What To Do Now: Remain optimistic. Some indexes and stocks have hit a bit of turbulence of late, and with earnings season still in full swing, the potential for further wobbles is certainly there. But our market timing indicators are still positive and the action of leading stocks remains very solid, so we’re staying mostly bullish. Ideally, we’ll put some money to work in fresh earnings winners going ahead, but tonight we’ll stand pat with our 24% cash position and current crop of stocks. We have no changes tonight.
Current Market Environment
The major indexes are having another good day, and this time so are most leading growth titles. As of 2 p.m. ET, the Dow is up 180 points while the Nasdaq is in the green by 179 points.
From early October through the start of this week, it was smooth sailing for the major indexes, most of which marched steadily higher with pullbacks restricted to just a few hours. Leading growth stocks did even better, with most racing back toward their highs and some names soaring, showing abnormally positive action. All in all, the three weeks from the October low went about as good as the bulls could have hoped.
This week, though, we’re getting some (not unexpected) potholes. Some of that is due to earnings season, which, as we wrote in the last issue, is always capable of changing a stock’s playing field. Other hiccups have been more organic, with profit taking setting in after big runs.
All in all, we’re comfortable with our current stance—the evidence has definitely improved, especially among growth stocks, which is why we’ve put cash to work in the past couple of weeks; we think we own some real leaders in the Model Portfolio. That said, there are still a decent number of crosscurrents out there, not to mention plenty of stocks still battling with prior highs and have earnings reports coming in the next few days.
Going forward, if a bunch of names get clonked on earnings, we’ll adjust as needed, but our aim is to latch onto some fresh earnings winners should they emerge in the weeks to come. Tonight, though, we have no changes and will sit tight with our 24% in cash and current crop of stocks.
Model Portfolio
Ambarella (AMBA) is off to a good start for us, extending higher as the market has come alive. Helping the cause are some big auto makers (including Ford and Volkswagen) saying the chip shortage is easing; that doesn’t directly impact Ambarella but as overall production grows, so should demand for its computer vision chips. On the M&A front, the firm is buying a company named Oculii, which offers radar imaging products that boost resolution up to 100 times; once integrated into Ambarella’s chips, it should boost its positioning and broaden its target markets (even into robotics). If we see a controlled dip or a rest period in AMBA, we’ll likely look to fill out our position (earnings are likely out in late November), but tonight we’ll stick with our Buy a Half rating. BUY A HALF
Asana (ASAN) hit a pocket of turbulence on Tuesday, but never came close to even its 25-day line (now near 116 and rising) and has stabilized over the past couple of days. As with every name, we’re not complacent, and if the selling pressure intensifies we’ll be on top of it. But right now the software sector is still in good shape, and there’s plenty of buying going on in the work management slice of the industry (where Asana is the leader). We averaged up last week, buying another 3% position, and are holding on to what we own. BUY
Cloudflare (NET) continues to act fine, with dips so far lasting just a day or two before the buyers reappear. To be fair, we are staying even keeled here—having ridden through an iffy correction in late September and with earnings due out next week (November 4), we’re contemplating taking partial profits ahead of that event. But for now, we’re reminded that the most bullish thing a stock (or market) can do is go up, and NET is obviously still doing a lot of that. Thus, we’ll stand pat, though if you want to buy, aim for dips and keep new positions small ahead of earnings. BUY
CrowdStrike (CRWD) looked like it wanted to get going earlier this week after deepening a relationship with Amazon Web Services, but that move disappeared as growth stocks sold off. Still, overall, we view these ups and downs as normal, and fundamentally, there’s little doubt demand for its Falcon platform (both from expansion among its 13,000-plus clients and bringing new logos onboard) will soar going forward. Hold on if you own some, and if not you can pick up shares around here. BUY
Devon Energy (DVN) has now had four one- to three-day pullbacks since early October, but so far, not much damage has been done; indeed, the stock is still hanging around the 40 level as its moving averages (25-day line is now up to nearly 39) catch up. Obviously, a dip in oil prices or some sell-the-news reaction to earnings (due out November 2) isn’t out of the question, but the odds favor Devon’s tremendous cash flow story and huge four-week, big-volume breakout leading to higher prices. We’re OK starting a small position here or on further dips ahead of earnings. BUY
Dynatrace (DT) got slapped around yesterday after its Q3 report, but there was a lot to like in the numbers and what management said in the call. In the quarter, annualized recurring revenue (ARR, the key metric for investors) rose 34% in constant currency terms, and that includes some drag from the lingering effects of the company’s shift to a subscription-based model. Earnings of 18 cents per share were up 13% (two cents above expectations), while the top brass said it’s comfortable with 30%-plus growth in ARR for many years as new firms sign on (new client adds were up 20% from a year ago) and current clients use more services (14th straight quarter of 20%-plus same-customer revenue growth). So why the selloff? Possibly some confusion about the ARR guidance, which was a bit light but mostly due to currency headwinds. Encouragingly, DT bounced back decently today and is back above its 50-day line, which has offered support during its post-May run.
All in all, we think DT still looks like rare fundamental merchandise, with rapid and reliable growth due to long-lasting tech trends and a best-in-class platform for large customers transitioning entire operations to the cloud and app worlds. Chart-wise, the uptrend is still intact, though obviously that bears watching. On the downside, we’re likely to use a mental stop near our cost basis (66 or so) in case the selling pressures pick up again, but right now, we’re thinking optimistically, leaving our Buy rating intact and thinking this post-earnings dip will be a short-term shakeout within a larger uptrend. BUY
Floor & Décor’s (FND) has earnings out a week from today, which will obviously be key, but we’re impressed with the stock’s action (holding the vast majority of its recent upmove), the action of larger peers (both Home Depot and Lowe’s look great) and the continued spate of new warehouse openings (two more coming this week). The big questions will concern any supply chain issues and when growth will reaccelerate after some tough second-half comparisons this year. In terms of the stock, we’re willing to give FND some wiggle room—it’s a two-steps-forward, one-step-back sort of actor, as are many cookie-cutter plays—but we’ll see what comes. Just going with the evidence today, FND looks great both technically and fundamentally, so we’ll stay on Buy, but as always, keep new buys on the small side this close to earnings. BUY
ProShares Ultra S&P 500 Fund (SSO) continues to look just fine, nosing to new highs a few days ago and notching fresh closing highs today. Near-term, the quick turnaround in sentiment (gone are the worries about inflation, debt ceilings and the rest) tells us some sort of hesitation/rotation/pullback is growing more likely, but we also hesitate to read too much into every wiggle in sentiment measures (not very reliable). More important to us is the continuing uptrend and the sharp upmove following the one-month correction. Hold onto SSO if you own some, and if not, we’re OK buying a stake here or on dips. BUY
Watch List
Affirm Holdings (AFRM 159): AFRM has hit some resistance near 160, and ideally that leads to a buyable pullback. The buy-now, pay-later leader continues to sign up huge players (American Airlines is the latest) and looks like the leading glamour name in the market.
Coinbase (COIN 313): Coinbase is the NYSE or Nasdaq of crypto, and the stock has come alive since a multi-month, post-IPO bottoming out process. The real question is whether shares will simply be tossed around with wild crypto moves, or whether more big investors (378 funds own shares) will build core positions.
Dexcom (DXCM 556): DXCM looks just fine but has earnings tonight. A reasonable reaction could be buyable.
Snowflake (SNOW 347): SNOW is marching ahead on low volume—it’s sort of in no man’s land on the chart, though the growth story is compelling so we’re content to keep watching.
Wingstop (WING 168): WING doesn’t look great here, but we’re still keeping an eye on it given the big base, the great cookie-cutter story and next week’s quarterly report (November 3).
That’s it for now. You’ll receive your next issue of Cabot Growth Investor next Thursday, November 4. 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 10/28/21 | Profit | Rating |
| Ambarella (AMBA) | 655 | 166 | 10/14/21 | 187 | 13% | Buy a Half |
| Asana (ASAN) | 1,354 | 73 | 7/22/21 | 131 | 81% | Buy |
| Cloudflare (NET) | 1,790 | 113 | 6/25/21 | 183 | 62% | Buy |
| CrowdStrike (CRWD) | 804 | 284 | 10/21/21 | 282 | -1% | Buy |
| Devon Energy (DVN) | 7,240 | 28 | 5/7/21 | 40 | 43% | Buy |
| Dynatrace (DT) | 3,114 | 65 | 8/6/21 | 73 | 12% | Buy |
| Floor & Décor (FND) | 1,845 | 111 | 4/9/21 | 135 | 21% | Buy |
| ProShares Ultra S&P 500 (SSO) | 871 | 60 | 5/29/20 | 136 | 127% | Buy |
| CASH | 542,140 |