Cabot Explorer 736

The Dow Jones Industrial Average celebrated 125 Years yesterday as the index has increased an average of 7.7% each year. Markets continue to consolidate and churn with solid earnings offsetting concerns over inflation and valuations. This week Virgin Galactic (SPCE) took off while overall Explorer positions moved forward. Today’s new recommendation is a big data software stock that is in an uptrend on the back of some big government contracts. Enjoy!

Cabot Explorer 736

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The Dow reaches 125 as Virgin Galactic Rockets 38%
The Dow Jones index began on May 26, 1896 with 12 companies, including the likes of American Cotton Oil and Distilling & Cattle Feeding. The storied index expanded to 20 stocks in 1916 and 30 stocks in 1928. It has increased an average of 7.7% each year, according to Dow Jones Market Data. It climbed above 100 in 1906, reached 1,000 in 1972 and passed 10,000 in 1999. It’s had some tough periods, such as from 1930 through 1953, as the stock market struggled below 1929 highs. Another tough period was 1965-1982, when the Dow cratered from 8,139 to 2,285.

Here is a chart to give you some historical perspective.

What a run it has been since 1982. As my boss at Robert W. Baird used to say, “Let’s make hay while the sun shines.”

New Explorer Recommendation
Palantir Technologies (PLTR)
Palantir is a software company specializing in big data analytics. Peter Thiel and a few others from the PayPal mafia founded Palantir in the early 2000s. Its software is used by government agencies in a wide range of applications and the company sees plenty of room to expand into the commercial sector.

The Colorado-based company offers three platforms: Palantir Gotham, used primarily by government agencies; Palantir Metropolis for banks, financial services firms and hedge funds; and Palantir Foundry, used by corporate clients. The company’s commercial customer target sectors are health care, energy and manufacturing sectors. Government agencies, the chief growth driver, use Palantir software for intelligence gathering, counterterrorism and military purposes.

This week Palantir announced that it is expanding its strategic partnership with the U.S. Space Force and U.S. Air Force, proving its ability to offer cutting-edge technologies. As part of the new deal, the company will provide software for powering advanced critical missions and support the Space Command and Control program. The company’s solutions will also provide senior leadership at the Air Force with an analytics platform that merges data sources from across the Service. The total value of the contract is $32.5 million.

Palantir and IBM announced a global partnership earlier this year, making Foundry software available to IBM’s cloud computing customers.

On May 11, the company posted its first quarterly profit as a public company, with revenue up 49% to reach $341.2 million. In America, revenue grew 83% in the U.S. government and 72% in commercial.

PLTR stock is more than 45% off its January 27 peak but it’s up nearly 200% since going public in September 2020 at 7.25 a share. The stock has been in an uptrend and demonstrating relative strength

BUY A HALF POSITION

Model Portfolio

Portfolio Changes
None.

Updates
Altimeter Growth Corp. (AGC) shares increased marginally this week as we await this SPAC’s acquisition company, Grab, to be traded on the Nasdaq under the symbol (what else?) “GRAB”.

Grab is the leading super-app platform in Southeast Asia and the Grab app has been downloaded onto millions of mobile devices, giving users access to over nine million drivers and merchants. Grab offers a wide range of on-demand services in the region, including mobility, food, package and grocery delivery services as well as mobile payments and financial services in eight countries. I suggest you buy a half position here if you have not already done so. BUY A HALF

Anglo American (NGLOY) shares were flat again this week despite record high copper and iron ore prices. This play on infrastructure basic materials is also the largest producer of platinum with about 40% of world output and explores for diamonds, copper, platinum group metals, coal, iron, nickel, and manganese ores. This stock has been a disappointment and I’m going to keep it a hold as we look for a better play on clean tech growth. HOLD A HALF

Cabot Corporation (CBT) shares gained a point this week in their second week in the Explorer portfolio. Headquartered in Boston, the company was started in 1882 and now operates 45 manufacturing facilities in 21 countries around the world with strong growth in emerging markets.

Cabot’s edge is a combination of technical, commercial and manufacturing talent among the best in the industry, leading to constant innovation and technology. One of the company’s key growth end markets is material used to make lithium-ion batteries. Cabot recently reported its second-quarter results, posting earnings per share that were up a record 79% year over year.

For fiscal 2021, Cabot projects earnings of around $5 a share meaning that the stock is trading at just over 12 times forward earnings. In addition to a healthy balance sheet, Cabot also has a dividend yield of 2.3%. The stock is an effective hedge on inflation, and a play on economic recovery with exposure to the lithium-ion battery sector. BUY A HALF

Cloudflare (NET) shares made a nice move this past week from 72 to just under 80. The company provides a broad range of network services to businesses in more than 200 cities in over 100 countries. It offers network security, performance and reliability to a growing portion of global web traffic. The company’s retention rate, which measures spending from existing customers, hit a record 123%. Cloudflare now has four million total customers, with its large customer count up 70% year-over-year, accounting for more than half of total revenue.

I’m going to keep this a hold though more aggressive investors can add to their position. Cyber is still a strong power trend and Cloudflare has built a global cloud platform that delivers a broad range of network services. HOLD A HALF

Fisker Inc. (FSR) shares were up again this week as electric vehicle stocks have recently staged a bit of a rally. Ford came out this week with a bold target of having electric vehicles be 40% of their total sales by 2030. My stubbornness in hanging on to this pre-revenue company is so far working out but we need to watch this stock closely. It reported its first quarter for 2021 with cash equivalents of $985 million and zero debt. Loss from operations totaled $33.1 million.

A key element to the Fisker story is that it won’t manufacture its own vehicles. Rather, it will use large contractors, such as Magna and Foxconn, to build its vehicles. We have to accept that the company will have little or no revenue in 2021. The company’s first product will be the custom Ocean, a mid-priced SUV to be launched in 2022. This is an aggressive stock. AGGRESSIVE INVESTORS - BUY A HALF

International Business Machines (IBM) shares were steady as IBM pursues a strategy of doubling down on hybrid cloud and artificial intelligence. This is a great core holding trading at just 12 times forward earnings and 12.4 times free cash flow, bundled with a 4.6% dividend yield. That’s the power of steady dividend boosts amid stalled stock price trends. BUY A HALF

Marvell Technology Group (MRVL) shares moved from 45 to 48 this week on no news. Marvell designs, develops and sells a wide variety of semiconductor products that are at the core of 5G-capabable networks. The company’s processors and products are cutting-edge and already generate $3 billion in annual sales. Marvell’s key growth markets include drones, data integration and consumer and industrial robotics. The company expects to post double-digit growth in both sales and net profit in 2021. Despite these high-growth markets, the stock is trading at a reasonable 22 times earnings. BUY A HALF

Sea Limited (SE) shares continue to outperform after posting another high-revenue-growth quarter. Sea’s e-commerce revenue already improved 160% to $2.2 billion in 2020. And in the first quarter of 2021, its e-commerce revenue surged another 250% year over year to $922 million. Its digital entertainment revenue surged 111% year over year to $781 million as its bookings rose 117% to $1.1 billion. We have taken profits several times over the remarkable rise of this stock. It is a great momentum stock in the world’s fastest growth markets of Southeast Asia. BUY A HALF

Taiwan Semiconductor (TSM) shares are showing more strength, advancing from 112 to 116 this week. Importantly, the company controls 84% of the market of the smallest, most efficient chips. About 60% of revenue came from customers with headquarters in North America and 20% from those based in China. I would take advantage of recent weakness to be a buyer of this dominant, strategic semiconductor stock. BUY A HALF

Virgin Galactic (SPCE) shares rocketed 38% this week after the company successfully landed a powered test flight of its SpaceShipTwo spaceplane on May 22 and fueled by a couple of analyst upgrades.

This test flight was needed to obtain the final data points needed for FAA approval of commercial passenger service. Virgin Galactic previously said that following the successful completion of the test flight, a second test flight will include two pilots with a full cabin. A third flight will include founder Richard Branson, with sales of seats to private astronauts reopening around the same time. And a fourth flight, the last of the test flight program, will be with the Italian Air Force to demonstrate Virgin Galactic’s capabilities for microgravity research and professional astronaut training.

Virgin Galactic stock is trading just short of four times our entry point. I’m keeping this stock a hold for now but depending on when you purchased the stock, feel free to take partial profits after this sharp jump. HOLD A HALF

The next Cabot Explorer issue will be published on June 10, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.

President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
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