Cabot Stock of the Month Issue: May 9, 2024

Markets have continued to improve, and so have economic statistics. Housing price increases—while slowing somewhat—are still on the rise, with the Case-Shiller Index posting a 7.3% increase in prices for the month.

ADP employment rose to 192,000, higher than the 183,000 expected. Job openings declined just a bit, to 8.5 million from 8.8 million last month. And the unemployment rate edged up from 3.8% to 3.9% in April.

First-quarter earnings are just about all in. With 80% of S&P 500 companies reporting results, 77% of them have reported a positive EPS surprise and 61% have reported a positive revenue.

Growth stocks are still leading, with large caps up 10.78% year to date; mid-caps, 5.61%; and small caps, 3.49%. However, Value stocks are also gaining, with large caps rising 5.58%; mid-caps, 4.94%; and small caps, 0.21%.

Sector-wise, Energy (+10.41%), Communication Services (+10.39%), and Utilities (+8.02%) are leading. At the bottom are Real Estate (-7.59%), Consumer Discretionary (-0.50%), and Healthcare (+3.26%).

Here at Cabot, we’re still bullish, but not yet all in. Indicators look great, and earnings are very positive, but we still believe it’s not yet time for dartboard selections.

With that in mind, I’m looking to continue boosting our portfolio performance, and this month, I’m offering a company with great growth prospects, operating in two expanding segments of the same industry.

Feature Recommendation

FTAI Aviation Ltd. (FTAI): A Two-Pronged Approach to Rapid Growth

Recommended by Tyler Laundon, Chief Analyst, Cabot Early Opportunities and Cabot Small-Cap Confidential

FTAI Aviation (FTAI) is a unique, small aerospace company with a market cap of $8 billion. The company specializes in aircraft and engine leasing (78% of revenue) and engine repair and maintenance, specifically for the CFM56 engine.

This is the world’s best-selling aircraft engine for single-aisle commercial planes, with over 33,000 engines sold and a billion flight hours. It’s the one engine for the Boeing 737 NG family and one of two options on the Airbus A320 family.

To make this story even better, in February management announced the introduction of the V2500 Maintain, Repair and Exchange (MRE) program. This is the other engine option for the Airbus A320.

That means a lot of maintenance requirements, especially as some newer engine designs have had issues and will be grounded through 2026. It also means FTAI isn’t exposed to the risks of new aircraft and engine programs.

The company’s customer base is a mix of airlines, lessors, and maintenance, repair, and operations customers. They turn to FTAI because the company has a history of helping customers control their operating costs.

It’s an interesting business when you sit back and think about it. FTAI owns aircraft and engines that it leases out. Yet it also provides maintenance, and it periodically sells engines (in whole, or by parting them out) as well as other parts and materials.

It is essentially an asset management company with a core competency around buying, selling, repairing and servicing airplane engines. Given new aircraft development challenges, it’s more important than ever to keep current fleets operating, and a lot of that comes down to engine maintenance.

This business mix allows it to play the market depending on whether it is a buyer, seller or lessee market.

In short, FTAI has a unique business, managing aircraft and engine assets in what is likely the best space in the aerospace aftermarket. And it does so well enough to generate significant cash flow and pay out regular dividends. The stock currently yields 1.53%.

In Q4 the company sold 61 modules (average for the last three quarters was 39) and acquired $229 million worth of aircraft (11) and engines (32).

The Module Factory is a dedicated commercial engine maintenance center in Montreal that the company established in partnership with Lockheed Martin (LMT).

FTAI also owns $2.18 billion worth of narrowbody and widebody planes.

In 2023, revenue grew by 65% to $1.17 billion while EPS improved to $2.11 from a loss of -$1.39 in 2022. Looking forward, it’s basically impossible to forecast how many engines the company will sell, but a conservative estimate suggests 15% revenue growth ($1.34 billion) should be a baseline, with EPS of at least $2.30.

FTAI came public in January of 2014 at 17. The 2021 peak was around 29, then the stock trended down before leveling off and spending the second half of 2022 treading water in the 14 to 20 zone. Things picked up quickly in 2023 as FTAI broke above 20 early in January and began a run that didn’t pause until the stock hit 38 in September. A little dip and pause, then FTAI got its mojo back in late October, broke out to new highs over 40 entering November, and began a run of higher highs and higher lows that carried it to 60 last week.

The company reported earnings last week, citing quarterly revenue of $326.7 million (+11.6%), beating expectations by $24.6 million. EPS was $0.31, $0.06 shy of consensus. However, adjusted EBITDA of $164 million was $11 million ahead of expectations. The EBITDA beat was the result of 72 module sales in Q1, up from 61 in the previous quarter (Q4 2023) and 39 in the year-ago quarter (Q1 2023). The company will pay a dividend of $0.30 per share on March 31.

FTAI also announced a new agreement with LATAM that includes a sale and lease transaction for over 30 aircraft. This will include both CFM56 and V2500 engines and shows progress in building out the V2500 MRE business.

FTAI Aviation looks terrific as there are considerable, long-term challenges in aircraft production helping to stoke demand in the company’s aftermarket business. Buy.

With its earnings report, FTAI declared a quarterly dividend of $0.30 per share.

FTAI has a dominant position in the industry, and as we know with recent airplane mishaps, the maintenance and service requirements in the aviation industry are massive … and expanding.

The company’s earnings are estimated to grow from $2 per share in 2024 to $6 per share in 2027. With a P/E of around 35, that still seems cheap to me! Buy

About the Analyst: Tyler Laundon, Chief Analyst, Cabot Early Opportunities and Cabot Small-Cap Confidential

Tyler Laundon is Chief Analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting, and analyzing start-up and small-cap companies.

His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.

Tyler’s small-cap portfolios favor a high allocation to stable, high-growth companies, upon which he layers strategic purchases of higher-risk, event-driven investments. He first began publishing his analysis of small-cap opportunities in 2009. Since 2012, he has led his subscribers into dozens of doubles.

Prior to joining Cabot, Tyler founded and operated a small business for 15 years. He then worked as a consultant for start-up technology companies, as well as Vermont’s largest healthcare institution. From 2009 to 2015, he was the chief analyst of growth stocks at Wyatt Investment Research, where his research spanned

the full spectrum of the growth stock universe, from micro-cap start-ups to multi-national mega-caps.

Tyler holds a B.S. and MBA from The University of Vermont, where he graduated Valedictorian. He has been quoted by U.S. News & World Report and has presented investing ideas and strategies for The Money Show and Bloomberg Markets LiveINSIGHTS.

Tyler focuses primarily on growth stocks in his Cabot Small-Cap Confidential and Cabot Early Opportunities newsletters. And he is an expert at finding fairly unknown, unique stocks before everyone else on Wall Street discovers them—and that’s why I turn to him when looking for stocks with great potential.

Here is our interview:

Nancy: You’ve had some big winners in both your Cabot Early Opportunities and Cabot Small-Cap Confidential portfolios. Would you describe a few of them, and the thinking behind your original selections, as well as any specific analytic measures that attracted you to the shares?

Tyler: We’ve booked gains of 398% in Fiverr (FVRR), 377% in Goosehead Insurance (GSHD), 377% in AppFolio (APPF), 206% in CrowdStrike (CRWD) and 276% with Inspire Medical (INSP). These are all very different businesses. And they were all small when we jumped in. But the common thread is identifying a company that has a great product or service for a very specific market, that is building out more products or services around its core offering, and which has a nice “beat and raise” cadence when it comes to earnings reports. These are NOT examples of diversified businesses. So. it’s important to recognize that the stocks do very well when business is good, but they also go through more challenging periods. That’s why it’s important to monitor the trends and take profits along the way.

Nancy: You have quite a few companies in your Early Opportunities portfolio. Do you have a specific number of stocks that you like to hold at any given time? And do you have an average holding period?

Tyler: I currently have 12 positions in the advisory service and feel that’s about right for the current market. Position count might drop to around eight in a very slow market and expand to 15 to 18 in a really strong market. I don’t have an average holding period that I track, but I tend to include a mix of opportunities that are short-term (a few months), medium-term (up to a year) and longer-term (hold as long as they work).

Nancy: A rate decrease by the Federal Reserve is increasingly looking like a long shot. What are your thoughts, and how might the Fed’s near-term actions affect your small-cap and growth stocks?

Tyler: Based on Jerome Powell’s commentary from the May 1 press conference following the FOMC meeting and the most recent inflation data, I’m leaning toward the first rate cut in September. Of course, that’s just a best guess, and I’m not alone. Market odds point to September too. If the data is close enough to warrant a cut, I think the Fed would rather cut ahead of the presidential election than after it. And with no FOMC meeting in October, that means it has to happen in September, or they’re looking at November 7—two days after the election is not happening—or December 18, which would be my second choice. I think small-cap stocks will enjoy a nice rally once we get a rate cut since the asset class has relatively high exposure to floating-rate debt. Growth stocks like cloud software should do well, too.

Nancy: With almost half of the S&P 500 companies already reporting earnings for the past quarter, 77% of them have beaten estimates. Yet, some big names, like T-Mobile, PayPal, Marriott, and Southwest Airlines, have missed estimates. Should we read anything other than a challenging quarter into these misses? How have the stocks in your portfolios fared in the earnings game?

Tyler: I think the economy is still showing very mixed performance and some sectors are beginning to struggle, especially where consumer spending is involved. Lower-income households are cutting back and many small- to medium-sized businesses are still operating quite conservatively. Other areas are quite strong. The economy just isn’t strong across the board. Cabot Early Opportunities has had a good earnings season and is about 70% through it while Cabot Small-Cap Confidential is just getting started. We’ve had a few stocks trade flat after reporting, a few trade down, a few up modestly and two earnings reports that have sent stocks up 25% and 45%, respectively. I’d love for that trend to continue!

Nancy: Investors seem to be growing weary of some tech stocks, with average gains for the industry at the lower end of the S&P 500 index companies, year to date. You have quite a few tech companies in your portfolios. Is this just a matter of choosing the right tech companies?

Tyler: I think so, yes. Cloud software stocks pulled back a lot as the 10-year yield shot up and I think weakness in that group has soured investor sentiment on tech stocks somewhat. Chip stocks also haven’t been great lately, and a lot of fintech stocks are struggling while some of the previously very strong tech stocks look a little toppy, at least in the short-term. That said, mega-cap tech stocks like MSFT, AMZN and GOOG are still doing very well, which I think speaks to the enormity and diversification of their businesses.

Nancy: Having asked that, which tech sectors are you currently favoring, and which don’t you like?

Tyler: Right now, I’m in favor of AI infrastructure, mega-cap tech, select MedTech stocks, and pure-play small-cap tech stocks with exposure to a very specific niche

market. I’m not in favor of chip stocks or fintech and am being cautious around cloud software stocks, though admittedly looking for opportunities there.

Nancy: Are there any sectors or sub-sectors that you currently see as oversold?

Tyler: Speaking in very general terms, I think a lot of the really rate-sensitive and getting-low-on-cash earlier-stage names are oversold. Companies that will need financing—either through debt or equity raises—have really suffered since the 10-year yield began climbing again. I think some of the earlier-stage companies that will benefit from lower rates could see their stocks do quite well once the Fed starts to cut.

Nancy: What are the three to five most critical challenges to growth of the stocks in your portfolio right now?

Tyler: They’re all macro-related. Number one is the interest rate environment. In my view, we need rates to come down (or signals that they will come down) at least 50bps for the market will move materially higher, both because the cost of debt is high but also because Treasuries are just too attractive, given a roughly 5% risk-free yield.

Second, is conservatism among small and medium-sized businesses which is limiting growth for companies with significant exposure. Third, is investor sentiment which is still a bit shaky for riskier assets, like small caps. Lastly, I think there is legitimate concern about how long consumer spending can hold up. Once people really start to pull back (if they do) across income ranges, smaller challenges will become more significant.

[text_ad src='/ad/ceo-30']

Portfolio Updates

Tom Hutchinson, Chief Analyst of Cabot Dividend Investor, updated his view on Qualcomm Inc. (QCOM), saying, “The chipmaker stock stumbled earlier this month after a stellar five months prior when the stock soared 60%. But it has moved sharply higher again over the last week on excitement about the earnings season and artificial intelligence. Qualcomm reports earnings later this week. The negative cycle in semiconductors and smartphones that held the stock back last year has likely come to an end. Also, the company is introducing new AI chips for PCs and smartphones. Hopefully, it can get a boost from the earnings report. BUY”

Qualcomm reported revenues of $9.39 billion, up 1.2% from 2Q 2023, net income of $2.28 billion (up 34%) and EPS of $2.27 (up from $1.53, and surpassing analysts’ estimates). The profit margin also increased from 18% to 24%.

Looking ahead, the company believes its revenues will rise 8.3% annually during the next three years. Our shares are up 26.5%. Let’s change our rating to Hold for now and look to take some profits soon.

Chris Preston, Chief Analyst of Cabot Value Investor, reported that “Citigroup (C) posted revenues of $21.1 billion, ahead of $20.4 billion expected. Earnings per share of $1.86 blew away analyst estimates of $1.23. However, EPS was down 27% from last year’s first-quarter tally due to higher expenses and credit costs. Revenue was also down, about 2% year over year, but it was only down compared to a first quarter last year in which the bank sold an overseas business.

“The highlight was Citi’s investment banking unit, which saw a 35% revenue bump on the strength of a solid Q1 for the market.

“Investors initially sold out of C after the report but have since come around, and the stock is up about 7% since a mid-April bottom at 57, though it did give back about 2.5% of its gains in the last week. C shares trade at less than 11x earnings and at 1.5x sales. BUY”

Our shares are up 44%; let’s take some profits and sell one-half of our holdings.

Updating the cannabis industry, Michael Brush, Chief Analyst of Cabot Cannabis Investor, noted, “Back on April 24 I suggested cannabis stocks looked like a buy in their weakened state.

“Cannabis stocks are up sharply on an AP report citing five sources stating that the Drug Enforcement Agency (DEA) will indeed go along with the Health and Human Services Department’s (HHS) suggested cannabis rescheduling.

“This is not a surprise, as Cabot Cannabis Investor subscribers know. Part of my thesis has been that the DEA always goes along with HHS suggestions on these matters (100% track record, according to Congressional Research Service), and President Biden needs progress on cannabis reform for election results. So, for me, news of DEA rescheduling progress was not unexpected.

“I’ve written before that when DEA rescheduling news strikes it might be a sellable event. You’ll have to decide on your own whether to take profits depending on your investing style. There could indeed be a fade of today’s monster move. One option might be to sell covered calls with a near month strike a step or two above the current ETF price.

“Personally, I will hold on for the actual DEA news (assuming it happens) and trim into that rally. I believe it will happen. That’s because the reasoning I have applied to predict it (DEA track record, political pressure) is sound, and also because I know the AP (I used to work at AP Dow Jones), and their reporting culture is sound.

“The bottom line: Take some profits if that is your style. Or consider hedging by selling covered calls expiring in the near month, at strike prices a step or two above the current ETF prices. Personally, I will wait for actual DEA publication of its

rescheduling rule, because I believe that will create an even bigger rally. I will probably trim into that rally.

“Curaleaf (CURLF) Curaleaf on April 22 acquired the cannabis producer Northern Green Canada, whose product is certified for sale in Europe where Curaleaf has been expanding aggressively in Germany, Poland and the United Kingdom.

“‘This is an incredibly important deal for our international expansion strategy,’ said Curaleaf founder and executive chair Boris Jordan. ‘We’ll be able to bolster our supply of high-quality EU-GMP certified flower immediately to key European markets as well as enter the fast-growing markets of Australia and New Zealand.’ Buy”

Curaleaf is predicting that annual global cannabis sales will hit $55 billion by 2027. Emerging markets beyond the United States and Canada, including Germany, Australia and New Zealand, will contribute $6.3 billion of the $55 billion, it says.

Craig-Hallum analysts just raised their price target on CURLF to $3.50 from $2.75. And Roth MKM raised its target to $7, with a buy rating.

The company will report earnings on May 9, 2024. Analysts expect a loss of $-0.05 on revenues of $339.37 million.

Continue to Hold.

TransMedics Group (TMDX) was reviewed by Tyler, saying, “TMDX will be out with Q1 earnings next Monday. It should be quite an event given the pace of growth here. Revenue is seen up 101% to $83.8 million while EPS is seen near -$0.02. Given last quarter’s revenue beat was nearly 20%, it should be stated that there’s a good deal of wiggle room. Any full-year guidance should call for revenue growth of at least 52%. HOLD A QUARTER”

Earnings indeed came out, with TransMedics Group’s revenues up 133%, to $96.9 million and EPS of $0.37, compared to a loss of $0.082 loss in 1Q 2023. Both revenues and earnings beat analysts’ expectations.

Looking ahead, revenue is forecast to grow 24% annually during the next three years, compared to an 8.1% growth forecast for the Medical Equipment industry in the U.S.

Our shares have risen more than 88%. Let’s take some profits and sell one-half of our remaining holdings.

Tom Hutchinson also reported that Brookfield Infrastructure Partners (BIP) “is a great company with a great business that has a long track record of outperforming the market. But it has had a miserable two years. Although BIPC is well off the lows, it’s still much closer to the 52-week low than high. I will be patient with BIPC and other interest rate-sensitive stocks because attitudes about interest rates may have

already hit a low point for this year. The longer-term prognosis is still positive as rates have likely already peaked and Brookfield has some of the most defensive revenues possible and continues to deliver strong operational results which should be on display later this week when Brookfield reports earnings. (This security generates a K1 form at tax time). BUY”

In the first quarter, Brookfield Infrastructure’s funds from operations (FFO) surged grew 11%, due to its transport segment, which saw FFO rise by 57% as a result of its recent acquisition of container-leasing company Triton, inflation-driven tariff growth, and rising volumes.

The company closed $1.1 billion of deals in the first quarter, which will provide cash for future investment opportunities.

Brookfield’s CEO said “the company currently has 670 megawatts (MW) of booked-but-not-built capacity it expects will come online over the next three years. That positions it to grow the FFO from its data center business by about 2.5 times over the next several years.”

The shares of Brookfield are not reflecting the potential double-digit annual FFO per share growth in the near future. But with the 5.36% dividend, I’m prepared to wait a while for the shares to catch up. Continue to Buy.

NOV Inc. (NOV) was updated by Chris Preston, who noted, “NOV reported earnings last Wednesday that were fairly mixed. Revenues improved 10% year over year (better than the 7.7% top-line growth that was expected), but EPS declined 5.6%, far less than the 15% shortfall that was estimated. However, with operating profits and adjusted EBITDA improved, the company plans to return more cash to shareholders: $1 billion in share repurchases over the next three years, and a 50% hike in the dividend payout starting this June. The driller currently pays a 30-cent (1.6% yield) annual dividend.

“NOV shares are down about 2% since the earnings report. The stock has 31% upside to our 24 price target. BUY.”

The Board of Directors of NOV announced that it will repurchase up to $1.00 billion of shares over three years and that it also “Expects to increase base dividend by 50% beginning in June 2024.” Continue to Buy.

Carl Delfeld, Chief Analyst for Cabot Explorer, says, “International Business Machines (IBM) shares pulled back to 164 with market weakness in AI tech-related stocks. On the positive side, a court overturned a judgment requiring IBM to pay rival BMC Software $1.6 billion and IBM also recently announced it has agreed to buy HashiCorp, which sells software that helps companies manage their cloud-computing operations. The acquisition is IBM’s largest since buying Red Hat in 2019 for $31.8 billion. Buy a Half”

For its first quarter, IBM posted revenues of $14 billion, in line with analysts’ expectations and EPS of $1.72—32% more—than forecasts.

IBM announced that it will be increasing its dividend on June 10 to $1.67, making the yield approximately 4%.

Looking ahead, Wall Street expects the company to earn $8.65 per share on revenues of $63.2 billion this year.

Let’s change our rating to Hold. Our shares are ahead by 25.63%. I’ll look to take some profits soon.

Chris Preston also reported on Gates Industrial Corp, plc (GTES), noting, “Gates narrowly beat earnings estimates yesterday, but Wall Street didn’t like the mixed results.

“The 31-cent EPS outpaced analyst estimates of 30 cents and was up 20% from the 25 cents it earned in the first quarter a year ago. However, sales of $862.6 million even more narrowly missed analyst estimates and, more importantly, represented a 3.9% decline from the $897.7 million in revenue from Q1 a year ago.

“Management has not held its earnings call as of this writing, so the 8-K filing is all we have so far. With no words to provide context for the rather underwhelming sales numbers, GTES shares were down more than 7% on Wednesday. Mind you, they had been trading near 52-week highs for weeks prior to earnings, so the 7% retreat is not overly damaging.

“Shares now have 23% upside to our 20 price target. BUY”

Looking ahead, Wall Street is forecasting 2024 revenues of $3.53 billion, approximately in line with the last 12 months. EPS is predicted to increase 2.7% to $0.97.

We have gained nearly 48% on our shares; let’s take profits and sell one-half of our holdings.

Tom Hutchinson also reviewed UnitedHealth Group Inc. (UNH), commenting, “UnitedHealth reported earnings last month that provided some good news for a change. The company soundly beat expectations with an 8.6% revenue rise and a better than 10% increase in adjusted earnings from last year’s quarter. The company also issued strong guidance. It was a relief to the market after recent troubles, and the stock has jumped significantly since the report. UNH had been reeling after the cyber-attack caused a huge disturbance in the company and the industry. But UnitedHealth appears to have absorbed the costs while maintaining strong growth in the quarter and future quarters. With recent troubles behind it, the company has solid and defensive earnings and is well positioned going forward. BUY”

I’m changing my rating on UNH back to Buy.

Carl Delfeld says Exscientia (EXAI) shares “underperformed again this week, so I need to move this stock to a sell. The application of AI to develop drugs more

efficiently is very promising but the market we have right now is impatient for results. I will continue to monitor this stock. Move from Hold a Half to Sell”

I agree. Sell your shares of EXAI.

Mike Cintolo, Chief Analyst of Cabot Growth Stocks and Cabot Top Ten Trader, updated his views on Novo Nordisk (NVO), commenting, “We’ve been thinking about this week when it comes to Eli Lilly (LLY) in particular; along with its peer Novo Nordisk, they own the super-popular diabetes and (more importantly) weight-loss drugs, known as Zepbound (for Lilly) and Wegovy (for Novo), which have shown great results in trials and, now, in practice, with benefits that go beyond just looking and feeling better, but also involving various other health benefits from weight loss, too.

“Even as many already think this class of drugs could be the biggest sellers of all time, it appears that demand is even stronger than most anticipated, despite limited supply. In Lilly’s Q1 report Tuesday morning, the firm saw Zepbound bring in $517 million in its first full quarter of sales, while Mounjaro (the same drug, officially marketed for diabetes but has been prescribed for weight loss, too) saw $1.8 billion of revenue, more than triple its year-ago figure—all while supply fell short of demand in a big way. Nevertheless, Lilly hiked its earnings outlook on the news, expecting the second half to see more supply come online while demand remains giant. Novo Nordisk also saw bullish fundamental results, with the top brass nudging up expectations for the year.

“That has us watching the stocks to see if, even after good runs, they can continue higher as the humongous growth story plays out. So far, there’s many positive signs: For LLY, which is the stronger of the two, the stock was only able to pull in 10% during the recent market weakness and then pop higher on its own report earlier this week. Today, though, did see some sloppy action (reports of falling prices), but even so, LLY is about 6% from all-time highs and has shown very little meaningful selling.

“The story is well known, of course, but if the stock can hold up and eventually stage a fresh breakout, we think it’s poised to have another run. WATCH”

The shares of Novo Nordisk fell as fears of new obesity drug competition arose. However, the company turned in a stellar quarterly report, with profit rising 28% year over year to $3.65 billion, due to the doubling of sales of weight loss drug Wegovy.

The company raised its 2024 outlook pushing sales growth to 19% to 27% and operating growth to 22% to 30%.

Lastly, Novo is entering the Canadian market this month with Wegovy. Buy on pullbacks.

Matt Warder is the new Chief Analyst of Cabot Turnaround Letter, and recently reviewed Baxter International (BAX), commenting, “BAX beat on both the top and bottom lines as it reported revenue of $3.6B (+2%) and EPS of $0.65 (+9%).

“According to CEO Joe Almeida, ‘Performance was fueled by top line results, combined with our intense focus on driving improved supply chain execution across our manufacturing network. Overall, performance is clearly benefiting from the streamlining and strategic clarity afforded by our newly implemented operating model, as we leverage the advantages of improved visibility globally, increased accountability and function of verticalization.’ Buy”

Baxter’s gross margin improved 170 basis points, to 42.5%.

Looking ahead, the company expects EPS of 65-67 cents for 2024 and sales growth of 2%. Continue to buy.

Chris Preston reported on our newest recommendation, Honda Motor (HMC), saying, “Honda shares are down another 1.7% since we last wrote and remain dirt-cheap at 7.8x earnings and with a price-to-sales ratio of 0.46. The company reports earnings a week from today, May 9. Perhaps that can stop the recent bleeding, especially given how strong revenues have been growing of late thanks in large part to the Japanese automaker’s booming hybrid sales.

“The stock has 33% upside to our 45 price target. BUY”

Honda has also been making more inroads into the EV market. The company recently announced a battery separator venture, a new BEV plant, and a comprehensive EV value chain in Canada with an approximate investment of $11 billion), including investment by joint venture partners, “to strengthen its EV supply system and capability to prepare for a future increase in EV demand in North America.”

Production is expected to begin in 2028, and once fully operational, the plant will have capacity of 240,000 EVs per year and the battery plant of 36GWh per year.

The company wants to introduce 30 EVs globally, with sales of two million units by 2030. Continue to buy.

Portfolio

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

ETF Strategies

Our ETF portfolio is still going strong. And since we’ve seen a bit of a pullback in Global X U.S. Infrastructure Development ETF (PAVE), I’m adding it to our portfolio this month.

Global X U.S. Infrastructure Development ETF (PAVE)
5 Star
High Risk/High Return
Midcap Blend
Dividend Yield: 0.63%

The fund invests at least 80% of its total assets in the securities of the underlying index. The underlying index is designed to measure the performance of U.S. listed companies that provide exposure to domestic infrastructure development, including companies involved in construction and engineering; production of infrastructure raw materials, composites, and products; industrial transportation; and producers/distributors of heavy construction equipment. Buy

Top 10 Holdings

These ETFs remain on our Watch List:

• Vanguard Small Cap Growth Index Fund (VBK)
• Midcap Growth ETF Vanguard (VOT)
• Total Intl Stock ETF Vanguard (VXUS)

2 Market Segments with Great Growth Potential

FTAI operates in two segments of the aviation market—both of which are rapidly expanding.

The aircraft leasing business began to expand in the 90s. Worldwide, the industry is worth about $170 billion and is expected to grow to $317.5 billion by 2030, according to Fortune Business Insights.

And some 53% of the aircraft in the world are actually leased today.

The market for leasing is fragmented, with a growing presence for smaller and niche lessors. However, the top seven lessors comprised 50% of the leased aircraft by fleet value.

In the U.S., the commercial aircraft leasing business marketplace is around $12.8 billion, growing at about 2.7% annually. The top four companies are responsible for 32% of the market’s revenues.

FTAI is determined to take its share, and in its most recent quarter, the company posted revenues of $51 million in the airplane leasing business.

Moving to FTAI’s other segment, Maintenance Revenue, the company’s sales in the quarter were almost $46 million.

A report from Boeing predicts “the support and services 10-year served market to be worth $3.2 trillion between 2021 and 2030.” That’s a CAGR of 8.5%.

The Aircraft Management Service Market segment will see revenues of about $86 billion in 2024, rising to $127 billion by 2031.

Both segments offer FTAI plenty of room for growth.

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 June 13, 2024.

Copyright © 2024. 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.