September 26, 2024

WHAT TO DO NOW: Remain optimistic, but pick your spots. The evidence remains more good than bad, and many growth stocks are acting well—that said, the flies in the ointment we’ve repeatedly mentioned are still hanging around and, near term, many stocks are extended to the upside. We’re still leaning bullish, but tonight we’re going to stand pat, holding what we have and seeing how the market and stocks behave in the days ahead. Our cash position remains in the neighborhood of 30%.

Current Market Environment

The major indexes are up on China stimulus news, with the S&P 500 up 0.4% as of 3 pm EST, while the Nasdaq is up 0.6%—though most growth (and other strong) stocks are relatively flat or down today.

Examining the evidence, we continue to see it as mostly sunny, though with a few grey-ish clouds hanging around. Our core market timing indicators are all positive, and the action of individual growth stocks remains far more positive than not; many names continue to act well, including a bunch we own.

That said, a lot of the flies in the ointment we’ve written about of late are still out there: Most growth and other (like small-cap) indexes are still battling with resistance; defensive stocks remain resilient, a sign big investors aren’t fully bullish; and we’ve seen plenty of selling on strength and elevated near-term sentiment—right ahead of earnings season and, of course, the election. We’d also note that, despite the Fed rate cut, long-term Treasury bonds have actually fallen (interest rates have risen) every day since the announcement.

Now, these things aren’t red flags, but they do increase the odds of more shaking and baking near term and that some stocks that have had nice moves could see some retrenchment.

Thus, we continue to lean bullish but are picking our spots and stepping (instead of cannonballing) into the market’s pool. Tonight, we’re going to stand pat with our positions and hold our cash position just above 30% and see if some better entry points emerge among names we’re watching.

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AppLovin (APP) has had a monstrous move in recent weeks, driven by expectations of huge and growing free cash flow as the firm’s advertising engine grabs more market share in mobile games and begins to penetrate the e-commerce field in 2025. Now, the stock is taking a bit of a hit today, and it’s possible that kicks off a larger pullback—but while there’s never any surety, we’re thinking the big-volume breakout and upside follow-through this month, combined with the fundamental story, will mean any near-term retreat/shakeout will find buyers. We’ll stay on Buy. BUY

Argenx (ARGX) was wild this week, mostly in reaction to data released by Amgen for one of its drugs that targets gMG (currently the main disease treated by Vyvgart)—initial worries caused a dip … then mundane results (good for Argenx) caused the stock to pop … before shares were hit again today. For all the movement, ARGX hasn’t gone much of anywhere, sitting in the same range it has been. We obviously are optimistic and like the upside potential here, especially if the stock can decisively break above 550 or so (which could coincide with biotech getting going, too), but a meaningful break of 490 to 500 would be an intermediate-term red flag. Right here, we’ll simply stick with our half-sized stake and see what big investors decide their next move will be. BUY A HALF

Axon Enterprises (AXON) continues to trade well, nosing to new closing highs this week. As we wrote in last week’s issue, the top brass did a couple of conferences earlier this month and analysts seem pleased, with big investors following their lead—AXON has shown next to no big-volume selling since its earnings gap in August. Now, to be fair, the stock’s relative performance line (relative to the S&P 500) actually hasn’t hit a new high since that earnings move two months ago (the stock gapped up just as the market was surging off the August low); combined with round-number resistance (near 400) above here and being a bit extended (50-day line just over 350), we wouldn’t be surprised to see some selling soon. Overall, though, the path of least resistance is up, the uptrend is fresh and the story is big—we’re holding what we own, though ideally, new buyers can get in on dips of a few points. BUY

Cava Group (CAVA) looks fine, actually kissing new price and RP highs last Friday, though we wouldn’t say buying power has been overwhelming. We don’t have any brand new thoughts here—the main trend is obviously up and the story is as close to “the next Chipotle” as there’s been in many years, but shares have had a huge run during the past 10 months and are floating higher. We’re holding what we own and are enjoying the ride, but continue to look for a higher-odds entry point before restoring a Buy rating. HOLD

Flutter Entertainment (FLUT) released a very bullish long-term forecast at its Investor Day this week that buoyed the stock. We’ll have more details in next week’s issue, but the headlines are that the entire company (U.S. and international gambling operations) can see the top line lift at a 14% annual clip through 2027, while EBITDA lifts 28% annually and free cash flow compounds at 36% (reaching $2.5 billion in 2027). Just within the U.S., in fact, Flutter sees EBITDA within its existing states tripling in the next three years! News of a $5 billion share buyback program (to be deployed over the next three to four years) also helped the cause. That said, while the stock has done well this week, it’s extended to the upside (25-day line near 220) and has seen a lot of intraday selling on Wednesday and today. We like the overall action and would like to average up—but we’re going to hold off adding more tonight and see how FLUT does over the next couple of trading days. BUY A HALF

On Holding (ONON) has seen a little stalling action near round-number resistance near 50, but that’s all the sellers have been able to do, as ONON remains perched near new high ground. As we wrote in last week’s issue, this is one of many names that looks to be taking off from a huge launching pad, and the RP line is hitting multi-year highs as well, both of which bode well assuming the market cooperates. We’ll stay on Buy, but as with everything else, some near-term wobbles are possible given the recent advance. BUY

Palantir (PLTR) was officially added to the S&P 500 Monday morning, so we’ll see how the short-term hangover phase goes—with the 50-day line just above 31, some exhaling could occur. That said, we’re more focused on the bigger picture: The action since August looks like a decisive change in character following months of up-and-down trading, with big investors finally convinced (and willing to discount) the firm’s AI platforms are ready for mass adoption. Hold on if you own some, and if you don’t, try to grab shares on dips of a couple of points. BUY

Shift4 (FOUR) is another name that (a) looks fine, but (b) has pulled in a smidge of late even as the major indexes push higher. One reason is the group—many well-known banks look suspect, and payment blue chip Visa (V) has taken a hit after regulatory troubles. Near term could bring some more wobbles, but we like the overall fundamental and technical picture. A drop all the way into the low 70s would be iffy, but right here, the path of least resistance remains up. We filled out our position last week and are staying on Buy. BUY

Watch List

Arista Networks (ANET): Some AI-related names are trying to come back to life, and ANET is one of the best looking, already moving to new highs. The risk here is that the stock has been in a long-term uptrend since early 2023 and volume on this latest move has been light, but there’s little doubt it’s the leader in its field and the AI wave of demand could be enormous.

Blackstone (BX): Blackstone obviously isn’t some sort of emerging blue chip, as it’s the largest alternative asset manager and one of the largest Bull Market stocks with north of $1 trillion of assets. But, to us, that’s a very good place to be for the next few quarters as money becomes looser, and as we wrote in the last issue, the stock has staged a longer-term breakout and is now pulling back normally.

DoorDash (DASH): DASH broke out above low-level resistance a few days ago—and it’s acted great since, moving to new multi-year highs on solid volume. It’s not the young pup it was during the pandemic, but years of steady growth (in both sales and EBITDA) are likely ahead.

Freshpet (FRPT): FRPT stumbled a bit today but continues to act fine overall. It can be a thinner trader, which is a risk if/when news comes out, but this also has one of the more straightforward, long-lasting, reliable growth stories out there.

Samsara (IOT): IOT has had a very hectic past year, which has had us on the sideline, but it’s now had three straight weeks of big-volume buying after earnings. Round-number resistance near 50 and a still-tricky market could cause some short-term wobbles, but we like what we see.

ServiceNow (NOW): NOW had a big shake the past two days on unusual “news”—one of its partner re-sellers (Carahsoft) to the U.S. Army is now under investigation from the Dept. of Justice over price fixing. We consider it a good “test” for the stock; even after the dip, shares are above their 25-day line.

Zillow (Z): Zillow has been solidly profitable during the past couple of years of slow housing activity (thanks in part to a broadening of offerings—rental and mortgage-related revenue make up a quarter of total revenue), and now it’s a classic turnaround situation as the Fed embarks on an easing campaign. Shares staged a big-volume breakout from a year-long base last week.

That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, October 3. As always, we’ll send a Special Bulletin should we have any changes before then.

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