WHAT TO DO NOW: Continue to go slow but keep your optimist’s hat on, while looking for fresh leadership. In the Model Portfolio, we’re repositioning a few things—we’re cutting bait on Bumble (BMBL) and Halozyme (HALO), but we’re adding a half-sized position in Celsius (CELH) and doing the same in ProShares Ultra S&P 500 Fund (SSO). Our cash position will still be a bit below 60%.
Current Market Environment
It was a relatively quiet day on Wall Street, with the major indexes staying mostly range bound. At day’s end, the Dow up 19 points and the Nasdaq up 27 points
The theme of the past few weeks remains in place, as the market’s evidence continues to improve in a step-by-step fashion, with the indexes generally building on gains and with more stocks perking up. We’re pleased to see the number of stocks hitting new lows (our Two-Second Indicator) dry up nicely in recent days, even when the indexes have hesitated; yesterday was the sixth straight sub-40 reading (today looks like the seventh) despite the market’s recent hesitation.
Moreover, the “mini” blastoff indicator we mentioned in last week’s issue did click on Friday (August 12), when north of 90% (actually more than 92%) of S&P 500 stocks closed above their 50-day lines. When combined with a couple important qualifiers (first occurrence in at least six months; S&P has been south of its 200-day line sometime in the past three months), such action has led to bullish things since 1990, with very solid gains three, six and 12 months out, usually with modest drawdown.
Of course, we’re far from throwing caution to the wind—our Cabot Trend Lines are still negative (indeed, many indexes and stocks are bumping up against longer-term resistance and moving averages at this point); the number of new highs remains very modest and, near term, the fact that lots of meme stocks have been popping is usually a short-term negative (a sign speculators are getting a bit greedy).
Overall, though, we’re sticking with the same game plan, selectively buying current/potential growth leaders, though we’re also willing to cut bait with stuff that cracks (many stocks still are).
In the Model Portfolio tonight, we have a few moves—first, we’re going to cut bait with our half-sized stakes in both Bumble (BMBL) and Halozyme (HALO), both of which remain weak and are showing us losses. But we’re also going to start a new half-sized (5% of the portfolio) position in Celsius (CELH) and buy an additional 5% stake in ProShares Ultra S&P Fund (SSO). All told, our cash position will still be around 60% (a bit less); we’ll look to put more money to work if the market’s good vibes continue.
Model Portfolio
We’re adding a half-sized stake in Celsius (CELH) tonight, and we’ve reviewed the reasons in prior issues, including last week’s, as its energy drinks seem like the next big thing in that giant and growing industry, with the Pepsi deal almost surely going to keep growth up for a long time to come. Even though they operate in two vastly different industries, we see similarities between Shockwave and Celsius in that each looks like rare merchandise—there simply aren’t that many stocks that are playing in a mass market, with a proven big-seller that has also just scratched the surface of its potential. As for the stock, it’s extended and volatile; if you want to try to sharpshoot a lower entry, that’s fine, but we’re OK taking a half-sized (5% of the portfolio) stake and using a loose loss limit (low 80s-ish), thinking the next major move will be up. BUY A HALF
Bumble (BMBL) has a good story, and at some point, we think this relatively recent IPO can be a leader—the underlying fundamentals of its Bumble app (as opposed to its overseas-focused Badoo offering) remain fantastic, and the CEO seems like a top-notch stemwinder. But the Q2 report was clearly a dud, with estimates coming down since then, and the stock is showing us a loss. We’ll keep a distant eye on it down the road, as being the leader in a big mass market like online dating should keep growth humming, but right here we think it best to cut bait and look for stronger situations. SELL
Since early July, oil prices have sagged about 10%, but Devon Energy (DVN) and other oil stocks have put on a good show as money rotates back into some commodity areas. It doesn’t hurt that natural gas prices have been stubbornly high, as nearly half of the firm’s output is either liquids or gas, and the firm’s latest acquisitions seem to have helped perception, too, with the most recent boosting cash flow metrics by 10% across the board (that is, at a given set of energy prices, Devon’s free cash flow should be bolstered by 10% from the prior expectations). If you’re in a similar position to us, we’d keep it simple and continue to hold; we’re basically in long-term trend-following mode with our remaining stake. In terms of new positions, it’s trickier—similar to the overall market, we think there’s a decent chance the worst is over, and the recent push higher is a positive … but like so many things, DVN is now in the teeth of tough resistance. If you want to nibble here or on dips, we won’t argue with it, but officially we’ll stay on Hold a bit longer and look for a more solid entry point. HOLD
Enphase Energy (ENPH) continues to battle with round-number resistance near 300, which is something to watch; the failure to rally could open the stock up to some short-term gyrations. Even so, the stock acts just fine—to this point, it’s refused to give up any of its huge post-earnings and post-green energy bill rally, which is bullish, and there’s little doubt that demand for its microinverters, energy storage and even EV charger offerings is going through the roof, especially as energy/electricity prices are elevated everywhere. We certainly can’t rule out some near-term weakness (especially if the market pulls in), but if this rally is the real McCoy, all signs point to ENPH being one of the leaders. BUY
Halozyme (HALO) announced and completed a good-sized convertible (dilutive) share offering this week, which (assuming some people knew it was coming) might have been a reason for the selloff of the prior couple of weeks; shares did bounce after the offering was priced, though they’re again retesting their lows and our half-sized stake is showing us a growing loss. Maybe HALO can reassert itself down the road, as the story seems as solid as ever, but right here it’s clear that big investors are thinking something (maybe the new prescription drug rules in the green energy bill?) is amiss. We’ll cut our position and move on to greener pastures. SELL
There are still headwinds out there for sure, but ProShares Ultra S&P 500 Fund (SSO) has acted as well as could be expected in recent weeks, rising persistently and refusing to give up much ground even when some bad news hits the wires. Moreover, the mini-blastoff measure mentioned above and the action of our Two-Second Indicator are other feathers in the bulls’ cap. As with everything, we can’t rule out a pullback, but given the evidence we’re going to add some shares back to our SSO position—we’ll buy another 5% stake (effectively buying a half-sized position here). For the new shares, we’ll be using a loss limit in the low 50s (about 10% down from here) in case things go awry, but obviously, we’re thinking optimistically. BUY ANOTHER HALF
Shockwave Medical (SWAV) is extended, but this week’s pullback has been modest (and on low volume), which doesn’t surprise us—yes, the valuation is up there, but as we mentioned in the CELH write-up, this firm looks like rare fundamental merchandise, with unique products serving big markets that are producing triple-digit sale and earnings growth … and should keep growing for a long time to come. Similar to ENPH, it’s possible round-number resistance (300) could be a barrier to the stock in the near term, but there’s no doubt the trend is up. We’ll stay on Buy. BUY
Watch List
Albemarle (ALB): ALB is the institutional way to play the lithium boom, which despite some fears, is showing no signs of slowing—especially with EV demand likely to be goosed by the green energy bill. The stock has stormed back to its old highs after a terrific Q2 report.
CrowdStrike (CRWD): CRWD isn’t powering ahead, but it continues to slowly, steadily rebuild the damage from earlier this year. Earnings are due out August 30—a big, positive reaction would be enticing.
Gitlab (GTLB): Gitlab is one of many recent (past year) IPOs that’s bottomed out for months and has gotten a little momentum going, with this week’s pullback sharp but normal. Earnings are due September 6—we really like this story but might wait for the report to see what’s what.
Pure Storage (PSTG): PSTG acts as if every seller has left the building, with a quiet, calm, persistent advance, including today’s move to new recovery highs. Add in the multiple big-volume buying weeks and the firm’s storage-as-a-service offering and we think the stock can finally get moving (it’s been rangebound for years) going forward. Earnings are due August 31.
Wolfspeed (WOLF): Wolfspeed is a leader in silicon carbide chips, whose properties are far better for emerging areas like electric vehicles, solar and wind systems and more. The stock was clobbered during the bear phase, but today’s earnings gap was very impressive, with shares soaring on all-time record volume. It’s not free and clear (resistance in the 110-120 area) but we’re very intrigued.
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, August 25. As always, we’ll send a Special Bulletin should we have any changes before then.
| Stock | No. of Shares | Price Bought | Date Bought | Price on 8/18/22 | Profit | Rating |
| Bumble (BMBL) | 2,769 | 35 | 7/22/20 | 31 | -10% | Sell |
| Celsius (CELH) | New Buy a Half | - | - | - | - | New Buy a Half |
| Devon Energy (DVN) | 2,413 | 28 | 6/4/21 | 68 | 141% | Hold |
| Enphase Energy (ENPH) | 680 | 290 | 8/3/22 | 295 | 2% | Buy |
| Halozyme (HALO) | 1,887 | 52 | 7/7/22 | 43 | -17% | Sell |
| ProShares Ultra S&P 500 (SSO) | 1,705 | 47 | 5/29/20 | 57 | 21% | Buy another Half |
| Shockwave Medical (SWAV) | 457 | 213 | 7/22/20 | 297 | 40% | Buy |
| CASH | $1,256,915 |