February 2, 2023

WHAT TO DO NOW: The market continues to improve its standing, with our Cabot Tides now positive and, barring a meltdown tomorrow, a green light is likely from our Cabot Trend Lines, too. Individual stocks remain trickier, especially on the growth side of things, so we’re not cannonballing into the pool. But with things looking better we’re continuing with our path of putting money to work. Tonight, we’re adding a new half-sized position in Las Vegas Sands (LVS), filling out our stake in Academy Sports (ASO), and putting another 3% position into ProShares S&P 500 Fund (SSO). That should leave us with around 50% cash; we hope to deploy more of that in the days ahead.

Current Market Environment

Stocks were a bit hot and heavy early today, soaring on news of Meta’s earnings but then giving up some gains in the afternoon. At day’s end, the Dow was down 39 points but the Nasdaq was up a strong 385 points on the back of Meta’s earnings report

If you’ve been following the news, things remain dire—the economy could be headed for some sort of recession this year; layoffs among many high-profile firms are hitting the wires every day; the Fed continues to hike rates and says more hikes are in store; and inflation, while having cooled, is still taking prices for many regular goods higher.

But when looking at the stock market, the evidence continues to rapidly improve. First came a successful retest of the Nasdaq lows in late December, with fewer names participating on the downside. Then came the all-clear from our Two-Second Indicator in early January—followed quickly by the 2-to-1 Blastoff Indicator.

And now we see more primary top-down evidence flipping positive: With the major indexes rising above their December peaks, it’s fair to call the Cabot Tides bullish, with the Growth Tides also participating. And, barring a complete implosion, our long-term Cabot Trend Lines should flash a green light at the close tomorrow, flipping to bullish for the first time in over a year.

Now, just to tap on the brakes a bit, individual stocks are still tricky, especially on the growth side of things—more names are definitely acting well, though we wouldn’t say dozens are breaking out yet. Earnings season is just picking up for growth stocks so the next two to three weeks should be meaningful in terms of the market developing some “real” leadership.

Also, after a great start to the year, things are a bit extended in the near-term, which probably contributed to this afternoon’s weakness. We wouldn’t use that as an excuse to avoid buying, but we also wouldn’t throw caution to the wind right here, either.

All in all, there’s no question the action is good news, so we’re putting a bit more money to work tonight.

Tonight, we have three moves.

First, we’re going to buy a bit more ProShares S&P 500 Fund (SSO), as it’s possible a new bull market is at hand; we’ll add a 3% position (3% of the portfolio’s total added to the current stake).

Second, we’re going to fill out our position in Academy Sports (ASO), adding another 5% stake.

And third, we’re going to start a position in Las Vegas Sands (LVS), which is starting to digest its prior upmove.

The Model Portfolio will still have around 50%-ish in cash after these moves; if things remain on track (normal pullbacks in the indexes and stocks, etc.), we’ll aim to put more money to work going ahead. If the sellers reappear, we’ll stand pat and keep an eye on our holdings.

Model Portfolio

We’ll start with Las Vegas Sands (LVS), which is our favorite way to play China’s economic reopening, which itself is something of a follow-on move to the U.S. reopening back in late 2020/early 2021. In Q4, the firm’s results were just so-so, but our biggest takeaway was that Sands was solidly EBITDA positive ($329 million if you adjust for bad luck at the tables) despite the fact that air traffic to Singapore’s closest airport was likely down 30% or so from Q4 2019, while Macau visitation was off more than 80%! Given the travel boom going on in the U.S., we think it’s likely Sands’ bottom line could mushroom in the quarters ahead as China (and other countries) break free from their own cabin fever. As for the stock, LVS isn’t at a pristine entry point, but we like the firm uptrend and the minor dip of late. We’ll start a half-sized stake here (5% of the portfolio). BUY A HALF

Academy Sports & Outdoors (ASO) has finally let loose on the upside a bit, rallying nine of the past 10 sessions to bring the stock to new price and relative performance highs. Some sort of shakeout near-term is possible, partly because of the recent move and partly because of the market’s penchant for yanking down breakout attempts. But we’re looking at the bigger picture and following the plan: ASO is emerging from a very long launching pad and a tight recent consolidation while the market’s evidence is improving. We’ll fill out our position tomorrow. BUY ANOTHER HALF

ProShares Ultra S&P 500 Fund (SSO) has obviously had a good move, and near-term dips are always possible, especially now that people are waking up a bit to the fact the market may be looking ahead to better times. Still, while we’re not big into labels or declarations, the fact is we had a deep, prolonged bear move last year, and now we’re seeing many of the signs typically flashed early in new bull phases, including super-tame new low readings, the 2-to-1 Blastoff Indicator and, most likely, a buy signal from our long-term Cabot Trend Lines. Of course, none of that guarantees an advance, but we’re going to lean positive with the evidence: We’ll add a little more to our SSO position, buying another 3% stake. Said another way, we’ll take 3% of the portfolio’s value and add it to SSO. BUY ANOTHER 3% STAKE

Shift4 Payments (FOUR) has lots of volatility (including today), but all of it is occurring above the 25-day line, and this morning’s pop briefly brought shares to their highest level since November 2021. Like a lot of things, a wobble or two are possible in the near term, but everything from the chart to the story to the numbers suggests FOUR could be a winner. We’ll stay on Buy, though new buyers should keep it small and/or aim for dips of two or three points. BUY

Wingstop (WING) has snapped back beautifully since early January, making the past 12 weeks look like a normal, well-controlled launching pad. The question comes in terms of what to do with our rating, as shares look better and the path of least resistance seems up—but WING is bumping up into resistance (near its prior highs) here, too. All in all, we’ll restore our Buy rating for those that don’t own any, but suggest starting small or looking for dips (maybe back toward 160) if you’re just getting in. BUY

Watch List

ASML Inc. (ASML): It’s not a brand new story, but ASML is king of the hill in the chip equipment field, and after a deep bear phase for the stock, sales, earnings and the chart are all lining up nicely.

Axon Enterprises (AXON): AXON continues to nudge higher, not really breaking out on the upside, but not succumbing to any selling pressures, either. We’d love to play a pullback after a decisive upmove.

Gitlab (GTLB): We’re starting to see some relatively recent IPOs (past year or two) that weren’t overplayed during the prior bull cycle round out bottoms and get going. Gitlab is one of them, and as we wrote last week, it has a great growth story that should play out for many years.

Inspire Medical (INSP): INSP has a great setup on the chart, both long-term and short-term, and we think its sleep apnea solution can become a second gold standard of care in the industry. The tricks here are (a) earnings are due February 7 and (b) the stock can trade very thinly at times. Even so, if we see a strong breakout after earnings, it could grow up and we’d be very intrigued.

On Holding (ONON): As we wrote last issue, On has a shot at being one of the next big consumer brands, with its footwear gaining popularity because of its usefulness as well as for comfort/fashion. The stock remains in a nascent uptrend; no set earnings date has been announced.

Uber (UBER): UBER is rounding out a great, low-level launching pad heading into earnings next week (February 8). With the market looking ahead to a soft-ish economic landing and the firm’s renewed focus on cash flow (EBITDA), we think a good-sized run is possible.

United Airlines (UAL): We know, we know—airlines are anything but traditional growth stocks, and we’re not about to stuff our portfolio with cyclical names. But we see a group move developing in airlines similar to what occurred with a bunch of oil stocks in the early part of last year, and the gigantic current and future earnings figures for UAL and its peers bode well.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, February 9. As always, we’ll send a Special Bulletin should we have any changes before then.