April 11, 2024

WHAT TO DO NOW: Continue to hold your ground. There’s been some headline news this week, but nothing much has changed with the evidence—our market timing indicators are positive, but leading growth stocks are still stuck in the middle, with selling on strength but also (as we’ve seen the past couple of days) buying near support. We do like the action of the past couple of days, but we need to see more before concluding the sluggish period is over. We’ll mostly stand pat tonight as we remain flexible and wait for leaders to show their hand—our only change is downgrading Pulte Group (PHM) to Hold given some recent distribution. Our cash position is 27%.

Current Market Environment

The market and most leaders are having solid days today as we head into the close – as of 330 pm EST, the S&P 500 is up 0.9%, the Nasdaq is up 1.7% and growth stock measures are up 1.3% or so.

The big news this week was the worse-than-expected inflation report yesterday morning, which had a big effect on the bond market—Treasury rates are up in the 0.20% to 0.25% range this week alone, keeping their intermediate-term trend pointed clearly up.

While that has had some impact on the broad market, the big-cap indexes have been relatively unfazed—the S&P 500 and Nasdaq are flat to up on the week—and leading stocks have held their own.

Don’t get us wrong—the past two days have been encouraging (support after the inflation report yesterday, and then upside today), and if leaders continue to improve, we could put money to work within a few days. But right now nothing much has changed: Our market timing indicators are still positive, though leading stocks are caught in a game of ping pong, with selling on strength preventing any big progress for many weeks … but with buying near support preventing much in the way of abnormal action.

As always, we go along with the evidence, so we’re sticking with our general stance of holding our winners, easing up on new buys until things kick into gear, and holding some cash makes sense until the indexes and (more importantly) leading growth stocks show their hand. Our only change today is switching Pulte Group (PHM) to Hold, as the stock is getting tossed around by interest rates. Our cash position is 27%.

Model Portfolio

AppLovin (APP) remains one of the strongest stocks in the market, mostly ignoring the teetering in growth stocks, likely thanks to the move last week to start allowing the integration of its AI-powered Axon advertising technology with others, which could open up a big market. Of course, shares are extended to the upside, so if the market really gives up the ghost, APP could easily retreat—but we’re taking the relative strength shown here as a good sign. We’ll stay on Buy, though with the unsettled environment, aim for dips if you want to start a position. Earnings are due May 8. BUY

Arista Networks (ANET) continues to battle with resistance near 300, unable to conquer it—but also holding its 50-day line (near 281) and even 25-day line (291), as the stock certainly looks like it wants to head higher if the market allows it. A drop below 280 would have us going to Hold and watching things closely; we already sold one-third of our original stake so are willing to give ANET room to breathe. That said, with shares acting fine here and the market bending but not breaking, we’re sticking with the evidence—we’ll stay on Buy here, but keep it small given the headwinds out there. BUY

Since it’s younger and still gaining sponsorship (321 funds owned shares at the end of March, up from 223 funds six months before), Cava (CAVA) is going to be subject to more volatility—which was seen to start this month when shares (along with many retail peers) slipped about 12 points from their highs to test their 50-day line. It wasn’t pretty, of course, but CAVA’s rebound the past two days is very encouraging, recouping about half the decline right quick. We’re not complacent here (a break of the recent low could have us going to Hold or even cutting bait entirely) but at this point, the stock has held where it “should” and the cookie-cutter story is as good as ever. Hold on if you own some, and if not, we’re OK starting a small position here, albeit with a relatively tight stop. BUY A HALF

Celsius (CELH) certainly isn’t strong, but it has found some support after the Pepsi-induced selloff in late March/early April, holding a few points above its low even during the market’s latest weak spell. The story here remains the same—while there are worries about margins in the wake of the new Pepsi deal, Celsius continues to expand overseas (inked a deal to distribute in France) and is set to see sales in the U.K. and Ireland this quarter, with sales in Australia and New Zealand starting in Q4. We’re fine giving our half-sized stake a chance, but the stock should hold up above its recent lows if all’s well—if not we’ll likely cut our loss. Earnings are likely out in early May. HOLD

CrowdStrike (CRWD) has been gradually nosing lower on ever-lightening volume—it certainly has some flaws (living below its 50-day line for the past few sessions; cybersecurity group as a whole remains soft), but the correction seems reasonable to this point (excluding its wild post-earnings spike, the stock is off 11% from its peaks). More near-term weakness is possible, but having sold a small piece of our position a couple of weeks ago, we’re content to give CRWD time to gather strength for its next upmove, as the odds favor this leader has further to run when the market gets its act together. HOLD

DraftKings (DKNG) has been chopping up, down and all around during the past couple of weeks—but like so much else out there, the action has been tedious but not abnormal, with the stock holding its 50-day line and prior support. Helping the cause was one analyst who believes the firm is set to report a solid quarter, while the Masters tournament (the most important all year in golf) kicked off today and should attract its fair share of bettors. As for the stock, we’ll follow the plan here and remain on Buy as shares are still choppily uptrending—though much more weakness could change our thinking. BUY

Nutanix (NTNX) saw some high-volume selling today after it tried to hit new highs, which goes hand in hand with an iffy near-term market environment where big investors are very selective and, at times, are willing to book profits. A drop below 60 would be a yellow flag, though having already sold some, we’d likely give the stock some room to maneuver. Right now, we’ll stick with our Buy rating, and if the market can get moving, it certainly looks like NTNX is ready to do the same. BUY

PulteGroup (PHM) is being switched back to Hold, mostly because of interest rates—the intermediate-term trend of rates is firmly up, with Treasury yields hitting their highest levels since November, and that’s denting the homebuilders and PHM. Now, shares have held their 50-day line here, but we’re more looking at the overall view, with the latest push higher looking OK (not great) and then seeing that move given up right quick. Given what’s going on, then, we think moving to Hold and keeping a close eye on shares makes sense. HOLD

Uber (UBER) remains in a relatively tight range here, holding its March lows and bouncing back a bit from Monday’s decline. Not to sound like a broken record, but our thoughts here haven’t changed—we’re open to anything, but the story, numbers and chart (tight rest period on very low volume after a huge upmove) tell us the odds favor the next big move being up. We took a few chips off the table recently and are content to hold the rest and see what comes. HOLD

Watch List

Axon Enterprises (AXON): AXON continues to dance to its own drummer, lifting to new highs today. Growth here should remain solid as more law enforcement agencies sign up for Axon’s Tasers, body and dashboard cameras and Evidence.com cloud software suite.

Hims & Hers Health (HIMS): HIMS had a good-sized pullback, but it looks reasonable given the prior run. We still enthuse about the story’s potential, and if the stock can perk up, we could take a swing at it once the market and growth stocks perk up.

KKR Inc. (KKR): We slightly favor HOOD in the Bull Market group because, if things go well, the upside potential there should be big. But we’re also attracted to KKR, a steadier play that has the ability to make solid moves. The stock has traded tightly of late and remains right near its peak.

Natera (NTRA): NTRA has plenty of potential as it’s the leader in cell-free DNA testing and is continuing to expand its product line—this month alone, one study said its Signatera test for bladder cancer successfully identified patients who weren’t at risk, while two new studies supported the firm’s Prospera tests for heart transplant recipients (whether or not the transplant was likely to take). Shares are holding right near their highs.

Robinhood (HOOD): Despite the market’s wobbles, HOOD has pulled back normally, and there’s no reason to think business isn’t continuing to pick up, and as a brokerage, higher-for-longer interest rates actually help the bottom line here.

Tidewater (TDW): TDW is up against round-number resistance (near 100) here, but after years of underinvestment, the company’s bold M&A moves have made it the clear leader in high-spec OSVs for offshore work, which are seeing booming dayrates.

TransMedics (TMDX): TMDX has a near-revolutionary story, with devices that keep organs alive for longer—and even logistics that help get those organs to where they’re needed—all of which dramatically increase successful transplants. Shares hit some post-earnings turbulence in February and March, but it’s seen a big buying surge this month.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, April 18. As always, we’ll send a Special Bulletin should we have any changes before then.

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