November 7, 2024

WHAT TO DO NOW: Remain bullish. The market has reacted well to the election and took today’s Fed decision in stride; both of our trend-following indicators are bullish and leading growth stocks remain in good shape. Today, we took partial profits in AppLovin (APP) via a special bulletin after it went vertical on earnings. But tonight, we’re putting that and a bit more money back to work via two new positions—starting half-sized stakes in Samsara (IOT) and the ProShares Ultra Russell 2000 Fund (UWM), leaving us with a cash position around 18%.

Current Market Environment

The market did well again today—near the market close the S&P 500 was up 0.8% and the Nasdaq was up 1.5%.

If you were craving news events, then this has been your week, with the presidential and congressional elections and the Federal Reserve today (cutting short-term rates by another quarter point). But more important than the actual news or election results is the market’s reaction—and so far, the action has been great, with a big up day yesterday and most stocks acting well today, too.

Better yet, our indicators have improved nicely—after a test last week, our Cabot Tides are clearly bullish, along with our Cabot Trend Lines, and our Aggression Index has strengthened nicely, too. The Two-Second Indicator is less pristine, though today was a big improvement as Treasury rates fell.

Meanwhile, individual stocks have done great—while earnings season has had a few potholes, there have been many positive reactions, including a few during the past two weeks that have been massive on the upside. Now, it’s possible some of this action is a bit euphoric, as many stocks have been running for two to three months at this point, so we’re keeping our feet on the ground. Still, up is good, and the action is positive.

In the Model Portfolio, most of our stocks are acting great—though, to be fair, we still have some earnings reports to get through, so we’ll see how it goes. In a special bulletin this morning, we sold one-third of our stake in AppLovin (APP) after it went vertical following earnings last night.

However, on the buy side, we are making a couple of moves: We’ll start half-sized positions in Samsara (IOT) and the ProShares Ultra Russell 2000 Fund (UWM). All in, we’ll have a cash position in the 18% range, and we’ll aim to put more money to work should the good vibes continue.

Model Portfolio

We’ve written about Samsara (IOT) a handful of times over the past year, and frankly, we think the odds of the growth story playing out are very, very high—the firm’s platform for clients with huge numbers of physical assets saves tons of time and money, to the point where it usually sells into a customer’s operations budget, which is far more steady than the tech budget. Growth has been rapid and reliable, and after more than a year of super-tedious ups and downs, IOT’s three big-volume weeks after earnings in early September are a sign the stock’s character has changed. More recently shares have consolidated for a few weeks on light trade but are now bouncing back. All in all, we like the story, numbers and chart here—and think it’s a solid risk-reward situation. We’ll start a half-sized stake here (5% of the portfolio) with a loss limit in the 44 area. BUY A HALF

We tried our luck with the ProShares Ultra Russell 2000 Fund (UWM)—which moves twice the small-cap Russell 2000 Index each day—back in July with a half position, but that didn’t work, with the breakout attempt in small-cap names failing. But we’re giving it another go, thinking the post-election rush higher could be the real deal, especially with the Fed easing again today (usually good for small caps) and a longer-term breakout (from back in 2021) in the cards. A drop back to 43 or so would probably tell us that the rug has yet again been pulled out, but we think the risk is worth it—especially for a smaller position. We’ll buy a half-sized (5% of the portfolio) position and look to average up if the bull move continues. BUY A HALF

AppLovin (APP) reported another fantastic quarter last night that, as mentioned above, sent the stock into orbit: Total sales lifted 39%, led by the advertising engine, where revenues boomed 66%, while total EBITDA rose 72% (up 79% in the advertising area), both of which obliterated expectations. Moreover, on the call, the top brass said it still expects 4% to 5% sequential quarterly growth in advertising, with “occasional step changes resulting from enhancements to our (advertising engine) algorithm.” (Translation: Just from online gaming alone, 20% to 30% top-line growth is possible.) As for the move into e-commerce, all the tidings are good, though to be fair, that remains a 2025 story.

The stock went bananas today, which is obviously a good thing, and as we wrote in today’s special bulletin, APP is “only” nine weeks into its post-breakout move, which should (no guarantees) be too soon for a major top. That said, we’re also keeping our feet on the ground, as the stock was well over 20% of our portfolio and of course, the name is very extended to the upside. Thus, we decided to take partial profits, selling one-third of our position on today’s rally—putting a good profit in our pocket but also leaving us with a good-sized position for what ideally will be higher prices over time. SOLD ONE THIRD, HOLDING THE REST

We’re close to averaging up on Argenx (ARGX), but we’re holding off a bit longer as some drug firms are seeing post-election volatility, probably based on fears the new administration could get tough on the sector. We’re not overly worried about that, and if you didn’t own any, we’re not going to argue against a small buy here—but we’ll officially stay on Hold, looking for a bit more strength (above 600 ideally) to tell us the stock is truly ready to move. HOLD A HALF

Axon Enterprises (AXON) looks great, pushing to higher highs this week on good volume, even moving above round-number resistance near 450 in the process. That said, the firm will report its quarter tonight, which will obviously be big: Analysts see revenues up 27% and earnings of $1.20 per share, but EBITDA will be important, along with forward-looking measures (annualized recurring revenue, money under contract) and any tidings on the success of its newer AI-enabled Draft One offering (including any follow-on order effects). Given the run, some sort of wobble is definitely possible (the 50-day line is down near 420), but we’ll see what comes—with the evidence bullish, we’ll stay on Buy but will update you if need be in the days ahead. BUY

Cava Group (CAVA) continues to act just fine, with a near-test of its 10-week line last week before rallying back in recent days. If you want to be critical, you can say that shares have been losing a little steam, but the trend is up and, besides, the big event comes next Tuesday (November 12) when earnings are due: Wall Street is expected sales to rise 33% and earnings of 11 cents per share, but same-store sales and other tidings will probably affect perception just as much. As always, we’ll take it as it comes—after such a big run over the past 11 months, we’re not ruling anything out, but there’s no question that Cava’s growth story is special, so we’re optimistic many big investors are still eager to build positions. HOLD

Flutter Entertainment (FLUT) has essentially built a base (between 220 and 250) on top of its prior base (which lasted for 15 months) and remains in position to get going. Indeed, the stock has again bounced off its 10-week line, bolstered by the market and some minor good news on the gambling front (Missouri passed a referendum on Tuesday) that should present a solid opportunity. Still, our game plan remains the same: A drop much below the recent lows could have us selling (at least going to Hold), but we still think the odds favor an eventual upside breakout. BUY

On Holding (ONON) sold off a bit yesterday (likely on fears of a stronger U.S. dollar and possible tariffs) but rebounded nicely today on higher volume. The show of support is a good sign, and overall, ONON has been consolidating in a relatively tight range (46 to 52) in recent weeks. Next Tuesday’s (November 12) quarterly report will likely tell the tale, though—sales are expected to rise 34% with earnings of 24 cents per share—with a positive reaction likely starting a new leg up … while a dive back to the original breakout (43 or so) would be a bad sign. We went to Hold last week and we think staying there makes sense. HOLD

Palantir’s (PLTR) story is rounding out as expected, with perception coalescing around it being the go-to provider of complex AI platforms for any big firm, organization or government entity out there. In Q3, revenue growth accelerated again, rising 30%, while earnings of 10 cents per share were up 43% and topped estimates by a penny. But it was the sub-metrics that wowed: U.S. revenue boomed 44%, with a 40% gain in government and 54% increase among commercial clients, while the overall customer count grew 39% and free cash flow came in at $435 million (nearly double net income)—just about all of which exceeded expectations. Shares popped nicely the day after the report (Tuesday) and then rallied further yesterday, too. Yes, the stock is extended price-wise here, but like a lot of names, we don’t think it’s very extended time-wise, with the “real” kickoff occurring in mid/late August. Don’t get us wrong, some shaking and baking is possible, so we’ll stay on Buy, but new buyers should keep it small and/or aim for dips, possibly toward the 50 area. BUY

Shift4 (FOUR) had a reasonable pullback during the past two weeks to the 90 area and its 10-week line, but it rallied very strongly (biggest daily volume since mid-August) yesterday. Thus, the stock looks good now, and stepping back, we think that, after more than a year of ups and downs, investor perception has changed here, with the story (especially its leading position in hospitality and stadiums) and numbers causing investors to hop in. That said, FOUR will report earnings next Tuesday (November 12), which will tell the tale—we’ll stay on Buy, but keep new positions small this close to the report. BUY

Watch List

Astera Labs (ALAB) or Credo Labs (CRDO): ALAB, CRDO and some other networkers (ANET reports tonight) look great, as some AI money is now flowing into other infrastructure names. Both are extended in price but not time from their latest breakouts.

DoorDash (DASH): DASH continues to plug ahead, working on its ninth week up in a row. The next pullback should offer a good opportunity now that earnings (sales up 25%, EBITDA up 55%) are out of the way.

Duolingo (DUOL): DUOL reported solid results last night (sales up 40%, earnings and free cash flow well above estimates), and while the stock wobbled a bit intraday, it continues to act well. We like the unusual comeback seen after the May-August drop.

Rubrik (RBRK): RBRK looks great, extending its upside breakout in recent days. We think the stock quacks like a new leader in the cybersecurity space

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, November 14. As always, we’ll send a Special Bulletin should we have any changes before then.

Model Portfolio

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