Laundon in Cabot Early Opportunities, is growing fast in the world of direct-to-consumer cross-border e-commerce software, but the young stock has been losing support and the loss is now our largest, so it’s an easy sell decision. SELL

HubSpot (HUBS), originally recommended by Tyler Laundon in Cabot Early Opportunities and then by Mike Cintolo in Cabot Top Ten Trader, hit a record high three weeks ago, and then pulled back normally to just below its 50-day moving average, but it’s now above that line again and thus still in a healthy uptrend. HOLD

Marvell Technology (MRVL), originally recommended by Carl Delfeld in Cabot Explorer, blasted out to a record high last Thursday, for the best reason of all. As Carl explained in his update the next day, “Marvell earnings in its recent quarter jumped 62% while sales surged 48%. Credit Suisse upgraded the stock, calling Marvell ‘one of the most strategic assets’ in semiconductors. Marvell’s semiconductor products are state-of-the-art and in high demand, allowing businesses and consumers to take advantage of 5G capabilities. I recommend buying at current prices if you have not already done so.” BUY

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, bounced off its 200-day moving average two weeks ago and is up since then so is still a fine choice for income-oriented investors. BUY

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then Carl Delfeld in Cabot Explorer, has found support at its 50-day moving average in recent weeks, so the main trend is still up. In his update last week, Carl wrote, “Shares have pulled back from 353 to 315 in the last month, after a big run. Still, the company expects that its e-commerce revenue will grow by 121% in 2021. I would be an incremental buyer of this stock but long-time holders should definitely take partial profits from time to time (hopefully you did prior to the last month!).” HOLD

Signet Jewelers (SIG), originally recommended by Mike Cintolo in Cabot Top Ten Trader and featured here last week, hit a record high last Friday, so trends are good. And the business, as detailed last week, is very healthy, and leading the U.S. market. BUY

Sensata Technologies (ST), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, first topped 60 in early January, and since then has traded in a range between 55 and 60. In his update last week, Bruce wrote, “ST shares have about 34% upside to our 75 price target. The stock trades at 13.5x estimated 2022 earnings of $4.14 (unchanged this past week) and 12.1x estimated 2023 earnings of $4.63 (unchanged). We expect this 2023 estimate will move around a lot. On an EV/EBITDA basis, ST trades at 10.6x estimated 2022 EBITDA.” BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, remains one of the most high-profile growth companies in the U.S., and there are pros and cons to that—but the stock’s trend is good! And Mike featured the stock in Cabot Growth Investor last week, writing, “TSLA was a huge leader from late 2019 through January of this year, so it’s possible it’s hit a point of peak perception. But it’s also possible that the 37-week, 40% deep consolidation since that high will serve as a launching pad as the electric vehicle revolution accelerates. The story isn’t a secret, so we won’t rehash it all, but here’s why we’re keeping tabs on it. First, despite the endless controversy surrounding the firm, the numbers here are hard to beat: Sales growth is accelerating (46%, 74%, 98% the past three quarters), current (up 230% in Q2) and estimated earnings (up 134% this year and another 39% next) are booming and this doesn’t look like peak growth, with management stating that they anticipate growing capacity by 50% annually (!) during the next many years as demand for its Y, X, S and 3 Models soars. Throw in upside from the solar and battery storage business (deployments of both tripled in Q2 from the pandemic-impacted year-ago quarter) and there’s every reason to think Tesla is going to grow profitably for many years to come—and while it won’t be the young buck it was once, and competition will be watched, we think there’s a reasonable chance the stock could morph into more of a liquid leader as it’s likely to remain, at the very least, the dominant luxury EV producer. Moreover, the stock itself is slowly rounding into shape, advancing nine of 10 weeks since mid-July, a sign of persistent buying. There’s still resistance near 800, so we can’t say TSLA is ready to blast off, but the longer it can act well in this tough environment, the greater the chance that the past nine months will lead to solid upside.” I’m going to keep it on hold, mainly because of looming resistance at 900, where the stock peaked in January, but if you don’t own it, you could certainly buy now to try to catch a short-term ride up to there. HOLD

U.S. Bancorp (USB), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, was recommended three weeks ago as it bounced near its 200-day moving average, and since then the stock has not only climbed back to its old high, it’s hit new highs on Friday and again today. In his update last week, Tom wrote, “USB benefits from the steepening yield curve. Rising rates should have this regional bank firing on all cylinders. Although the current market could drag everything down in the near term, USB should move higher from here over the rest of the year.” BUY

The next Cabot Stock of the Week issue will be published on October 18, 2021.

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