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Stock of the Week
The Best Stock to Buy Now

October 25, 2021

With two strong weeks of action behind us, the short-term trend of markets is once again positive, and thus I am happy to once again recommend that you be heavily invested in a diversified group of stocks that meet your investing needs.

Today’s recommendation is a repeat; we sold the stock in March for a nice 30% profit, and now we’re going to try again.

As for selling, there is one recommendation, a short-term sell of ConocoPhillips (COP), which has been unusually strong. But if you want, and it suits your style, you can hold.

Details inside.

Cabot Stock of the Week 371

Long-term market trends remain positive and, after the recent strength, short-term trends are back on the positive side as well, so I’m happy (once again) to be advising that you be heavily invested in stocks that meet your investing goals. Today’s recommendation is interesting, because it’s a repeat; I first recommended it in December 2020 after it was recommended by Mike Cintolo, and sold it in March of this year shortly after Mike recommended selling because the stock had gapped down. By selling when we did, we not only took out a profit of 30%, we also avoided a tedious three-month correction that took the stock down to our purchase price. But now the stock looks healthy again, and Mike has added it to his portfolio in Cabot Growth Investor again, so I’m happy to give it another go. Here are Miker’s latest thoughts.

CrowdStrike (CRWD)
We have many different ways to describe and explain our stock selection criteria—ideally we’re looking for firms that have a revolutionary new product or service that’s changing the way we work or play. We also talk about our SNaC approach, where we always look for the best combination of Story, Numbers and Chart when hunting for new leaders.

But if forced for a simpler elevator pitch, we’d simply say that our ideal investment is what we call an emerging blue chip. The term says it all: A firm that today is on the small side, but has a new offering that’s being rapidly adopted and is destined to be something of a permanent fixture among its clients—and for investors, it becomes a core holding in the major indexes and their portfolios.

To us, CrowdStrike has emerging blue chip written all over it. The company is one of a handful of “new-age” cybersecurity players that are benefiting as legacy systems grow outdated in the Cloud era. Many stocks in that group look solid, but CrowdStrike is our pick for a few reasons.

The firm’s claim to fame is its Falcon platform, which has been known as the best-in-class endpoint protection offering out there. (Endpoints are basically any device or server that connects to a network.) Clients simply download some software on every endpoint device and let it run in the background, serving as an intelligent shield against attacks.

The secret sauce here is the crowdsourcing element—the software on all its devices is shared with a central, cloud-based hub, which uses artificial intelligence and pattern-matching algorithms to learn from any attacks and iffy information it picks up on, and then updates its software for all devices. Given that Falcon has a broad reach (more than 13,000 different customers, up 81% from a year ago; the platform learns from about one trillion high-fidelity events every day), it’s getting “smarter” all the time, which leads to better results for clients.

When the Colonial Pipeline was hacked, for example, CrowdStrike was quickly installed after the attack to detect what happened and to protect against future malware attacks. But what has brought in the buyers of late was some recent new product announcements; Falcon will now be offering Filevantage (real-time visibility for any changes to critical assets, files, registries and the like) and extended detection response (XDR), which essentially monitors all of a firm’s data (beyond just endpoint devices) for quicker response times.

Given that CrowdStrike has a history of clients signing up for more and more capabilities through its platform—66% of clients now use four or more modules, while same-customer revenue growth has been running north of 20% annually for many quarters—we have little doubt these new offerings will prove a hit.

The growth numbers here are pristine, with revenues up 70% and earnings up triple digits each of the past two quarters, and analysts see that continuing, with 2022 likely to bring 40% sales and 70% earnings growth (both likely conservative). Even more important (given the subscription model) is annualized recurring revenue, which is also cranking ahead at 70%-ish rates. Better yet, management has sounded very bullish about competition and, from a big-picture point of view, points out that large legacy customers have 100,000 clients—implying that CrowdStrike’s 13,000 is still small potatoes.

As for the stock, it had a huge run into February of this year, and has since had a 33% drop, a 17% drop and a 19% drop—all in all, there was no net progress for about eight months. But while the stock still has some resistance to chew through, we think the recent action (bolstered by the new product announcements) is likely to kick off a new uptrend.


CRWDRevenue and Earnings
Forward P/E: 6.8Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
Current P/E: NA($mil)(vs yr-ago-qtr)($)(vs yr-ago-qtr)
Profit Margin (latest qtr) -16%Latest quarter33870%0.11267%
Debt Ratio: 85%One quarter ago30370%0.10400%
Dividend: NATwo quarters ago26574%0.13750%
Dividend Yield: NAThree quarters ago23386%0.08214%

Current Recommendations

StockDate BoughtPrice BoughtYieldPrice on 10/25/21ProfitRating
Ambarella (AMBA)9/14/211470.0%17822%Buy
Broadcom (AVGO)2/23/214652.7%52413%Buy
Brookfield Infrastructure Partners (BIP)1/12/21513.3%5814%Hold
Cisco Systems (CSCO)7/27/21552.7%550%Buy
ConocoPhillips (COP)9/28/21682.4%7713%Sell
CrowdStrike (CRWD)New0.0%283Buy
Dexcom (DXCM)8/245150.0%56810%Hold
Floor & Décor (FND)7/13/211080.0%13726%Hold
General Motors (GM)11/3/20352.6%5762%Buy
HubSpot (HUBS)5/18/214900.0%82168%Hold
Marvell Technology (MRVL)8/10/21600.4%6713%Buy
NextEra Energy (NEE)3/27/19496.6%8575%Buy
Sea Ltd (SE)1/21/20410.0%349754%Hold
Sensata Technologies (ST)6/15/21590.0%57-4%Buy
Signet Jewelers (SIG)10/5/21860.8%916%Buy
Snowflake (SNOW)10/19/213420.0%3430%Buy
Tesla (TSLA)12/29/1160.0%99416666%Hold
U.S. Bancorp (USB)9/21/21572.9%6311%Buy
Veeco Instruments (VECO)10/12/21230.0%23-2%Buy

With many of our stocks hitting new highs in recent days, trends look good; the correction that stymied many of our growth stocks in recent months is over. The only change today is a timely sell of ConocoPhillips (COP) on unusual strength. Details below.

ConocoPhillips (COP) 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—and the stock hit another new high today! Last week Mike wrote, “We’ve never been huge fans of chip stocks, as many can turn tail in a hurry based on industry or competitive factors, but usually you’ll see a glamour name in the group enjoy a huge run when they come up with a unique solution for a growth industry. Ambarella fills that bill today, with years of R&D resulting in computer vision chips that are perfectly suited for smarter automobiles (newer models have tons more cameras) and security cameras. While they’re still the minority of revenue, these chips are growing rapidly and Q2 (reported at the start of September, so the next report won’t be out until late November/early December) was a coming-out party in terms of investor perception. Near term, another wobble or two from this volatile name wouldn’t shock us, but it’s likely that the September blastoff will lead to good things down the road.” BUY

Broadcom (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, is a much slower grower, and it pays a nice dividend, but it’s also hitting new highs, having finally broken free of that sticky zone at 500. In his update last week, Tom wrote, “This technology goliath continues to trend higher, albeit slowly and in a bouncy fashion. Despite this crazy pandemic recovery market, strong and growing earnings along with attractive valuation is still a recipe for good returns. Semiconductor stocks have been strong and should remain that way. AVGO should benefit from that fact along with the 5G rollout and the longer-term trend toward cloud-based applications. Technology continues to proliferate, and this stock should move higher over time.” BUY

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, is another slow grower, but it too is very close to breaking out to a new high. 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. Longer term, infrastructure is an increasingly popular subsector as it continues to be in the news. Brookfield should also get an earnings growth spurt in the quarters ahead from the recent Inter Pipeline acquisition.” HOLD

Cisco Systems (CSCO), originally recommended by Bruce Kaser in the Growth/Income Portfolio of Cabot Undervalued Stocks Advisor, dipped as low as 53 three weeks ago but it’s been rallying back since. And Bruce says it’s still a good value; in his latest update, he wrote, “CSCO shares have about 8% upside to our 60 price target. The shares remain attractively valued, and 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 three weeks ago, remains red-hot, gapping up to a new high today. In Bruce’s update last week, he wrote, “We like Conoco’s low valuation, investment-grade balance sheet, strong free cash flow, and public commitment to limiting its capital spending to 50% of its annual cash flow. The shares offer a respectable base-level dividend to shareholders that appears rock-solid.” However, Bruce’s target is only 80 (not far away today) and while there’s certainly a probability that target will be raised as earnings estimates are raised, the chart tells me that there’s also a probability that this red-hot advance is due for a breather. So I’m going to sell here, take the quick three-week profit, and either come back to this stock later and lower, or jump on another of Bruce’s undervalued stocks. However, if you like the dividend, and you want to stick with Bruce for a longer ride, that’d be a fine choice, too. SELL

Dexcom (DXCM), originally recommended by Mike Cintolo in Cabot Growth Investor, is a leading maker of diabetes monitoring and controlling tools and the stock is close to breaking out to a new high. Mike doesn’t own the stock now, but he’s keeping a close eye on it, and last week he wrote, “The trick here is that earnings are due out in a week (October 28)—if shares get through that in decent shape we could enter.” HOLD

Floor & Décor (FND), originally recommended in Cabot Growth Investor by Mike Cintolo, blasted out to new highs on Thursday and Friday and has pulled back minimally today. In his latest update, Mike wrote, “We gritted our teeth and kept our Buy rating on FND through its correction, and so far, that’s proven to be the right call, as shares moved straight up of late, including a (low-volume) push to new highs today. Many retail-related names remain under pressure due to supply chain worries and tough comparisons in the second half of this year (as opposed to many firms, Floor & Décor enjoyed boom times in the second half of 2020); for Q3, analysts see revenues for the firm up 25% but earnings flat from a year ago. Still, while anything is possible, we see the odds favoring the big-picture, cookie-cutter story keeping big investors interested barring hints of a prolonged slowdown (more than a quarter or two). The path of least resistance is up, so hold on if you’re already in, though if not, keep new buys small and/or aim for dips if you want in.” HOLD

General Motors (GM), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, is above all its moving averages, and marking time here as investors await Wednesday’s third-quarter report. In his update last week, Bruce wrote, “GM is making immense progress with its years-long turnaround. It is perhaps 90% of the way through its gas-powered vehicle turnaround, and is well-positioned but in the early stages of its electric vehicle (EV) development. GM shares have 22% upside to our 69 price target.” BUY

HubSpot (HUBS), originally recommended by Tyler Laundon in Cabot Early Opportunities and then by Mike Cintolo in Cabot Top Ten Trader, has a fascinating chart, featuring a blastoff to a new high two weeks ago after the company announced a new digital “end-to-end” payment system, a steady climb higher in the days since, and then a gap up this morning! Clearly, business is great at the firm and more and more investors are choosing to jump on this timely growth story. Third-quarter results will be released next Wednesday, November 3. HOLD

Marvell Technology (MRVL), originally recommended by Carl Delfeld in Cabot Explorer, hit a record high last Tuesday and has pulled back minimally since, so technically, the picture is very strong here. In Carl’s latest update, he wrote, “Marvell’s semiconductor chips are used in several fast-growing applications such as 5G wireless networks, cloud computing, automotive, and industrial markets. Marvell announced shipments of automotive ethernet ports could jump from an estimated 234 million units last year to 1.37 billion units in 2026, for compound annual growth rate of 39%. Several Wall Street analysts have raised estimates and Credit Suisse recently 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 a month ago and is up since then so is still a fine choice for income-oriented investors. In his latest update, Tom wrote, “This regulated/alternative utility and former market juggernaut has just been bouncing around all over the place since the pandemic. Investors seem to have forgotten all about the growth in alternative energy and the fact that NEE is a great way for conservative investors to play the trend during this crazy market. But nothing has changed within the company. Things will get back to normal and NEE should retake its place as a superstar. It’s still a great entry point for the stock.” 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 last Tuesday and has pulled back normally since. In his update last week, Carl wrote, “The company expects that its e-commerce revenue will grow 121% in 2021. I would be an incremental buyer of this stock but longtime holders should definitely take partial profits.” HOLD

Signet Jewelers (SIG), originally recommended by Mike Cintolo in Cabot Top Ten Trader and featured here three weeks ago, hit another new high today, so trends are good for America’s largest jeweler. As Cabot Top Ten Trader is generally not a long-term owner of stocks, this may not be a long investment, but I’ll stick with it as long as the trend is strong. 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 been trading in a range between 55 and 60, preparing for its next advance. In his update last week, Bruce wrote, “Third-quarter earnings [due tomorrow morning] are estimated to be $0.84/share. ST shares have about 31% upside to our 75 price target. The stock trades at an attractive valuation, including its 10.9x EV/EBITDA multiple based on estimated 2022 results.” BUY

Snowflake (SNOW), originally recommended by Tyler Laundon in Cabot Early Opportunities and featured here last week, is a young, fast-growing stock with great prospects. And it was also featured in last week’s Cabot Top Ten Trader, where Mike Cintolo wrote, Snowflake is a fast-growing (and very highly valued) cloud enterprise data warehouse services provider. Large businesses are moving toward data cloud services to make it easier for their various departments to share information and draw upon the same set of data for business applications. Snowflake sees the segment evolving very rapidly and is focused on acquiring customers in the Fortune 500 as they shift their IT plans. While the company has 212 of the largest companies as clients, overall customers spending $1 million or more with Snowflake is 116. Clearly, there’s room to expand business with existing Fortune 500 clients, as well as find other large-spending customers in the future. Snowflake pitches two value propositions to customers: Apps and services to use with its data cloud to generate new products, and a modified consumption pricing model; customers sign contracts for a level of services and the revenue isn’t recognized by Snowflake until it’s used (even if customers prepay). Unused services are rolled over if clients sign a new, larger contract. That means unused services, called remaining performance obligations (RPOs), are a way to forecast Snowflake’s coming business: That figure hit $1.5 billion last quarter, nearly three times 2021 sales. With its focus on gaining customers, Snowflake does lose money, but the expectation is that grabbing market share now (especially among giant outfits) will equal big profits down the line. Management says FY 2022 revenue (ending Jan. 31, 2022) will grow 92% to $1.14 billion, while revenues next year are expected to lift another 64%…we like the action during the market correction, with support at the 50-day line and bouncing to new highs. If you’re game, you can grab some on dips.” BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, released an excellent third-quarter report last Wednesday, and today the stock gapped up above the 1,000 mark, breaking through resistance that had stood since January and making my recent cautionary statements look a bit foolish. The highlight of the report, which saw revenues up 57% from the year before and EPS up 145% (both exceeding analysts’ estimates), was the revelation that margins are expanding fast, even though average selling price of vehicles is falling. Then today brought the news that the Tesla Model 3 was the top-selling vehicle in Europe in September—and this is before the opening of the Berlin factory! If you’re a big winner now, you should consider taking some profits off the table—but I’m holding tight. HOLD

U.S. Bancorp (USB), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, continues to trade around its recent high of 63, ripe for a move to further new highs. In his update last week, Tom wrote, “The rising yield curve is propelling the stock higher. After going nowhere for several months, USB has moved about 12% higher in the last three weeks as the rising 10-year rate got more attention. Rising rates should have this regional bank firing on all cylinders. I expect the momentum to continue.” BUY

Veeco Instruments (VECO), recommended by Carl Delfeld in Cabot Early Opportunities, is an important company in the middle of the semiconductor value chain, with accelerating revenues and a healthy chart. In his update last week, Carl wrote, “This is 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. Revenue growth for 2021 may be up 30% and even better for earnings. Veeco represents a backdoor play on semiconductors.” BUY

The next Cabot Stock of the Week issue will be published on November 1, 2021.

Cabot Wealth Network
Publishing independent investment advice since 1970.

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Chief Investment Strategist: Timothy Lutts
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