Cabot Stock of the Month Issue: January 10, 2025

Welcome to our 2025 TOP PICKS issue! Our Cabot analysts have kindly shared their top stock ideas for this year. And you’ll find that they include a variety of companies that should be attractive to investors of all styles—growth, value, dividend payers, and companies on the cusp of turning around—as well as small, mid, and large-cap stocks. I hope you’ll find one or more to your liking!

But first, let’s take a look at the economy and the markets and talk about what’s in store for this year.

Market Review

It was a volatile year for the markets but one that showed steady momentum. The Dow Jones Industrial Average gained 13.3%, the S&P 500 rose by 23.3%, and the Nasdaq grew by 28.6%. The November elections provided a quick boost, but most of those gains had pulled back by the end of the year. However, all in all, investors should be fairly happy with their 2024 returns.

Especially Growth investors, who saw an average of 39.76% gains in large caps, 29.20% in mid-caps, and 22.19% in small caps. But Value stocks came back in 2024, with mid-caps rising 13.87%; large caps, 13.2%; and small caps, 10.05%.

Sector-wise, the biggest profit makers were Communication Services (up 37.34%), Consumer Discretionary (+31.37%), and Technology (+29.67%). The sectors with the least gains or losses were Basic Materials (down 0.70%), Healthcare (-0.07%), and Real Estate (+2.52%).

Economically speaking, the unemployment rate is steady, at 4.2%. Inflation—although still not at the Fed’s 2% target rate—has declined to 2.7%.

The subsiding inflation at last prompted the Federal Reserve to begin cutting interest rates. However, most economists think the rate cuts will be slower this year than originally forecast. And while many rates came down, mortgage rates have been more stubborn, as they are traditionally tied to longer-term indexes. But hopefully, they’ll decrease another couple of points by the end of the year.

And that should help housing. 2024 saw housing slow as high rates, still-rising prices, and low inventory pressured the industry. But prices aren’t increasing as rapidly; inventory has grown, so buyers have more choices; and if rates fall, housing should see a nice spike in the second half of the year.

Other sectors that I believe will be attractive this year include:

• Small-cap stocks
• Financial: credit card companies, banks
• Energy: natural gas and American oil producers, oil service companies
• Industrials sector
• Transportation: trucking, railroads

In the meantime, it remains a stock picker’s market. And as you know, Cabot analysts have a superb track record of picking winners, so read on for some great ideas!

Top Picks for 2025

We’ll lead off with two picks from Mike Cintolo, Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader:

Aggressive

Toast (TOST)

While they were acting decently beforehand, financials as a whole look to have kicked off a powerful sector move since the election, with the payments subsector (especially new-age players) helping to lead the way as investors anticipate accelerating bottom line growth ahead.

Toast is a name we’ve liked for a while. We actually bought a half position earlier this year but got shaken out in the early summer, and it looks like perception has changed as the firm’s excellent underlying story is now meeting with rapidly rising margins to give the firm an emerging blue chip-sort of feel.

Toast is best known as the hands-down new-age cloud leader in payments solutions for restaurants, a gigantic market of 875,000 locations in the U.S. and another 230,000 in Canada, Britain and Ireland. Although, really, the story here goes far beyond point-of-sale solutions and order processing, with its platform helping clients with scheduling, tip management, email and text marketing and reservations, invoicing, payroll processing and a ton more.

Toast currently has more than doubled its market share in the U.S. during the past three years but has “only” 14% of the market (and many out there are still using inefficient legacy systems). It’s also moving into other food and beverage retailers (think convenience stores and the like), which is a huge 220,000-location opportunity.

In Q3, the top-line metrics were all to the good—sales up 26% and annualized recurring revenue up 28%). But what caught the market’s eye was the huge beat on the bottom line. EBITDA of $113 million was up more than three-fold from a year ago and led management to significantly hike estimates for the rest of this year, which adds credibility to its longer-term forecast released back in May. Toast thinks its EBITDA margin can reach 30%-plus within a couple of years and 40% in the long run, up from 26% in 2024. Analysts see EBITDA lifting 45% or so each of the next two years.

The stock had numerous failures in the mid to upper 20s, but TOST moved above that area in October and then mushroomed in November, with three straight huge-volume buying weeks after the Q3 report. That sort of power early in an advance isn’t likely to dissipate quickly—just the opposite, in fact, as it’s looking like TOST has finally begun a major uptrend after years of bottoming out.

From Nancy: Growth, as Mike says, is the power behind TOST, domestically and internationally. Research firm BMO has just gotten on board, initializing coverage of the stock with an “Outperform” rating.

Conservative

Warby Parker (WRBY)

Warby Parker is a leading name in the eyewear field, with designer-looking prescription glasses at reasonable prices, and yet it has just a tiny morsel of the overall market ($66 billion in the U.S. alone, which itself is growing steadily).

The firm has been around for a while but just came public in 2021 … just in time for the market top which, combined with a breakeven-ish bottom line, resulted in a huge decline for the stock and elongated bottoming effort. But now the stock is in gear, and while growth isn’t rapid, the top brass has made the right moves in terms of marketing and customer acquisition, and on the growth side of things there’s a very solid underlying cookie-cutter story with very solid store economics.

At the end of Q3, Warby had 269 locations after opening 32 new shops in the first nine months of the year, with those open more than 12 months showing “strong year-over-year growth” and with new locations continuing to pay back the initial investment in 20 months, on average, which is very solid. Meanwhile, the store expansion and careful marketing have both the customer count (2.4 million in Q3, up 5.6%) and revenue per customer (up 7.5%) heading higher. And probably most impressive is that once you’re a Warby customer, you tend to stay that way, with a revenue retention rate of 100% when looking out four years.

Of course, this is still eyewear, so the growth isn’t wild—sales have risen 13% the past two quarters and low/mid-teens growth is likely going forward, though earnings and EBITDA are lifting off at much faster clips, which has helped the stock to break out: After etching a 31% deep base over 20 weeks, WRBY got going in early November and was smoke up a chimney in the weeks that followed, reaching two-and-a-half-year price highs.

To be fair, the stock is a bit thinly traded, but we think the name could be “growing up” as more institutions (318 funds owned shares at the end of September) build positions and as the steady growth story plays out.

From Nancy: It’s interesting to note that insiders of Warby own about 18% of its shares; that’s healthy. And Wall Streeters are fans, pushing up the company’s earnings estimates by more than 17% in the past 12 months.

Tyler Laundon Chief Analyst, Cabot Small-Cap Confidential and Cabot Early Opportunities shared these two picks:

From Cabot Early Opportunities:

OneStream (OS)

I’m excited about the potential of OneStream, a little-known mid-cap financial software company that just came public in July.

The pitch is that management thinks their software platform will become the operating system for modern finance, finally freeing CFOs and finance departments from the shackles of old, outdated on-prem financial software.

All the other departments are using cool, modern cloud-based software. Why shouldn’t finance?

The department has been living in the dark ages. The main issues to adoption have been concerns about security and data integrity. Valid. But only up to a point. Today’s cloud computing environment is up to these challenges far better than it was even just a few years ago.

OneStream’s software, which features embedded AI and ML for enterprises, helps CFOs with planning, forecasting, employee performance, decision making, analytics and more.

Roughly 11% of revenue comes from on-prem software licenses (sold mostly to government entities) while the remaining 81% comes from cloud software sold under the typical subscription model. Professional services make up the balance.

The company has grown revenue by 31% over the first three quarters of 2024 and should deliver about $485 million for the full year. Adjusted EPS should be around $0.05. Looking into 2025, concensus currently calls for 21% revenue growth, to $584 million, and 168% EPS growth, to $0.12.

I suspect actual results will be better than expected when all is said and done.

Lockup expiration just passed a few weeks ago so new investors can begin to build positions with the understanding that insiders aren’t being forced to hold their shares, even if they wish to diversify.

From Nancy: As Tyler mentioned, OneStream is revolutionizing financial software, and after evaluating 16 financial planning software providers based on their Ability to Execute and Completeness of Vision, research firm Gartner placed OneStream in the Leaders Quadrant. That’s three years in a row for this award.

From Cabot Small-Cap Confidential:

Peloton (PTON)

We have plenty of totally unknown picks in Cabot Small-Cap Confidential.

But I think there’s an interesting story with the household name Peloton that’s worthy of sharing.

It was a massive stock during the pandemic when everybody was stuck at home and exercise equipment and access to social networks beyond the walls of home base were hugely important.

But PTON has mostly been a disaster since the pandemic ended.

Revenue has been shrinking over the last three fiscal years (which end in June), first by -11% (2022), then -22% (2023) then by -3.6% (2024), when revenue was only $2.59 billion. That’s a far cry from the $4 billion-plus of 2021.

Still, Peloton operates the world’s largest immersive and interactive fitness platform, connecting 3.7 million subscribers with instructors from a wide variety of disciplines.

The company’s Bike, Tread and Rower make fitness approachable, entertaining, convenient and social. Activities range from indoor cycling, running, walking, hiking, rowing and yoga to bootcamp, stretching, strength, meditation and more.

That said, Peloton’s subscriber growth has stalled.

As the turnaround story unfolds, we’ll be looking for two things: (1) Can the company get subscriber growth going again, and/or (2) can they monetize the existing sub base better?

There are a number of potential catalysts that could juice growth, and the stock. First is a new CEO, Peter Stern, who started on January 1, 2025. He has extensive experience in the health and wellness space (co-founded Apple Fitness Plus), with consumer hardware, software and subscriptions services, and is a big fan and user of Peloton’s products.

Second is renewed focus on the Tread market, which management believes is twice the size of the bike market.

Third is a renewed focus on men. Two-thirds of current users are women. Seems like room for improvement on the guy side of the equation.

Lastly, there is a grab bag of miscellaneous growth initiatives ranging from personalized offers, retail distribution, international expansion, operational efficiencies, price increases, less discounting and a new Strength+ App, which should, collectively, move the needle.

In the most recent quarter (Q1 fiscal 2025, ended in September), revenue shrank by 1.6% to $586 million and adjusted EPS was $0.08. Those results were better than expected, and EBITDA of $116 million destroyed Street expectations of $56 million. Now, Peloton is on a path to sustained EBITDA profitability. That is a major shift from the losses of recent years.

Current consensus estimates suggest a fiscal 2025 revenue decline of -8.6% to $2.48 billion then modest revenue growth in the low single digits in fiscal 2026. Adjusted EPS could be in the $0.20 range in both fiscal 2025 and 2026, though there are a lot of inputs that can skew the eventual figure higher or lower.

Of course, these estimates could be way off.

Bottom line: PTON feels like a fairly obvious turnaround play that’s still in the early innings and still has plenty of skeptics. That should translate into a very nice run in the stock, provided reasonable execution by the management team. It’s a small cap now, but I don’t think it will be for long.

From Nancy: It’s been a volatile ride for PTON, but the stock is becoming interesting to analysts, with JPMorgan, Sanford C. Bernstein & Co., and Bank of America all recently boosting their price targets.

These two recommendations come from Tom Hutchinson, Chief Analyst of Cabot Dividend Investor

AbbVie Inc. (ABBV)

Yield: 3.7%

AbbVie Inc. is a U.S.-based biopharmaceutical company formed in 2013 as a spinoff from Abbott Laboratories (ABT). AbbVie is a research-based pharmaceutical company that specializes in small-molecule drugs. It’s a cutting-edge company with a terrific pipeline.

AbbVie became an industry giant because of its mega-blockbuster drug Humira. It’s an autoimmune medication that became the world’s bestselling drug with annual sales of $20 billion. But the tremendous success of that drug became a problem as Humira lost its patent overseas a few years ago, and it lost its U.S. patent in 2023.

Because of shrinking Humira sales, AbbVie posted lower year-over-year revenues in 2023 and most of 2024. But the company is turning it around. AbbVie has long planned for this eventuality and has done a stellar job launching new drugs.

AbbVie’s new immunology drugs, Skyrizi and Rinvoq, are expected to replace Humira’s peak revenues in a short period of time. In fact, management estimates that the combined revenue of these two drugs will be over $16 billion this year and $27 billion by 2027, far exceeding Humira’s peak sales.

This was supposed to be a tough year. Longer-term investors planned on enduring 2024 en route to greener pastures ahead. But ABBV is getting through this year in solid shape.

It returned 14.7% in 2024. Looking ahead, management expects earnings to return to “robust growth” in 2025 and beyond.

The population is aging at warp speed. The main industry beneficiary of the aging population is healthcare. In 2012, total healthcare expenditures in the United States were $2.8 trillion. Since then, spending in the sector has increased 75% and now accounts for a staggering 20% of total U.S. GDP. Spending is likely to increase at a similar rate going forward.

AbbVie is a cutting-edge company with one of the very best pipelines of new drugs and treatments in the industry. The company is officially moving past the Humira patent expiration that has held the stock back for years. Imagine how the stock will perform without a patent cliff and with strongly growing sales.

From Nancy: The company recently decreased its 2024 adjusted profit forecast based on the $1.6 billion in acquisition expenses related to milestone payments as well as research-and-development costs. However, it should be noted that ABBV has a habit of beating estimates, so the actual results (if higher than projected) could send the shares up.

Ally Financial Inc. (ALLY)

Yield: 3.1%

Ally Financial is the leading all-digital banking company in the U.S., with 3.3 million customers and over $100 billion in loans. The primary revenue source is automotive loans (over 70%), but it has also diversified in auto insurance, commercial lending, mortgage financing, and credit cards.

The company was the financial segment of General Motors (GM) where it developed into a 100-year-old, fully developed auto loan business. It was spun off in 2009 during the financial crisis as part of GM’s bankruptcy reorganization. The company has since focused on the online business.

Ally can attract a large deposit base online because it can offer higher rates than traditional banks. It can do this because it is unburdened by the costs associated with physical branches and staffing. The bank has been able to add retail deposit customers for 62 consecutive quarters, including 57,000 in the third quarter.

Ally uses these deposits to make auto and other loans and has grown the business through online banking. That business is accelerating, and revenues have about doubled since 2017 from $5.8 billion to trailing 12-month revenue of $11.5 billion.

A big reason to buy ALLY now is because it’s cheap, despite the recent rally and the market at highs, ALLY sells at just 8.4 times forward earnings and 0.93 times book value, both valuations are well below those of the market averages. Meanwhile, the financial sector is the best performing sector in the S&P since the election. Many industry-leading stocks have flown to all-time highs.

But there’s a reason ALLY is cheap.

Ally is highly leveraged to the auto market where things have been challenging. Consumers are strapped from inflation and loan rates are still high. The dynamic has led to flattening sales and an increasing number of defaults. ALLY plunged over 20% in early September after the company disclosed that loan defaults were worse than expected.

But I believe the market overreacted and the selling is overdone. The current issues are just temporarily reducing growth but not killing profitability. Ally still grew revenue 6.9%, and earnings were up 14.5% in the third quarter versus the year-ago quarter. Plus, things are likely to improve next year.

Inflation is under control. Interest rates are coming down. And the economic prognosis is improving. Although the fourth quarter will likely feature lower earnings growth than previously expected, next year looks good. In fact, analysts are expecting Ally to deliver 40% earnings growth for 2025.

From Nancy: Warren Buffett owns about 9.5% of ALLY and agrees with Tom that the shares are undervalued.

Chris Preston, Chief Analyst of Cabot Stock of the Week and Cabot Value Investor offered these two ideas for 2025:

Conservative Pick (Cabot Value Investor)

BYD Company Ltd. (BYDDY)

isn’t a household name, at least not in the U.S. But it’s no spring chicken. Founded in 2003 by Wang Chuanfu, BYD (which stands for “Build Your Dreams”) has long been one of China’s top automakers.

What really sent its sales into hyperdrive, however, was when it made the switch to all battery-electric and hybrid plug-in vehicles in 2022. Revenues instantly tripled, going from $22.7 billion in 2020 (a record, despite the pandemic) to $63 billion in 2022. In 2023, sales improved another 35%, to $85 billion. In 2024, it’s on track for $106.4 billion, or 25% growth, with another 20% growth expected in 2025.

But there’s even greater upside. Right now, BYD does roughly 90% of its business in China, accounting for one-third of the country’s total sales of EVs and hybrids this year. The company is trying to change that, recently opening its full-assembly plant outside of China, with a new plant in Thailand starting deliveries. A plant in Uzbekistan puts together partially assembled vehicles. A plant in Brazil is expected to open early next year. And BYD has plans to open more new plants in Cambodia, Hungary, Indonesia, Pakistan and Turkey. Mexico and Vietnam are possible targets as well. So that covers Europe, Southeast Asia and South America.

You’ll notice there are no plans to expand into the U.S. While BYD does have a minor presence here—it makes electric buses in California—it’s mostly staying out of America to avoid high tariffs and political conflict, two factors that will only ratchet up under a second Trump term.

So, while many Chinese stocks are saddled with the baggage of ongoing U.S.-China turmoil, BYD isn’t. Even without the U.S. market, it’s already the biggest EV and hybrid manufacturer in the world. And that’s from selling nine out of every 10 cars in China alone.

The company long ago caught Warren Buffett’s attention. Berkshire Hathaway invested $230 million in BYD in 2008, when it was just a Chinese automaker with no real EV presence. Today, that investment has ballooned to $1.84 billion. Granted, Berkshire did trim its stake in BYD a couple times last year, from over 7% to just under 5%. But Buffett and company have been paring back positions across the board this year, including with Capital One Financial (COF) —a stock that we recently retired from the Cabot Value Investor portfolio after it blew past our price target in less than four months. So, Berkshire’s reduced stake in BYD shouldn’t be a concern.

As for BYD stock, which trades as an American Depositary Receipt (ADR) under the ticker symbol BYDDY, it’s up a healthy 22% in 2024 but has pulled back lately as the Chinese stock rally has fizzled since a round of economic and market-related stimulus measures by the Chinese government and central bank sent Chinese stocks soaring in early October. BYDDY peaked at a closing high of 83 on October 7; it currently trades at 65.

The company did nothing wrong. Its third-quarter earnings were solid, if unspectacular, at 24% revenue growth and 11.5% EPS growth. And the fourth quarter is looking much better, with a 19.8% month-to-month jump in cars sold in October.

At 15.4x earnings estimates, BYDDY currently trades at less than 20% of its five-year average forward P/E ratio (89.6). And its price-to-sales (1.04) ratio is about half the normal five-year ratio. With a potentially monster quarter in the works (analysts are projecting 45.6% revenue growth), I think a swift bounce-back is in order after a 19% drop-off in the share price in October and November.

For all of those reasons, BYDDY is my Top Pick for 2025, with a price target of 90 over the next 12 months—or 33% higher than the current price. Yes, that would blow past the previous high of 83, which the stock reached in October and also in mid-2022 before being almost slashed in half by year’s end. But to reach 90 a share, BYDDY would only be trading at just over 20x forward earnings—still less than a quarter of the five-year average valuation.

So, in reality, a 90 price target feels fairly conservative for a company that has emerged as a legitimate rival, at least on the global stage, to mighty Tesla.

From Nancy: 2024 was a great year for BYDDY—the company delivered 4.27 million electric vehicles—up a whopping 41.3% from 2023. And it also surpassed its highest monthly sales record in the last month of the year, selling 514,809 units.

Aggressive Pick (Cabot Stock of the Week)

Dutch Bros Inc. (BROS)

In 2020, Dutch Bros was a little-known drive-through coffee chain with 370 locations. Today, it is the fastest-growing coffee chain in the U.S., with 950 locations in 18 states as of the end of the third quarter of 2024, with a goal of expanding to 4,000 locations within the next 10 to 15 years.

The goal is ambitious. But given that the company has more than doubled its footprint in the last four years and that sales have more than tripled (from $327 million in 2020 to an estimated $1.26 billion in 2024) in just four years, it’s not an unrealistic one. Meanwhile, BROS shares are up a mere 65% since the stock came public a little over three years ago, in September 2021.

And virtually all of that growth has occurred in the last month, since the company reported stellar third-quarter earnings in which sales improved 28% year over year and it opened 38 new stores. Adjusted EPS also improved eight-fold from the third quarter a year ago, from 2 cents to 16 cents, while adjusted EBITDA grew 20%.

In the midst of a new mobile order rollout that contributed to a 5% uptick in frequency among existing customers, and with a Dutch Rewards program that saw over 1 million new registrants in Q3, accounting for two-thirds of all transactions, Bros (not “Brothers”) loyalty is growing, as customers like the appeal of its drive-through-only business model, which differs from many Starbucks, in which customers have to park and walk in.

For an on-the-go America in which unemployment is a mere 4%, Dutch Bros offers convenience for the legions of work commuters and others (including remote workers like myself who need the occasional outing) who want to grab their morning coffee (it doesn’t offer food yet, but it does sell smoothies and other cold drinks) as quickly as possible. Given the rapid expansion, it’s offering that convenience to more and more people—it plans to open another 160 new locations next year.

It seems that as Americans are waking up to Dutch Bros’ existence, so is Wall Street. I think the 60% return in the last month should carry over well into 2025, as the share price plays catch-up with the sales growth and footprint expansion.

From Nancy: It’s always great when you can see a restaurant company actually making money! Apparently, Wall Street thinks so, too, with Barclay’s recently upgrading the stock to “Overweight.”

Carl Delfeld, Chief Analyst of Cabot Explorer thinks these two stocks have great potential this year:

Aggressive

Super Micro Computer (SMCI)

The challenges Super Micro and the stock now confront are serious, but these must be weighed against Super Micro’s high growth and much lower current price-to-earnings valuation.

The first challenge is a research firm with a short position in the stock issued a report alleging troubles at the company. Second, Supermicro delayed the filing of its 10-K annual report but now has a new auditor in place and should file soon. And more recently, The Wall Street Journal reported that the Justice Department had launched a probe into Super Micro. All of this has led to shares pulling back rather sharply.

Our recommendation is not without risk, but Super Micro’s strong market position in the AI server sector, and most importantly, its much lower stock valuation, all gives me confidence that the stock’s upside is much larger than the downside price risk. Keep in mind that Super Micro has been around for more than three decades, selling workstations, servers and other equipment, but it vaulted into the spotlight along with the artificial intelligence (AI) boom.

Companies building AI platforms turn to Super Micro for their data center needs leading to a growth rate over the past 12 months five times faster than the industry average. Super Micro’s technology and its ability to tailor a particular product to a customer’s need is helping Super Micro deliver quarterly revenue this year that is more than a full year of revenue as recently as 2021.

All this needs to be balanced against recent lower margins and other problems at Super Micro. Super Micro has responded to the report, saying claims were “false or inaccurate” and pledged to further address it in “due course.”

Back to the positive, Super Micro recently announced that it had entered a strategic partnership with Japanese company Fujitsu Limited to develop and market a platform designed for high performance and energy efficiency and targeted for release in 2027. The average Wall Street estimate still calls for a high double-digit increase in the coming 12 months. BUY A HALF

From Nancy: The shares of SMCI are pretty volatile but are an interesting play on AI, and as Carl noted, the company has significant alliances and partnerships. But, as Carl also noted, it’s speculative.

Conservative

Agnico Eagle Mines (AEM)

This October, I visited a key Agnico gold mine in Val-d’Or, Quebec, Canada, and came away very impressed.

Everything was well organized, including a drilling strategy that continuously gathers data that steers exploration using sophisticated technology to optimize capital allocation. What really surprised me is that I was told that the mine had a breakeven gold price of about $1,400 an ounce—way below the current price of about $2,700.

Agnico Eagle follows a conservative strategy, with a history spanning more than 60 years, and now operates a sizable portfolio of 11 assets located in four countries.

Management forecasts gold production of approximately 3.45 million ounces in 2024. It is on track to achieve this guidance, reporting gold production of 1.8 million ounces through the first half of the year.

The company estimates it has about 54 million gold ounces of proven and probable reserves.

Furthermore, Agnico Eagle has paid a dividend for 41 consecutive years, with a dividend compound growth rate of 23% per year since 2005, and plans to pay a dividend of $1.60 per share in 2024.

Agnico Eagle also has an investment-grade balance sheet, and its dividend payout ratio has averaged 64% over the past five years, highlighting its commitment to shareholders.

Finally, the stock is in a strong uptrend demonstrating momentum and strong institutional support.

It’s true that great minds think alike! And that is the case here, with Cabot Turnaround Letter Chief Analyst Clif Droke presenting his take on Agnico Eagle Mines (AEM) as one of his Top Picks.

Agnico Eagle Mines (AEM)

One of the best-quality players in the gold arena is Agnico Eagle Mines, and it was my top pick for 2024. Given what I see as an ongoing demand boom for the yellow metal in the coming year, AEM is also my top pick for 2025.

Canada-based Agnico is the world’s third-largest gold miner, with a pipeline of high-quality exploration and development projects in the U.S., Canada, Mexico and Columbia, and owner of Canada’s top two biggest gold operations—the Canadian Malartic mine and Detour Lake project.

A big part of Agnico’s long-term growth plans is the firm’s 100%-owned Canadian Malartic mine, located in the heart of Québec’s Abitibi Gold Belt. The mine is being transformed from Canada’s second-largest operating gold mine to its largest underground mine, with 15 million ounces of resources being added since 2019.

Meanwhile, the company recently unveiled plans to expand production at Detour Lake in Ontario to one million gold ounces annually over a 14-year period, starting in 2030. Management sees an opportunity to transform the asset into one of the top five gold mines in the world by output with the development of an underground mine to complement Detour’s existing open pit mine.

Additionally, exploration trends at Agnico’s Odyssey and Hope Bay mines have been positive in recent quarters.

On the financial front, the past year’s significant increase in gold prices, along with solid production and cost control, has led to expanded profitability and cash flow for Agnico, allowing the firm to return approximately $700 million directly to shareholders through dividends and share buybacks in the first three quarters of 2024 (and $1 billion indirectly via a reduction of net debt).

For full-year 2025, Wall Street expects earnings to increase to $5.10 per share compared to last year’s $4.15 per share, which I again expect will prove to be too conservative given the secular strength behind gold prices.

From Nancy: Rising gold prices and continued demand are boosting AEM. Earnings estimates have moved up 12% in the past three months.

Here is Clif’s second recommendation:

ProShares UltraShort S&P 500 ETF (SDS)

2024 was generous indeed for investors and will be a tough act to follow in the new year. And while it’s tempting to indulge our normalcy bias and assume that “a trend in motion tends to stay in motion,” I think we should consider the contrarian case for next year.

There are a number of indications the contrarian case could prove profitable for investors in 2025. Consider, for instance, that as of the final weeks of 2024, investors are heavily positioned for a market melt-up.

As a recent Wall Street Journal article put it, participants have lately “stampeded into funds tracking U.S. stocks” with index ETFs bringing in the second-largest weekly inflow since 2008 in late November, while one of the largest ETFs tied to the Russell 2000 Index attracted almost $4 billion in a single trading session earlier that month—the highest rate since 2007. The latter year, of course, immediately preceded the financial crisis that lay ahead.

Meanwhile, the Financial Times reported that the trading accounts of U.S. banks exceeded $1 trillion as of late 2024, which is the highest level since 2008 (again, immediately prior to the worst part of the credit crisis). FT further noted that the growth of trading funds had left the banks, “particularly the largest ones, more exposed to market moves than at any time since the financial crisis as they hold ever-greater inventories of price-sensitive securities.”

A final factor worth mentioning was highlighted by the well-known market analyst Tom McClellan, who observed that the first year of a new incoming U.S. president typically witnesses a disappointing stock market performance—a trend that often begins immediately after inauguration day in January—with the S&P 500 Index historically declining for the first nine to 10 months before bottoming.

In view of the contrarian case for the bear to possibly emerge in the coming months, the temptation to view the ProShares UtraShort S&P 500 ETF as a potential contrarian play for 2025 might just be too great to resist for some participants. Indeed, after declining 60% from its October 2022 high price (when broad market selling pressure reached a peak), SDS could almost be regarded as something of a “turnaround” play for the year ahead.

That said, predicting bearish market environments is a tenuous business at best since bears tend to be elusive for investors who seek them. That said, I believe 2025 will witness its fair share of market challenges and above-normal volatility spikes, and for this reason, owning a small position in SDS as a hedge could prove worthwhile for defensive-minded investors.

From Nancy: Always a good idea to hedge your bets.

From an industry that is “growing” wildly, here are two ideas from Michael Brush, Chief Analyst of Cabot Cannabis Investor:

The future of cannabis companies is in the hands of politicians. They hold the keys to all the important potential industry reforms: rescheduling, banking reform, and decriminalization or even legalization.

There’s good news and bad news in this.

The good news is that a majority of Americans favor cannabis reform and legalization, even on both sides of the aisle. This suggests that sooner or later politicians will respond and make favorable changes. President-elect Donald Trump campaigned in support of all three of the key reforms.

The bad news is that politicians are slow to act. Cronos CEO Michael Gorenstein predicts rescheduling will happen in a year and a half at the earliest.

Rescheduling, which means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act, would boost cannabis company earnings. It would do this by neutralizing an IRS provision that bars the deduction of operating expenses against the sale of Schedule I substances.

Cannabis companies need all the help they can get from politicians because sector trends are not all good. While legalization of recreational use continues in the U.S. at the state level (state regulators keep greenlighting lots of new stores), this continues to put downward pressure on prices due to rising supply.

The bottom line for investors: Because of the need to wait—possibly a long time—for politicians to inevitably make favorable changes, it is best to go with conservative and financially sound cannabis companies. The two companies below fit the bill.

I say “inevitably” because of the strong cultural momentum towards cannabis reform because of popular support for this change. Yes, the change will happen. But it is going to take a while.

Green Thumb Industries (GTBIF)

This is the blue-chip name in cannabis. Based in Chicago, Green Thumb has over a hundred stores and twenty production plants in fourteen states. It sells popular brands like Dogwalkers, and RHYTHM through its RISE dispensaries.

CEO Ben Kovler takes a conservative approach to capital allocation, growth and expenses. This is why Green Thumb is one of the few cannabis companies that actually makes money. It earned four cents a share in the third quarter.

It’s also growing revenue, despite industry headwinds. In the third quarter, it posted 4% sales growth to $28.8 million. In the first nine months of the year, the company posted $151.8 million in operating cash flow.

One way you can tell Kovler is a conservative manager is that unlike many of the larger cannabis companies, he’s continued to have his company pay its full share of federal taxes. Many competitors have started to ignore the IRS ban on expense deduction, hoping that the IRS policy gets changed by rescheduling. This is risky because meanwhile, the IRS formally disagrees with this approach.

Here’s another way you can tell Kovler is a conservative manager. Green Thumb has enough financial strength to make it the rare cannabis company that can exploit the dramatic sector stock price declines by buying back shares. The company has a $50 million stock buyback plan in place.

In the third quarter, the company extended its debt maturities by inking a $150 million five-year credit facility. It negotiated an interest rate of 5% which is low for the sector – another sign of financial strength. Green Thumb ended the third quarter with cash of $174 million against debt of $255.6 million. It has the financial strength to make it through the hard times while politicians dawdle, and prosper on the other side.

From Nancy: This stock is in our Cabot Stock of the Month portfolio. Please see my comments in our Portfolio Updates section.

Cronos (CRON)

With its war chest of $862 million in cash, Cronos has the financial strength to make it through the long wait for politicians to enact reforms that help the sector.

That’s more than its market cap of $769 million, which means the company has a negative enterprise value of around $91 million. In other words, buy the stock, and you are getting the business for free and then some.

This is quite a business to get for free. Cronos is one of the rare cannabis companies posting very robust growth, thanks to the quality of its product and the popularity of its brands. The company’s Spinach brand is the number one brand in Canada, according to Hifyre. Its PEACE NATURALS brand is a top brand in Israel, and it is popular in Europe, an emerging cannabis market.

Third-quarter net revenue grew almost 21% to $29.9 million, thanks to the popular demand for these brands. Cronos said it had so much demand, it could not keep up. That’s the kind of brand strength you want to see in an investment. Cronos saw strong demand in Canada and Israel. It also saw strength in Germany, Austria and the U.K., where it is starting to build market share. The company cites its proprietary plant genetics based on years of research.

Including the consolidation of its GrowCo cannabis supply company, which Cronos incorporated onto its balance sheet in the third quarter for the first time, sales grew 38% to $34.3 million. Cronos brought GrowCo onto the balance sheet because it got majority control of the board during the quarter. The company’s operating cash flow came in at $11.6 million, compared to a slight decline the year before.

“As international demand continues to rise, particularly in markets like Germany, the U.K., and Australia, the investments we’ve made in our infrastructure and global partnerships are paying off,” said Cronos CEO Gorenstein in the third-quarter earnings call. “Thanks to our strong balance sheet, we are exceptionally well positioned to capitalize on future growth opportunities and enhance our position in the markets we operate in.”

From Nancy: Altria (MO) owns a 41% stake in this company and 13 hedge funds have interest in the shares. Double-digit growth and strong cash flow will only be enhanced by favorable legislation.

And here’s my pick for 2025:

Novo Nordisk (NVO)

You’ve no doubt heard of Denmark-based Novo Nordisk, the drug company behind Wegovy (or semaglutide, its GLP-1 hormone-mimicking drug), one of the two biggest weight-loss drugs on the market.

Shares flew high when Wegovy was the drug to beat but have retreated somewhat due to competition from Eli Lilly’s Zepbound.

But don’t fear—there’s plenty of room for both drugs. The global weight-loss market, currently valued at some $163 billion, is exploding. Experts believe it will grow to $362 billion in just ten years!

That’s because obesity has more than doubled since 1990. And it has been rapidly expanding in the past few decades, from 30.5% of the world population in 1999 to more than 42% today. What’s more, more than 22 million adults suffer from severe obesity (a body mass index of 40 or higher).

Even if you are just a few pounds overweight, the older you get, the harder it is to lose, and once you become obese, it’s even more challenging.

Enter these weight-loss drugs. They seem to be miracle workers, as I know quite a few people who have lost 50, 60, even 70 pounds in six months or less.

Those results are ratcheting up interest in the weight-loss drugs, making their shareholders happy as their stock prices rise with their fortunes.

As I mentioned, Novo has pulled back recently, due to increasing competition and softer revenue in the third quarter than Wall Street had expected.

Additionally, the company just announced that it is investing $1.2 billion in a new production facility in Odense, Denmark, for the production of drugs used to treat rare diseases, like hemophilia, which are otherwise neglected.

Novo is not a one-drug wonder, and analysts expect 20% or higher annual growth from the company for the next few years.

Earnings estimates have been rising in the past couple of months, with analysts expecting the company to earn $3.24 per share this year.

Double-digit sales ahead and the pullback in the stock make Novo a screaming buy, in my opinion.

Portfolio Updates

Tom Hutchinson, Chief Analyst of Cabot Dividend Investor, commented on Qualcomm Inc. (QCOM), saying, “This semiconductor giant reported earnings that surpassed expectations with year-over-year revenue growth of 19% and earnings growth of 80%. But the performance has been a bummer for a while. QCOM plunged over 30% from the June high in the subsequent two months and has been going sideways ever since. The market wants to see strong U.S. smartphone sales from an AI upgrade cycle. But that doesn’t appear to be happening yet, although analysts think it is a possibility next year. But when this stock moves it easily makes up for lost time. And it will take off at some point... BUY”

The company recently brought some new chips to the market—said to have the capability to “run the latest artificial intelligence software yet cost as little as $600.”

QCOM has seen two analysts increase their earnings estimate in the last 60 days, up to $11.14 per share.

AI, as well as forays into the auto industry, should push this stock higher in 2025. Buy

Tom also updated Brookfield Infrastructure Partners (BIP), noting, “Like most other utilities, BIP was riding high until the middle of October when the interest rate narrative changed for the worse. The business itself is solid with remarkably stable revenues and a growing dividend. BIP was a superstar performer before inflation and rising interest rates. But it has been a slave to the interest rate narrative for the last two years. While it is likely that interest rates have peaked, the odds of significant declines have diminished of late. Things change, and the longer-term trend for rates seems to be going in the right direction and BIP should improve going forward. (This security generates a K1 form at tax time). BUY”

BIP has a great yield—currently 4.95%. It is also very diversified, with excellent cash flow and long-term contracts. The stock is clearly oversold. Buy

In his review of UnitedHealth Group Inc. (UNH), Tom had this to say, “After soaring to a new high in early November, it’s been one thing after another for this health insurer. The stock is down 16% in December. UNH initially fell because of trepidation over the RFK nomination. Then the CEO was assassinated. Then, President-elect Trump made comments about “eliminating the middleman” in the healthcare industry. We’ll have to see if the regulatory environment changes for the worse. The stock can overcome everything else. UNH has also come off the bottom and can hopefully get some upside traction in the new year. BUY”

UNH stock is currently held by 112 hedge funds, who think the future will be shinier for the company. I agree. Continue to Buy.

Tom also updated McKesson Corporation (MCK), noting, “McKesson recovered all the summer and fall dip in a very short time, but it resumed a funk in December. The pharmaceutical distributor took a plunge after second-quarter earnings missed because of supply disruptions. But the third-quarter earnings alleviated that concern, and the stock took off again. The healthcare sector is reeling somewhat from the RFK nomination right now. But hopefully, MCK will get back to slowly trending ever higher in the year ahead as its customer base grows all by itself because of the aging population. BUY”

McKesson just sold off its Canadian assets in order to streamline its business and to concentrate on its pipeline in the fast-growing fields of oncology and biopharma services (expanding at 11.5% and 12.5%, respectively). Continue to Buy.

Curaleaf Holdings, Inc. (CURLF), is still a Buy, according to Michael Brush, Chief Analyst, Cabot Cannabis Investor.

Wall Street thinks the stock has a 156% upside, due to its global market potential and its diversification. The global marketplace for legal cannabis is expected to increase at a pace of 25.7% annually by 2030, according to Grand View Research.

I don’t recommend you buy any additional shares of Curaleaf at this time, but Continue to Hold the ones you have.

You can see Michael’s update of Green Thumb Industries (GTBIF) as one of his Top Picks. His recommendation remains a Buy.

Good diversification and excellent growth should boost these shares in 2025. Let’s continue to Buy a few more.

Tyler Laundon Chief Analyst, Cabot Small-Cap Confidential and Cabot Early Opportunities commented on his recommendation, FTAI Aviation (FTAI), saying, “FTAI has been in a downtrend since things have begun to improve for Boeing (BA), both in terms of production and ending strikes. I elected to sell half our stake and we’re holding the other half. I’m watching closely as I love this story but also don’t want to see the paper profit we have on our remaining half position slip much more. HOLD HALF”

We already sold one-half of our holdings in September for an 82% gain. Let’s Sell one-half of our remaining shares and Hold the rest.

Tyler also recommended that his subscribers Sell Willdan Group (WLDN)—our newest recommendation, noting, “We’re going to show respect for the deteriorating breadth of the market by selling Willdan Group (WLDN) today. We just added the stock in October and at that point WLDN’s uptrend was intact. However, shares faltered after the company’s Q3 report, and the stock hasn’t regained its mojo. I don’t think the company’s prospects are any worse under the incoming Trump administration, but that perception might be out there so what I think doesn’t really matter. The bottom line is the stock is not working right now, and I’d rather lighten up a little by selling a stock at breakeven to have more firepower heading into the beginning of 2025. SELL”

I agree. Sell

Toll Brothers (TOL) was updated by Chris Preston, Chief Analyst of Cabot Value Investor, who commented, “Historically, when the Fed cuts interest rates, homebuilder stocks are among the first to benefit. Indeed, in 2019 and early 2020 (before Covid hit), during which the Fed cut rates from 2.5% to 1.5%, homebuilder stocks were up 64%, more than double the 30% bump in the S&P 500. Now, with the Fed finally cutting rates for the first time in four and a half years, the homebuilders are undervalued, trading at 13x forward earnings. Toll Brothers is even cheaper, trading at less than 9x estimates – and growing faster than the average bear. In fiscal 2024, revenue improved 10% year over year while adjusted EPS was up 12.7%, which compared favorably to 2023 results (13.6% EPS growth on a 2.7% downturn in revenues).

“Toll Brothers isn’t the biggest homebuilder in the U.S. Its $10.5 billion in revenue last year paled in comparison to the likes of D.R. Horton’s ($35 billion), PulteGroup’s ($16 billion), or Berkshire Hathaway holding Lennar’s ($34 billion). But it’s cheaper and faster than all of them.

“Interest rates were flat this past week, perhaps a sign that they’ve finally topped. TOL shares finally stopped falling too after a rough December in which the stock tumbled more than 23%. Eventually, however, the cumulative effect of lower interest rates—even if the Fed slashes rates at a slower pace than anticipated—will show up in both bond yields and, more importantly, mortgage rates. The Fed has already lowered short-term rates from a range of 5.25-5.5% to 4.25-4.5% in the last three-plus months. Another 50 basis points would get it down below 4%. And it won’t stop there.

“So, let’s play the long game with TOL. TOL shares have 43% upside to our 180 price target. At less than 9x forward earnings, shares are incredibly cheap. BUY”

The National Association of Realtors reported that sales of previously owned homes rose 4.8% in November (from October). Commenting on rates, Compass CEO Robert Reffkin noted that he “expects mortgage rates to stay around the 6% range for the next two years instead of rates declining to the 5% range in the next year or even the following.”

The company continues expanding its luxury brands into new regions, and since 2024 reportedly was “the strongest year ever” for it, high mortgage rates don’t seem to be having a big impact on its buyers. Continue to Buy.

Carl Delfeld, Chief Analyst of Cabot Explorer, reviewed International Business Machines (IBM), saying, “Shares were up 38% in 2024 and have steadily gained investor interest as a sleeper conservative play on artificial intelligence. IBM has recently built on this theme by announcing a series of key AI partnerships with Amazon. IBM offers us conservative exposure to a blend of cloud computing, data analytics, cybersecurity, and artificial intelligence (AI). Buy a Half”

As artificial intelligence continues to grow, so should IBM. Let’s continue to Hold our remaining shares for now.

Carl also noted that Oberweis Micro-Cap Fund (OBMCX) “Fund stands out for several reasons. The fund’s sound investment process and strong management team earns it a rare Morningstar Medalist Rating of Gold. Over the past five years it has posted an impressive average annual return of 18.9%. Buy a Half” I agree. Buy

As noted above, Novo Nordisk (NVO), is my Top Stock Pick for 2025. I’m not alone, as the share’s recent dips have brought the stock to a very discounted level, and 14 brokerages now rate it a Buy. I agree. Buy

Portfolio

*Aggressive (A), Moderate (M), Conservative (C)

ETF Strategies

Our ETF portfolio is doing very well, with gains across the board.

These ETFs remain on our Watch List, and have recently given up some gains and are almost back to my buy level. Keep your powder dry.

Vanguard Small Cap Growth Index Fund (VBK)

Vanguard Midcap Growth ETF (VOT)

ETF Spotlight

In this section, I highlight one of our portfolio ETFs, showcasing its largest holdings and past returns so that you can decide if the ETF fits into your investment strategy.

Invesco Dow Jones Industrial Average Dividend ETF (DJD) is a 3-star fund that will generally invest at least 90% of its total assets in securities that comprise the underlying index. The underlying index is designed to track the dividend-paying equity securities of companies included in the Dow Jones Industrial Average™, which is a price-weighted index of 30 U.S. companies that meet certain size, listing and liquidity requirements. The fund is non-diversified.

Returns

ETF Portfolio

*Aggressive (A), Moderate (M), Conservative (C)
**Purchase price reflects a 3-for-1 stock split

The next Cabot Money Club Stock of the Month issue will be

published on February 13, 2025.

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