Cabot Stock of the Week Issue: December 31, 2024

2024 was a very good year for the Stock of the Week portfolio.

The average year-to-date gain among our 24 open positions entering this week is 52%. Three of our stocks have more than doubled. Three others were doubles before pulling back in recent weeks. We’ve had some losers along the way, to be sure, but only two of them exceeded a loss of 15%, and none were down more than 22%. Lots of big winners combined with limiting losers is a good formula for taking advantage of a bull market. And despite a disappointing December, the bull market remains fully intact as we enter 2025.

Growth continues to outpace value, so we’ll stick with what works as we enter the new year by adding another growth stock, just recommended by Mike Cintolo in his Cabot Top Ten Trader newsletter. Here is Mike’s pick, with his latest thoughts on it.

Happy New Year, everyone!

Kyndryl Holdings, Inc. (KD)

Kyndryl is a leading global IT infrastructure and consulting provider (spun off from IBM three years ago) focused on designing, building and managing mission-critical technology systems that countless companies (including most Fortune 100 members) depend on. While the firm has exposure to multiple markets, the big story here is the ongoing trends in GenAI and cloud migration, along with the accompanying demand for better cybersecurity as enterprises modernize hybrid IT systems. Because of the durability of these trends, which have allowed Kyndryl to shift towards high-single-digit-margin contracts (a huge improvement from the anemic margins of just a few years ago), management recently guided for earnings to more than double to at least $1.2 billion within the next three years. A key reason for the bullish expectations is the firm’s Consult segment, which has seen its revenue consistently growing in the double digits. In fiscal Q2, Kyndryl’s Consult signings and revenue were up 81% and 23%, respectively, with the result that Consult is now a $2.5 billion-plus high-margin revenue stream for the company with a “significant runway for continued growth.” Another key driver of the firm’s growth is its relations with several major hyperscalers and top-tier tech sector leaders, with Kyndryl more than doubling revenue from services related to hyperscalers; it expects that it will reach $1 billion in hyperscaler-related revenue this fiscal year (ending next March). In recognition of the firm’s recent contract wins and long-term booking improvements (as highlighted by a fourth consecutive quarter of signage growth, up a big 33% during the past year), a major Wall Street bank just initiated coverage of the stock with a “Buy” rating (a reason for the strength). To be fair, the top line isn’t going to boom, but margins are heading up, which means free cash flow and earnings should surge going ahead.

As for the stock, earnings were the catalyst for a change in character in early November, with another round of huge buying coming later that month. The rally encountered resistance a couple of weeks ago at 36, but since then KD has edged back to the 25-day line in normal fashion. We’re OK taking a swing at it around here or on further weakness with a stop closer to 30. BUY

Current Recommendations

Changes Since Last Week:
Cava Group (CAVA) Moves from Hold Half to Sell

One stock in, one stock out as we close out 2024. Cava Group (CAVA) has been very good to us, doubling before we sold half last month, but it’s been in a downward spiral in December, so it’s time to sell our remaining half. That keeps our portfolio at a healthy 24 stocks as we enter the New Year.

Here’s what’s happening with all of them.

Updates

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was down another point, from 23 to 22, on no news. This stock has been one of our top under-the-radar discoveries this year, thanks to Tyler, who early this summer recommended the company that’s trying to bring direct-to-smartphone internet coverage to cell phone owners around the world via low-Earth-orbit satellites. Tyler recommended the company just as its stock was really taking off, but before it launched its first five BlueBird satellites in early September. AST has since signed a long-term deal with Vodaphone (through 2034) and plans to launch another 60 satellites in 2025 and 2026. The company is still mostly pre-revenue, so the stock has immense upside even after nearly doubling since we recommended it in July. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, has finalized its agreement to buy Direct Line Insurance Group for 3.7 billion pounds ($4.65 billion), creating the largest motor insurance company in the United Kingdom. The deal is expected to be completed by mid-2025. AVVIY shares are down about 6% since the company’s Direct Line takeover bid was first reported on November 27 – which is normal share price action for the acquiring company. But shares are starting to bounce back, as the Direct Line addition should give this U.K.-based insurance and investment management firm a market cap of $21.2 billion, up from its current $15.7 billion. That gives AVVIY shares 35% upside from their current price. The 7.4% dividend yield should tide us over until shares get going again. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has hit a rough patch along with the market, down 10% in December, way more than the 2.1% pullback in the S&P 500. That’s the downside of this “Bull Market Stock” (Mike’s term): when the market is up, BX shares are up even further. When it’s down, the stock is down even more sharply. But as long as the bull market remains intact, Blackstone should continue to outperform, as it has since we recommended it in August 2023. During that time, BX shares have advanced 63%, nearly double the 32% gain in the S&P 500. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, bounced back nicely this week, up 1.5% after retreating 7% last week on the heels of its 36% post-earnings bump. The company handily beat estimates, but it was comments from management about demand for its AI chip (XPU) booming that sent shares to the moon. The company expects the chip to generate revenues between $60 and $90 billion by 2027; revenue was $12.7 billion in fiscal 2024. Broadcom has now joined the Magnificent Seven stocks as the only stocks with market capitalizations over $1 trillion. We booked profits on half our stake in this high-flying stock earlier this month, following the quick 36% jump, but are letting the remaining half ride. Given the growth, it may have more rungs on the ladder to climb in 2025. HOLD HALF

BYD Co. Ltd. (BYDDY), originally recommended by Carl Delfeld in his Cabot Explorer advisory, keeps holding in the 68-69 range. The Chinese electric vehicle giant has already surged past Tesla in terms of sales, despite mostly selling in China. It’s on track for 4 million cars sold this year; it’s also the world’s largest EV battery maker. As it expands operations to other corners of the globe – Europe, South America, Southeast Asia, India – BYD is only scratching the surface of its growth. And yet, the stock trades at a mere fraction of TSLA. To me, buying BYD now has the potential to be like buying TSLA shares 10 years ago. And we know how that turned out for Stock of the Week subscribers! BUY

Capital One Financial Group (COF), originally recommended by yours truly in the Growth/Income portfolio of my Cabot Value Investor advisory, was flat in the past week. Its proposed $34 billion merger with Discover Financial (DFS) still hangs in the balance, though it’s likely to get approved sometime next year, perhaps in the first half of the year. If approved, it would instantly become the largest credit card issuer in America. The stock caught Warren Buffett’s attention long before the proposed merger; it remains in his Berkshire Hathaway portfolio. BUY

Cava Group (CAVA), originally recommended by Mike Cintolo in Cabot Growth Investor, has been in freefall for the past month, falling 25% since topping out above 150 the first week of December. We booked profits on half the stock in November, after it had doubled in seven months. But now that it’s headed in the wrong direction fast with no bottom in sight, it’s time to sell our remaining half. This fast-growing fast-casual Mediterranean restaurant chain may be on the Chipotle trajectory, but right now it’s going through some growing pains. Perhaps we’ll revisit it in 2025 once the stock stabilizes. MOVE FROM HOLD HALF TO SELL

Centuri Holdings Inc. (CTRI), originally recommended by Clif Droke in his Cabot Turnaround Letter, was off about 3.5% on no news. New CEO Christan Brown took the helm at the beginning of the month, on December 3. Famed activist investor Carl Icahn upped his CTRI stake by 38% in this small-cap utility based on the Brown hire. BUY

Constellation Energy Corporation (CEG), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, ticked up slightly after testing its November lows around 224. We have a nice gain on this nuclear power stock as it’s been powered by a lucrative deal with Microsoft to reopen the Three Mile Island nuclear plant to help power Microsoft’s AI data centers. With a new presidential administration likely to make for a friendlier regulatory environment, it’s likely the deal will be finalized soon. BUY

DexCom, Inc. (DXCM), originally recommended by Clif Droke in his Cabot Turnaround Letter, was down from 79 to 78. The only news was that the company and Abbott Laboratories reached a settlement to end a decade-long patent litigation. The settlement was expected, which is why it didn’t result in much of a bump for the stock price. DexCom is a leading provider of continuous glucose monitoring (CGM) systems—a big advancement over traditional intermittent monitoring—which help intensive insulin users and type 2 diabetics more efficiently manage their blood sugar levels. These devices are placed on the back of a patient’s arm and steadily measure their blood sugar, then transmit the data they collect to their smartphone or Apple Watch.

At least one in 10 Americans have some form of diabetes, 25% of U.S. healthcare dollars are spent on diabetes patients, and by some estimates, as many as one in every three(!) people suffer from pre-diabetes. All told, that leaves a massive market opportunity for Dexcom.

The stock trades at less than half its 2021 highs (161) and recently got a boost after launching the first generative AI platform in the glucose biosensing space. The product is called Stelo, and its Weekly Insights feature was made available to users earlier this month. It will give users more personalized tips and education regarding diet, exercise and sleep. BUY

DoorDash Inc. (DASH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, mostly held firm this past week after pulling back 4.5% the previous week. But the intermediate- and long-term trajectories for this online food delivery giant are still up, with two Wall Street firms (RBC Capital and Truist) raising their price targets on the stock this month. Both targets are at least 27% higher than the current price. BUY

Dutch Bros (BROS), originally recommended by Carl Delfeld in his Cabot Explorer advisory, keeps holding steady, which is quite an accomplishment considering its previous runup to new highs and the market’s December weakness. Shares of the upstart drive-through coffee company are up nearly 70% since we added BROS to the portfolio just over four months ago and appear poised for big things in 2025 too. The company added 38 new locations in the third quarter to up its total to 950 stores, with the very ambitious goal of getting to 4,000 stores in the next 10 years. Dutch Bros is an appealing growth story, and the company may soon become a household name as its popularity swells. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was down about 2.5%, mostly in lockstep with the market. Big picture, the company recently received good news when the FDA approved Zepbound as a treatment for sleep apnea, potentially opening up an entire new market for the obesity drug. It’s the first prescription medication to be approved for the sleeping disorder that interrupts breathing during sleep. In a Phase III trial study, Zepbound was found to achieve remission in 42% of patients with sleep apnea, compared to just 16% in the placebo group. In the same study, Zepbound patients lost 45 pounds on average, or 18% of their body weight. Combined sales of Zepbound and Mounjaro, Lilly’s diabetes treatment drug, were $5.4 billion in 2023; they are now projected to reach $62.6 billion by 2030, according to data firm GlobalData. BUY

Flutter Entertainment (FLUT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, dipped another 1% this week and has been a bit weak of late. In his latest update, Mike wrote, “FLUT’s pullback during the past couple of weeks has been tedious, with shares steadily losing altitude (about 9% from high to low), but shares are still north of their 50-day line and volume has been light. While the industry group is touch and go and quarterly results can vary based on betting outcomes, there’s little doubt the trend for both the stock and business is up, with FanDuel leading a U.S. market that should continue to expand at a good clip for many years. A decisive break of the 50-day line would probably cause us to go to Hold, but with a modest profit and an acceptable correction, we’re hanging on and are OK with new buyers starting a position on this weakness.” Good advice. I’ll recommend the same. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, is finally encountering some rare turbulence, pulling back 3.5% in the last week. There was no news. The latest news came in early December when the company held its investor event. Among other things, GoDaddy outlined plans to introduce a paid tier, Airo Plus, for its new AI-driven Airo tool. The $5-a-month Airo Plus includes automatic logo creation, SEO optimization, and enhanced marketing efforts for websites. The offering will help monetize its Airo feature, introduced a little over a year ago, and is a big reason behind the stock’s 100% runup in the last 13 months. BUY

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was up slightly this week on no news. Wall Street is high on this stock even after a 55% advance in 2024 – five separate firms have raised their price target on ISRG in the last month. The maker of the da Vinci robotic surgical system has been gathering momentum from the release of its da Vinci 5 system. Of the 379 new da Vincis Intuitive placed in hospitals in the most recent quarter (up 21.5% YOY), 110 of them were da Vinci 5s, up from 70 in the second quarter. 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, pulled back about 2.5% after the previous week’s 9% rally took the stock to new all-time highs above 43. That’s normal price action, and it’s worth buying the dip if you don’t already own shares. Both KeyBanc and Loop Capital recently raised their price targets on the stock. As Tyler wrote last week, “There’s been some positive press around how Klaviyo’s software solutions for retailers have helped its customers deliver record-breaking results between Thanksgiving and Cyber Monday.” Momentum is building for this mid-cap tech stock. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, was up another 4% to reach new all-time highs above 58! There was no company-specific news. The high-yielding monthly dividend payer is delivering for us in terms of both income and share price appreciation. As Tom explains, “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.” BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, pulled back another 2% to close out a rather “meh” year for the stock. MSFT shares were up just over 13% in 2024, barely half the gain of the S&P 500. But it’s still been a strong performer for us since we added the stock to the portfolio in early 2023, and I don’t expect it to continue lagging the market in 2025. In fact, Wedbush just released a report forecasting big things for AI next year, with Nvidia and Microsoft leading the way. Analyst Daniel Ives expects technology stocks to grow another 25% next year, thanks to more AI projects coming online and a business-friendly and less regulatory administration entering the White House. Microsoft has long been an AI leader the last few years, which is why we added the stock to the portfolio. Despite this year’s lull, the company simply has too much going for it to underperform much longer. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, was pulled back about 3.5% since reaching new all-time highs at 930 earlier this month. The pullback is normal after such a big run, and the news remains very good for the company, which just released season 2 of its smash-hit original show Squid Game and its two Christmas Day NFL games brought in an average of 24 million viewers. That could be just the beginning of Netflix going all-in on live sports, which is perhaps the streamer’s last remaining blind spot. The stock has had a very good year, up 84%, and we’ve captured the majority of those gains after adding it to the portfolio in late February. The live sports addition could be massive and could further widen Netflix’s lead over the competition. Expect another good year for the stock in 2025. BUY

On Holding (ONON), originally recommended by Mike Cintolo in Cabot Growth Investor, remains in a range between 55 and 59, where it’s been for the last month. In his latest update, Mike wrote, “ONON looked iffy late last week, with yet another poor earnings report from Nike briefly hitting the stock and group, but shares found support at the 50-day line and remain in good shape. (The tight-ish closes on the weekly chart are also a constructive sign.) Nothing has changed with our thoughts here—if the stock decisively breaks down, we could pare back or even nail down our profit, but given the projected growth both next year (analysts see sales up in the upper 20% range, give or take, next year) and longer term, the odds favor the next big move being up. We’ll stay on Buy.” So will we. BUY

Primo Brands (PRMB), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was down a little more than 1% in its first week in the portfolio. There was no news. Primo is a unique water/hydration company that started as a way for customers to refill water jugs at designated refill stations, and this year formed an alliance with Blue Triton, which owns Poland Spring, Deer Park and other recognizable water brands. The newly formed company did $6.5 billion in revenue in the 12 months ending March 31 of this year. The merger just closed on November 8, and the stock has since taken off. The new company holds well-recognized hydration brands across retail, club stores, restaurants, hospitality, convenience stores, hospitals, schools and offices. It has direct-to-consumer offerings through its Water Direct (delivery), Water Exchange (customer refill) and Water Refill (self-service) businesses.

Primo Brands even sells water filtration units for home and business customers.

The first quarter of combined financial results should be released in February. BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, has pulled back about 9% since topping out above 117 in early December. But this has been a fantastic bounce-back year for a stock that just three years ago had a share price more than three times its current one. SE was up 162% this year and has roughly doubled since we recommended it in early March. It’s a Singapore-based conglomerate that’s a play on Southeast Asian growth since its three businesses – e-commerce giant Shopee, fintech wing SeaMoney, and gaming/entertainment segment Garena – are quite popular in that fast-growing region. This stock was once a 10-bagger for Carl after he recommended it to his Cabot Explorer readers in 2019. After a major fall in the share price as business slowed during the pandemic, SE is back in gear and could be on its way back to 2021 highs (or higher) eventually. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, pulled back another 4% this week, but it’s been a major bounce-back year for the stock, particularly in the last few months, with an encouraging third-quarter earnings report followed by Donald Trump getting elected president and quickly naming Elon Musk to his Cabinet. TSLA shares nearly doubled in the six weeks after the election, reaching new all-time highs – unthinkable as recently as this summer after another underwhelming quarter and with the stock in a deep malaise. Now, Tesla is growing again, and the new administration could help fast-track its new self-driving and AI technologies to market sooner than expected. So, with improving growth likely ahead, this dip in Stock of the Week’s greatest success story looks buyable. BUY

The next Cabot Stock of the Week issue will be published on January 6, 2025.

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