Lots of moving parts in this week’s update. We add one stock (as always), sell another, and have several ratings changes – a reflection of a mixed second-quarter earnings season, and on the cusp of the latest inflation data, to be released this Wednesday. Most of our stocks are acting well, however. And the market continues to inch forward, especially growth stocks, which is why our latest addition is a mid-cap (Internet of Things) IoT company courtesy of Cabot Early Opportunities Chief Analyst Tyler Laundon.

Details inside.

Cabot Stock of the Week Issue: August 8, 2022

It was another mostly positive week for the market, with the S&P 500 and Dow holding firm while the Nasdaq advanced another 2%. The short-term trend is more definitively up than it has been and any point in 2022. Potential potholes remain, however, and this Wednesday’s Consumer Price Index report could be the determining factor on where the market goes from here. If inflation is higher than last month’s 9.1% jump – a new four-decade high – then expect stocks to give back most of their recent gains, perhaps in short order. But if the July inflation number is lower, as expected – the median year-over-year price gain estimate is pegged at 8.7%, according to a Bloomberg survey – then perhaps the rally will continue. We’ll know a lot more in about 48 hours.

In the meantime, let’s capitalize on recent market momentum with another growth stock, this time from Cabot Early Opportunities Chief Analyst Tyler Laundon. This mid-cap company is capitalizing on the booming Internet of Things (IoT) market (IOT is literally its ticker symbol!), and the stock has been on a tear, up nearly 50% in the last three months!

Here are Tyler’s latest thoughts:

Samsara Inc. (IOT)
The idea of tracking vehicle fleets and other physical assets with a combination of hardware devices, cameras and software is not new. But it’s taken some time for technology to get to the point where doing so is easy enough and generates clean enough data that it’s worth the effort and expense.

Much of the credit for advancing the Internet of Things (IoT) market goes to Sanjit Biswas and John Bicket. This duo has been on a mission to increase the safety, efficiency and sustainability of the operations that power our economy.

The company they founded to help them achieve this goal is Samsara (IOT). It came public last year and is a rapid-growth story. Sales in 2021 grew by 108%, then grew another 71% in fiscal 2022 (Samsara’s fiscal year ends in January).

Samsara has developed a platform of hardware and software for tracking vehicle fleets and other physical assets. These solutions help customers operate more safely and more efficiently and often pay for themselves through lower accident expenses, less waste and lower fuel and insurance costs. Its target market is valued at roughly $55 billion.

Samsara uses a combination of in-vehicle devices, gateway sensors, video-based AI and a cloud platform – Samsara Connected Operations Cloud – to monitor and manage commercial vehicles and their drivers, worksites, manufacturing equipment, heavy equipment and more.

The Connected Operations Cloud platform combines vehicle telematics, video-based safety and apps & driver workflows with connected equipment and connected physical sites.

Not only does it help get things where they need to go, it can also reduce CO2 emissions and limit accidents, lawsuits, workplace injuries and equipment damage.

Customers come from the wholesale, retail, construction, shipping, logistics, utilities, field services and manufacturing industries. They all need to oversee thousands of employees and pieces of equipment and coordinate the production and transportation of goods so that the right items arrive at the right place, safely and on time.

Samsara’s best-selling solution continues to be Vehicle Telematics, which provides GPS tracking, fuel efficiency monitoring, etc. But Video Solutions (both forward and driver-facing cameras) is catching on quickly.

In the coming quarters look for newer products/features (Apps, Driver Workflow, Equipment/Site, Multi Stop ETAs, In-Cap Nudges, etc.) and partnerships with OEMs (such as GM and Stellantis) to facilitate new customer additions (OEM’s imbed hardware), increase spend with existing customers and, potentially, drive margin improvement.

The market isn’t devoid of competition. Depending on the application, Samsara may bump into solutions from Microsoft (MSFT), PTC (PTC), IBM (IBM), Amazon (AMZN) and Salesforce.com (CRM).

But with a focus on delivering out-of-the-box applications that work well with its cloud platform, Samsara has had, and should continue to have, tremendous success.

Revenue in fiscal 2022 grew by 71% to $428 million and is seen rising by 38% to $590 million in fiscal 2023. Samsara is not profitable and should deliver adjusted EPS around -$0.24 this year.

We’ll get the next update from management on Wednesday, August 31 when Q2 results come out.

IOT came public at 23 on December 15 and rose 7% the first day. Shares traded up to an intra-day high of 31.4 in the quiet market that persisted through the holidays, then the trend turned south and IOT trended lower (with the market) for several weeks.

Shares look to have bottomed at 8.7 on May 12. Since then, lockup expiration has passed (June 13) and IOT has mostly made a series of higher highs and higher lows. The stock has traded above its 50-day moving average line since July 1.

*There are only two rows worth of data since the stock has only been public since late last year

Current Recommendations

Changes Since Last Week’s Update
Organon (OGN) moves from Hold to Sell
Allison Transmission (ALSN) moves from Buy to Hold
Aris Water Solutions (ARIS) moves from Buy to Hold
Brookfield Infrastructure Partners (BIP) moves from Hold to Buy
Pfizer (PFE) moves from Buy to Hold

Lots of moving parts in this week’s update. For starters, we’re selling Organon (OGN) due to the stock’s ongoing lethargy, particularly after a decent earnings report last week. With the addition of Samsara (IOT), that keeps our portfolio at equilibrium, with 19 stocks.

Meanwhile, we have three downgrades and one upgrade—a mixed bag that reflects a mixed second-quarter earnings season, where some companies have thrived and others have disappointed. Most of our stocks are acting well, however. We’ll see if that’s still the case a week from now, after the July CPI number is released.

Updates
Allbirds (BIRD), originally recommended by Tyler Laundon in Cabot Early Opportunities, releases earnings after the close today (August 8). Judging by the way the stock jumped last week, the market seems bullish on the company’s latest quarter – shares were up more than 6% last Friday alone and have risen 12% in the last two weeks. Normally, that kind of action might warrant an upgrade to Buy, but we’ll keep BIRD at hold for now, for two reasons: 1) let’s see how the stock behaves after earnings; given last week’s big run-up, any disappointment in the numbers could prompt shares to come tumbling right back down; and 2) the stock is still not that much higher than its May bottom (3.7). The stock’s reaction to today’s earnings will be telling and could determine whether we upgrade to Buy – or possibly even sell the stock. HOLD

Allison Transmission (ALSN), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor, had a rough week. Shares of the mid-cap manufacturer of vehicle transmissions plummeted after the company’s second-quarter earnings missed on both the top and bottom lines last Wednesday. In reaction, the stock nose-dived from 41 to 37, and shares now trade below their 50-day moving average and right around the 200-day line. We are now at a small loss on the position, having bought at 38 in late June. Missed earnings estimates and shares falling while many other stocks are finally ascending aren’t great signs, though it would be premature to Sell after one bad week. Let’s downgrade to Hold. MOVE FROM BUY TO HOLD

Aris Water Solutions (ARIS), originally recommended by Tyler Laundon in Cabot Early Opportunities, had an even rougher post-earnings reaction, with the stock falling from 22 to 16 after the company reported underwhelming Q2 results last Thursday. Net income was down 11% year over year, though that was mostly related to non-cash charges related to a write-down of abandoned assets. Adjusted net income ($11.9 million) was up 151% from the same quarter a year ago, while adjusted EBITDA ($37.2 million) improved 21%. Still, the market didn’t like the headline numbers, and now ARIS is back to where we recommended it a month ago. It could well be an overreaction. But as with ALSN, after a troubling earnings report and market reaction, let’s downgrade this stock to Hold. MOVE FROM BUY TO HOLD

Broadcom (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, continued to climb from its early-July bottom. The stock was up another 2.5% last week and is up 15% in the last month. Last week we upgraded AVGO from Hold to Buy, and the stock didn’t let us down. In his latest update, Tom wrote, “The performance of the tech stocks has been encouraging. After leading the overall market lower earlier this year, the sector has outperformed the index for the last several months. The sector should turn around before the overall market. Broadcom is also very well positioned to benefit in a fundamental way from the 5G rollout and the proliferation of cloud computing and should have continued strong earnings.” BUY

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, had a good week on the heels of an impressive earnings report last Wednesday, jumping from 39 to 41. Here’s what Tom had to say about it in his latest update: “This defensive infrastructure partnership reported terrific earnings today. Funds from Operations, the true measure of earnings for an MLP, was up 30% from last year’s quarter and a new record. That’s powerful growth for a highly defensive, dividend paying company.

“Results were higher across the board and Brookfield got the most growth from the midstream energy sector, powered by last year’s large pipeline company acquisition.” That all sounds encouraging, and with the stock pushing above its 50- and 200-day moving averages last week, let’s upgrade to Buy. MOVE FROM HOLD TO BUY

Bumble (BMBL), originally recommended by Mike Cintolo in Cabot Growth Investor, had a nice start after we recommended it last week, jumping from 36 to just shy of 39. Bumble has become a major player in the online dating realm and is emerging as a potential leader in that niche sector. Earnings are due out this Wednesday (August 10), so it’s possible the stock could give last week’s gains all back if Wall Street doesn’t like the results – especially since shares have more than doubled in the last three months. But for now, the momentum is undeniable. In his latest update, Mike wrote, “Bumble acts well, stretching to new highs last week before pulling back in recent days, partially due to a horrid earnings reaction from peer Match.com (MTCH), which fell 18% yesterday after its numbers missed estimates. BMBL did get hit initially on the news—but encouragingly, the stock found support at its 25-day line and has held up since. We think there’s a growing view that Bumble is the next Match.com, though earnings (due August 10) will be key. We like just about everything here, from the numbers to the story to the chart action—if we see a positive reaction on earnings (and a decent buy point), we’re game for averaging up, but we’ll see what comes. Hold on if you own some, and we’re OK grabbing a small position here, though earnings will be key.” BUY

Centrus Energy (LEU), originally recommended by Carl Delfeld in Cabot Explorer, continues to soar since we added it to the Stock of the Week portfolio two weeks ago. In that time, the stock has already jumped from 33 to 41 – a 24% gain! In his latest issue, Carl wrote, “The nuclear power industry is rapidly changing, with a new generation of advanced reactors under development. Centrus provides an integrated solution for meeting the industry’s engineering, manufacturing and fuel needs. The United States has 94 reactors that generate about 20% of our electricity but we have not built one new plant in the last 25 years.

“Centrus stock is still trading way off its 52-week high and at just over three times earnings. My six-month target remains at 50 for now.” BUY

Cisco Systems (CSCO), originally recommended by Bruce Kaser in the Growth/Income Portfolio of Cabot Undervalued Stocks Advisor, was flat this past week. It’s been hovering in the 44-45 range for the past few weeks after bottoming at 41 in May and June. If it can break above 45, shares could go much higher. In his update last week, Bruce wrote, “Cisco Systems is facing revenue pressure as customers migrate to the cloud and thus need less of Cisco’s equipment and one-stop-shop services. Cisco’s prospects are starting to improve under a relatively new CEO, who is shifting Cisco toward a software and subscription model and is rolling out new products, helped by its strong reputation and entrenched position within its customers’ infrastructure. The company is highly profitable, generates vast cash flow (which it returns to shareholders through dividends and buybacks) and has a very strong balance sheet.

“While Cisco shares round-tripped from our initial recommendation at 41.32 to 64 and back to around 43 is frustrating, this is not the time to sell the stock. The fundamentals remain reasonably stable and likely to tick back upward, and profits seem likely to improve, as well. The shares will likely come back to life as earnings reports show favorable growth and profit trends, so investors will need some patience. If we have a recession in global tech spending, Cisco would likely feel the downturn but not as severely as other technology companies due to the mission-critical nature of its products and services.

“There was no significant company-specific news in the past week.

“CSCO shares have 46% upside to our 66 price target. The valuation is attractive at 9.2x EV/EBITDA and 13.5x earnings, the shares pay a sustainable 3.4% dividend yield, the balance sheet is very strong and Cisco holds a key role in the basic plumbing of technology systems even if its growth rate is only modest.” HOLD

CVS Health (CVS), originally recommended by Carl Delfeld in Cabot Explorer, was another big earnings winner last week. Here’s what happened, according to Carl in his latest update: “CVS shares surged past 100 and were up 6% yesterday alone as the company raised its outlook for the year after reporting an 11% increase in second-quarter sales. Retail sales were driven by higher prices and increased prescription sales. Overall revenue came in at $80.6 billion, ahead of average analyst expectations for $76.4 billion, according to FactSet. CVS Health is not only, by revenue, the tenth largest company in the world, its earnings per share has grown 26% each year, compounded, over the past three years. CVS Health is one of the nation’s leading healthcare companies with almost 10,000 stores and its core markets grow each year even in a weak economy.”

After dipping as low as 88 in mid-June, the stock is now all the way up to 102, bringing us close to break-even (104). We’ll keep it at buy and see how far its post-earnings momentum lasts. BUY

Enphase Energy (ENPH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continued its ascent last week, hitting new highs above 300! It pulled back a bit today (Monday), but the overall trajectory is decidedly up, especially since the company – the world’s leading provider of micro inverters – reported earnings last month. In his latest Cabot Growth Investor update, Mike wrote, “Enphase Energy is one of the few growth stocks out there that has the ‘classic’ bullish look to it—a long consolidation, relative strength in recent months and a huge-volume blastoff after earnings … with upside follow-through afterwards, too. Fundamentally, things are firing on all cylinders as demand for Enphase’s microinverters (which offer better performance and reliability than competing inverters) and battery storage solutions are booming all over the map: In Q2, overall revenues leapt 68% and earnings more than doubled, with across-the-board strength among its products, geographies and in the size of deployments. In fact, demand in Europe is most impressive—revenues there increased a whopping 69% from the prior quarter (89% from last year) as its offerings are being gobbled up in many countries as consumers are looking to avoid sky-high natural gas prices and general energy insecurity, and Q3 should bring another huge gain (up 40% sequentially)! Overall, bookings continue to come in above expectations and the supply chain for inverters remains solid, though there’s still a three-month wait for batteries. (Even so, battery capacity shipped grew 10% sequentially.) The EV charging business here is still tiny, but a late-2021 acquisition is now fully integrated, and Enphase is shipping 8,250 chargers in the quarter, a figure that should mushroom in the years ahead as Enphase becomes a one-stop shop for home electrification. Looking ahead, Q3 should see revenue growth accelerate further, and long term, there’s no reason worldwide demand for Enphase’s products can’t grow many-fold. The stock briefly shook out yesterday after peer SolarEdge tanked on earnings, but ENPH quickly snapped back. Shares are very volatile, so we’ll be using a loose leash, but if the rally is the real deal, we think ENPH will do well.” BUY

Fanuc (FANUY), originally recommended by Carl Delfeld in Cabot Explorer, had a quiet week after rising 9% the week before. It is the world’s leading manufacturer of computerized numerical control (CNC) devices that are used in machine tools and serve as the “brains” of industrial robots. But the young stock is not heavily supported by institutions yet, so trading is loose, with plenty of gyrations this year, though it has been trending much better over the past three months, going from 14 to 17. Carl says his six-month price target remains at 25, so we’ll keep FANUY at buy. BUY

Molson Coors (TAP), originally recommended by Bruce Kaser in the Buy Low Opportunities Portfolio of his Cabot Undervalued Stocks Advisor, had a rough quarter, and investors punished it accordingly after the company reported earnings last Tuesday. Shares fell from 59 to as low as 52 before rebounding to 55 in early Monday trading. Here’s what Bruce had to say about the stock, and its earnings fallout, in his latest Cabot Turnaround Letter update: “Molson Coors is struggling with weak growth yet is working under a new CEO to more aggressively develop specialty/higher-end beverages and reduce its reliance on mainstream and value offerings. Also, the company is increasingly focusing on its cost structure. Molson Coors continues to trade at a discount to its peers and its fundamental prospects.

“The company reported in-line results and guidance, but the shares tumbled about 10% on the news as investors worried about slowing industry volumes, and perhaps that Molson’s push into premium brands has come at the wrong moment as consumers start to trade down. The company reaffirmed its full-year guidance. The decline in the share price does not diminish our appetite for the stock.

“Revenues rose 2.2% excluding currency changes and in line with estimates. Adjusted earnings of $1.19/share fell 25% yet were also in-line with estimates. Non-GAAP underlying EBITDA of $566 million fell 18% from a year ago and was about 5% weaker than estimates. The company reaffirmed its full-year revenue, profit and free cash flow guidance.

“In the quarter, prices rose 7% but volumes fell 5%. Brand volume, which excludes volumes that Molson produces for third-party beers, fell only 2%, indicating some reasonably resilience of in-house brands relative to others. Volumes for the industry as a whole were weak in the second quarter, so it appears that Molson is gaining share. The company said that it is roughly balanced between premium brands and lower-priced brands – a mix that is more sensible today as many consumers are trading down due to inflation and the weak economy.

“Profits slipped due to sharply higher materials, transportation and energy costs, as cost of goods sold in aggregate rose nearly 12% despite the flattish revenues. Marketing costs rose 7.5%, a high number but not a total surprise as management has highlighted its interest in spending to promote its new brands. The decline in underlying EBITDA in the U.S. was 20%, while the decline elsewhere was 23%.

“Molson continues to chip away at its debt balance even as it repurchases its shares.” Despite the rough quarter, Bruce is keeping the stock at buy. We’ll do the same. BUY

Nio, Inc. (NIO), originally recommended by Carl Delfeld in Cabot Explorer, is one of the top five Chinese EV makers, and the stock is off to a solid start for us, up 8.5% in two months. Carl actually sold the stock in his latest update, citing its “lack of momentum in a growth market” as the reason. We’ll hang on to it for now; however, as the portfolio is now at full capacity, it could be a casualty in a future issue if the stock stagnates or retreats.

Even in selling the stock, Carl sang its praises: “Nio is still worth watching as it is down about 70% from its all-time high and China accounted for almost 60% of global exports of electric vehicles in 2021. In addition, Nio drivers can quickly swap their batteries up to six times per month without leaving their cars. It’s faster than EV charging – taking only three minutes per swap.” BUY

ONEOK, Inc. (OKE), originally recommended by Tom Hutchinson in Cabot Dividend Investor, reports earnings after the close today. It was up nearly 2% in mid-day trading, so perhaps Wall Street is expecting a decent quarter. You may know the answer by the time you read this!

ONEOK owns one of the nation’s premier natural gas liquids (NGLs) systems connecting NGL supplies in the Rocky Mountains, midcontinent, and Permian regions in key market centers. The company also has an extensive network of natural gas gathering, processing, storage and transportation assets. A whopping 10% of U.S. natural gas production uses ONEOK’s infrastructure. In his update last week, Tom wrote, “This midstream energy company reports earnings next week. But the strong results for other midstream players so far, especially regarding natural gas, is lifting OKE. It’s been trending higher for the last six weeks but remains undervalued and well off the 52-week high. The stock is a great place to be in the current uncertain environment. It’s defensive with a cheap valuation and a lavish dividend payout.” BUY

Organon (OGN), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor for his Buy Low Opportunities Portfolio, was down slightly after reporting earnings last Thursday. Here’s what Bruce had to say about the results in his latest Cabot Turnaround Letter update: “Organon reported a reasonable quarter that was better than estimates and which points to a slow but steady grind forward for revenues. Excluding currency headwinds, volumes looked good with a 5% growth rate. The company fractionally trimmed its full-year revenue guidance and took 2 percentage points out of its Adjusted EBITDA margin guidance. The profit cut was due to higher R&D costs from its acquisitions. Overall, the company is making progress.

“Sales in the Women’s Health segment ticked up, but Biosimilars revenues rose 42%. Established Brands sales rose 4%. Management was optimistic about stronger sales for the core Nexplanon product later this year and for revenues from other new treatments. Organon continues to marginally chip away at its debt.

“In the quarter, revenues fell fractionally but were about 3% ahead of estimates. On a currency-adjusted basis, revenues grew 5%. Adjusted earnings of $1.25/share 27% from a year ago but were 5% above estimates. Adjusted EBITDA of $512 million fell 18% from a year ago but was 8% above estimates.”

That all sounds fine, but given the lack of momentum and indifferent reaction to a better-than-expected quarter, let’s go ahead and sell OGN to make room for other, faster-growing opportunities as our portfolio nears its 20-stock cap. MOVE FROM HOLD TO SELL

Pfizer (PFE), originally recommended by Tyler Laundon in Cabot Early Opportunities, hasn’t responded well to earnings two weeks ago, with shares falling from 52 to 49 since. That was despite top- and bottom-line earnings beats, with the big pharma company booking $27.7 billion in revenue in the second quarter—up 47% from last year, and the company’s largest quarter on record. Net income was up 78% year over year. What gives? Well, the company merely maintained its 2022 revenue and earnings guidance, which Wall Street didn’t seem to like. Plus, the stock was up more than 11% in the six weeks prior to earnings, so this is likely a case of the good quarter already being baked into the share price. We still like PFE enough to keep it in the portfolio, but with the stock dipping below its moving averages, let’s downgrade to Hold. MOVE FROM BUY TO HOLD

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was basically flat this past week after shares exploded from a late-May bottom at 628 to above 900 last week. Still, the stock is still well shy of its November 2021 highs around 1,230, so lots of upside remains, which is why we upgraded it back to Buy last week.

The stock really took off three weeks ago after the company beat earnings estimates by 26% and grew sales by 42% for its third-best sales quarter to date. In addition to those bright shiny numbers, the company reported progress on its two new factories, with its Berlin facility topping 1,000 cars per week in June and its Austin, Texas approaching the same milestone in the coming months, according to Elon Musk. As a result, the company maintained its soft guidance for 50% average annual growth on vehicle deliveries over the next few years. BUY

Ulta Beauty (ULTA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continues to chop around, falling to 381 after reaching as high as 411 in late July. It’s right around our 382 entry price but well below its June and April highs. Earnings are due out later this month (August 25), so perhaps the stock will gain a clearer direction heading into or after that report. For now, we’ll keep it at hold. HOLD

Visa (V), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, had an up-and-down week on the heels of a strong quarterly earnings report the week before. It’s been essentially flat since, though earnings were likely already priced in as the stock was up nearly 13% in the six weeks prior to the report. Some highlights from the quarter: sales jumped 19% year over year as cross-border sales actually surpassed pre-pandemic (i.e., 2019) levels. Revenue topped analyst estimates, though GAAP earnings fell just short, which is perhaps why V shares got slightly dinged. But the 40% increase in cross-border payment volumes bodes well. Keeping at hold. HOLD

The next Cabot Stock of the Week issue will be published on August 15, 2022.

Analyst Bio

Chris Preston

Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week.

Chris joined Cabot in 2015, where he previously served as staff analyst, web editor, and Chief Analyst of Cabot Wealth Daily, our free investment advisory, which in 2019 was named “Best Financial/Investing Newsletter or Ezine” at the SIPA (Specialized Information Publishers Association) Awards, with Chris at the helm.

Prior to joining Cabot, Chris was an analyst and assistant managing editor with Wyatt Investment Research. He has been an investment analyst for more than a decade and a professional writer/editor for nearly 20 years, picking up multiple writing awards along the way. His bylines have appeared in Forbes, The Money Show, Time Magazine, U.S. News and World Report and ESPN.com.

Chris lives in Vermont with his wife, two young kids and their golden retriever, Scout. He occasionally sleeps.