What a week for the market! That’s not something we’ve said a whole lot this year. But we’ll take the good news and try and capitalize on the momentum by adding the first pure growth stock to the Stock of the Week portfolio in a while – one that Cabot Growth Investor analyst Mike Cintolo thinks could be a new leader in its fast-blossoming field.

Plus, with a lot of our stocks acting well, we’ve upgraded two of our existing recommendations to Buy. Details inside!

Cabot Stock of the Week Issue: August 1, 2022

What a week for the market! That’s not something we’ve said a whole lot this year, and it’s possible another retreat is forthcoming. But for now, things are looking up, and the S&P 500 is up 12.7% from its mid-June bottom. More important was the ability of investors to shrug off some of the bad news last week: a worse-than-expected GDP decline that could signal a recession; another big interest rate hike (though the 75-basis-point increase was less than the 100-point jump some had feared); and Q2 earnings have been mixed. Two months ago, all those disappointments would likely have sparked another round of fear-driven selling. Instead, stocks were up more than 4% for the week.

It’s not time to go full bull – remember, similar rallies in March and May fizzled and led to lower lows each time. But this rebound has been steadier and lasted longer than those two. And that means it’s OK to do more buying. Thus, today we are turning to our first growth stock in a while – one that was recently recommended by Mike Cintolo in his Cabot Growth Investor advisory and appears to be an emerging leader in its field.

Here are Mike’s latest thoughts.

Bumble (BMBL)
Most of your biggest market leaders over time are newer names (not the familiar ones from the past bull cycle that have already had huge runs and are well known to the crowd) that also have some sort of new, revolutionary product or service that changes the way we live, work, eat and/or play. Whether it’s a Facebook, XM Satellite or Shopify on the tech/business side of things, or Chipotle (pioneered fast casual), Netflix (DVDs by mail and then streaming) or McDonald’s (fast food) on the retail/consumer side of the fence, the biggest chunk of historical big winners had something new and radically better.

However, many big winners are also what’s called follow-on opportunities, which come in a variety of shapes and sizes—it could be a firm that copycats and tweaks a new idea (Burger King filled in locations alongside McDonald’s), comes up with a better mousetrap (faster router or chip, etc.) or one that benefits from the boom in another sector (hotel construction boomed after jet travel became commonplace). In essence, these firms often become “the next Cisco/Google/whatever,” at least in terms of investor perception.

We think Bumble looks like a classic follow-on opportunity in the online dating realm, which was really led initially by Match.com and then that dominance passed to Tinder … which is also owned by Match.com. But now the industry is shifting—while meeting online has become more common than ever, the pandemic obviously changed things, and now that the world has (mostly) turned right side up, the hookup culture has leveled out (Tinder) while all the 20-somethings who barely had any dates the past two years are starting off a bit more seriously.

In other words, the opportunity is there for a fresh new idea in the sector where relationship seekers can go, and Bumble is filling it. Founded by Whitney Wolfe Herd in 2014 (former VP of marketing for Tinder), Bumble’s big claim to fame cuts right to the core of one of the big problems of online dating—with every site, guys generally make the first move, and given what many are looking for (ahem), that leads to a lot of, shall we say, inappropriate content and even harmful comments being sent to ladies, which is obviously a turnoff.

The solution: On Bumble, only women can initiate a chat, which generally cuts way down on nasty stuff and, of course, shifts the power dynamic a little—and, more important, leads to a different (more relationship-centric) clientele. Moreover, the app has seemingly better policies on ghosting, where people start chats and then suddenly disappear (all chats must be responded to within 24 hours or they vanish) and reportedly have fewer bots and distractions, too.

Obviously, the big prize here revolves around the network effect (the more users that sign up, the more that want to sign up), and the big idea is that Bumble is becoming the new, cool, popular site to meet up. And that says nothing about some other new things it has going on, including a BFF offering (for those that simply want to meet some new people; could be big for those new in an area) and virtual goods. Bumble also operates Badoo, a dating site which is giant internationally and should do well over time, though it’s taken a hit of late as many users in Ukraine, Russia and Belarus cancelled for obvious reasons.

Right now, Bumble makes up three-quarters of the company’s revenues, and business there is great—in Q1, total sales were up 24% but Bumble’s app saw the top line leap 38%, boosted by a 31% gain in total subscribers. Earnings leapt into the black, and the bottom line should remain there this year and begin to surge in 2023. The next quarterly report is due August 10.

As for the stock, it’s been showing relative strength for months, bottoming out back in March (found huge-volume support after earnings), hitting a higher low in May (another big earnings surge) and it last closed south of its 50-day line on May 12! Now it’s perking up—the quarterly report will be big, we’re OK starting a position here and, ideally, averaging up if the earnings reaction is positive.

Current Recommendations

Changes Since Last Week’s Update
Broadcom (AVGO) Moves from Hold to Buy
Tesla (TSLA) Moves from Hold to Buy

We are in the heart of earnings season, and most of our companies either just reported results or are about to in the coming week or two. Most of them are acting well, with several up double-digit percentages in the last few weeks. Chief among them are Tesla, up a whopping 22% in the less than two weeks since its report, and Broadcom, up 5% last week. We’ll bump both of those holds up to buys, and we won’t be selling any stocks this week, leaving us close to maximum capacity at 19 stocks in the portfolio.

What a difference a month makes!

Allbirds (BIRD), originally recommended by Tyler Laundon in Cabot Early Opportunities, makes footwear from sustainable natural materials and is growing at a good pace. Since bottoming at 3.7 in early May, the stock has been in slow-but-steady recovery mode but has stalled in the last couple weeks after touching as high as 5.5 on July 20. It was flat last week, despite the big week for the market. Let’s continue holding for now, ahead of earnings next Monday (August 8). HOLD

Allison Transmission (ALSN), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor, is scheduled to report earnings this Wednesday, August 3. The mid-cap manufacturer of vehicle transmissions is expected to report earnings of $1.57/share, and shares jumped from 39 to 41 last week, perhaps in anticipation of a strong report. ALSN is a buy, though if you haven’t bought yet you might want to wait until after earnings to see how the stock behaves. BUY

Aris Water Solutions (ARIS), originally recommended by Tyler Laundon in Cabot Early Opportunities, and featured here last month, is a Houston, Texas-based company that provides water infrastructure and recycling solutions to oil and gas operators in the Permian Basin. Aris helps the industry slash use of fresh and non-potable water by blending technology, integrated infrastructure, and logistics. It helps customers achieve ESG (Environmental, Social and Governance) compliance, something that is increasingly important to oil and gas producers, as well as investors, and its biggest customers are ConocoPhillips (COP), Chevron (CVX), Exxon (XOM), Occidental Petroleum (OXY) and Marathon Oil (MRO), which collectively drive around 70% of revenue. The stock has gotten off to a very good start since we recommended it, up 30% in less than a month, including another leap forward last week! Earnings are due out this Thursday, August 4, so we’ll see if those slow or extend the stock’s momentum. BUY

Broadcom (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, is a lower-risk technology stock that has become a good value. But it has performed quite well of late, especially in the last week, when it zoomed from 513 to 539. In his latest update, Tom wrote, “Recent performance among tech stocks has been encouraging. After leading the overall market lower earlier this year, the sector has outperformed the index for the last several months. The sector should turn around before the overall market. Broadcom is also very well positioned to benefit in a fundamental way from the 5G rollout and the proliferation of cloud computing and should have continued strong earnings.” With plenty of momentum, Tom has bumped the stock up to Buy. Let’s do the same. MOVE FROM HOLD to BUY

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, has had a good bounce in recent weeks, and inched a tad higher last week. But it remains deeply oversold. With earnings coming out this Wednesday (August 3), let’s keep holding. HOLD

Centrus Energy (LEU), originally recommended by Carl Delfeld in Cabot Explorer, had a very good first week in the Stock of the Week portfolio, up 14% since we recommended in this space last week! In his update last week, Carl wrote, “Based in Bethesda, Maryland, Centrus supplies nuclear fuel and services for the global nuclear power industry. The nuclear power industry is rapidly changing, with a new generation of advanced reactors under development. Centrus provides an integrated solution for meeting the industry’s engineering, manufacturing and fuel needs. The United States has 94 reactors that generate about 20% of our electricity but we have not built one new plant in the last 25 years.

“One near-term catalyst for this stock is that the Biden administration is pushing lawmakers to support a $4.3 billion plan to buy enriched uranium directly from domestic producers. In addition, the stock is still trading way off its 52-week high and at just three times trailing earnings. I have a six-month target of 50.” BUY

Cisco Systems (CSC), originally recommended by Bruce Kaser in the Growth/Income Portfolio of Cabot Undervalued Stocks Advisor, is finally showing modest signs of life after a very rough start since we added it to the portfolio. It’s up to 45 after bottoming at 41 in May and June, and is approaching two-month resistance. If it can break above 45, shares could go much higher. In his update last week, Bruce wrote, “While Cisco shares’ roundtrip from our initial recommendation at 41.32 to 64 and back to around (45) is frustrating, this is not the time to sell the stock. The fundamentals remain reasonably stable and likely to tick back upward, and profits seem likely to improve, as well. The shares will likely come back to life as earnings reports show favorable growth and profit trends, so investors will need some patience. If we have a recession in global tech spending, Cisco would likely feel the downturn but not as severely as other technology companies due to the mission-critical nature of its products and services.

“CSCO shares were flat in the past week and have 49% upside to our 66 price target. The valuation is attractive at 9.0x EV/EBITDA and 13.2x earnings, the shares pay a sustainable 3.4% dividend yield, the balance sheet is very strong and Cisco holds a key role in the basic plumbing of technology systems even if its growth rate is only modest.” HOLD

CVS Health (CVS), originally recommended by Carl Delfeld in Cabot Explorer, remains above its June lows but below its 200-day moving average. The stock made modest progress this past week, ticking up from 94 to 96, though that’s exactly where it was two weeks ago. In his update last week, Carl wrote, “CVS shares gained three points this past week as it heads to its next quarterly earnings next Wednesday, August 3. There are rumors that this quarter could be weaker than expected. CVS represents a quality hybrid of growth and value as its first-quarter revenue was up nicely and the company’s earnings per share has grown 26% each year, compounded, over the past three years. CVS Health is one of the nation’s leading healthcare companies with almost 10,000 stores and its core markets grow each year even in a weak economy.” We’ll keep an eye on that earnings report this Wednesday and see how CVS shares react. For now … BUY

Enphase Energy (ENPH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, last week made the type of move rarely seen this year, gapping up from 216 to 285 (!) in reaction to Q2 earnings last Tuesday. The world’s leading provider of micro-inverters had a great quarter, with sales growth accelerating 68%, earnings more than doubling and margins expanding. Wall Street loved the report, pushing shares to new all-time highs (imagine that!), though news late last week that Congress could pass a green energy-friendly bill also helped. ENPH is now up 44% in the two months since we recommended it! BUY

Fanuc (FANUY), originally recommended by Carl Delfeld in Cabot Explorer, had a good week, up 9%. It is the world’s leading manufacturer of computerized numerical control (CNC) devices that are used in machine tools and serve as the “brains” of industrial robots. But the young stock is not heavily supported by institutions yet, so trading is loose, with plenty of gyrations this year, though it has been trending much better over the past three months, going from 14 to 17. Carl says his six-month price target remains at 25, so we’ll keep FANUY at buy. BUY

Molson Coors (TAP), originally recommended by Bruce Kaser in the Buy Low Opportunities Portfolio of his Cabot Undervalued Stocks Advisor, added a point last week ahead of earnings this Tuesday (August 2). The company is expected to report earnings of $1.19/share. Bruce maintains a 69 price target on the stock (it currently trades at 59). We’ll see what happens with earnings tomorrow. BUY

Nio Inc. (NIO), originally recommended by Carl Delfeld in Cabot Explorer, is one of the top five Chinese EV makers, and the stock is off to a solid start for us, up 8.5% in less than two months. In his update last week, Carl wrote, “The stock is down about 70% from its all-time high but looking ahead, the clouds of Covid may be clearing. China accounted for almost 60% of global exports of electric vehicles in 2021 and the Chinese government is trying to boost EV demand through subsidies. In two years, Nio managed to increase its quarterly production of EVs from less than 4,000 to more than 25,000. Once supply chain issues are cleaned up, the company should be able to produce more than 50,000 EVs yearly.

“Nio drivers can quickly swap their batteries up to six times per month without leaving their cars. It’s faster than EV charging – taking only three minutes per swap. The fastest car to charge on average, Tesla’s Model S charges about 200 miles in 15 minutes – about five times as long as the average Nio battery swap. New Nio models continue to be launched and some offer battery upgrades with ranges of 621 miles on a single charge.

“We will give NIO a bit more time, but I would have a 20% stop-loss in place.” HOLD

ONEOK, Inc. (OKE), added to the Stock of the Week portfolio three weeks ago and originally recommended by Tom Hutchinson in Cabot Dividend Investor, was flat this past week. ONEOK is a large, U.S. midstream energy company specializing in natural gas. It owns one of the nation’s premier natural gas liquids (NGLs) systems connecting NGL supplies in the Rocky Mountains, midcontinent, and Permian regions in key market centers. The company also has an extensive network of natural gas gathering, processing, storage and transportation assets. A whopping 10% of U.S. natural gas production uses ONEOK’s infrastructure. In his update last week, Tom wrote, “The stock was up 65% in 2021 and the growth isn’t as impressive because it never declined much even during the pandemic. But it has stable revenues, a rock-solid dividend and inflation adjustments built into its contracts. OKE should be a good place to be going forward.” Earnings are due out next Monday, August 8. We’ll see how the stock behaves in the week leading up to that report. BUY

Organon (OGN), originally recommended by Bruce Kaser in Cabot Undervalued Stocks Advisor for his Buy Low Opportunities Portfolio, fell exactly one point ahead of earnings this Thursday, August 4. The company is expected to report earnings of $1.27/share. In his latest update, Bruce wrote that shares “have about 39% upside to our 46 price target … The shares continue to trade at a remarkably low valuation while offering an attractive 3.4% dividend yield.” HOLD

Pfizer (PFE), originally recommended by Tyler Laundon in Cabot Early Opportunities, didn’t respond particularly well to earnings last Thursday, with shares falling more than a full point since. That was despite top- and bottom-line earnings beats, with the big pharma company booking $27.7 billion in revenue in the second quarter—up 47% from last year, and the company’s largest quarter on record. Net income was up 78% year over year. What gives? Well, the company merely maintained its 2022 revenue and earnings guidance, which Wall Street didn’t seem to like. Plus, the stock was up more than 11% in the six weeks prior to earnings, so this is likely a case of the good quarter already being baked into the share price. We still like PFE and will maintain our buy rating even though the stock has been a mild disappointment since we added it in April. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continued its ascent following strong Q2 earnings two weeks ago. Since then, shares have exploded from 742 to 905, a 22% jump! Better yet, the stock is still well shy of its November 2021 highs around 1,230, so lots of upside remains.

To review what investors liked about Tesla’s second quarter: The company beat earnings estimates by 26% and grew sales by 42% for its third-best sales quarter to date. In addition to those bright shiny numbers, the company reported progress on its two new factories, with its Berlin facility topping 1,000 cars per week in June and its Austin, Texas factory approaching the same milestone in the coming months, according to Elon Musk. As a result, the company maintained its soft guidance for 50% average annual growth on vehicle deliveries over the next few years.

Having run down its 200-day moving average for the first time since early May, let’s move TSLA back to buy. MOVE FROM HOLD TO BUY

Ulta Beauty (ULTA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continues to chop around, falling to 392 after reaching as high as 411 last week. That’s above our 382 entry price, but well below its June and April highs. Until the stock settles into some sort of predictable pattern, we’ll keep it at hold. HOLD

Visa (V), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, barely reacted after the company reported fiscal third-quarter earnings last Tuesday, though the good quarter was likely already priced in as the stock was up nearly 13% in the six weeks prior to the report. Some highlights from the quarter: sales jumped 19% year over year as cross-border sales actually surpassed pre-pandemic (i.e., 2019) levels. Revenue topped analyst estimates, though GAAP earnings fell just short, which is perhaps why V shares got slightly dinged. But the 40% increase in cross-border payment volumes bodes well. For now, we’ll keep V at hold. HOLD

The next Cabot Stock of the Week issue will be published on August 8, 2022.

Analyst Bio

Chris Preston

Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week.

Chris joined Cabot in 2015, where he previously served as staff analyst, web editor, and Chief Analyst of Cabot Wealth Daily, our free investment advisory, which in 2019 was named “Best Financial/Investing Newsletter or Ezine” at the SIPA (Specialized Information Publishers Association) Awards, with Chris at the helm.

Prior to joining Cabot, Chris was an analyst and assistant managing editor with Wyatt Investment Research. He has been an investment analyst for more than a decade and a professional writer/editor for nearly 20 years, picking up multiple writing awards along the way. His bylines have appeared in Forbes, The Money Show, Time Magazine, U.S. News and World Report and ESPN.com.

Chris lives in Vermont with his wife, two young kids and their golden retriever, Scout. He occasionally sleeps.