February 27, 2025

WHAT TO DO NOW: Remain defensive. While there’s a chance the recent selling storm could be the final shakeout of this two-plus-month consolidation, the fact is the intermediate-term evidence (both top-down, and among many growth stocks) is now negative, with a lot of damage done to leaders. We’ve been holding a lot of cash for weeks but have pared back further, selling our remaining AppLovin (APP) stake on a special bulletin yesterday, leaving us with a 65% cash position in the Model Portfolio. We have no changes tonight but are remaining flexible (buy or sell) for whatever comes next.

Current Market Environment

Stocks bounced initially today, but by the afternoon, sellers were back at it, leaving the market with good-sized losses—near the close, the S&P 500 was off another 1.3% and the Nasdaq was down 2.7%.

We wrote most of our thoughts in yesterday’s special bulletin, so we won’t repeat all of that here—suffice it to say that, after a big 2024, the past two months now look like a distribution phase, with the sharp break from growth stocks since then cracking many intermediate-term (and some longer-term) uptrends. Right now, both our Cabot Tides and Two-Second Indicator are negative, and the latest slide has pushed our key Aggression Index to the bearish side of the fence, too. Thus, we advise caution, especially when it comes to growthy titles.

Looking ahead, the odds favor that growth stocks will require time to heal the damage—that doesn’t mean bounces won’t occur (they will), but for many names that suffered a few days of huge-volume breaks after huge multi-month runs, it’s likely that big investors haven’t been able to cut back as much as they’d like, so they’ll trim into rallies.

Now, as always, we are keeping an open mind: There’s always a chance this recent selling storm will prove to be a final shakeout to what’s been a tedious two months. After running some screens the past two days, there are still a good number of growth names that (a) are holding up well, and (b) initially started their runs within the last few months or recently “re-set” their advances with deep corrections, and we have many of them on our watch list.

We’d also mention our Cabot Trend Lines are still bullish, Treasury rates are coming in and, while not panicky, sentiment has waned over the past couple of months, so big picture, there are some encouraging signs.

But for the here and now, the burden of proof is obviously on the bulls. We never got aggressive since mid-December, with at least 45% in cash, and as growth stocks began breaking down, we’ve pared back further, holding about two-thirds in cash in the Model Portfolio. A few good days from here with strong action from growth stocks could have us nibbling, but right here, we’re content to stay defensive and see how the correction plays out while keeping our watch list up to date. Tonight, we have no changes, but we do have a couple of stocks on the edge. Details below.

Model Portfolio

AppLovin (APP) was one of our bigger winners during the past couple of decades, but we decided to sell our remaining chunk yesterday after the stock was clobbered following a couple of short reports that accused the company of various shenanigans. Near term, the stock could move on accusations and rebuttals (the CEO released a detailed statement shooting down the reports, and some analysts came to the stock’s defense this morning), so if you still own a small amount and want to give it some rope, that’s fine. But our bigger thought is that, after breaking out near 90 and running to 525, the extreme break since very likely marks a top—bounces (possibly sharp ones) are obviously possible, but it’s looking like the run is over. Of course, we had sold chunks many times on the way up (we were holding just 15% of our original shares coming into this week), but we think there will be better names to own once the market begins a fresh, sustained uptrend. SOLD

Argenx (ARGX) is trying out there as business remains in fine shape, as was seen in this morning’s Q4 report: Product sales were $737 million, in line with the pre-announcement in early January and nearly twice that of a year ago, while the bottom line looked healthy (though it was hard to get an exact earnings figure given some one-time items in the report). Still, the top brass said it expects costs to rise 25% this year, which is far slower than likely revenue growth (37%, which is likely conservative), and it sees a few new add-on approvals revolving around pre-filled syringes (for gMG in Europe and U.S.; for CIDP in Europe; and for gMG and CIDP in Japan and Canada) while it also advances its broad pipeline. Shares gave up most of their morning gains, but they did show relative strength today and, overall, ARGX is just a few percent off all-time highs. We’ll continue to hold our small stake. HOLD A HALF

DoorDash (DASH) is obviously down from our initial buy, but we think it’s acting normally—the pullback off the top wasn’t fun, but shares never touched their 50-day line and remained north of their prior consolidation (near 180) before bouncing back fairly well the past two days. Of course, if the market tanks from here, all bets are off, and a drop under 180 would be hairy. But so far, DASH is acting decently and, if the market can hold up, we think the stock will do well. Assuming you have a lot of cash on the sideline, we’re OK with a small Buy here if you don’t own any, albeit with a mental stop near 180. BUY A HALF

Duolingo (DUOL) is another name we own that hasn’t escaped the selling, but it’s acting somewhat normal so far, holding north of its prior highs (near 380) and the 50-day line (near 360). Still, tonight will be key, as Duolingo will report Q4 results: Analysts are looking for sales to lift 36% and earnings of $1.09 per share, but of course the outlook will be key, as will any hints of success of the music and math tests going on and what impact AI integrations are having. Obviously, the report brings risk, especially in this environment, and we could be forced to sell if the reaction is lousy—but we still think Duolingo has great potential as a one-of-a-kind offering that should grow rapidly for years to come. We’ll officially stay on Buy but will have an update if need be after the report. BUY

Flutter Entertainment (FLUT) is another name that’s taken on plenty of water, but it found support in its prior basing area and has bounced the past couple of days; shares are about 9% off all-time highs, which isn’t bad in this environment. By all accounts, business here remains solid, and the Super Bowl data (bets up 19% on FanDuel vs. a year ago), as well as a solid outlook from peer DraftKings (DKNG), backs that up. Still, Flutter’s own Q4 report and outlook is coming next Tuesday (March 4) after the close—if it can get through in one piece, we think shares will be in a good position to head higher once the market correction finishes up, but as always, we’ll take it as it comes. Given the stock’s action and our profit, we’ll stay on Hold. HOLD

On Holding (ONON) is one of our weaker remaining names; we sold half our stake a couple of weeks ago, and if we didn’t already have two-thirds of the portfolio in cash, we might have let the rest go. That said, shares are right down to the 200-day line (give or take) here and many fears (like tariffs) are already well known; with the quarterly report coming next week (March 4, before the open), that could refocus investors on the underlying business and outlook, as well as give the top brass a chance to respond to tariff fears. We’ll continue to hold our small position tonight, but support should appear soon. HOLD

Palantir (PLTR) was one of the biggest growth stock winners in recent months, so it’s not a surprise that it’s been one of the hardest-hit names during the past week, falling quickly down to its 50-day line and near its prior (pre-earnings gap) highs in the mid-80s. Honestly, the action is ominous—the multiple days of big-volume selling along with many leaders after a huge run can often be a witch’s brew, and the fact that PLTR (along with the Nasdaq) hasn’t been able to bounce at all isn’t ideal. That said, we recently sold another chunk when shares first started to get hit, and PLTR is now in an area of support—and, of course, let’s not forget that business here is not just growing but still accelerating, which could easily re-attract many institutions if/when the market stabilizes. We’ve already sold 70% of our initial stake, so we’ll continue to hold the rest for the moment and, like many other names, see if it can bounce (and if so, how well). HOLD

Watch List

Axsome Therapeutics (AXSM): AXSM is a smaller-cap firm that’s already doing good business with two drugs on the market—and its offerings are set to expand going ahead, with one new drug already approved, another new drug submission in March and two more later this year, all of which have big potential. Earnings are in the red for now, but sales are rising more than 60%—and should continue to do so through at least 2026.

Doximity (DOCS): DOCS originally got going last August, so while not completely early in its run, it’s not late stage, either—and more important is the resilient stock, unlike many recent earnings gappers. The firm’s portal for health care professionals dominates the industry, and business is strong. Shares have been pulling back of late but remain in a solid position.

Dutch Bros. (BROS): BROS got going from a huge bottoming formation “only” last November, and while it’s taken some lumps of late, it looks fine overall. A bit more of a rest and an improved market could set up a nice entry point.

Eli Lilly (LLY): LLY had a giant run, of course, but the action of the past few months may have re-set things—shares have been base-building since July, undercut months worth of lows (no net progress for 11 months as of January) and are now perking up … all as growth remains in fifth gear.

GE Aerospace (GE): GE isn’t a go-go name, but its reliable growth story (built mostly from commercial jet engines) should see free cash flow kite higher for many years. Shares got going last month after an eight-month rest period.

Penumbra (PEN): Penumbra has emerging blue chip written all over it, with new devices for vascular blockages (including in the brain after strokes) that are taking big share in the U.S. and elsewhere. Sales are growing slowly but steadily (low teens) but margins are surging and earnings are likely to lift 30% or so each of the next couple of years.

Rubrik (RBRK): RBRK has taken some lumps, but it’s above its January low and should still be early-ish in its overall run (original breakout last October). Earnings are due March 13.

Shopify (SHOP): SHOP never really could get going on the upside, but while it’s taken some lumps, it’s not doing that badly—it’s still in a position to get going if the market can find support.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, March 6. As always, we’ll send a Special Bulletin should we have any changes before then.

Model Portfolio

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.