Cabot Stock of the Week Issue: December 2, 2024

Stocks have had a productive couple weeks since we last wrote. The Cabot Stock of the Week portfolio has fared far better, with several of our positions up double-digit percentages and reaching new all-time or multi-year highs.

It’s a testament to the peerless stock-picking ability of our analysts who find diamonds in the rough or gems hiding in plain sight better than just about anyone in the industry. There’s a reason why, almost 55 years after Cabot was founded by Carlton Lutts in 1970 when he first penned (literally) the Cabot Market Letter (now Cabot Growth Investor) in his Salem, Massachusetts kitchen, the company is still going strong today. We hire (and keep) some of the best and brightest minds in the investment publishing business. And the market-beating results are evident nowhere more than the Stock of the Week portfolio, which selects the best stocks from our best advisories.

So today, we add one more – a recent addition with a familiar name with enough momentum that Mike Cintolo reintroduced it to his Cabot Top Ten Trader readers last week. Here it is, with Mike’s latest thoughts.

Freshpet, Inc. (FRPT)

If we told most investors we found a company that had 25 straight quarters of 25%-plus revenue growth, most would probably think we’re talking about some up-and-coming software outfit or revolutionary new drug firm. But instead, we’re talking about Freshpet, which has been leading the fresh pet food (almost all of its sales are dog food) movement for years; customers (especially those in good financial shape) are willing to shell out a few extra bucks so that Pumpkin and Whiskers can (according to studies) live longer, healthier lives. (The company calls this the “humanization of pets” movement.) After a couple of years when costs got out of control, the firm has been firing on all cylinders, with the top and bottom lines surging—in Q3, sales rose 26% (all of which was from volume, not pricing, which is very impressive) and EBITDA boomed 88% (EBITDA margin 17.2% vs 11.6% a year ago), with some margin metrics already ahead of the firms’ longer-term 2027 targets. Moreover, penetration continues to grow (its offerings can be found in nearly 28,000 locations, 22% of which have its wares in more than one refrigerator), as does the customer count—12.9 million households are buyers (up 17% from a year ago), with most business driven by the five million most frequent users, and while Freshpet dominates the fresh/frozen dog food channel (96% dollar share), it believes it has just 3.2% of the $37 billion annual market. Helping the cause is a continued ramp of a new production facility that the firm thinks will allow it to grow its top line to $1.8 billion by 2027, which itself could prove conservative. From here, it’s simply a matter of staying on the ball—if it does, the rapid, reliable growth story should play out for a long time to come.

As for the stock, FRPT bottomed in November 2023 and broke out in March of this year, but while it’s made good progress since then, it’s definitely been a three-steps-forward, two-steps-back situation, with lots of shakeouts and dead periods along the way. The most recent sideways phase lasted from June through October, where the stock made no net progress despite some downs and ups during the time. But FRPT gapped up nicely on earnings at the start of November and has marked time since then. Trading in the mid-150s, it’s up 76% year to date … but still well shy of its 2021 highs around 185. BUY

Current Recommendations

Changes Since Last Issue:
On Holding (ONON) Moves from Hold to Buy

We have no sells this week as, quite simply, almost every stock in our portfolio has made headway in the two weeks since we last wrote. The only change is that On Holding (ONON) has regained enough momentum to warrant an upgrade back to Buy. So, with the addition of Freshpet (FRPT), our portfolio is now back up to 26, one above our preferred 25-stock limit. I expect to cut that back down to 25 or below by year’s end, cutting losers to get the tax benefits. But right now, we simply don’t have many of those.

It’s a great problem to have. And there’s a LOT to like in this report. Let’s get right to it.

Updates

American Tower (AMT), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, finally got going, advancing from 196 to 209 before pulling back to the low 200s this morning. There was no major news. In his latest update, Tom wrote, “This cell tower REIT is bouncy. It trades in a wide range, but one that has been featuring higher highs and higher lows. AMT had a big dip in September and October after a price spike in the spring and summer, as it had done earlier in the year after a late 2023 price spike. But it has been trending higher again over the past few weeks. It’s a growth business as cell tower demand will only grow in the future. Hopefully, another leg higher has begun.” BUY

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, dipped from 26 to 24 after the Federal Communications Commission (FCC) granted SpaceX supplemental coverage from space license but not AST. Scotiabank deemed that at least a yellow flag, if not a red one, as it denies AST first-mover advantage in the race to provide straight-to-smartphone internet service from space. On the other hand, the analyst research note sounded an optimistic tone about AST’s first five Bluebird satellites now in orbit allowing cellular providers like AT&T and Verizon to launch beta testing of its 4G and 5G capabilities. Scotiabank maintained its Outperform rating on the stock, with a price target of 44.70. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, was virtually unchanged the last two weeks despite making some news. The U.K.-based life insurance and investment management firm is launching a 3.4 million-pound ($4.2 billion) takeover bid of rival Direct Line Insurance Group. If successful, it would create one of Britain’s largest car insurers. Direct Line rejected the initial deal, so Aviva may need to up its price. The company is being advised by both Goldman Sachs and Citigroup on the takeover bid, which bodes well. We’ll see where it goes; if approved, adding a major car insurer like Direct Line could raise Aviva’s ceiling, and perhaps give it more upside than the 14 price target we have on it in Cabot Value Investor. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is up 5% in the last two weeks despite pulling back from new highs above 199. BX shares surely got a boost from the steady uptick in the market, befitting their “Bull Market Stock” status. The firm also took an $8 billion majority stake in popular sub shop Jersey Mike’s to help it expand beyond the U.S. market. It’s also the largest (31% stake) shareholder in a merger between two of India’s largest hospital chains, Quality Care India Ltd. and Aster DM Healthcare Ltd. The combined entity is valued at $5 billion including debt. So, Blackstone continues to expand its portfolio and deploy the cash it’s generating from increased inflows into equity markets. We now have an 83% gain on BX. As long as the bull market remains intact, Blackstone will likely remain a Buy in our portfolio. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, held steady at 166 since our last issue. There was no major news. Earnings are due out December 12. In his latest update, Tom noted, “Nvidia (NVDA) failed to deliver an upside catalyst for AVGO. The earnings were stellar to be sure. And AI growth is alive and still super strong. But the market has come to expect that, and booming AI growth is largely built into these stocks. However, Broadcom reports earnings in a few weeks, and that report should have a more direct effect on AVGO. The stock has leveled off and the price is still the same as it was back in June. But AVGO is still up (more than 48%) YTD.” BUY

Capital One Financial Group (COF), originally recommended by yours truly in the Growth/Income portfolio of my Cabot Value Investor advisory, is up from 184 to 189 since our last issue. The bank’s proposed $35 billion merger with Discover Financial (DFS) is now expected to be finalized sometime next year, not this year. And with the new anti-regulatory administration entering the White House, the deal is likely to get approved despite recent protests by Democratic legislators. If and when that happens, it would create the largest credit card issuer in the U.S. That possibility gives COF shares plenty of upside, and trading at just 12x EPS estimates and just 1.16x book, the stock is already undervalued. BUY

Cava Group (CAVA), originally recommended by Mike Cintolo in Cabot Growth Investor, added more than 4% in the last two weeks as it claws its way back to early-November highs. In his latest update, Mike wrote, “CAVA has steadied itself after a wild earnings reversal and some follow-on selling afterwards, still holding north of its 50-day line ... though also sitting south of 150 resistance. The stock has been a great winner for us and we’re certainly as bullish as ever on the underlying story, with the experienced top brass likely to make Cava one of the next big casual restaurant chains—but given the big run that brought the stock out of trend to the upside (often an intermediate-term yellow flag), we’re comfortable having pared back, holding a small-ish stake, and seeing how the stock handles itself in the weeks ahead.” We did the same, selling half last month after a big run-up and letting the second half ride. Let’s see how long the ride lasts. HOLD HALF

Centuri Holdings Inc. (CTRI), originally recommended by Clif Droke in his Cabot Turnaround Letter, is down about 3% since we last wrote. There was no news. However, new CEO Christian Brown will take the helm tomorrow, December 3, which could provide a boost. Famed activist investor Carl Icahn upped his CTRI stake by 38% based on the Brown hire. The small-cap utility company missed the mark on earnings last month, but the stock initially got a modest bump, which it has since given back. But we’re off to a solid start here. BUY

Constellation Energy Corporation (CEG), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, is up 10% in the last two weeks on no news. Here’s Tom on the many fits and starts (but very positive share price movement, in the aggregate: “This nuclear energy provider has returned 118% YTD and 34% in the three months since being added to the portfolio. It’s been a bit of a ride. CEG soared 60% between early September and early October after the company announced a deal with Microsoft (MFST) to provide energy from a reopened Three Mile Island nuclear plant. Then it pulled back over 20% the following month after the Federal Regulatory Commission shot down Amazon’s (AMZN) recently announced nuclear deal with Talen Energy (TLN). But the stock has been trending higher again since the election, which ushers in a far more regulatorily friendly administration and provides renewed hope of more deals.” BUY

DoorDash Inc. (DASH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is up another 2% even after rallying to new highs in mid-November. Mike calls this online food delivery giant “a liquid leader that continues to crank ahead calmly and steadily.” Its recent quarterly earnings report is providing a tailwind. Sales were up 25% and EBITDA improved by a whopping 52%. While sales were roughly in line with estimates, earnings per share of 38 cents nearly doubled the 20-cent estimate. It was DoorDash’s first quarterly profit since the company came public in 2020. Meanwhile, total orders from the food delivery app increased 18%, to $643 million. DASH is already a big winner for us, up 40% since we added it to the portfolio less than months ago. BUY

Dutch Bros (BROS), originally recommended by Carl Delfeld in his Cabot Explorer advisory, is up more than 9% since our last issue as it pushes further into new 52-week-high territory. There’s been no news in the last two weeks, but the stock has soared since the fast-growing drive-through coffee chain reported third-quarter earnings last month. Sales improved 28% year over year, while the company opened 38 new stores, upping their total to 950. Dutch Bros has the ambitious goal of getting to 4,000 locations in the next few years. This is quickly becoming one of our best stocks. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, is back! Shares are up more than 11% since we last wrote, topping 800 for the first time since the first half of November. Here’s what Tom had to say about it: “The superstar drug company stock is recovering from a big dip. LLY had been down as much as 25% since the late summer high and nearly 20% since the earnings report fell short in late October. The stock fell after earnings as sales of the heralded weight-loss drug fell short of lofty expectations. But the selling accelerated as the nomination of RFK Jr. for HHS Secretary spooked the sector and Lilly in particular. He has expressed skepticism about weight-loss drugs as well as overall drug pricing.

“The weight-loss drug is likely just emerging from the initial euphoric stage. But it is still a likely mega-blockbuster. The RFK stuff may be an overreaction. It’s hard to say at this point. But regardless, this is still a company on track to grow earnings around 70% per year in the years ahead. Investors are coming around and LLY is up 7% in the last week.” BUY

Flutter Entertainment (FLUT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is up another 3.5% in the last two weeks, touching new highs near 280 before pulling back slightly. In his latest update, Mike wrote, “FLUT remains in great shape, basking in the glow of its Q3 report that gapped the stock out of a big launching pad—and shares have continued higher since, bolstered by some positive analyst commentary. Indeed, one investment house sees Flutter doubling its earnings over the next three years as the U.S. business (FanDuel) ramps and share buybacks kick in; the firm announced at its September Investor Day it expects to buy back something like $5 billion in shares over the next three to four years (current market cap is around $49 billion), and the initial $350 million tranche should be executed by the end of Q1 2025. Of course, buybacks are nice, but it’s the underlying growth trends here that are attracting big investors, with FanDuel seeing great customer (23%) and revenue (up 46%) growth among states that it first entered before 2022, which is a sure sign the market is far from saturated. Like most stocks, we can’t rule out a near-term wobble, but given that the stock just broke out, we’re OK taking a position here or on dips of a few points.” Good advice. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up another 6.5% since our last issue, pushing to yet another new all-time high! There’s been no news, though the web domain registry company is likely still drawing strength from an impressive third-quarter earnings report. Revenue of $1.15 billion just eked past the $1.14 billion estimate, while EPS of $1.32 beat the $1.24 estimate by 6.4%. EBITDA of $366.5 million came in 10% higher than expected. Year over year, revenue improved 7.3% while EPS jumped 48%. The company will present at this Wednesday’s (December 4) UBS Global Technology Conference in Scottsdale, Arizona, so perhaps more exciting news will emerge from that. We already have a 52% gain in seven months. BUY

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, tacked on another 2% to reach yet another new high above 540. There was no news. Shares of this maker of the da Vinci robot surgical system – which this year rolled out the new da Vinci 5 system – are up more than 60% year to date. The company is coming off a solid quarter: Adjusted earnings per share grew 26% year over year while sales improved 17%. The number of procedures using Intuitive’s famed da Vinci robotic surgical system was up 18%, and its new da Vinci 5 system is becoming an increasingly bigger part of the pie; of the 379 new da Vincis Intuitive placed in the quarter (up 21.5% YOY), 110 of them were da Vinci 5s, up from 70 in the second quarter. Mind you, the company is in the midst of a gradual launch of the da Vinci 5 and plans to ramp up in 2025, kicking off a multi-year replacement cycle. BUY

Klaviyo, Inc. (KVYO), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, rewarded our faith in it, bouncing back from 34 to our 37 entry point in the last two weeks. A rebound seemed inevitable given that the company reported a perfectly good quarter only to be met with a 16% selloff in shares. Revenue grew 33.7% to $235.1 million (beating by 3.9%) while EPS grew 62% to $0.15 and beat by $0.04. Full-year 2024 guidance (only one quarter left) calls for revenue of $923 - $925 million (+32%) vs. prior guide of $910 - $918 million. Now, Wall Street is warming to those results. Let’s see where the stock goes from here. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, has finally broken above 52 resistance to reach new all-time highs above 55! There was no obvious catalyst. In his latest update, Tom wrote, “Main’s portfolio of companies not only makes high-interest loans, but it also takes equity stakes. The equity stakes are the primary reason the total returns have been better than just about every other BDC. MAIN broke out to new all-time highs this year and just made a new one. But the improved economic outlook leaves room for further appreciation. At the same time, not only does it yield 5.3% based on the regularly scheduled monthly dividend, but the yield is also 7.6% if you include the supplemental dividends.” The monthly dividend has always been the primary appeal here. The recent run-up in shares is a nice cherry on top. BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up 3.5% since our last issue as the stock appears to be regaining momentum. It hasn’t been a banner year for MSFT – shares are up 14.5% year to date, underperforming both the S&P 500 and Nasdaq by a wide margin – but it’s worth playing the long game with this stock, as Microsoft has a) proven to be one of the most resilient, adaptable growth stories in the market in the 21^st century, and b) is one of the clear leaders in the revolutionary artificial intelligence industry, helping the company maintain double-digit revenue and EPS growth for the foreseeable future. BUY

Moog Inc. (MOG-A), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was up a modest 1.5% in its first two weeks in our portfolio. Moog supplies advanced primary flight controls on the most modern military aircraft. That includes the Lockheed Martin F-35 Lightning II and the Future Long Range Assault Aircraft program. The company’s major platforms include the 787, A350 and Joint Strike Fighter (F-35 Lightning II). The company also supplies primary flight controls for the Boeing 787 and Airbus A350 widebody aircraft, as well as business and regional jets from Embraer (ERJ) and Gulfstream, owned by General Dynamics (GD). BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up 6.5% to reach new all-time highs just under 900! On the heels of yet another strong quarter, a flurry of analyst upgrades has helped boost the stock. In the last two weeks alone, Wedbush raised their price target from 800 to 950; Pivotal Research raised from 925 to 1,100; Bank of America raised from 800 to 1,000; and today, Evercore raised from 775 to 950 while Canaccord Genuity upped from 760 to 940. It seems the Q3 beats on subscriber additions, revenue and operating income was enough to raise the bar among Wall Street analysts. Netflix is firing on all cylinders, and we have a 50% gain to show for it. BUY

On Holding (ONON), originally recommended by Mike Cintolo in Cabot Growth Investor, is up 14% in the last two weeks to reach new record highs near 59! Why the strength? Here’s what Mike had to say about it: “ONON has been volatile, with a lot of movement but no net progress from late September through mid-November—but the latest rush higher looks promising, with shares moving to new price and RP peaks. There are bound to be some macro uncertainties here when it comes to tariffs in the U.S. and possibly elsewhere, but the underlying business continues to crank ahead at a 30%-plus clip, with even faster growth in Asia and with accelerating direct-to-consumer growth as well. While not a traditional breakout, the recent move higher has the feel of a change in character after a couple of choppy months—we’ll go back to Buy.” Let’s do the same. MOVE FROM HOLD TO BUY

OneStream (OS), originally recommended by Tyler Laundon in Cabot Early Opportunities, held its lows in the 29-30 range despite a brief flirtation with the 32-33 range. We added the financial software company to the portfolio last month and it immediately retreated 10%. The pullback was a bit of a mystery on the heels of an impressive quarter in which revenue grew by 21% to $129.1 million (beating by $5.1 million), with subscription revenue growing 39% to $110.7 million. Lockup expiration for this newly public stock (IPO in late July) was on November 11 so that likely had a lot to do with the selling in this mid-cap stock. Let’s give it some time and see if OS can regain its footing now that it’s stopped falling. BUY

Samsara Inc. (IOT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is up 10% since we last wrote, and the company reports earnings this Thursday, December 5. In his latest update, Mike wrote, “After its big earnings-induced move in September, IOT effectively hacked around for nearly two months, with a couple of tests of the 50-day line, before ratcheting to new price and RP peaks; the chart is eerily similar to On Holding’s, for whatever that’s worth (not much). We filled out our position last week, thinking the overall risk/reward was solid—we have a loss limit on the combined position near the early-November low (call it 45 to 46) while the upside could be big as the story plays out. Of course, first we have to get through earnings, which are due next Thursday (December 5)—we can’t rule anything out, so if the reaction is very poor, we might have to cut bait, but we’re obviously thinking optimistically that Samsara can see higher prices as big investors (745 funds owned shares at the end of September, up from 379 nine months before) continue to build stakes.” BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, is up another 5% in the last two weeks, reaching new 52-week highs above 113. Shares of this multi-pronged Singapore-based conglomerate are now up more than 200% year to date … and yet trade at less than a third of their 2021 peak. This is a great way to play one of the fastest-growing regions in the world in Southeast Asia, and it’s already doubled for us in just nine months! BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continues its late-2024 renaissance, with shares rising another 6% in the last couple weeks to push the stock to its highest point since early 2022. Stifel raised its price target on the stock today from 287 to 411. It seems the first encouraging quarter for the EV giant in a year, plus a second Trump term and Elon Musk’s position within his cabinet, have been a perfect storm for TSLA bulls to start buying again. And thus, our astonishing 13-year gain on this stock keeps rising to even more jaw-dropping levels. BUY

The next Cabot Stock of the Week issue will be published on December 9, 2024.

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