WHAT TO DO NOW: Growth stocks remain very weak and, today, we saw the broad market get whacked as well. Overall, it remains a split environment, but our Growth Tides and Aggression Index are negative, and growth as a whole is under pressure. The Model Portfolio is more than half in cash, and while we’re not in our storm cellar, we’re standing pat tonight, keeping stops on our positions and taking it day to day. We have no changes tonight.
Current Market Environment
After a solid up day yesterday, the market was nailed today on across-the-board selling. Near the close, the S&P 500 was off 1.6%, the Nasdaq was down 2.5% and growth in general was off in the 2.5% range.
From its peak on July 11, the Nasdaq fell 8.9% in less than three weeks while the key semiconductor fund (SMH) fell 19.3% (!) and the IBD 50 Index fell 8% for the month of July. Wednesday brought a reprieve, with a lot of the hardest-hit names (networking, chips, AI) bouncing, though of course, today’s action is sour, with everything getting smacked back down.
Remember, this is still an overall bull market, and the fact that interest rates are heading lower (both Treasury rates, which are hitting multi-month lows, and possibly the Fed later this year, too) is a nice tailwind. Our top-down market timing indicators are also still positive (though we’d note we saw a plus-40 reading on new lows today), which we’re obviously not forgetting.
However, growth-focused measures, be they our Growth Tides, our Aggression Index or, of course, the action of individual growth stocks, are still negative in the intermediate term. It’s always possible yesterday could start an up-down-up-down bottoming period, but obviously, it’s too early to say that.
We’d describe ourselves right now as cautious but flexible: There aren’t many growth stocks looking great right now, so we’re comfortable holding a lot of cash, though we have begun to see some upside earnings moves, and there are still a good number of stocks that are set up nicely into earnings (there are tons of growth names reporting next week), so we’re not sticking our heads in the sand, either.
The Model Portfolio has a cash position of 54%, and while we’re not opposed to putting a bit to work if things settle down a bit, we think patience is best here—if anything, we could raise more if growth stocks continue to crack. Tonight, we have no changes.
Model Portfolio
AppLovin (APP) has given up plenty of ground the past four weeks but is trying to find some support in recent days (last night’s report from Meta helped early today before the market wipeout pulled it back down), though all of the action has come on very light trade (every week has seen 30% to 40% below average volume). As with most everything, the next big move will likely come down to earnings next week (August 7): Analysts are looking for $1.08 billion of total revenue (up 44%) and earnings of 75 cents, but just as important will be free cash flow figures as well as management’s commentary about applying its Axon advertising engine to non-game verticals. A sharp break on the report would likely have us moving on, but the past three months of bobbing and weaving look like a normal rest period after the prior run. HOLD
Cava Group (CAVA) has begun to bounce along with some of its restaurant peers, recouping as much as 40% of its decline and running up to its 50-day line on light volume. Earnings are out in two weeks (August 13), with analysts seeing sales up 26% and earnings of 12 cents per share (double last year’s figure); so far, big players like Wingstop and Chipotle have reported solid quarters, though the stocks haven’t reacted much to the news. We’ll play it by the book: After a 23% correction, CAVA has held above some support in the low 70s, and as long as it can continue to do that, we’re OK practicing patience with our remaining shares (we already booked partial profits earlier)—but if not, we’ll look to lighten up or sell outright and move on. Right here, we’re giving the stock a chance and we’re not forgetting about the unique long-term cookie-cutter angle here. HOLD
If growth stocks can hold together and get moving, we still think On Holding (ONON) has the makings of a winner—more funds are signing on (476 at the end of Q2, up from 449 and 372 the prior two quarter-ends), including some good ones (Contrafund owns about 2.5% of the company; T. Rowe New Horizons has built a small position), and of course, the underlying story (emerging athletic brand, more categories covered, moving into apparel and accessories) is as good as ever. The stock has been wild, but overall has been etching higher lows (36, mid-37s, mid-38s) the past three weeks and has seen some big-volume buying, including on Wednesday. Of course, the upcoming quarterly report—due August 13—will be the biggest factor, but we think the past eight weeks have been a normal base-building effort. HOLD
ProShares Ultra Russell 2000 Fund (UWM) actually tagged new highs briefly yesterday, but the sell-on-strength mode out there came around for small stocks today, driving them sharply lower. That said, believe it or not, UWM isn’t even down to its 25-day line, so while today is a shot across the bow, it hasn’t cracked the recent upmove. For now, we’ll stick with a buy a half rating, but as with everything else, we’re keeping a close eye on it. BUY A HALF
Robinhood (HOOD) doesn’t have a bad overall chart—the past couple of months as a whole look like a choppy down-up-down period after a big run. But our half-sized position is at a loss, and so far, the stock hasn’t been able to find support, which obviously isn’t what we’re looking for. Given our small stake, we’d prefer to hold through earnings (August 7) given the positive long-term trend here and the fact that business has picked up in a huge way of late on basically all metrics—but we’re watching things closely as HOOD toys with support near 20. We quickly moved to Hold last week and will stay there tonight while keeping shares on a very tight leash. HOLD
TransMedics (TMDX) reported another outstanding quarter last night, with both revenue (up 118%) and earnings (35 cents a share, up from a loss last year) crushing estimates, with the top brass again meaningfully hiking expectations (bumping the full-year revenue guide by about 10%). We’ll dive into more details in next week’s regular issue, but today TMDX is popping to new highs, though as with many earnings winners of late, it is volatile and saw some selling on strength from its morning spike higher. Even so, the overall uptrend in the stock is intact and it’s clear the company remains in hyper-growth mode. Hold on if you own some, and if you don’t, you can consider a small position here or on dips. BUY
Watch List
Arista Networks (ANET): ANET was crashing and burning with everything else tech-related, but yesterday’s pop after a solid (not amazing) quarterly report is encouraging, especially as estimates head up for 2025 and beyond. It still needs work as today’s wild action shows, but it’s worth watching.
GE Aerospace (GE): This potential liquid leader has gyrated a bit after an initial positive earnings reaction, but the bottom line is it’s within spitting distance of new high ground. It might need more time to rest after its huge run-up earlier this year, but the rapid/reliable growth profile here is hard to ignore.
Guardant Health (GH): Guardant received quick approval for its new colorectal cancer blood test, which could be a giant seller compared to stool-based tests (and obviously will be an option for those wanting to avoid colonoscopies). The stock remains strong overall despite today’s dip; earnings are due August 7.
Halozyme (HALO): There’s nothing new with HALO, and that’s a good thing—the stock has been crawling higher above its 25-day line with no real selling along the way. Earnings are due August 6.
Neurocrine Biosciences (NBIX): NBIX reported earnings this morning and they were great, with revenues up 32%, easily topping estimates, while earnings were up 30%, with management upping estimates for the full year by about 6%—all of which helped the stock pop to marginal new highs. If it can hold/build on this move, we could take a swing at it going forward.
Palantir (PLTR): PLTR rallied eight weeks in a row to marginal new highs before being caught up in the tech stock selloff—but as opposed to most AI infrastructure names, the retreat has been normal (support above the 50-day line) and it’s set up decently ahead of earnings August 5.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, August 8. As always, we’ll send a Special Bulletin should we have any changes before then.
Model Portfolio
| Stock | No. of Shares | Price Bought | Date Bought | Price on 8/1/24 | Profit | Rating |
| AppLovin (APP) | 2,212 | 63 | 3/1/24 | 75 | 20% | Hold |
| Cava Group (CAVA) | 1,644 | 68 | 3/8/24 | 85 | 25% | Hold |
| On Holding (ONON) | 5,251 | 40 | 5/24/24 | 40 | 0% | Hold |
| ProShares Ultra Russell 2000 Fund (UWM) | 2,462 | 42 | 7/15/24 | 42 | -1% | Buy a Half |
| Robinhood (HOOD) | 4,404 | 24 | 7/15/24 | 20 | -15% | Hold |
| TransMedix (TMDX) | 1,576 | 133 | 5/9/24 | 151 | 14% | Buy |
| CASH | $1,098,077 | 54% |
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.
