Cabot Growth Investor Issue: January 23, 2025

Good but Not Decisive (Yet)

A couple of weeks ago things were looking fairly iffy for the market, with the sour December action carrying into January for nearly all of the market—the broad market was in very rough shape and growth stocks were in the wilderness. In fact, the action was so bad that many intermediate-term measures were at their most sold-out levels since late 2023, and near-term sentiment surveys told the same story (the Investors Intelligence weekly figure was the least bullish since early 2023).

Happily, since then, we’ve seen improvement: Our Cabot Tides are back to neutral (and are getting close to a green light), the Two-Second Indicator looks much better as the broad market has improved, and leading stocks have perked up. Throw in the fact that our Aggression Index (growth versus defense) has been bullish throughout the rough sledding, and we put a little money back to work on a special bulletin today after a few weeks of staying very close to shore.

Why just small steps? The biggest reason is that, to this point, individual growth stocks are looking better … but not decisive, at least to this point. Tons of names we own or watch are “only” back into some resistance (near their prior highs, etc.) and are still seeing some selling on that strength. In other words, most titles have basically rotated from the low end of multi-week ranges to the higher end, which is good (and certainly better than the alternative), but not exactly decisive like we saw, say, back in August/September of last year or even November 2023.

To be fair, all of that action is descriptive of today but not necessarily predictive of tomorrow—the rally phase is only a few days old after all, plus, we’re in the middle of earnings season, so it’s always possible many growth stocks that were resilient can really get going after their reports.

If that happens (on earnings or simply from big buying in the days ahead), we won’t hesitate to get aggressive. But we always go with what’s in front of us, and the good-not-decisive action and some other factors (let’s not forget Treasury rates are still in an uptrend) have us starting slow and taking it from there.

What to Do Now

Do a little buying. In a special bulletin this morning, we started half positions in both Marvell Technology (MRVL) and Reddit (RDDT), while also restoring our Buy rating on Shift4 (FOUR). Our cash position is now around 48%. Details inside.

Model Portfolio Update

The market has improved nicely during the past week or so, which is definitely good to see—that said, the action has a good-not-great feel to it, with many indexes still rangebound and, importantly, with many stocks nosing into or just over resistance areas on low volume. Don’t get us wrong, up is good, but this isn’t like November 2023 or last August (when dozens of stocks raced ahead), at least not yet.

Even so, the perfect doesn’t have to be the enemy of the good, and with a huge cash hoard and with the evidence ticking higher, we are putting a bit of money to work tonight, adding half positions (5% of the portfolio) in both MRVL and RDDT. We’ll follow the usual game plan, aiming to extend our line in the days ahead if the bulls stay at it and more individual stocks show power—but if not, we’ll hold off much more buying and make sure the downside is controlled. Our cash position will now be around 48%.

CURRENT RECOMMENDATIONS

AppLovin (APP)—APP has been quiet on the news front since a conference presentation in mid-December, but earnings are coming over the horizon, with the Q4 (and 2025 outlook) due February 12, along with any update on the opportunity in e-commerce for the firm’s advertising engine. As for the stock, it had been holding in a sideways range above its 50-day line (good) but hadn’t been able to bounce much (bad)—though yesterday’s action was solid with shares showing some movement to multi-week highs. If you don’t own any and wanted to buy a small amount (whatever that means to you), we wouldn’t argue with you, as the stock’s ability to hold support and perk up is a plus—that said, right here, APP is basically smack dab in the middle of its six-week range, so we’ll officially stay on Hold and see if this week’s strength follows through. HOLD

Argenx (ARGX)—ARGX remains in good shape, but the stock continues to dance to its own drummer, moving more independently of the market—if anything, it was a bit stronger during the recent tough market stretch, while it’s been pulling in of late while the broad market has strengthened in the past few sessions. Fundamentally, everything appears on track, as the top brass’ presentation at a healthcare conference earlier this month revealed Q4 revenues of $737 million, up 76% or so from a year ago and well above expectations as both gMG and CIDP (now 1,000 patients) indications continue to ramp. (Analysts have been hiking their outlooks, with $10.29 per share expected for 2025, up more than four-fold from last year; the official quarterly report and outlook are due February 27.) We were thinking of averaging up if/when the market improved, and we still could do that—but given that ARGX has actually been under some pressure while the rally has gotten underway, we advise more of the same, sitting tight with your small-ish stake while trailing a mental stop (currently 590 or so). HOLD A HALF

Flutter Entertainment (FLUT)—FLUT is looking like a classic case of sell the rumor, buy the news, as the stock’s very encouraging breakout in November ran into a wall in early December as reports started to come to the surface that sports outcomes were favoring the bettors (favorites were hitting at record rates)—but when Flutter actually announced that Q4 results would be sour a couple of weeks ago, the stock bottomed out, likely in part because the underlying trends (margins excluding unfavorable/favorable results) were just fine. With that said, like so many names, the stock has run right back into some resistance, and there hasn’t been much buying volume to this point, so we’ll see how it goes. All in all, we’re optimistic the worst has passed but want to see a bit more confirmation before restoring our Buy rating. If you’re already in, just sit tight. HOLD

Marvell Technology (MRVL)—There are many AI networking and connectivity plays acting well today, and Marvell is one of the earlier-stage, liquid names that has been showing great relative strength. The details of the product lines and end markets can give you an ice cream headache, but the firm has long done a good business with many big hyperscalers (, and with the growth in AI spending about to hit fifth gear, those big players are buying up Marvell’s offerings (including custom chips) to build out their data centers and AI clusters. (In fact, Marvell recently inked an expanded five-year deal with Amazon Web Services for a lot of gear.) MRVL “just” broke out in October, and the Q3 report in December showed a return to minor growth (sales up 7%, earnings up 5%)—but the outlook was superb, with Q4 expected to show a meaningful pickup in business and 2025 should boom, with earnings expected to rise nearly 80%, and the way these trends normally develop, even that should prove conservative. To be fair, a big selloff in the AI group would definitely dent MRVL, but we’re thinking a good-sized, early-stage liquid name that is seeing big, accelerating growth has a great chance to do well. MRVL gapped up strongly in December and has held those gains since, testing new high ground recently—we started with a half-sized (5% of the portfolio) position and use a looser stop in the mid-100s. BUY A HALF

On Holding (ONON)—We went to Hold on ONON a couple of weeks ago, but that’s looking like a mistake at this point—shares were on the intermediate-term brink for a couple of weeks but held support and have popped back to their December highs. There’s been no official news from the firm, but the top brass’ presentation at the ICR retail conference earlier this month had good vibes, with the holiday selling season reportedly finishing up well in the U.S. and elsewhere (including a doubling of sales on the November 11 holiday in China) and with full-price sales trends looking good (i.e., not a ton of discounting); all in all the feeling is 30%-ish currency-neutral growth could be on tap for 2025. If you want to nibble, that’s fine, but we’ll wait for a clearer move to new highs before restoring our Buy rating. HOLD

Palantir (PLTR)—PLTR has enjoyed a nice comeback in recent days, recouping as much as 70% of its recent correction from high to low; the advance has come on a dearth of volume, which isn’t ideal, but even so, the rally is certainly a good sign. There’s been some excitement surrounding this week’s big data center buildout announcement involving Oracle, Softbank and others, as well as optimism that government efficiency initiatives could drum up more business for the firm’s AI platforms. That said, the stock’s intermediate-term future will likely come down to earnings—the Q4 report is due February 3, with analysts expecting the top line to lift 28% and earnings to rise 38% (11 cents per share). Deep down, we still think PLTR can be something of the Microsoft of the AI age, with its platforms used by thousands of big and small companies (and government agencies), so we’re open to the stock having another run. But, for the here and now, we’ll simply let the stock tell us what to do—as with most things, the bounce is encouraging, but the near-term trend remains mostly neutral, so we’ll stick with our Hold rating. HOLD

Reddit (RDDT)—RDDT is a name we’ve had on our watch list for a while, and we’re going to roll the dice here with a half position, in large part because the story is so huge: The firm has a one-of-a-kind offering, with north of 100,000 message boards (our term) where individuals can anonymously interact, learn, ask questions and share ideas in just about every topic imaginable, from things to do in a certain city to cooking to gardening to sports fandom to housework to jokes to finance—you name it, there’s a subreddit (as the firm calls it) on that topic. All of this is tailormade for advertising, of course (advertising grill tools in the grilling subreddit, etc.), which is ramping quickly, and there’s also a data licensing angle, with Reddit’s treasure trove of real-life interactions something select clients are paying to dig into. Growth has been very impressive, with rapidly accelerating sales, positive free cash flow in Q3 (and positive earnings in 2025) and huge user growth in the U.S. and overseas, all of which caused the stock to break out in October and go bananas on the upside—and, encouragingly, shares held firm in recent weeks and have been toying with new highs in recent days. The trick here is volatility, with RDDT moving an average of 6% per day from high to low, so the risk of a sharp dip (possibly even stopping us out) if the market hiccups is real. Even so, we think the risk is worth it—we bought a half-sized stake today and use a loose (15% to 20%) loss limit. BUY A HALF

Shift4 Payments (FOUR)—FOUR has been impressive in recent weeks—it basically had one very bad day (December 4) when news broke that its CEO was nominated to head up NASA, but it steadied itself after that and, after one more test of the century mark last week, has lifted back to new price highs on good (not great) volume. Clearly, big investors are thinking that the CEO’s likely departure isn’t going to derail the growth story here, partly thanks to a solid management team still in place, and also thanks to the fact that so many of the big hotel, stadium and hospitality deals the company inked in recent quarters will be going live and/or ramping up during the year. (The firm will report earnings and have what’s likely to be a very important Investor Day on February 18.) We have seen a lot of selling on strength in this environment, even in recent days, so some slippage in FOUR in the days ahead wouldn’t shock us but, given the overall picture, we’ll go back to Buy here, thinking new buyers can start a position here or (preferably) on dips of a couple of points. BUY

Watch List

• Credo Tech (CRDO 84): We’re not sure we’ll add a second AI connectivity play to MRVL, but if you’re looking for a firm with faster growth (but a stock that’s crazy volatile), CRDO is another option.
• DoorDash (DASH 183): DASH broke out near 135, ran up to 180, and has now spent the past eight weeks in a very tight (10% deep) range, gathering strength for its next advance. There is some resistance around here, but the stock continues to look like a liquid leader.
• Dutch Bros. (BROS 61): It’s not our favorite group, as restaurant stocks have been hit or miss, but BROS continues to handle itself well, with investors refocusing on the company’s cookie-cutter story and improving margin profile.
• GE Vernova (GEV 438): GEV has lifted off on the upside and reacted well to earnings this week (the top brass reaffirmed its 2025 outlook that it released a few weeks back). The next controlled pullback should be buyable.
• Guardant Health (GH 48): GH looks to finally have reached the tipping point in terms of investor perception, with the stock exploding to multi-year highs this week on huge volume. See more below.
• Rubrik (RBRK 70): RBRK is now six weeks into a very reasonable rest period (20% deep correction after a big run) and it’s shown solid strength with the market of late. There are a couple of flies in the ointment here (earnings are in the red; sponsorship is a bit thin), but we think the fundamental story is big.

Other Stocks of Interest

Freshpet (FRPT 157)—If you’re a big investor right now, you’re faced with some uncertainties, as many growth stocks have had big runs in recent months, interest rates are again a bugaboo, earnings season has begun and investors are still going headline-by-headline with the new administration. Thus, that money manager is likely more focused than usual on firms with lasting growth stories and dominant positions in their field. That’s a big reason we remain high on Freshpet, the hands-down leader in the fresh pet food movement, which continues to grow rapidly as more (usually upper middle class or above) households get pets (in fact, fewer kids and more pets is a trend that’s been in place for years) and treat them like part of the family, willing to shell out a little extra cash for Pumpkin for better health and longer lives. While there’s some competition in the fresh/frozen pet food category (Farmer’s Dog is one, though Freshpet’s manufacturing scale and distribution, which have ramped in recent years, are a huge advantage), the overwhelming share gains are coming from kibble purchasers, which still make up the vast majority of the market. In fact, “only” 13 million of the 60 to 70 million dog households are Freshpet customers, and only five million of that buy in any size. All told, the company’s CEO thinks the fresh/frozen pet food market share is currently 6% to 7% of the total but should mushroom from here as the underlying trends continue. While sales growth should slow a touch as the firm grows, 2025 should still bring 25%-ish top-line growth, and margins are going wild after the firm got its house in order (some price hikes, but lots of cost initiatives) in 2022 and 2023. Moreover, the stock’s action intrigues us—after a nice run from the market lows in November 2023 to the summer of last year, FRPT has built three consolidations, each one sitting right on top of the prior one; net-net, there was hardly any progress for about seven months even as sponsorship grew and the story improved. It looks like a multi-month coiling phase to us, and now shares are back near their highs. It’s a solid out-of-the-way growth story.

Crescent Energy (CRGY 16)—As we write about later in this issue, energy stocks started to show some intriguing strength in late December, and this comes after a couple of years of fading investor perception—raising the prospects of a meaningful turn up in a sector that, historically, can trend nicely over many months (both up and down). Crescent Energy is a small-cap name that operates in the Rockies (30% of output) and in the Eagle Ford in Texas (70%; it’s the third-largest oil and second-largest gas producer in that shale) that has a balanced output profile (39% oil, 44% gas, 17% liquids) with very attractive economics: It has a decade-plus of low-risk drilling locations that have a much lower decline rate than its fracking competitors (Crescent has to replace 40% less production from first-year wells than its average peer!), which means its free cash flow outlook is tremendous—even at “just” $75 oil and $3.50 gas (about what we have today), the company thinks cash flow could come in around $2.75 per share, north of 15% of the current share price. So far, the cash flow that’s coming in is supporting a solid dividend (nearly 3%) and a healthy balance sheet (no debt maturities until 2027), but Crescent hasn’t been shy about playing the M&A game, gobbling up an average of four firms annually during the past few years (three in 2024) and then integrating them quickly, lowering drilling costs and boosting efficiencies. We wouldn’t be shocked to see the firm put some of its huge cash flow toward bolt-on buyouts in the quarters to come. Some of the ownership here is from institutions, which could lead to the occasional (non-dilutive) share offering, but all told the story looks good to us—and could be great if energy prices head up. CRGY was dead money for a long time but changed character in October, has stretched its legs to multi-year highs this month and looks poised for higher prices.

Guardant Health (GH 48)—In the market, timing is everything—the story, numbers and projections can all be there, but the key is to find the time when investor perception changes, which can result in a sustained run. Guardant Health is a good example of that: The firm has long been a leader in liquid biopsies, as its 360 platform is able to perform basic genetic testing from a tube or two of blood, allowing advanced-stage cancer patients to see which potential therapy is most likely to produce the best results. Growth from 360 has been solid, but a big reason we wrote the stock up in the summer was its new colorectal cancer blood test, dubbed Shield, which had thousands of real-world results that showed its detection capabilities on par with stool-based alternatives, which have gained huge market share in recent years. The FDA approved the test in June, but despite expected uptake, that wasn’t enough to change perception, with a couple of failed rally attempts late last year. But this week might have been the tipping point: Guardant just received Medicare approval for Reveal, its test for disease recurrence for colorectal cancer patients—essentially using a blood test to see if the cancer has come back after curative treatment, which obviously boosts outcomes if the recurrence is caught early enough. While this approval is “just” for that one type of cancer, the potential for other disease recurrence approvals in the years ahead is the big prize. After a December stumble, GH boomed to two-year-plus highs on that news, completing what looks like a huge bottoming formation. To be fair, it’s a bit of a wild child (good-not-great sponsorship, very volatile stock), but we are intrigued by the potential for Shield and Reveal.

January’s Action Can Portend the Future—for the Market and for Sectors

One of the oldest “indicators” in the market is the January barometer, which was invented by Yale Hirsch in the 1970s, and it can best be described by his simple phrase, “As January goes, so goes the year.” Simply put, if the major indexes are up for January, it usually portends a good (or great) market year, and if lower, there are greater odds the market could struggle.

Frankly, we’re not huge calendar investors—if life were that easy we’d all be rich, but unfortunately, that’s not reality. But there is some data to back up the January Barometer: If the S&P 500 is positive in January, the rest of the year (last 11 months) has advanced an average of 12%-plus, while a negative January sees the final 11 months up less than 4% on average. To be fair, results have varied over time (a lot of down Januarys in the past decade have resulted in very good years for the market), but as a general rule, there is some predictive value, especially when you talk about positive (and especially very positive) Januarys. (For 2025, the S&P 500 started at 5,882, so a close above there at the end of next week would be bullish in theory.)

Right now, though, we’re more interested in some sector action—while not as fully fleshed out, usually big moves once the calendar flips have a good chance at marking a turning point. The reasoning comes from something we’ve written about the past few weeks: January is partially a month of repositioning among big investors that wait for the calendar flip to take profits and move things around—thus, if a few sectors get moving (especially after a correction or long out-of-favor period), it’s a sign that institutions are thinking a new trend could be at hand.

We see two of these potential opportunities right now, the first being a “quiet” growth group that looks to be coming out of a three-month correction: Aerospace stocks don’t get tons of attention, but the group is dominated by a handful of dominant players (limiting competition) and upcycles tend to last a long time as commercial clients upgrade their fleets. Names like Howmet (HWM, shown below) and Carpenter Tech (CRS) look great, though we remain intrigued by GE Aerospace (GE), which definitely feels like a liquid leader, with huge sponsorship, monstrous cash flow and a steady growth story that should persist.

GE had a humongous run through last April, but then effectively spent the rest of the year making no net progress and testing the 40-week line—but the stock bounced on good volume last week and boomed today after its Q4 report that not only topped expectations, but showed a huge (46%) gain in new orders and the 2025 outlook calls for another year of big, growing free cash flow.

The second sector idea is far outside the growth sector and has been in the doghouse for two years: Energy, both oil and natural gas, the prices for each have been languishing for months, causing the stocks to lag badly as investors anticipated more of the same. As usual, when the dry times hit for a year or two, the weak players either go out or are gobbled up and costs are cut to the bone—which means earnings and cash flow can soar now that prices are perking up.

On the oil front, Crescent Energy (CRGY) is a very intriguing smaller-cap name; see our write-up earlier in this issue.

As for natural gas, the prospects might be even better than oil when you consider how demand for it should boom both in the U.S. (more electricity demand) and overseas (with liquified natural gas likely to be exported in big quantities); prices mostly stayed below $3 in 2023 and 2024, but now they’re into the $3.50 to $4 area, and even at those levels (which are nowhere near the 2022 range of $6 to $9), it could mean massive cash flow for the best players.

One of those is EQT (EQT), which made some aggressive moves during the downtimes (a big purchase of Equitrans Midstream that had a couple thousand miles of pipeline running through its acreage) that boosted its industry-leading cost structure (cash flow breakeven at $2 natural gas!), so it should be something of a cash cow for many years even at modest pricing—$4.50 per share or so of free cash flow annually at $3.50 gas, in fact. Like many in the group, EQT has spent the last few months repairing the damage from the prior two years and is now at multi-year highs. Antero (AR) and Expand Energy (EXE) are two other good-looking names; all are a bit short-term extended, but longer term appear to be just starting their moves.

Cabot Market Timing Indicators

The major indexes and broad market have improved nicely over the past week-plus, which has improved our Cabot Tides (neutral but on the verge of a green light) and Two-Second Indicator (very strong action in recent days). Individual stocks are also doing better, though it’s not 1999 out there—all told, we’re putting a little money to work and will follow up on that if the buyers stay at it.

Cabot Trend Lines – Bullish
Our Cabot Trend Lines are still singing the same bullish tune as they have for two years, with the S&P 500 (by 7%) and Nasdaq (by 9%) continuing to hold above their respective 35-week moving averages. It’s fair to say the advance isn’t in the first inning, of course, but there are no time limits for bull phases, and with the long-term trend bullish, the odds continue to favor higher prices in the months to come.

Cabot Tides – Neutral
Our Cabot Tides have improved quickly during the rally, led by the indexes that had been struggling—broader indexes like the S&P 400 MidCap (shown here) were sick for much of December and earlier this month but have stormed higher as the broad market has rapidly improved. At this point, the intermediate-term trend is essentially neutral, but as long as most indexes hold firm (or advance), the lower (25-day) moving average should turn up soon, triggering a green light. We’ll be watching.

Two-Second Indicator – Positive
The Two-Second Indicator has also turned on a dime of late, with the broad market’s upmove bringing the number of new lows down in a hurry—today was the sixth straight day of sub-40 readings (actually, all have been sub-26), which is a strong sign after the multi-week washout seen in December and earlier this month. Given January’s volatility, we can’t rule out further on-again, off-again action, but looking at the here and now, the selling pressures have definitely dried up.

The next Cabot Growth Investor issue will be published on February 6, 2025.

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