June 6, 2024

WHAT TO DO NOW: With the market’s intermediate-term evidence mixed, you should take things on a stock-by-stock basis—holding what’s working but selling what’s not, while holding some cash as we wait for the market and growth stocks to show their hand. Our Cabot and Growth Tides remain neutral and our Two-Second Indicator is iffy, so even though we do see a few tempting names, we’re going to hold our 35% cash position tonight and see if the bulls can step up for more than a few hours. We have no changes tonight.

Current Market Environment

As of 3 pm the major indexes are flat-ish (down 0.1% or so) though many growth stocks are down a bit more (down about 0.5% on average).

We saw some bad action during the end of last week and early this week, though yesterday’s market action was a breath of fresh air, with many growth stocks percolating. All in all, though, the evidence remains about where it was a week ago—mixed.

When looking at the top-down perspective, the long-term trend remains firmly up, and we still expect nicely higher prices down the road. (I’ll be detailing much about that in my upcoming Webinar on June 18 – you can sign up HERE.)

But the intermediate-term situation continues to be stuck in the middle: Our Cabot and Growth Tides are both neutral (indeed, just about everything outside the big-cap indexes has made no net progress for the past three months), while our Two-Second Indicator remains iffy, with greater than 40 new lows nine of the past 11 sessions. As for individual growth stocks, it’s still hit or miss, with plenty of good and plenty of bad, along with a lot of selling on strength and rotational activity.

One amazing stat we saw: Yesterday, the S&P 500 moved to new all-time highs, yet less than half of those 500 stocks were even above their 50-day lines. That’s not predictive of anything, but it tells you about the situation out there.

Now, of course, “neutral” or “narrow” doesn’t mean “bad”—and if yesterday’s growth stock strength can follow through on the upside, the trends may turn up for many indexes and stocks, especially as a lot of stuff isn’t that far from new high ground. We’d also point out that interest rates may have finally changed character, with Treasury rates nosing below long-term moving averages this week.

Thus, it’s still a bull market until proven otherwise, and we certainly don’t advise being too cautious—but we also think it’s best to pick your spots given the washing machine-type action out there among most growth (and other) names.

We had a flurry of activity during the prior two weeks that left us with around 35% in cash. We’d like to put some of that to work, and we very well might in the days ahead—but given the topsy-turvy action out there, we’ll sit tight tonight and see if the market can show some further strength.

Model Portfolio

We sold one-third of our stake in AppLovin (APP) last Friday, and that was mostly a portfolio management-related move—APP was our biggest position and had a solid run since its breakout in mid-February. As always, we hope the sale was a “mistake” and the rest of our still-good-sized position goes a lot higher. That said, like a lot of things, the stock has seen some consistent selling on strength (near 85) during the past month, including today, keeping it range bound. Overall, it acts fine, but having just sold a piece we’ll stay on Hold and see how it goes from here. HOLD

Cava (CAVA) has been wild since its post-earnings surge (low of 75 the day of earnings, high of 95 a couple of days after) and today saw the stock sink back into the mid 80s after some big insider and closely-held shares were put up for sale. Overall, the action is still normal—the 25-day line is below 81—so we’ll stay on Buy, thinking the major uptrend has much further to go and, of course, the long-term growth story is hard to beat given the proven concept and excellent sales/earnings numbers. That said, we’re not complacent and will be watching closely; if you want in, keep it on the small side and/or aim for further dips. BUY

Honestly, CrowdStrike (CRWD) was looking extremely iffy as of a couple of days ago, with a double top on the chart and some severe selling (a volume cluster on the downside) thanks to the cloud software decimation last week. But the company came through with another outstanding quarterly report Tuesday evening that brought in some buying: Not only did sales (up 33%) and earnings (up 63%) both top estimates, but free cash flow was massive (north of $1.25 per share, vs. 93 cents of earnings; free cash flow margin was 35%!) and annualized recurring revenue also lifted 33%. Shares bounced back, and on the weekly chart, CRWD is bouncing back nicely after last week’s dip on “over-the-top” volume (much higher than the shakeout volume), which usually bodes well. That said, with the stock right back up to prior resistance and the environment very mixed, we think it’s best to stay on Hold and see how it goes from here. HOLD

We filled out our position in On Holding (ONON) last Friday, and we’re optimistic we have a good-sized stake in a fresh leader, both technically (shares recently got moving on earnings, and bigger picture, this was coming out of a year-long rest period) and fundamentally (just over $2 billion in revenue compared to $50 billion or so from Nike). Of course, there are no sure things in the market, and a drop back below 35 (failed breakout and crack of the 50-day line) would tell us big investors are dumping—but so far, the evidence looks enticing. We’ll stay on Buy; near-term dips of a point or two should make for decent entries. BUY

PulteGroup (PHM) is still a Hold here, and like so much out there, a couple of very good days could have the stock testing new high ground. That said, our antennae are up as the stock (and the group) hasn’t responded at all to the recent sharp dip in interest rates; frankly, some housing supply stocks are looking pretty bad. Now, you can always find something to worry about, and we view this more as a heads up—having already taken partial profits, we’re fine giving PHM more rope. But we’d expect PHM to find support relatively soon if the stock and the group remain in gear. HOLD

Pure Storage (PSTG) has had some wild action of late, gapping up on earnings before being yanked down by the recent tech-related selloff—but also bouncing back nicely the past couple of days. We think the underlying story here is very much intact, with Pure’s storage offerings (including its subscription services) very likely to see great growth for many quarters to come as AI demand ramps and as the move toward all-flash systems gains steam. Like most names, we half-expect some more near-term wobbles, but if PSTG can hold relatively firm for a few more days we could fill out our position. For now, we hold what we have and leave our Buy a Half rating in place. BUY A HALF

Toast (TOST) has a good story, good numbers, staged a good-looking breakout and had many positive reveals at its Investor Day—but the stock cracked anyway on last week’s market selling and it’s continued lower this week. At some point, TOST is very likely to have a run given all the positive factors, but that time is not now. We sold our half position on last Friday’s bounce. SOLD

TransMedics (TMDX) has churned a bit with everything else in growth land, but volume has been mild and shares are hanging around their 25-day line, so the trend remains solid. While acknowledging this is a smaller-cap name that can move around a lot, we filled out our position last week given the stock’s action and the revolutionary story here that should produce years of rapid growth. We’ll stay on Buy. BUY

Uber (UBER) has shown a little life the past couple of days, with today’s pop mostly thanks to a bullish multi-year view from peer Lyft. We’re not popping any champagne, of course, as shares have only tagged their falling 50-day line from below. Even so, it’s a start, and while the decline has been tedious, it hasn’t violated longer-term moving averages and we believe the free cash flow story here is as good as ever, so we continue to hold a chunk of shares looking for the longer-term uptrend to resume. HOLD

Watch List

First Solar (FSLR): Solar stocks have held their recent gains and FSLR is the liquid leader in the group. A near-term exhale is definitely possible, but we’re thinking a big pullback isn’t likely in the cards despite the huge recent upmove.

Halozyme (HALO): Old friend Halozyme has gone through the wringer for a couple of years, but some certainty on the patent front today—and a hugely bullish long-term outlook—may be a turning point in investor perception.

Hims & Hers Health (HIMS): HIMS went over the falls during the market correction and was looking mostly sick, but news it would add compounded versions of GLP-1 drugs to its weight loss offerings has caused a rush of buying. Sales (up 46% in Q1) and earnings (five cents per share, up from a loss last year) growth remain in fifth gear and this latest move could help further.

Pinterest (PINS): PINS has been around for a while, of course, but a couple of moves (advertising deal with Amazon, increased use of AI for ads and content) has produced a steady acceleration in revenue and user growth—and firm’s multi-year outlook sees margins going wild on the upside. Shares are tight after a strong earnings reaction.

Robinhood (HOOD): HOOD has churned a bit of late but remains right near its highs, which we take as a good thing despite some wobbles in risk-on stocks of late. The big picture here remains bright as the bull market continues.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, June 13. As always, we’ll send a Special Bulletin should we have any changes before then.

Model Portfolio

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