Cabot Growth Investor Issue: March 6, 2025

Correction Phase Until Proven Otherwise

Last year was a great one for the market and especially for growth stocks, but there’s no question that, by the time December came around, things were getting a bit giddy—the strongest leading stocks were not just extended to the upside in price (many were 100% or more above their 200-day lines, which is often a yellow flag) but also in time, with most having started their runs 12 to 15 months before. Throw in a bunch of good news and speculative activity (nuclear and quantum computing stocks going bananas, etc.) and things were ripe to cool off.

And that cooling off phase did start normally. After growth stocks hit a big bump in the road in early December, we began a two-month period where some stuff did OK and set up nicely—but there was constant selling on strength in the indexes and most leaders, too. From today’s perspective, that now looks like a distribution phase, as just about everything out there, especially growth stocks, has had the rug pulled out from under it.

As we stand today, our Cabot Tides and Two-Second Indicator are clearly negative, as is our Aggression Index (shown below), which has cascaded as the Nasdaq sells off and money rushes into consumer staples. Simply put, the intermediate-term evidence is bearish, so we’re firmly in a defensive stance—and are content to wait it out mostly on the sideline until the buyers retake control.

Now, as defensive as we are right now, we don’t view this as the end of the world: Near term, there’s no question stocks could (and eventually will) bounce a good amount, and while the odds favor that first bounce running into selling (at least when it comes to last year’s highest fliers; see more on that topic later in this issue), we’re not ruling out a “primary” low being formed in the best stocks relatively soon. In fact, we’re encouraged by how many solid growth stories—many from the medical field) both look early-stage and are acting resilient or pulling back normally (see our watch list for some names).

Eventually, what will come out of this wave of selling is a fresh, higher-odds setup in many stocks and sectors, including in some newer names that can have real, sustained runs for months—the proverbial fastball down the middle—likely when big investors have repositioned their portfolio and some of the world’s uncertainties (tariffs, inflation, etc.) are more settled.

What to Do Now

But until then, the goal is to preserve capital (and confidence!) so that we can best take advantage of that big rally down the road. Right now, though, we’re staying defensive—since the last issue, we’ve sold the rest of our AppLovin (APP) position as well as Duolingo (DUOL), and tonight we’re going to sell our small position in DoorDash (DASH), which will leave us with a cash position of around 78%. When the time is right, we’ll have lots of buying power for the fresh leaders of the next advance, but today, you should keep the defensive team on the field.

Model Portfolio Update

Following, the December top in many glamour stocks, the market never could act quite right—yes, some names pushed higher, but the indexes saw endless selling on strength and many leaders saw the same. While we certainly weren’t bearish during that time, we didn’t do much in the way of buying and never had less than 45%-ish on the sideline. And now, of course, as the market has imploded, we’ve ditched more names and taken partial profits, leaving us with more than three-quarters of the portfolio on the sideline.

From here, we’re open to anything—a good few days of big-volume buying would at least give everything a low to work off of—but odds favor the market and future leaders need time to repair the damage (see more on that later in this issue), so we’re content to hold plenty of cash, pare back if needed (like we’re doing with DASH today) and patiently wait for the next uptrend.

The good news is that, once this mess finishes up, there should be another solid, sustained uptrend that launches names for at least a few months. Thus, we’re focusing on finding earlier-stage names (those that initially got going within a month or two of the market top) that are holding up relatively well—and believe it or not, there are many, some of which are on our watch list. We’d expect the leaders of the next upmove to start revealing themselves en masse in the weeks ahead.

CURRENT RECOMMENDATIONS

AppLovin (APP)—AppLovin was an awesome winner for us, really one of the biggest ones we’ve had in the past couple of decades. And as with many highfliers from last year that have sunk sharply, we do think APP will probably bounce nicely at some point, possibly soon if the market can actually find its footing. That said, after such a huge run and such a giant, massive-volume break off the top (it’s now more than 45% of its peak!), we’re thinking the odds favor the stock’s run is over for many months and possibly longer (though, as always, we’ll simply see how it goes). If you still own a small piece and want to give shares a chance to bounce, we won’t argue with that, but we would say (a) barring a stunningly powerful comeback, we’d consider selling on strength, and (b) if you don’t get a bounce, it’s best to have at least some safety net in place should APP continue to falter. For our part, we took the rest of our big profit off the table last week and are holding the cash, thinking there will be better names to own when the market eventually turns up. SOLD

Argenx (ARGX)—ARGX isn’t perfect, but it continues to hold up well given the environment—yes, it’s been below its 50-day line for most of the past two weeks, but that’s because the stock has moved straight sideways; at this point, it’s “just” 9% or so off its highs, which is miles better than most growth titles. And why not? Vyvgart isn’t likely to see any meaningful pressure from economic worries, and the Q4 report and 2025 outlook were excellent, with analysts now looking for revenues to lift another 58% this year while earnings boom to almost $12 per share, with 2026 likely to bring another round of big expansion ($20 of earnings per share is the early outlook) as gMG and CIDP penetration pick up (thanks in part to the launch of Vyvgart in pre-filled syringes this year, which will expand usage). We’re not complacent given the market, but the longer ARGX can hold up in the vicinity of its highs, the greater the chance it will embark on a meaningful advance down the road—possibly offering a fresh entry point early in a new market uptrend. Still, there’s a ways to go before that; right here, we advise simply holding your position. HOLD A HALF

DoorDash (DASH)—Given the destruction seen in so many names, DASH’s pullback hadn’t been that bad of late, with shares still holding above their 50-day line and, importantly, above the stock’s prior highs (near 180) from the December/January period. But good (or good-ish) stocks can go bad in a hurry in a bad market, as sellers will sometimes come around for stocks that have “meat left on the bone,” i.e., those that have been holding up decently—and we think that’s what’s happening now, as DASH nosedived today on no meaningful news through the 50-day line and into the prior support area. Fundamentally, we think this growth story has legs and won’t be affected by most of the recent worries (tariffs, etc.), so it’s tempting to hold onto our small position to see if/how well it can eventually bounce. But given the extreme weakness in the market and among growth stocks, our thought is to make sure any bad situation doesn’t get much worse, especially should the market continue to unravel. Translation: We’ll sell our half-sized stake here, cutting the loss and holding the cash. SELL

Duolingo (DUOL)—Duolingo’s growth story remains on track, with the Q4 results (sales up 39%, EBITDA up 49%, free cash flow up 84% and coming in near $2 per share) topping estimates, and the outlook was solid, too, with a little deceleration expected this year but still very solid expansion (sales up nearly 30%, EBITDA up 39%). But the company is not the stock, and DUOL was clobbered after the report, cracking support on huge volume, which of course prompted us to sell—and shares have continued to lose another 10% or so since. Of course, DUOL has made some dramatic recoveries in the past (like last summer, for example), and shares are down near their 40-week line, so like many names that have taken a beating, a bounce is possible. But the three-week meltdown off the top has broken the major uptrend and, at best, will likely take plenty of time to repair. SOLD

Flutter Entertainment (FLUT)— Flutter’s Q4 results were released earleir this week, and while they were harmed due to good luck by bettors, that was already well known—and, really, the numbers weren’t bad anyway, with revenues up 14% and EBITDA up 4% from a year ago despite unfavorable outcomes, with huge free cash flow, too. (Pre-2022 opened states continued to grow, up 9% despite poor outcomes, a good sign the sports gambling and online casino market is far from penetrated.) More important, the top brass said 2025 was off to a good start, with neutral sports betting outcomes so far tis quarter (Super Bowl helped offset some not-so-good outcomes in January) and continued solid customer acquisition—all in all, it sees U.S. revenue lifting 23% this year (if you normalize Q4 results) with EBITDA margin likely to expand five full percentage points. (International growth will be slower but still positive, with 6% sales and 10% EBITDA growth this year.) Lastly, the firm began its share buyback program, gobbling up $121 million of stock in Q4 and expecting up to $1 billion in buybacks in 2025 (north of 2% of the current market cap). Of course, even the good news didn’t bring in much buying, and the market’s latest implosion today dragged the stock toward key support in the 250 area. Given our profit and the fact the selling in FLUT isn’t outrageous (the action isn’t good but shares are down 14% from their highs, miles better than much of what’s out there), we advise hanging on here; we still think there’s a solid chance that, once this selling storm in the market ends and big investors refocus on the underlying growth story, FLUT can regain lost ground. Hold for now. HOLD

On Holding (ONON)—On Holding also delivered a very nice Q4 that dispelled notions of any sort of slowdown—in fact, currency-neutral sales growth accelerated to 36% in the quarter as its brand grew worldwide and margins continued to rise (partly due to a 43% boom in direct-to-consumer sales), leading to EBITDA rising 38%—and all of those figures were hurt by a few percentage points due to currency headwinds. Better yet, growth remained well-rounded (currency-neutral revenue growth of 33%, 34% and 125% in Europe, America and Asia, respectively), and its newer offerings (apparel and accessories each grew north of 77%) sold well, too. For 2025, the top brass sees revenues growing “at least” 27% on a currency-neutral basis while EBITDA margins expand a bit. Of course, expectations might have been lowered given the stock’s recent slide, but ONON has found some support near its 200-day line and has bounced a bit this week despite the continued market carnage. Right now, we’re OK holding on to our small remaining position—but the action from here will be key as the stock obviously has more proving to do given the prior selloff. Hold for now. HOLD

Palantir (PLTR)—PLTR has found a little support near the 80 level (near the top of its December/January basing area, which it tested again today)—a small ray of light after a punishing decline. While we never hold and hope because of “good fundamentals” (that’s a recipe for disaster when the market really turns lower), we are willing to give this stock a bit more rope as business is still accelerating (and growth could very well accelerate again in Q1), and in terms of the chart, we’d note that PLTR “only” ran up 28 weeks from its breakout (by our measures) and, so far, it hasn’t undercut the lows of its prior consolidation (unlike things like AXON, APP, CAVA, GEV and other highfliers from the latest upmove, all of which have undercut). Don’t get us wrong: We think the action of late in PLTR is ominous, and if we had a larger position, we’d be trimming here—and we could throw the rest overboard on a resumption of the downmove. But given the support of late and the fact that we’ve already booked three rounds of partial profits, we’ll hold here and see if a stronger bounce can develop. HOLD

Watch List

We’ll likely have an expanded watch list while we’re playing defense, starting this week—we’re looking for names that are holding up well, yes, but preferably are also earlier stage (didn’t run for nine, 12 or 15 months before the recent top) and have a sustainable growth story. Encouragingly, there are more than a few that fill that bill:

• Axsome Therapeutics (AXSM 124): There are a few medical/biotech names that are still acting well, and Axsome is one of our favorites as sales growth and (in 2026) profits ramp. See more below.
• Dutch Bros (BROS 65): BROS staged its initial breakout just last November, so it’s not extended time-wise, and after a big run, it’s pulling back with the market—but reasonably so far, testing its 50-day line this week. We think there’s a good chance the stock etches a fresh launching pad in the weeks ahead that will eventually lead to another sustained advance. See more below.
• Eli Lilly (LLY 913): It likely wouldn’t be our first choice, but we think LLY may have reset their longer-term uptrend, and shares are acting well as the growth story (earnings up 77% this year and 31% next) plows ahead.
• GE Aerospace (GE 196): GE has wobbled of late with everything else, but it’s still above its 50-day line and holding most of its breakout. This is the sort of steady growth story that should do well in a tricky environment.
• GeneDX (WGS 97): WGS has had a huge run, is ridiculously volatile and we’d like to see it have more sponsorship—but it’s hard to ignore the stock’s incredible resilience, thanks to its booming genome/exome sequencing business that can more quickly and accurately diagnose rare diseases. Such testing is very underutilized (meaning less accurate tests are overutilized), but GeneDX dominates (80% of clinicians who order exome testing choose this firm) and the top brass sees that portion of its business lifting at least 30% this year (likely conservative) while analysts see earnings catapulting to 89 cents per share. It’s a hot potato, but we’re intrigued.
• Nutanix (NTNX 71): Old friend NTNX topped in May 2023 and spent the next many months repairing the damage—but now it’s trying to break out despite the weak market. Big customers continue to flock to the firm’s cloud IT platform, and the buyout of VMware (by Broadcom) has some of those clients switching over to Nutanix, too.
• Rubrik (RBRK 59): RBRK is on the back burner for us right now as it’s been straight down with the market, but we don’t view the stock as later stage (the breakout came in October), and we don’t see the recent retreat as abnormal … at least not yet. Earnings next week (March 13) will be key, but we’re still thinking this new cybersecurity story has legs.
• TG Therapeutics (TGTX 35): TG Therapeutics looks like it’s growing up, thanks mainly to a big-selling multiple sclerosis treatment that’s taking market share. See more below.

Other Stocks of Interest

Axsome Therpeutics (AXSM 124)—The group has had an endless number of false starts in recent years, but we’re wondering if the time for medical stocks—biotech and device makers—may finally be getting close, as many are holding up relatively well so far despite the market carnage; our first two stocks on this page look like fresher potential leaders of the next sustained market rally. Axsome is a drug maker focused on central nervous system disorders, and it has a couple of treatments on the market and is likely to have a few more drugs or indications approved in the quarters ahead, too. The main growth driver today is Auvelity, an oral treatment for major depressive disorder, which affects north of 20 million people; without getting into all the details, it mimics the action of ketamine but without the side effects. It’s been a hit, with Q4 sales and prescription growth in the upper 80% range, and the firm thinks peak sales here could be well over $1 billion (vs. $291 million in 2024). Also on the market is Sunosi for wakefulness in adults with sleep apnea or narcolepsy; growth here is milder (up 16% in Q4), and peak sales could be $400 million or so down the road. But there’s also a lot of excitement is about some new drugs. First is Symbravo, for acute migraines ($500 million-plus peak potential), which was approved in late January and should hit the market by the middle of the year. And Axsome is expected to submit three new drug applications in the first half of 2025 alone—one for fibromyalgia ($500 million-plus potential), one for narcolepsy (also $500 million-plus) and one for Alzheimer’s disease agitation, where trials were good-not-great but management thinks it’s still very likely to be approved ($1.5 billion to $3 billion peak potential). Obviously, with so many trials and FDA submissions, there’s event risk here—some bad news could hit the stock, like it did in December when there were worries about the Alzheimer agitation trial results. But the fact is sales growth here is rapid and should remain that way (66% growth in Q4, 60%-plus estimated this year and next) and, while the bottom line is in the red, losses should start to shrink dramatically soon and turn green next year. As for the stock, AXSM made no net progress for more than two years, but it’s changed character since 2025 began, with a strong move to all-time highs and resilient action during the market’s plunge.

TG Therapeutics (TGTX 35)—TG Therapeutics is a name we’ve watched on and off for a couple of years, and after some mostly positive (but very hectic) action, the stock seems to be growing up as its story and potential become more certain. The company’s claim to fame is Briumvi, which is a treatment for relapsing multiple sclerosis, and it does so by blocking CD20 protein (which can cause inflammation and make symptoms worse), making it one of three drugs on the market (the others are sold by Roche and Novartis) that acts in this fashion. These three treatments have shown huge improvements in treating the disease, but it’s looking like Briumvi may be the best out there for a few reasons: First, of course, the results have been excellent (a recent follow-up showed that five years into treatment, 92% of patients showed no disease progression), and the second is ease of delivery; after an initial couple of doses, Briumvi is delivered via an IV every 24 weeks over the course of an hour, which is half the time or less of one competing CD20 drug—and TG is starting trials to allow patients to inject themselves at home with one shot every couple of months (again, less than half as frequent as the competition), with data likely later this year. In the meantime, Briumvi is clearly taking a lot of market share: The product hit the market in late 2023 and ramped to $104 million in sales in Q4, up 160% from a year ago, and the top brass sees sales moving up another 65% or so in 2025, which is likely conservative given their history of lowballing guidance. (One analyst sees peak annual sales north of $3 billion down the road.) Meanwhile, the bottom line is already well into the black and Wall Street sees it accelerating going ahead ($1 per share this year, nearly $2 in 2026). To be fair, this is a one-drug and, at this time, one-indication company, which of course makes it riskier—but TGTX has formed a proper launching pad since early December, and this week’s earnings pop is an encouraging sign, especially in a weak tape.

Dutch Bros (BROS 65)—Dutch Bros is another name we’ve been watching for a while, including having it on our watch list for the past few months; even after a heady run, we think this stock is still early-stage, and the growth story is far from being embraced by everyone out there (a good thing). The firm is known as a coffee shop by many, but it’s really an overall beverage player that gets most of its money from cold (iced) beverages, including many proprietary ones (like its own energy drink) and many seasonal offerings (its Candy Cane Mocha sold 40% more units in 2024 than the prior year!), and it puts an emphasis on quick and efficient service (often with runners that go outside and take your order). The cookie-cutter aspect of the story is big: The firm had 982 locations at year-end, up 18% from a year ago, plans to open 160-plus new shops this year and thinks there’s room for 4,000 locations long term. Importantly, most (85%) of the new openings are company-owned (the rest are franchised), and the firm has put huge time and effort into developing and attracting top-notch talent to run all these new stores. That said, while the store count has always been good, the underlying business had some ups and downs—but thanks to better marketing, improved performance from new openings and a move into mobile ordering (just launched last year; only 8% of orders in Q4 but growing fast), transaction growth is accelerating (Q4’s was the strongest since 2022, and prices are still ticking higher, too), which is helping same-store sales growth (up 6.9% company-wide in Q4 and up 9.5% among company-operated stores) accelerate. (The firm is also positive initial tests in food offerings, which could definitely be another growth angle.) To be fair, 2025 could see a bit of cost pressure from higher coffee prices and wage pressure—EBITDA is expected to rise “only” 15% to 20% this year—but (a) that could easily prove conservative, and (b) the bigger idea here is the years of 20%-plus growth (and faster bottom line growth) coming down the pike. As for the stock, it finally broke out of a huge bottoming effort last November, gapping up on earnings and running higher into last month. It’s definitely been pulling back with the market and probably needs time to round out a fresh launching pad—but we don’t think the action is abnormal and believe another big upside run is coming at some point. BROS remains high on our watch list.

Three Main Thoughts on the Market’s (Former) Highfliers

Obviously, the big happening during the past two weeks has been what’s amounted to a mini-crash in many of the market’s highfliers, names that had gone up many-fold over 12 to 15 months or so (depending on the stock) thanks to excellent stories and growth. Now, of course, many have fallen 30%, 40% or more from their peaks all within a couple of weeks. We have three main thoughts on all of this action, which is something we’ve seen a few times over the years.

First, it’s important to remember the company is not the stock; one is based on real, hard sales and earnings, while the latter is based in large part on investor perception (especially perception by huge mutual, pension and hedge funds). One of the more common messages we get is, “Nothing has changed with the company, so this 30% drop is a great buying opportunity.” Well, sometimes it is, but the question isn’t whether the firm is doing OK, but whether the stock has hit a point of peak perception. Those are two different things.

For instance, look at Nvidia (NVDA), which, since it peaked last June, has reported quarterly earnings growth of 152%, 103% and 71%—decelerating a bit, but analysts expect the year ahead to see the firm post 52% earnings growth. Despite that and despite what was a very bullish growth stock environment, the stock really could truly breakout in the fall and, today, is about 20% lower than it was nine months ago. Perception has faded after a huge run even though business remains in good shape.

The second thing to keep it mind is recency bias when it comes to a stock’s movement—in this case, forgetting where a stock has come from. For instance, a stock that falls from 100 to 70 in short order certainly seems “cheap” … and in some cases, it is. But don’t forget that many of the names we’re talking about were the equivalent of 15 or 20 a year ago, so maybe a drop to 70 isn’t really as “low” as it seems. Said another way, it’s hard to define what exactly “high” or “low” is with a stock; many things that seem high keep rising (that’s where our big winners come from!), while some that might seem low keep falling, or at least have trouble getting going.

And both of those things lead to our third thought, which is something we’ve written about many times (including a month ago after the AI infrastructure group was nailed after the DeepSeek revelations): Following big runs in time and price, huge drops often take time to heal. The reason: It’s very unlikely that big investors were able to sell/trim all the stock they wanted to during just a handful of down days, and thus, usually bail out of shares on any rally attempt in the weeks ahead. Said another way, it takes time for big players to reposition their portfolios out of past leaders and into new ones.

All three of these reasons are why, with the market’s leading glamour stocks, the odds favor (a) some upside testing at some point, possibly with sharp rallies from the lows, but (b) they will likely take weeks or months to round out fresh launching pads. Yes, there are exceptions to the rule—the entire market’s snapback from the 2020 market crash is a good example—but odds favor lots of back and forth once these names find a bottom.

Of course, the good news is that select names eventually they will repair the damage and begin fresh runs. In fact, we’re seeing a few examples of that now from former leaders that hit major air pockets last spring and early summer. One is an old fling of ours: Nutanix (NTNX), which we owned during its smooth ride higher from November 2023 into May of last year thanks to the firm’s all-in-one cloud platform for any-sized business helps save them time and money—and a shift toward a subscription business model led to a boom in recurring revenue and free cash flow. However, the May quarterly report clobbered the stock, leading to a sharp 41% correction … and even after it was able to return to its old highs in November, it slipped once again, continuing its huge base-building effort.

But now NTNX looks proper, with shares tightening up of late and actually staging a modest gap to new highs on earnings last week—frankly, the growth story is very similar now as it was a year ago, with mid- to upper-teens recurring revenue growth, buoyant free cash flow and a steady long-term growth outlook as big firms look to consolidate on a single IT platform, and as Nutanix gets business from VMware (which is going through some changes now that it’s owned by Broadcom). Shares will probably have to wait for a better market environment to really run, but we’re optimistic the next big move is up. NTNX is on our watch list. WATCH

Cabot Market Timing Indicators

After a couple of months of sideways, choppy and tedious action, the sellers have clearly taken control, punishing just about everything out there, with growth stocks keeling over left and right. We had been holding some cash for a while, but have pared back as things have cracked and are content to remain defensive as the market works its way through this correction.

Cabot Trend Lines – Bullish
Our Cabot Trend Lines have undergone three major tests since their buy signal just over two years ago (March 2023, October 2023, August 2024), and now a fourth is at hand—as of today, the S&P 500 (by 1%) and Nasdaq (by nearly 3%) are trading below their respective 35-week lines. For a sell signal, we need both indexes to close two straight weeks south of their 35-week lines (yes, it’s intentionally slow moving), so we’ll be watching Friday’s close to see if this week starts the count. Today, the long-term trend remains technically up, but there’s no question the next week or so will be vital.

Cabot Tides – Negative
Our Cabot Tides were firmly neutral for more than two months, but now they’ve flipped to negative, with four of the five indexes we track (including the Nasdaq Composite, daily chart shown here) clearly below their lower (50-day) moving averages. Of course, the straight-down action of late could easily result in a bounce in the near-term, but with the intermediate-term trend pointed down, we favor playing defense.

Two-Second Indicator – Negative
Our Two-Second Indicator showed a “leaky boat syndrome” three weeks ago, as the S&P 500 tagged all-time highs on February 19, but new lows on the NYSE had been north of 40 seven of the prior eight days—a sign the generals were running ahead of the troops. And we’ve seen the result since, with the broad market selling off sharply along with everything else. We’re not saying it’s the end of the world, but the broad market is clearly unhealthy.

The next Cabot Growth Investor issue will be published on March 20, 2025.

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