October 24, 2024

WHAT TO DO NOW: The market remains in good shape, though we have seen the indexes and many individual titles exhale a bit of late as many short-term uncertainties (earnings season and the election) and headwinds (rising interest rates) weigh. We’re bullish overall, but are being selective on the buy side—tonight, we’re standing pat, holding our 20%-ish cash position and collection of relatively strong performers.

Current Market Environment

As of 2 pm EST today, the market is modestly positive, with the S&P 500 up about 0.2% and the Nasdaq up 0.6%.

The market has wobbled a bit this week, which, frankly, isn’t a total surprise given some of the short-term uncertainties out there. The first is interest rates, which have been ripping higher; even including today’s dip, the 10-year note yield is up 0.6% in just the past five weeks. Of course, there’s also the election coming up in less than two weeks; near-term sentiment readings have been elevated; and, most important a bunch of growth stocks are reporting earnings in the next two weeks.

When we look at the indexes, we still see positive trends—our Cabot Tides and Cabot Trend Lines are bullish—but the indexes that have been struggling to overtake their spring or summertime highs (Nasdaq, equal-weight Nasdaq 100, small caps, etc.) are still struggling to do so, with some retrenchment this week.

As has been the case for many weeks, individual stocks look better than the indexes—sort of the opposite of what we saw in June/July, when the indexes moved up led by just a dozen or two stocks. That said, many extended names are beginning to exhale a bit in recent days as the indexes consolidate.

All in all, we remain in the same stance: We’re overall bullish and are giving our stocks (even a couple that have pulled into support) room to maneuver, but with many leaders extended to the upside along with the aforementioned headwinds, we’re being selective on the buy side.

Last week, we started a position in Robinhood (HOOD), but tonight we’re going to stand pat with just under 20% cash, seeing how our stocks in the days ahead and hunting for fresh leaders during earnings season.

Model Portfolio

AppLovin (APP) has again extended its advance, this time thanks to yet another analyst upgrade that said all the usual things (the firm’s advertising engine continues its strong performance and is set to enter new verticals next year) but also re-rated his valuation, saying the growth story has been underappreciated and is sustainable. That’s all to the good, but the next real event will be earnings, which are due November 6—given the stock’s run, some sort of negative reaction wouldn’t be shocking (hard to meet what are likely elevated expectations), but there’s no question the big picture (of the stock and business) is pointed up. We’ll stay on Buy, but we advise keeping anything new small this close to earnings. BUY

Argenx (ARGX) moved above resistance last Friday, which plays into our thinking that the stock will head higher over time as investor perception about Vyvgart’s potential (in gMG and CIDP) and future indications rises, becoming a true pipeline in a product. That said, we’re leaving the stock on Hold tonight, as the action, while good, isn’t powerful—shares hit some immediate chop and have pulled in some this week, and we’d note that earnings are due a week from today (Halloween). Don’t get us wrong, we like the action, but we’re looking for more of a character change before restoring our Buy rating and very likely averaging up. HOLD A HALF

Axon Enterprises (AXON) will release earnings on November 7, and like some of our other extended stocks, it’s certainly possible shares could retrench some before or after the report; we’d also note that the 450 round number resistance area may provide some push back. That said, the overall view remains very positive—technically, AXON is “only” 12 weeks out of a fresh base, so it should have gas in the tank (hasn’t been running for four or five months without a pullback), and more and more analysts are coming around to the view that 25%-plus growth (and likely faster EBITDA growth) should be sustainable past 2025 thanks to its leadership position in digital evidence and AI innovations. As with other extended names, we’ll stay on Buy, but we advise keeping new buying small (and/or aiming for dips) ahead of the report. BUY

Cava Group (CAVA) has been very quiet, creeping slightly to new price and relative performance highs on extremely light volume in recent days. Such action isn’t the best—sometimes it leads to a shakeout—but it’s obviously not bad, with perception continuing to levitate. We don’t have any brand new thoughts here: We’ll stay on Hold, looking for some sort of test of support to potentially go back to Buy, though we’re keeping an open mind given the stock’s big run. Earnings are due November 12. HOLD

Flutter Entertainment (FLUT) has acted better following its sharp, U.K. tax-induced selloff two weeks ago, holding north of its 50-day line (near 224) and the spike low (around 218)—though there hasn’t been much buying, either, with shares mostly moving sideways after an initial bounce. As we always do, we’ll play it by the book here—a drop into the 210 to 215 area would be a red flag and might have us trimming or simply moving on entirely. That said, we still think the most likely scenario is an upside resumption in the days or weeks ahead, driven by the underlying growth story and the stock’s big base. We’ll stay on Buy, though we’re remaining flexible to see what comes. BUY

On Holding (ONON) remains on the edge when looking at the short- to intermediate-term—the stock has faded down to its 50-day line and has been unable to bounce much, though the decline is certainly within reason and volume has been very light. The fear is if the market pulls in that ONON could crack its intermediate-term support area, but we try not to anticipate things; remember, this isn’t a go-go stock, per se, so these dips and tests have been a normal part of the stock’s character. All told, if the stock drops much from here, we’ll change our rating and put in a mental stop to protect some of our modest profit—but right here we’ll stay on Buy, thinking this dip will prove to be a pause that refreshes. Earnings are probably out in three weeks or so. BUY

Palantir (PLTR) has hesitated with the Nasdaq during the past few sessions but remains perched near its highs. The firm did strike a partnership with defense outfit L3 Harris yesterday that got some hubbub, with the two firms looking to place top-notch hardware and Palantir’s AI platform with more military groups, as well as to boost L3’s own digital operations. The next big event is November 4, when the Q3 report will be released; PLTR has certainly earned the right to pull in if it wants to, but as always we’ll just see what comes. Right now, with the stock acting fine, we’ll stay on Buy, but as with many other names, new buyers should keep it small ahead of earnings. BUY

Robinhood (HOOD) will release its quarterly report next Wednesday, October 30; analysts are looking for revenues to gain 40% while earnings come in at 18 cents per share (up from a loss a year ago), but just as important will be updates on deposit growth and trading activity heading into Q4. We added a half-sized position last week, thinking this Bull Market stock should do very well as big-picture sentiment (and the market itself) heats up. We’ll hold what we own and are OK starting a position here or on dips of a point or so as we see what next week brings. BUY A HALF

Shift4 (FOUR) has eased over the past couple of weeks on light volume toward its 25-day line; some weakness in the financial and payments group (possibly spurred on by higher interest rates) isn’t helping. Even so, the uptrend looks fine and the firm continues to ink deals, the latest announcement being with Monumental Sports (which owns the Capital One Center in Washington, D.C., home of the Wizards of the NBA and Capitals of the NHL), where Shift4 will run all of their payment operations. Earnings are likely out in early-ish November but there’s no set date yet. If you don’t own any we’re OK grabbing some shares around here or on dips of another couple of points. BUY

Watch List

Arista Networks (ANET) or Coherent (COHR): We still see some AI-related money flowing into areas other than chip stocks, with a few networkers benefiting—some are more established (like ANET) and some are fresher breakouts and turnarounds (like COHR) but all act properly. ANET’s earnings are due November 7, while COHR will report a day earlier.

DoorDash (DASH): DASH continues to act well, stretching to new highs of late before a very modest pullback the past two days. Earnings are out next Wednesday (October 30), which will obviously be key to the intermediate-term trend.

ProShares Ultra Russell 2000 Fund (UWM): Small caps tested key resistance again last week … and have backed off, egged on by the rally in Treasury rates, which continue to take off. Still, UWM is well within its base, so we’ll wait a bit longer to see if it can attempt a major breakout.

Rubrik (RBRK): It’s less well-sponsored because it’s a recent issue, but we love this story and this week’s dip, while sharp, isn’t out of the ordinary.

Samsara (IOT): IOT has been sloppy of late, but it hasn’t done anything wrong at all and is trying to bounce off its 50-day line. If it can hold here the odds favor the next major move being up.

Zillow (Z): Z has pulled in to its 50-day line, which isn’t ideal, but it’s not bad at all given the surge in Treasury rates. Much more weakness from here would have us looking elsewhere, but we still think Z could be a winner once rates calm down and money flows into the broader market.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, October 31. As always, we’ll send a Special Bulletin should we have any changes before then.

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