Cabot Top Ten Trader Issue: May 5, 2025

A Key Week

Given where we stood a month ago, with the major indexes on their knees and maximum tariff uncertainty, you couldn’t have asked for much better action since, with a choppy couple of weeks giving way to a straight-up move (including some thrust-type action that bodes well down the road) that’s brought many individual names toward their prior peaks. Now it’s a matter of following through: The intermediate-term trend is on the fence for the market as a whole, and many individual stocks have been (possibly temporarily) rejected near obvious resistance levels after earnings or just profit taking. Thus, if we see further strength this week, turning the trend up for many indexes and allowing some fresh leaders to take off, we’ll look to extend our line—but if the sellers dig in, more patience will be needed before we get more aggressive. Bigger picture, we are optimistic that the low is likely in, but it’s still up in the air whether the market will need a larger bottom-building effort, or whether perception increases from here. Either way, there’s no need to predict—right now, we’re sticking with our Market Monitor at a level 5, and we’ll adjust if need be in the days ahead.

This week’s list has a lot of strong names, including a few that have recently reacted well to earnings. Our Top Pick is Zscaler (ZS), which is one of the stronger names in one of the strongest growth areas (cybersecurity). We’re OK starting small here.

Stock 1

ATI (ATI)

Why the Strength
Aerospace and defense spending is projected to be strong this year and next—particularly in the U.S.—driven by factors like global tensions, increased military spending and the need to replace aging jets and expand commercial aircraft fleets. Dallas-based ATI produces high-performance titanium- and nickel-based alloys, stainless steel and specialty components for both the aerospace and defense markets and is also known for its composite fibers that reduce fuel use by replacing heavier metals. Thanks to “robust demand and growing contractual support,” ATI got off to a strong start in 2025 and continued the momentum from the last quarter, delivering double-digit sales and adjusted EBITDA growth in Q1, with aerospace and defense accounting for two-thirds of revenue and “poised to continue to play a major role” in the firm’s success. Total revenue of $1.1 billion rose 10% from a year ago, with per-share earnings of 72 cents increasing 50% and beating estimates by 13 cents. By segment, High Performance Materials & Components sales decreased 8% sequentially, mainly due to reduced sales of specialty energy products; however, next generation commercial jet engine demand was notably higher and contributed to a 10% year-on-year improvement, with segment EBIDTA increasing 34%. Advanced Alloys & Solutions sales increased 9% from a year ago (and 4% sequentially), thanks to higher sales of conventional energy offerings and increased demand for commercial airframe products. The company said it’s well positioned to navigate the ongoing tariff uncertainty since the majority of its production is based in the U.S., with pass-throughs and surcharges to help offset inflation and any tariff costs. What’s more, both defense and commercial airframers have recently reaffirmed “robust” backlogs, and ATI continues to see strong engine material orders with no cancellations or delivery pushouts. Commercial jet engines, meanwhile, are ATI’s most strategic market (37% of Q1 revenue), and as the sole source supplier for five of the seven alloys used for the “hot” (temperature-wise) section of this market, it has secured long-term contracts that extend well into the 2030s and 2040s. Looking ahead, ATI guided for full-year adjusted EBITDA of $820 million (up 12% if realized), while Wall Street expects earnings to grow by 20%.

Technical Analysis
ATI built a solid-looking base from last August into February, but trade-related uncertainties and the overall market weakness were the reasons for the stock’s big dip to the 40 area last month. But shares made a sharp U-turn from the lows, showing great tennis ball-like action, pushing back into the mid-50s by the middle of last week—and then going bananas after earnings on Thursday and Friday. If you want in, you can aim to grab a small stake on a pullback.

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Stock 2

Commvault Systems (CVLT)

Why the Strength
Cyberattacks continue to increase in both frequency and economic damage, with the U.S. being the most prominent target. Thus, there continues to be a big emphasis on prevention within the cybersecurity sector, but now we’re also seeing the rise of cyber resilience; its focus is on not just preventing attacks but, if and when they happen, allowing a client to quickly recover from them, which dramatically reduces the cost of downtime. Commvault is a top player in this space, offering a unified cloud-based platform that combines AI, threat detection and response and data protection to secure its clients’ environments, workloads and mission-critical datasets, with the enterprise-level Commvault Cloud disaster recovery and protection platform being a main offering. Last week’s fiscal Q4 (ended April) results were solid and not only surpassed all key metrics, but marked another quarter of accelerating growth: The company saw subscription revenue leap to $173 million (nearly two-thirds of total revenue), up a big 45% from a year ago, with over 12,000 subscription customers—a substantial improvement from the year-ago 9,300. Overall revenue of $275 million increased 23% for Q4, while per-share earnings of $1.03 beat estimates by a dime and were up 30%—both sales and earnings growth have accelerated for three straight quarters. (Revenue from term software transactions north of $100,000 increased 38%, driven by both volume and average transaction size.) In the earnings call, the top brass cited “strong secular tailwinds tied to cyber resilience” as ransomware and sophisticated cyberattacks are increasing in frequency. (Recent notable customer wins include American Tower, Cinemark Holdings, McGraw Hill and Blue Origin.) The firm has also “doubled down” on its relationships with leading hyperscalers to support their cloud migrations, which fueled additional growth in marketplace transactions in Q4, up 50% sequentially and 250% year-on-year. For fiscal 2026 (ending next March), Wall Street expects 14% sales and earnings growth, which is likely to prove conservative.

Technical Analysis
CVLT experienced an enormous run for a year from November 2023 into the following November, when shares finally hit resistance near 180; the stock did build a launching pad from there, but the attempted breakout came right when the market fell apart, dragging the stock lower. The correction was sharp (33% deep) and did take out some prior lows, but the recovery has been solid, highlighted by a solid post-earnings reaction last week. We’ll set our buy range up a point or two from here as the stock noses above the swing high from March.

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Stock 3

Duolingo (DUOL)

Why the Strength
Duolingo’s stock will frequently cycle between euphoria and panic, which makes it hard to hang onto—but there’s no question the underlying business is strong and getting stronger, which has the stock (after yet another huge dip) back at new highs. The firm has the top educational app out there, with the main focus now on languages (it will often use AI-generated content to launch new language lessons in different markets around the world), and the secret sauce here isn’t the meat and potatoes learning—many outfits can teach English or French, etc.—but the combination of a game-like experience (full of goals, acheivements and the ability to share and encourage others to join) and a best-in-class marketing and engagement engine (lots of successful enagement activities via social media, with endless A-B testing to improve the actual product). With a freemium model, many use Duolingo for free and are shown ads (46.6 million daily active users at the end of March, up 49% from a year ago), but some upgrade to paid for added features (10.3 million, up 40%; subscription make up the vast majority of revenue here), and the company has been layering on additional paid levels like Max (which includes the ability to make a video call to an AI bot and have a low-key conversation in the language you’re learning) and Family, both of which are selling well. Beyond languages, it’s still early, but Duolingo launched math and music courses a few quarters ago, and is soon it will be launching chess, starting with the most basic lessons and going up the difficulty scale. The Q1 report was a great one, with revenues rising 38% and easily topping expectations, while EBITDA lifted 43% and free cash flow grew 31% to north of $2 per share, well ahead of reported earnings. After saying 2025 would be an investment year three months ago (part of the reason the stock fell apart in February), the top brass meaningfully hiked guidance, too, looking for bookings growth of 30% on a currency-neutral basis while EBITDA margins expand in a big way. It’s a good story.

Technical Analysis
DUOL is in a long-term uptrend, but it’s also a wild child—when it corrects, it does so harshly, with a 42% drop last summer and 40% plunge during this year’s market dip. That said, the stock did hold its 40-week line this time around (unlike the vast majority of stocks) and the comeback has been more than impressive, with a nice gap up two weeks ago (on an analyst upgrade) and then a moonshot on earnings. Big picture, DUOL’s straight-up-from-the-bottom action is a sign of strength, but near term, we think some sort of exhale is more likely than not—if you want in, start small, aim for dips and use a loose leash.

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Stock 4

Exelixis (EXEL)

Why the Strength
Exelixis (covered in the March 3 issue) is a leader in the use of genomics (essentially a targeted approach to treating diseases based on a patient’s genetic profile) to develop drugs for treating cardiovascular disease, obesity and diabetes. Four of its drugs have already been approved, including Cotellic for treating melanoma and Minnebro for treating hypertension. However, its main focus is on cancer therapies, led by its blockbuster Cabometyx (also marketed as Cometriq), which is the big revenue contributor. After winning approval for Cabometyx in 2021 for use alongside Bristol Myers Squibb’s immunotherapy drug Opdivo, Exelixis has been evaluating Cabometyx in combination with other drugs in various late-stage studies targeting multiple cancers. Indeed, Cabometyx is approved for the treatment of advanced kidney cancer, liver cancer and differentiated thyroid cancer, and the firm recently received an FDA label expansion for Cabometyx to include pancreatic cancer patients aged 12 years of age and older, which follows promising late-stage trial results showing the drug is effective in treating patients with previously treated, advanced pancreatic and extra-pancreatic neuroendocrine tumors that cannot be surgically removed. The new indication is widely expected by analysts to push the firm’s revenues higher (a reason for the stock’s latest show of strength). Beyond this blockbuster, the company is also focusing on its investigational treatment Zanzalintinib, for various types of advanced or metastatic cancers (and which Exelixis sees as a future growth driver); it expects to release late-stage study results later this year from that drug’s use in targeting colorectal caner and non-clear cell renal cell carcinoma. Wall Street is bullish on the firm’s prospects with steady growth expected this year, though more will be revealed when earnings are reported May 13 (post-market).

Technical Analysis
We cut bait on EXEL in late March with a minor profit after it stalled out following the strong showing earlier this year. The exit was timely as it allowed us to escape the sell-off into April—but, impressively, after declining to 32 early last month (down from an intraday high at 40), the stock reversed course almost immediately and has returned to its prior highs. Like so many names, the rally has come on light volume and there’s resistance up here, so if you want to start a position, aim for modest dips and keep it small ahead of earnings.

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Stock 5

GE Aerospace (GE)

Why the Strength
The aerospace group have always been a sneaky-good growth area, as the sector’s business trends (new jet buying to expand and upgrade fleets, etc.) tend to last many years, and the massive amount of services needed after the sale mean there’s a lot of recurring revenue, adding reliability to results—and now the sector is one of the strongest in the market as big investors look for steady, reliable growth titles to latch onto in this still-uncertain environment. GE Aerospace quacks like the liquid leader of the aerospace boom, as it’s the leading jet engine maker and servicer, mostly for commercial flights (north of 70% of revenue; the firm says three of four commercial flights use one of its engines) but also for defense applications. As mentioned above, recurring revenue here is a giant part of the story; the company gets about three times as much revenue as the initial sale in the couple of decades afterwards due to repair and tune-up services on its engines. Indeed, in Q1, GE brought in $6.9 billion of commercial service orders (up 31% from the year before), which in turn brings its commercial service backlog to a ridiculous $140 billion-plus, setting itself up for years of solid business. (Commercial service revenue was up 17% from a year ago, even as jet engine sales were off 6%.) All told, Q1 was a good one, with double-digit revenue growth and booming earnings (operating earnings rose 38%) while free cash flow came in at a strong $1.4 billion (about $1.35 per share); the top brass said tariffs would have an impact, but it should be manageable, which helped them reiterate the full-year outlook despite trimming some industry forecasts surrounding air travel demand. Longer term, GE looks like a good bet to see the top line grow steadily and for free cash flow to compound at mid-teens annual rates for at least the next few years.

Technical Analysis
GE isn’t going to be your fastest horse, but we think it’s a very solid setup here: After a big pre- and post-breakup run into last spring, the stock effectively went sideways for months, with the breakout attempt at the start of this year falling flat as the market caved in. All in all, GE went nowhere for about a year, but the buyers have been flexing of late—shares found support on higher weekly volume at the low, they popped again after earnings and have continued motoring (on low volume) back toward their highs. There is resistance up here, but we like the action; you can enter here or (preferably) on dips with a stop under 190.

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Stock 6

iRhythm Technologies (IRTC)

Why the Strength
iRhythm builds devices that provide cardiac monitoring services to diagnose arrhythmias (i.e., different types of irregular heartbeats). Its main device, Zio, provides ambulatory monitoring for shorter periods of time—it could run overnight after an event, to something like two weeks—allowing physicians to collect continuous data on patients. But Zio also works wirelessly with iRhythm-made patches and other technologies, replacing more cumbersome wired devices that usually don’t allow for recording of a patient’s heart during a normal day’s activities at home. Right now, iRhythm is marketed mainly in the U.S., where there are an estimated 27 million people who have heart palpitations or are at a high risk of arrhythmia due to factors like obesity. Even though the Zio system has had FDA clearance for a few years, iRhythm is still in the education and onboarding phase with many providers, but it’s seeing consistent uptake as healthcare providers learn its benefits and as the treatment base – now over 10 million patients since the product was rolled out – proves its utility. In the first quarter reported last week, revenue grew 20% to $159 million in what is typically the company’s slowest period of the year. Ongoing expansion into Europe and continued U.S. growth even after price hikes were implemented has management saying full year 2025 will bring revenue of $690 to $700 million, growth of 17% at the midpoint, helped along by a just-announced launch in Japan. There are headwinds, however: U.S. tariffs will affect the company’s hardware costs, and exports to markets that have retaliated will be affected, and many insurance plans still don’t cover the cost – starting at $400 and up for overnight rentals of the device. The business is also still in growth mode, meaning it regularly posts accounting losses, but gross margins are growing (up 2.5 percentage points in Q1) and EBITDA is about to rip into the black, with an 8% margin on that metric expected this year.

Technical Analysis
IRTC has been bumping downhill for a couple of years, finally bottoming in October when quarterly results brought in the buyers. The stock rebounded as high as 129 before the market dragged it down in February, but the correction was reasonable (28% deep) given the prior move and the overall environment, and shares mostly held their March low during the April plunge. And of course, last week was the game changer, with IRTC gapping up nicely on quadruple normal volume and following through nicely today. We’ll set our buy range down a bit from here.

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Stock 7

Mosaic (MOS)

Why the Strength
A lot of commodity areas have been out of favor for two-plus years … and, frankly, many still look like laggards, with little strength seen even during the market’s recent rally. But fertilizers could be an exception—Nutrien was written about two weeks ago as the stock has been turning strong, and peer Mosaic made this week’s cut ahead of earnings for both this week. The story here is pretty straightforward, as following years of dry times, prices for fertilizer-related inputs (potash, nitrogen, phosphate, etc.) are expected to start rising as supply has been crimped and tariffs (especially those affecting Canada-U.S. trade) have thrown some of the markets into disarray. Mosaic is a big player in potash, phosphate and fertilizers themselves, and it’s gone through the wringer with everyone else, including some weather-related issues that crimped production last year. But some company-specific moves (selling non-core assets to raise cash and focus on higher-performing areas) and solid execution has kept earnings well into the black (supporting a 2.9% yielding dividend and an active share buyback program; share count was down 2.5% in Q4 from a year ago), and an improving environment should see things start to pick up this year, with Mosaic’s output getting back on track and with the firm expecting prices to gradually move higher in the quarters to come. Indeed, Q1 is expected to see revenues flat from a year ago (the best reading in a couple of years), while Wall Street sees the bottom line beginning to lift in Q2 and growing 23% for the year as a whole … and the way these things go, those estimates usually prove conservative as business turns up and money falls to the bottom line. Of course, the tariff standoff is a wild card, as higher or lower levies could affect pricing (and costs), but the bigger picture is pointing to fertilizer names starting a new upcycle as factors move in their favor. Earnings are due tomorrow after the close (May 6), with the conference call the following morning.

Technical Analysis
MOS was in a huge, persistent downtrend for years but started to bottom out last fall, with support showing up in the 23 to 24 area many times. The character change began in March, where shares found big-volume buying after testing that support area, and the retest in April saw another round of buying. And since then, MOS has moved nicely higher (albeit on tame volume), tagging its highest levels since last August. Earnings will be key, of course, but we’ll set our buy range down a bit, thinking a normal exhale or shakeout will give way to higher prices.

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Stock 8

Roblox (RBLX)

Why the Strength
Online game engine Roblox (covered in the April 7 issue) is one of the leading platforms for game players and developers worldwide, hosting millions of user-generated video games and other content, including interactive 3D experiences, across various devices. Last week, the company’s Q1 earnings report impressed across virtually all categories, prompting the stock’s big rally. Revenue of just over $1 billion increased 29% from a year ago, with the per-share loss of 32 cents beating estimates by eight cents and adjusted EBITDA of $58 million, which was miles above the $7 million loss a year ago. Free cash flow, which is a big part of the story here, was a whopping $427 million, or north of 60 cents per share. Other metrics were equally striking, including bookings of $1.2 billion that jumped 31%, average monthly unique players of 20 million that increased 29% and average daily active users of 98 million that rose 26%. The quarter was also rosy for Roblox creators, who earned a record $282 million over the past 12 months, while more than 100 Roblox developers earned over $1 million. On balance, Roblox creators are on pace to exceed $1 billion of earnings this year, according to management. In the earnings call, the company also emphasized that AI continues to be a “key component” of revenue and bookings growth, with AI driving the quality of the firm’s content and inter-platform communication, with Roblox currently accelerating its coding efforts with AI. The company further said it’s growing faster than the gaming industry as a whole, with a goal of capturing 10% of the gaming market (on a consumer spend basis) on the Roblox platform. It plans to achieve this goal by focusing on the best-performing genres on the platform—namely sports, racing and role playing (up a huge 69% collectively this year)—and by using tools like live events (such as the recent Hunt Mega Edition event that brought over 183 million visits to the hub) in order to optimize revenue from these genres. Additionally, Roblox is expanding its use of ads and branding, as a recent partnership with Google is expected to scale ads in formats like video and rewarded video. Wall Street sees these initiatives keeping the momentum intact, with analysts predicting 20%-ish top-line growth this year and next while EBITDA and free cash flow grow even faster.

Technical Analysis
RBLX broke out of a 30-month lateral base last October on earnings, gapping above the benchmark 50 level and eventually running up to a multi-year high at 75 by early February. The rally then hit a wall on earnings and then was dragged down by the market, with shares falling to 52 in March, but the stock nearly held that level in the April crash and since then, has been smoke up a chimney, with the post-earnings pop obviously an encouraging sign. We’ll set our buy range down a bit, though we’re not expecting a huge retreat.

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Stock 9

Spotify (SPOT)

Why the Strength
Spotify jumped to an all-time high last week after Q1 subscriber growth was better than expected and the music streamer’s ad business continued to show resilience to open the year. The dominant streaming music provider worldwide, Spotify’s first-quarter results, reported last Tuesday, came just about in line with expectations, with revenues up 15% to $4.53 billion and earnings of $1.16 per share, up 11%. But Wall Street was encouraged by the strength beneath the hood, with the company posting its second-best quarter ever at adding premium subscribers to its base, while also showing that cost to acquire paying subscribers has been declining. Basically, as the service adds more content, like a current push to jump into video and deeper into audio podcasts, it finds it easier to convince free-tier subs to pay up for no ads, better content and more perks (offline downloads, higher audio quality). The results came against a very tough comparable first quarter last year, pleasing investors as well. A new rights deal struck in January with Universal Music, the biggest music publisher in the world, has created a new tier of paying subscribers who are willing to shell out even more for full access to Universal’s catalog. Those subscribers grew better than expected as well, which has investors thinking Spotify has the heft to weather a consumer spending downturn. Also helping the cause was a court ruling last week that restricted Apple’s iron-fisted grasp on the App Store, allowing Spotify and others to sell via the App Store directly to potential customers (instead of through Apple, where it often took a cut; Spotify has already been approved to upload its new app). For the current Q2, Spotify management says it expects monthly average users to grow by 11 million to 689 million, with revenue climbing 13% from the year-ago period even after a decent-sized headwind from currency movements, mainly the weakening dollar, and a similar amount of spending to sign up podcasters. While estimates have come down some, Wall Street sees the bottom line booming this year and next.

Technical Analysis
SPOT has had a big run during the past year, which isn’t ideal, but the stock held up very well during the market’s implosion and looks poised for higher prices—if the market can show upside follow-through. All told, shares corrected 27% from high to low (not bad given the environment), held the March low during April’s plunge and, while there was some post-earnings selling, the immediate snapback on good volume (helped along by last week’s court ruling) is certainly a bullish sign. The 650 area could provide some resistance, but we’re OK starting a position here with a stop in the mid-500s.

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Stock 10

Zscaler (ZS) ★ Top Pick ★

Why the Strength
If cybercrime were a country, it would be the world’s third-largest economy after the U.S. and China, according to a recent industry report, and one estimate sees it costing trillions of dollars within a few years. Zscaler addresses cybercrime by providing a comprehensive, cloud-based security platform that uses a zero-trust approach to protect users and applications from various threats while also allowing them to connect securely to various applications and data without traditional VPNs. As cyber threats continue to escalate in terms of both size and sophistication, a slew of Wall Street institutions have lately upped their target prices for the company, which is also expected to benefit from secular trends in SaaS, public cloud, cloud-native apps and remote work. In particular, ratings analysts see four areas of the cybersecurity space they believe will continue to be a tailwind for the firm; namely, data security, identity security, network security as a cloud service (as opposed to on-premise) and AI-driven replacement cycles. Moreover, a major investment bank just named Zscaler as a top pick heading into earnings (due out May 23) based on the premise that cybersecurity software firms will be largely immune from the tariff fallout, while showing solid resilience during periods of economic weakness. Specifically, the bank sees Zscaler’s “growing leverage for its Zero Trust from Everywhere and Zero Trust Branch efforts,” which it said are replacing standalone software-defined wide area network (SD-WAN) solutions. Further, the company is seeing accelerating user engagement across several of its products, including Secure Internet & SaaS Access (ZIA), Secure Private App Access (ZPA) and Digital User Experience (ZDX), which are focused on securing online user access and enhancing the digital user experience. Collectively, these trends are expected to drive a revenue increase of around 20% in fiscal Q3 (ended February), as well as in each of the next several quarters, with operating income expected to rise faster than that for the fiscal year as a whole.

Technical Analysis
ZS had a nice run into February 2024, but, after a sharp correction that lasted into last summer, shares could never really regain their footing, meandering sideways in a wide range but always staying meaningfully below the early-year peak. The stock actually held up well during the first few weeks of the market implosion before a good-sized shakeout in April—but ZS has stormed back, rallying on solid volume to new 13-month highs. We’re OK buying a small position around here or (preferably) on dips of a couple of points.

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Previously Recommended Stocks

The next Cabot Top Ten Trader issue will be published on May 12, 2025.

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