Cabot Stock of the Month Issue: March 13, 2025

Market Review

I don’t know about you, but these market swings are definitely making me dizzy! Tariffs, inflation, the reemergence of recession fears—are all serving to rattle investors.

This morning’s inflation report, however, did push us into somewhat positive territory, with February’s CPI rising 0.2% (2.8%, annually), a bit less than the 0.3% forecast and considerably better than the 0.5% rise in January.

Also, on the good news front, mortgage rates have finally begun to decline, with the average 30-year interest rate now at 6.72%.

Unemployment remains steady, although in the latest ADP report, just 77,000 new jobs were added, about half of what was expected.

So far, the only stock styles in the black, year to date, are Large Cap Values, which have gained 0.95%. And sector-wise, we are barely moving the needle into positive territory, and Technology and Consumer Discretionary stocks are all down, losing 10.01% and 11.6%, respectively.

In this market, it’s important that we remain defensive, which is why we are selling a couple of stocks and putting others on hold this month.

But … I think it is definitely a stock picker’s market and intend to continue recommending stocks that I think will outperform the market, such as the featured company in this month’s issue.

Feature Recommendation

With 2025 markets starting with such volatility, investors are going to need to be very picky in managing their portfolios over the next few months. With such uncertainty, I expect Value stocks will become very attractive. But to boost returns, it’s always necessary to also be invested in some good growth stocks. And when I’m looking for growth, I naturally go to Mike Cintolo, Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader.

I asked Mike for a growth recommendation this month, and here is his idea:

Axsome Therapeutics (AXSM): Alleviating the Symptoms of a Plethora of Serious (and Growing) Common Ailments

“So, to be fair, I’m up to around 70% in cash right now, so you can tell I’m playing defense. That said, I’m not having trouble filling up my watch list with resilient names that have good stories and growth; I’m not buying them yet because of the market (good stocks can go bad in a hurry in a weak market), but they’re in pole position should the market turn up soon.

“One is Axsome Therapeutics (AXSM), a mid-sized biotech player with a focus on central nervous system disorders, that has a couple of drugs on the market now, one that just got approved and three more likely to be submitted for approval (including a potential huge seller that targets Alzheimer’s disease agitation) later this year.

“Axsome Therapeutics looks to be just starting a big wave of growth thanks to a couple of drugs on the market today and more that are likely to be approved in the quarters ahead. The firm is focused on central nervous disorders, and its big-selling drug today is dubbed Auvelity, which is an oral treatment for major depressive disorder, which affects north of 20 million people; working by mimicking the effects of ketamine but without some nasty side effects; Q4 sales of the drug lifted 89% and brought in $291 million for all of 2024, though most see peak annual sales here reaching at least $1 billion down the road.

“Then there’s Sunosi, for wakefulness for those with sleep apnea or narcolepsy; growth here has been slower (up 16% in Q4) though a recent patent settlement that pushes generic competition out to 2040 has many thinking sales here (just $94 million last year) could grow many-fold in the years ahead, perhaps up to $400 million or so down the road.

“Next up is Symbravo (acute migraines), which got the FDA thumbs-up in January and should have initial sales mid-year ($500 million peak sales potential), followed by three new drug submissions to the FDA this year: Two of them (one for narcolepsy, one for fibromyalgia) have solid potential (again, likely peak sales potential in the $500 million range in the years ahead), but the bigger driver of investor perception surrounds a third one for Alzheimer’s disease agitation—trial results for that one in December didn’t impress Wall Street, but when management said a few weeks later it thought results were positive enough for approval, Axsome’s stock took off. (The company sees $1.5 billion to $3 billion peak sales potential for that offering if all goes well.)

“Clearly, with so many new submissions, new launches and upcoming FDA decisions, the stock is going to be news driven, but business is already good and analysts see sustained growth ahead, with 60% top-line growth both this year and next while losses should start shrinking quickly from here and leap into the black in 2026. It’s a good, well-rounded (not just one drug) story.

“Sales are lifting at 60%-plus rates and that should continue both this year and 2026, and the stock, while pulling in, isn’t that far from new high ground.

“AXSM had a couple of promising periods during 2023 and 2024, but net-net the stock could never really get going—shares made no progress for a couple of years after the sharp dip into mid-January. But it’s completely changed character since, quickly running to new highs in early February and then gapping strongly to even higher highs after earnings. Granted, AXSM has been slipping some since, so there’s a chance of a deeper correction, but so far, the dip has come on very light trade and has been reasonable compared to the prior run. If you want in, we’ll set our buy range up a bit from here, aiming to start small on a resumption of the uptrend.”

Hedge funds are interested in Axsome stock, with 44 currently invested. Analysts’ consensus price target is $165.36 for the company.

For 2024, AXSM saw its revenues rise 43%, to $385.7 million, and its net loss increase to $287.2 million, or $5.99 per share. As a drug development company, losses at this stage are normal.

And as Mike said, the company’s pipeline is impressive, as you can see from this chart in a recent investor presentation.

Additionally, AXSM’s number of patents help protect its product line:

The recent market rout has made these shares even more attractive. Buy

About the Analyst: Mike Cintolo, Chief Analyst, Cabot Growth Investor and Cabot Top Ten Trader

A growth stock and market timing expert, Michael Cintolo is Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times. That’s helped his long-term track record, including outperforming the S&P 500 over his 18 years of running Cabot Growth Investor and posting his second-best returns ever in 2024.

Mike has a fantastic track record for profiting from market trends, so I was very interested to hear about his current take on the market.

Here’s our interview:

Nancy: Progress in reducing inflation has been slower than expected. Consumers understand the Consumer Price Index (CPI), the widely known inflation indicator, but the Federal Reserve prefers the Personal Consumption Expenditures (PCE) to measure inflation. Would you explain the difference to my subscribers and why the Fed believes the PCE is more accurate?

Mike: Well, I’m not an economist, which is something I am thankful for every day. But my understanding is that PCE is more flexible in terms of consumer switching, meaning it takes into account the fact that people may buy more oranges if the price of apples goes up. How accurate is it? I’m not the person to ask, but I tend to think things like commodity prices are a more accurate indication of whether money is too tight or loose overall anyway.

Nancy: In your recent Cabot Top Ten Trader, you said, “Right now, we think it’s best to play defense (our Market Monitor now stands at a level 4) but to also remain flexible.” Would you please explain your Level 4, as well as a few steps that you think investors should currently follow to “play defense?”

Mike: So there are obviously many ways to do it, but I prefer to (a) hold plenty of cash, which in this environment (4% or whatever money market rates are) isn’t a punishment; and (b) when we do buy, keep it small, maybe half or less whatever your normal position size is. The goal is really capital preservation while we look to ID the leaders of the next intermediate-term advance. As for Level 4, it’s simply a 1-10 bear-to-bull scale, so it very roughly might correlate to 60% cash, but again, that’s very, very rough and depends on how you run your portfolio.

Nancy: The issue of tariffs on imports from China, Mexico, and Canada has recently pushed large and midcap Value stocks back into the leading categories for 2025. How much of an impact (if any) do you think the tariffs will have on the stocks in your Cabot Growth Investor portfolio?

Mike: Well, so far, it seems to be having an effect, yes—though I’m less of a believer in the news headlines and more of how the market works. After a huge, huge growth year in 2024, it made sense that 2025 would be at least a bit more value-oriented and choppy. That said, if growth stocks really cave in, then I’d think the rest of the market will, too—which we’ve seen a bit so far in February/early March.

Nancy: Healthcare, Financial, and Real Estate are currently the market leaders. Are you seeing momentum building in these sectors? And if so, in which sub-categories?

Mike: Well, again, I do think some of the groups that were so-so last year could continue to find buyers this year. And specifically, to this list, I am most intrigued with healthcare/medical—obviously, defensive names could hold up in that space, but I’m most interested in many medical device and biotech names that have sat out the dance but could emerge during the next market uptrend.

Nancy: Which sectors do you find the most attractive right now?

Mike: Well, right now, not many, but I would say medical and some select software titles are showing relative strength. Should the decline continue, it will be easier to spot names holding up well, but so far, that’s what I see.

Nancy: What are the 3-5 most critical challenges to the growth of the stocks in your portfolio right now?

Mike: So, first, of course, the market itself—the tide is going out. But I would say second is the simple fact that many had great, prolonged runs—and once that momentum stops, which it did in December and January, it often takes some time to re-set the advances (wearing out the weak hands). No predictions, but that’s my current thought.

Cabot Money Club Subscribers Get 25% off Cabot Growth Investor

Do you want to get more of Mike's advice? Try his Cabot Growth Investor and get 25% off.
This flagship investment advisory has been published since 1970 and it is recommended for all investors seeking to grow their wealth. As a subscriber, each week you’ll receive clear and comprehensive updates on the stocks recommended in our legendary Model Portfolio. You’ll receive invaluable investing lessons, so that you won’t just become a more successful investor—you’ll become a wiser investor!
Learn More

Portfolio Updates

Tom Hutchinson, Chief Analyst of Cabot Dividend Investor, updated his view on Qualcomm Inc. (QCOM), saying, “The mobile device chip company delivered earnings with strong quarterly results and raised guidance for 2025. Revenue rose 17% for the quarter and EPS rose 24%. Both easily exceeded expectations. There was solid growth in just about every segment, including iPhone demand. And guidance was raised for this year.

“But there wasn’t evidence of a strong AI smartphone upgrade cycle. And that’s really what the market is looking for. Several analysts expect an upgrade cycle to ignite sometime this year. And that could really move the stock higher. But a breakout is unlikely until that event is within sight. Meanwhile, QCOM has been knocked down with the rest of the tech sector. BUY”

QCOM reported revenue of $626 billion in 2024 yet trades at a P/E under 17. Wall Street expects a rebound in the stock, up to 25% in the near future. Continue to buy.

Tom also commented on Brookfield Infrastructure Partners (BIP), noting, “It’s disappointing. The upside of this underperforming stock is that it’s defensive. But it sold down along with everything else in the recent turmoil. That’s weak sauce. BIP better show some chops soon or it will be cut loose. It’s perplexing because the business is sound. Earnings beat expectations with 8% FFO (funds from operations) growth in 2024 over the prior year and 10% minus exchange rates. Brookfield also announced a 6% distribution increase, marking the 16th consecutive year of payout increases. The business is delivering but the stock price isn’t. It’s off the lows but it’s still well below the early 2022 high. (This security generates a K1 form at tax time.) BUY”

Brookfield Infrastructure pays out 60% to 70% of its cash flow in dividends and has a current dividend yield of 6.11%. But with the roiling markets, I’ll feel better if we become a little conservative and place BIP on Hold for now.

Tom also updated UnitedHealth Group Inc. (UNH), commenting, “UNH took another hit last month when the market wasn’t thrilled with the earnings report and the FTC accused the company, along with others, of overcharging for life-saving drugs. Earnings were mixed as revenue missed and earnings beat. However, the company also reiterated 2025 guidance. It’s been one thing after another with this one.

“The strong track record of outperformance leads me to believe this stock can make a move at some point. But the bad news keeps coming. It was downgraded to a HOLD until UNH shows evidence of bottoming out. It has moved off the bottom and is one of the few stocks in the black over the past couple of weeks, which shows some defensive chops. HOLD”

UnitedHealth Group Incorporated reported quarterly revenue of $100.81 billion in Q4 2024, less than Wall Street’s $101.76 billion forecast, due to rising costs of increasing Medicare demand. However, the company stuck with its 2025 profit outlook, forecasting full-year revenue between $450 billion and $455 billion.

I agree with Tom; Hold for now.

Tom also updated his views on McKesson Corporation (MCK), saying, “Quietly, while nobody is looking, this supply chain pharmaceutical distributor has had an epic rise and made a brand new high this week while the rest of the world crashes and burns. It’s up nearly 40% since this upside move began in late September. The stock had been knocked down last summer and fall after the company reported supply chain issues with weight loss drugs. But those problems are behind the company. It should resume its old habit of slowly going higher and higher as it deals in a market that grows all by itself because of the aging population. BUY”

In its fourth-quarter investment letter, Alluvium Asset Management featured McKesson Corporation, saying, “McKesson Corporation released a decent set of results which included management again upgrading its guidance. From the immediate share price reaction together with its subsequent performance we surmise the market’s concerns we spoke of in last quarter’s report have now abated. The new guidance is a little above our view of its maintainable earnings, but we saw no need to change our analysis. With our buying last quarter, it had become the Fund’s largest position until we sold a little in December to now hold 6.3%.”

Continue to buy.

Lastly, Tom commented on our newest recommendation, Ally Financial Inc. (ALLY), noting, “It had been a strong start to the year for this online banker. But the slower growth narrative that developed last month has pushed ALLY back near the 52-week low. Auto loans, which are the bulk of the business, depend on a healthy auto market. If the economy does slow significantly, it can also negatively affect loan defaults. This stock is cyclical. We’ll hold on for now to see if that slowing economy fear has lasting traction. Hopefully the selling is overdone and the stock bounces back. But we’ll see. BUY”

Ally Financial is anticipating a $250 million loss to its first-quarter results, after selling some $2.5 billion of its investment portfolio to “boost capital flexibility and strengthen its balance sheet and operations” as rates fall. The shares took a hit and are now heavily discounted. In light of the continued market volatility, let’s change our recommendation to Hold for now.

The cannabis industry is under pressure as growers are hoping that President Trump will make good on his campaign promises. For now, let’s keep Curaleaf Holdings, Inc. (CURLF) on Hold and also change our recommendation on Green Thumb Industries (GTBIF) to Hold.

Tyler Laundon, Chief Analyst of Cabot Early Opportunities and Cabot Small-Cap Confidential, changed his recommendation of FTAI Aviation (FTAI) to Sell, saying, “We’re also going to protect our remaining gain on FTAI Aviation by selling the second half of that position today. As I wrote in my earnings review on the stock, I like the business and would like to continue to own the stock (if not buy more)—but in the current environment, we need to focus on holding on to the gain we worked so hard for. SELL REMAINING HALF”

I agree. Sell.

Chris Preston, Chief Analyst of Cabot Value Investor, has decided to Sell Toll Brothers (TOL), noting, “Toll Brothers reported fourth-quarter earnings on Tuesday that missed the mark, with EPS falling short of estimates by 14.8%. Shares promptly sold off, falling more than 6% on Wednesday to reach their lowest point since last July.

“We added shares of this homebuilder to the Value Investor portfolio in early September, just ahead of the Fed’s initial 50-basis-point rate cut. Our timing seemed perfect, and indeed, TOL shares got off to a very good start for us, advancing more than 20% over the next two and a half months. Then, the interest-rate narrative changed, the Fed started signaling caution and now, appears determined to hold the line on interest rates at least through the first half of the year, and perhaps all the way until the fourth quarter. Meanwhile, mortgage rates—in the low 6% range when we added TOL to the portfolio—have remained stubbornly in the 7% range while the Fed has pumped the brakes.

“Our premise in adding TOL to the portfolio was that homebuilder stocks tend to benefit most—and first—when the Fed is slashing rates. Initially, that happened again. But as rate-cut momentum has fizzled and inflation fears have resurfaced, TOL shares have plummeted; and now, the company has reported a bad quarter.

“So, rather than holding and hoping for a bounce-back in the second half of the year when (if?) the Fed resumes its rate cuts, let’s cut our losses (roughly 18%) now and open up another spot in the portfolio for a stock with more immediate upside catalysts. SELL”

I agree. Sell.

Carl Delfeld, Chief Analyst of Cabot Explorer, noted that “International Business Machines (IBM) outperformed tech stocks this week supported by continuous development of new partnerships in infrastructure hardware, hybrid-cloud solutions, and a suite of enterprise software applications that help organizations. Buy a Half”

Wall Street is forecasting 4% growth for IBM this year, and with its discounted valuation and a decent dividend yield, they are still positive on the stock. Let’s continue to Hold our shares.

Oberweis Micro-Cap Fund (OBMCX) still looks attractive to me and has held up fairly well in the recent market volatility. Buy

I’ve been very patient with Novo Nordisk (NVO). And although its Phase III trial data of CagriSema, the weekly injectable weight-loss therapy, showed 15.7% weight loss in participants and met its primary endpoint with “89.7% of patients dosed with CagriSema able to lose more than 5% of their body weight by week 68, compared with 30% in the placebo arm,” it fell short of the original 25% weight loss goal.

And while I think Novo still has good potential, I’m out of patience, so am cutting it loose. Sell

Portfolio

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

ETF Strategies

Our ETF portfolio is weathering the market’s volatility pretty well. I strongly believe in diversification, so I have just updated these sample portfolios for you, using current stocks and ETFs in our portfolio, according to age and risk tolerance:

Age 0-40

Aggressive Portfolio

Moderate Portfolio

Conservative Portfolio

Ages 41-60

Aggressive Portfolio

Moderate Portfolio

Conservative Portfolio

Ages 60+

Aggressive Portfolio

Moderate Portfolio

Conservative Portfolio

These ETFs remain on our Watch List:

Vanguard Small-Cap Growth Index Fund (VBK)
Vanguard Midcap Growth ETF (VOT)
The Industrial Select Sector SPDR Fund (XLI)

ETF Spotlight

In this section of the newsletter, 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. Here is this month’s featured ETF:

First Trust Water ETF (FIW) is a 5-star fund that will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the index. The index is designed to track the performance of small, mid and large capitalization companies that derive a substantial portion of their revenues from the potable water and wastewater industry, according to Clean Edge.

Top 10 Holdings

Returns

Double-Digit Growth Ahead for CNS

The central nervous system (CNS) therapeutic market is booming due to a focus on neurological and psychiatric disorders, advancements in drug development, and unmet medical needs. Last year, the global marketplace was around $144 billion but is forecast to rise to $431 billion by 2035, a CAGR of 10.46%.

There are several catalysts boosting this growth:

Aging population. According to the World Health Organization, the rising population of folks 60 and older—estimated to reach 2.1 billion by 2050—is increasing the prevalence of CNS disorders such as neurodegenerative diseases (Alzheimer’s and Parkinson’s), igniting the need for CNS therapeutics.

Right now, more than 6 million people in the U.S. have been diagnosed with Alzheimer’s, and that number is expected to reach 13 million by 2050, according to Fortune Business Insights.

Prevalence of multiple sclerosis. The National Multiple Sclerosis Society says that some 2.9 million people around the world have multiple sclerosis, 1 million of whom reside in the U.S.

Rising awareness of mental health issues.

Mental health—particularly anxiety, depression, and schizophrenia—currently leads the market, accounting for 40.2% of the revenue last year.

But it’s the neurodegenerative diseases, such as Alzheimer’s, Parkinson’s, and multiple sclerosis, that are expected to see the fastest growth with a CAGR of 11.5%.

Currently, North America’s CNS therapeutics market accounts for 39.5% of global industry revenue, and the U.S. makes up 89.3% of North American revenues, due primarily to Alzheimer’s and Parkinson’s diseases.

One of the compelling trends in the CNS therapeutics industry is the growing merger & acquisitions segment. In 2024, several key acquisitions were initiated, including:

1. AbbVie (ABBV) acquired Aliada Therapeutics for $1.4 billion (neurological disorders).

2. Bristol-Myers Squibb (BMY) bought Karuna Therapeutics for $14 billion (schizophrenia and neurological).

3. Lundbeck took Longboard Pharmaceuticals private for $2.6 billion (migraine and epilepsy).

The buyers are targeting many phases of therapeutics, including pre-clinical programs, gene therapy, disease-modifying therapies, late-stage clinical assets, neuropsychiatric therapies, and precision medicine approaches. The marketplace is very fragmented, with many companies targeting specific diseases, so buyers have a lot of choices.

And as Axsome continues to make its products stand out, who’s to say whether the company may become the target for a bigger fish, which would make its shares even more valuable.

In the meantime, Axsome’s growing pipeline, its focus on an ever-expanding list of maladies, and its patent protection all serve to make this an interesting stock.

The shares of AXSM are aggressive. Buy

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 April 10, 2025.

Copyright © 2025. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.