Cabot Growth Investor Issue: April 3, 2025

Tariff Tumble

The big news of the week—and of the year so far—was yesterday’s big tariff announcement that covered a ton of countries and generally put heavy duties on lots of places, which caused mayhem in the market today. We’ll let others dive into the nitty gritty of this supply chain or that currency, but we’re focused on the market and have a few thoughts right now.

First, it’s vital to have a system that puts the odds in your favor over time—most investors lose sight of that during the good times like 2024, when throwing money at most stocks worked and leading titles raced higher, but that’s why many end up giving much of their gains (if not more) back during the rough times. While we certainly haven’t been unscathed during the decline, we’re glad to have had nearly 60% in cash one day after the market’s February top and north of 80% on the sideline in recent weeks.

Second, in terms of the market, the evidence obviously remains negative, as the market’s major trends are down and our indicators are pointed south. Let everyone else argue about the news, and recession possibilities, and whether there will be tariff negotiations, etc. It’s best to remain focused on the evidence, which means remaining in a highly defensive stance today. In fact, we’re dumping one of our four small remaining positions today after it blew up on the tariff news.

Third, though, we are keeping our eyes open for signs of a panic low, be it in the near term or in the weeks ahead. These market meltdowns usually pass through three stages, from complacency (“buy the dip!”), to realization (“this isn’t good but I’m a long-term investor”) to panic (“things are going to get much worse from here, I better sell”), and it’s likely we’re getting toward or are already in that last stage.

Indeed, the fact that the reason for the decline (tariffs) is so obvious to everyone, and that the news is out (not nearly as much guessing as to what tariff rates will be, giving everyone a chance to discount the future) are pluses—both usually occur further on in a decline. Moreover, some after-effects of the selling, like plunging Treasury rates (see below), are positives that will eventually draw money back to stocks.

Our last thought is something we’ve written many times over the years: We’ve been through this sort of thing before, and while the reasons behind the sharp, scary declines are always different (terrorism, currency shenanigans, housing and credit market busts, pandemic, inflation, etc.), each time we’ve been able to stay out for most of the downtrend and get back in after the inevitable bottom occurs. So be sure to keep your head up and eyes open—after this downturn finishes up, the upside should be lucrative, and we’re happy to see our watch list actually expanding in recent days despite the rough environment.

What to Do Now

In the meantime, though, you should continue to play defense and practice patience while we wait for the market to find a meaningful low. While we’re not anxious to sell wholesale here, we will let go of our small remaining position in On Holding (ONON), which imploded today along with its peers on tariff effects; that sale will leave us with around 88% in cash. We could put a bit of that to work if we feel the market and most stocks find a low, but we don’t advise catching any falling knives.

Model Portfolio Update

We’ve been sitting mostly on our hands during the past month, holding a huge amount of cash while the market has been unhealthy—and with the market’s slippage over the past week, we see no reason to change that. Until proven otherwise, defense remains the name of the game; we’re actually selling one more name tonight, in fact.

Now, that doesn’t mean we have to completely stand still on the buy side until all of our indicators are positive—if and when the market finds what looks like a meaningful low, we could add a couple of half-sized stakes in resilient stocks. Still, repositioning in a downtrend can be tricky: We obviously don’t want to buy very weak names, and you’ll often find that fresh legs lower hit resilient stocks as hard (or harder) than beaten-down ones (sellers come for names that have “meat left on the bone”). We’ve seen that with some names that were on the watch list (like AXSM, which fell out of bed) of late.

Thus, for now, we’re fine hoarding cash and making a little interest while the market cascades lower. Tonight, our only change is that we’ll sell the rest of our ONON position and hold the cash while we continue to build our watch list, which, encouragingly, is expanding.

CURRENT RECOMMENDATIONS

Argenx (ARGX)—Medical and biotech names have hit a few air pockets, with lots of rumors and random reports (from a dry-up in VC funding to big layoffs at government agencies) bringing in the sellers, though we think most of it simply has to do with what we wrote above: When the market has a fresh leg lower within a downtrend (like we’ve seen over the past week), sellers often come around for things that have held up well, so medical names like ARGX have pulled in. Even so, while not pretty, the stock is 13% off its high—far less than most growth stocks—and while tariff threats are always a worry (the industry lobbying effort is in full swing trying to delay and pharmaceutical tariffs), there’s no doubt underlying demand trends are bullish. A decisive drop below 550 (prior support from last fall as well as round number support) would probably have us selling our small position, but with shares holding their 200-day line (again, better than 70%-plus of stocks) and with the growth prospects as good as ever, we’ll stick with our small position, thinking ARGX still has a good shot at helping to lead the next uptrend. HOLD A HALF

Flutter Entertainment (FLUT)—FLUT certainly doesn’t look good and, if you’re craving cash, there’s nothing wrong with letting your small remaining stake go. That said, we’re going to hold on for a bit longer for a couple of reasons. First, the big growth driver here is FanDuel in the U.S., so while state tax concerns are always lingering, most of those seem to have settled down (Maryland recently hiked them, but far less than expected) and tariffs shouldn’t be much of a direct issue. And second, the stock is holding near its early-March low and also showed three big-volume support days to start this week—nothing to hang a longer-term hat on, but near-term, there have been some investors willing to step up. Don’t get us wrong, we’re only giving FLUT a few more points from here, but with a mountain of cash already on the sideline and some near-term rays of light, we’ll hold what’s left of our stake (we sold half a few weeks back) for now. HOLD

On Holding (ONON)—ONON was already dealing with some added uncertainty this week, as one of its co-CEO’s is set to leave the company, and while that’s not likely to change much here given the other co-CEO will take over in full, last night’s tariff unveiling was hugely bearish for both On and everyone in the sector—it looks like tariffs on major production centers (like Vietnam) will be huge and could basically wipe out profits in the group this year. Now, of course, it’s possible some trade deals get done going forward that help ONON, but we’ve given our remaining small position (now less than 4% of the portfolio) enough rope—we’ll cut bait tomorrow and hold the cash. SELL

Palantir (PLTR)—When we first recommended Palantir last year, the main reasons for the buy were that (a) money would start to flow away from the AI infrastructure names and more into firms that would enable clients to get value from the language models, and (b) that Palantir’s leading position in AI-related platforms (often for friendly governments) would mean big demand—what Microsoft was for operating systems when personal computers initially took off, Palantir could be for the initial wave of AI adoption. Both of those have largely been playing out, and we’re optimistic that can continue going forward—while it won’t last forever, Palantir’s growth is still accelerating largely due to U.S. commercial AI business, with the U.S. government and foreign business likely to goose results in the quarters to come. Of course, the stock is not the company, and should PLTR dip much below its March low, we could either trim further or sell the rest outright—but so far, the stock has been repeatedly defended near the 80 level (the rare dip below there has quickly brought in some buying) since the start of March, with a recent higher low being very impressive given the tidal wave of selling in the market. The longer it can hold up, the better the odds the stock can eventually attack some resistance on the upside. HOLD

Watch List

• Expand Energy (EXE 111): We’ll never be big commodity stock players, but natural gas names seem to be coming alive after a couple of sour years, and the future is bright thanks to long-term demand trends, too. EXE is our top pick in the sector at this point—see more below.
• DoorDash (DASH 174): Of all the stocks we’ve sold during the past couple of months, DASH is the only one we’re still watching closely, with a very reasonable top-to-bottom correction (20%-ish), a higher low on the chart and, of course, a buoyant growth story that should last for years.
• Dutch Bros (BROS 57): BROS is essentially acting in line with the market (see a bit more on that later in this issue), retesting its early-March lows this week. Like most everything else, it needs work, but with a great story, improving numbers and an early-stage chart (breakout only lasted three months before the market topped), we think BROS can be the next big cookie-cutter winner.
• GE Aerospace (GE 188): GE is getting whipped around with the market, but it’s showing relative strength; the stock is early stage, and the multi-year free cash flow growth story should keep big investors interested.
• Guardant Health (GH 42): GH has been all over the place in recent months, but the big picture shows a stock that’s pulling out of a steep slide as its core blood testing business does well and some newer offerings (especially its Shield colorectal cancer test) take off.
• Insulet (PODD 258): Insulet’s Omnipod insulin pump leads the industry, and with broad indications for both Type 1 and Type 2 diabetics, the company’s history of consistent growth (nine straight years of 20%-plus sales growth) should continue. Shares are holding up well, as we mention later in this issue.
• Penumbra (PEN 272): PEN has what should be a long-lasting growth story thanks to its best-in-class blood clot removal systems and devices. See more below.
• Rubrik (RBRK 57): RBRK is a classic example of what you see in down markets—selling on strength, with the stock getting knocked around after its very strong earnings gap last month. While sloppy, though, the stock is well above its early-March low, so it’s worth watching.
• TG Therapeutics (TGTX 40): TGTX has taken on a little water, but it remains one of the few growth names out there that looks completely normal, hovering near its 25-day line. Obviously, that could change, but so far, TGTX remains near the top of our watch list. A drug trial from a potential competing drug (from Roche) fell flat yesterday, which only helps the outlook.

Other Stocks of Interest

Take-Two Interactive (TTWO 209)—We have to be honest: We’ve never been big fans of video game-related stocks, as sales growth tend to be lumpy (driven by sales of new titles or updates of existing ones) and, while providing entertainment, it’s not exactly offering anything that is driving society forward. That said, there’s no denying it’s a gigantic business, especially as games become more pervasive (not just video game consoles but phones, tablets, etc.), and as everything’s moved online (especially with multi-player games), there are more opportunities for recurring income beyond just the one-time game sale. The bottom line is, when the timing is right, the leading firms in the sector can post big growth and the stocks can power ahead. That long preamble leads us to Take-Two Interactive, a company that owns some of the most popular brands in gaming, with its Rockstar Games and 2K labels offering Grand Theft Auto, Red Dead Redemption, Civilization and lots of popular sports titles (NBA, WWE and PGA Tour 2K) that are among the bestsellers in the sector; its Zynga mobile game operation also has a huge following. That said, business has been so-so for a while, but as adlluded to above, the timing here looks right: The newest Civilization game is seeing record pre-orders, and later this year should come the release of the sixth edition of Grand Theft Auto (some say it’s the most anticipated game in history; the last major release was over 10 years ago), which has sold north of 200 million copies since it was first released more than two decades ago. That has investors thinking boom times are ahead, with the 2026 fiscal year (which just started this week) likely to see the top line lift 45% and earnings boom to the $5.50 to $7 per share range, with early estimates calling for another round of solid (though smaller) increases the following year. Given the stock’s action, many big investors likely see that as conservative, as TTWO broke out from a long, sleepy base in November, and after another, shorter flat period, gapped up strongly in February … and it’s held very firm since then despite the market’s downside action. Take-Two isn’t a revolutionary growth story, but the stock has a history of doing well when new releases hit the market, so the next few quarters should be fruitful.

Penumbra (PEN 271)—We’ve seen a few chinks in the armor of medical stocks of late, but we’re still thinking many can be fresh leaders of the next advance, as few are overplayed (i.e., had monster runs during the past two years) and many have solid current and future sales and earnings prospects—including Penumbra, a medical device firm that’s taking huge market share. The story revolves around blood clots in the body, which affect about 800,000 Americans each year and can result in up to 100,000 premature deaths; traditional treatment options (often including taking drugs to dissolve the clots) carried major risks, and initial mechanical options were a step forward but were also cumbersome, time consuming and had other limitations. Penumbra has a better way, called computer-assisted vacuum thrombectomy (CAVT for short), which comes with technology that can rapidly identify and remove blood costs (its vacuum engine optimizes the suction depending on vessel size), shortening procedure times and hospital stays (a big money factor) while leading to even better patient outcomes, too—a win-win for everyone. Penumbra has incorporated its proprietary CAVT technology into different device platforms that can serve a variety of clot situations (Lightning Flash for venous blood clots and pulmonary embolisms; Lightning Bolt removes clots from blood vessels; its testing its Penumbra System for removal of blood clots in the brain after certain strokes) with various new products being released at a rapid clip under those umbrellas. Not surprisingly, it’s been a hit, mostly in the U.S. but it’s starting to make hay overseas as well: While the firm has some legacy offerings, the CAVT product suite saw sales grow 27% last year as a whole, and importantly, margins are lifting nicely, which has allowed the bottom line to boom (up 37% last year; analysts see 28% and 34% growth this year and next, respectively). PEN had a big 2023 advance followed by a large decline into mid-2024 (basically a large buy the rumor of CAVT sales, and sell the news), but it’s been in a solid advance since then, with the latest six-week rest period looking very normal given the market.

Expand Energy (EXE 111)—In the last issue, we wrote about natural gas stocks, as many had set up proper-looking launching pads and, after a couple of down years, free cash flow should be buoyant in the quarters and possibly years to come. Stocks in the group tend to swim closely together, but after some more digging, Expand has emerged as our favorite. The firm is the result of the merger of Chesapeake Energy and Southwestern Energy, creating the largest domestic natural gas producer out there (operations in the Haynesville Shale as well as all over Appalachia), and the combination should have a big synergy tailwind of $400 million by year-end 2025 (about $1.60 per share), rising to $500 million beyond that. Moreover, despite the firm being committed to flat-ish CapEx, it sees production rising nicely this year and growing modestly in 2026, and with natural gas prices well off their low area from the past two years, free cash flow and shareholder returns are likely to surge: At $4 gas (right around where it is today), Expand is likely to return something approaching $4 per share in special dividends and share buybacks (there’s a $1 billion authorization on the books), and that’s over and above a solid (2% yield) base dividend and some debt reduction, too. Obviously, if prices tank, all bets are off—such is life with commodity stocks—but we think upside surprises are more likely given electricity demands, assuming the economy doesn’t implode. As always, we like a dividend check hitting the brokerage account as much as anyone, but to us, the bigger payoff is in investor perception: If big investors become more convinced that gas prices can hang around this level or rise, then EXE could embark on a good-sized run, in addition to the payouts. Indeed, the stock has moved above some resistance in the 109 area (even stronger than most of its peers), and while wobbles are definitely possible if the market remains weak, there’s no question the trend is up.

A-B-C Relative Strength: The “Easy” Way to Spot Potential Leaders

We run our stock screens a few times per week (including over the weekend), no matter the environment—though, to be honest, all those screens very early in a market decline often fail to give you too much information, largely because most stocks are in the same boat (declining) as big investors rush to safety. It usually takes some ups and down, as well as at least a few weeks of trading, for certain names to show improved relative strength.

In spite of today’s plunge, that’s what we’ve seen from the market during the past two or three weeks: The down (into early March), up (into last week) and then down (through today) action sets up an “easy” way to test relative strength using what we call the A-B-C method, which is a method we’ve applied countless times over the years to find fresh winners coming out of corrections and bear phases.

The idea is to line up short- or intermediate-term highs and lows in the major indexes and compare them with individual stocks—obviously, stocks that have higher lows at the low points and higher highs at the high points is a sign the name is slowly gaining strength.

For instance, here’s a daily chart of the S&P 500: The early March low will be point A, while the rally high last week (that kissed the falling, blue 25-day line) is point B and, now, the spike low today represents point C.

Now let’s look at Insulet (PODD), maker of the Omnipod insulin pump that’s grabbing share and producing steady, solid growth quarter after quarter. Shares did get whacked down to 230 early last month (point A), but ralled back above its 25-day line to 275 (point B) before pulling back to a much higher low at 250 (point C) today.

A little further down the food chain would be something like Dutch Bros. (BROS), which tumbled during the sharp February/March downdraft to a low near 57 (point A). It then rallied to just over 72 (a bit above its 25-day line; point B) before falling back to the same support level near 57 (point C). In this case, there’s a bit of outperformance here, but you’d like to see more relative strength develop in the days and weeks to come.

Finally, take a gander at Reddit (RDDT)—it has a mess of a chart anyway, but notice how the initial low (point A) occurred near 106, and when it rallied from there, shares couldn’t even kiss their 25-day line (point B). Now the stock is knifing to much lower lows, dropping as low as 94 this morning (point C).

Of course, right now, we’re still talking about short-term chart studies, given this decline has been going on for “only” a few weeks. But this same general principle works even on a longer-term basis. Take a look at the S&P 500 and Baidu (BIDU) near the tail end of the historic 2008-2009 bear phase: The S&P crashed into November and, after meandering for a few weeks, easily sliced to a lower low in March—but look how BIDU held up from November on, and actually was already hitting multi-month highs in late February and early March even as the S&P slid to new lows. We bought some a couple of months later and it was one of our biggest winners of the 2009-2010 bull move.

There are a couple of things to keep in mind. First, in a downtrend, good-looking stocks can go bad in a hurry. Thus, until the trends turn up, everything is vulnerable to coming under pressure—and, oftentimes, it’s the most resilient names that will get hit in a fresh leg lower.

Second, of course, is that the rest of the evidence matters, too—in our case, we’re looking for great fundamental numbers and stories and longer-term charts that are at least in decent shape. A recent higher low doesn’t negate, say, horrible sales and earnings or massive abnormal action during the February/March decline.

Even so, as Jesse Livermore (a famous investor from the early 20^th century) once said, the big money is in the big swing—by getting in early with a good-sized position on a fresh leading stock and riding it for a prolonged uptrend (months or longer). While watch lists can and will change as a downtrend matures, staying on top of what growth stocks are showing the best relative strength is one of the best ways to find those future winners ahead of time, and the A-B-C method is one easy way to compare names across industry groups to see which ones big investors are supporting even when the market dips.

Cabot Market Timing Indicators

The market had a mini-rally that carried into the middle of last week, but none of our indicators budged, leading to the fresh leg down in recent days (including today’s tariff-induced plunge). We’re always flexible, and there are some rays of light out there (like falling Treasury rates)—but the bottom line is that all three of our key indicators are negative, with others (like our Aggression Index) giving the same cautious message.

Cabot Trend Lines – Bearish
Our Cabot Trend Lines flipped to the bearish side of the fence three weeks ago, and they’re clearly negative today, with the S&P 500 (by 6%) and Nasdaq (by 10%) well below their respective 35-week lines. Obviously, a quick, powerful rally back above those lines would be very encouraging—and it’s something that has happened before, often signaling a major shakeout-and-recovery phase. But as with most of the evidence these days, we’d have to see it happen first—right now, the longer-term trend is a headwind for the bulls.

Cabot Tides – Bearish
Our Cabot Tides also continue to trend lower, as the recent rally into the 25-day line ran into a ton of selling, with every index (including the Nasdaq Composite, daily chart shown here) south of both their moving averages. As with any trend-following indicator, the message is descriptive and not predictive, so we’re open to anything, including today’s plunge leading to some sort of low. But for the here and now, there’s no question both of the market’s key trends are down, so you should remain defensive.

Two-Second Indicator – Negative
Our Two-Second Indicator had a little respite during the market’s brief rally, but the number of new lows has come on again as the major indexes have embarked on another leg down, with today’s reading easily surpassing the prior high from back on March 4. Eventually, these readings will flash a positive divergence followed by a classic “all-clear” signal (many days in a row of sub-40 readings), and when it does, it should confirm strength seen elsewhere. Today, though, the broad market remains on the outs.

The next Cabot Growth Investor issue will be published on April 17, 2025.

Copyright © 2025. 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.