Cabot Stock of the Week Issue: January 16, 2024

Stocks are officially in a holding pattern, with no real movement for the last month. That’s not a bad thing on the heels of the relentless rally in November and the first half of December – pauses are healthy in bull markets. Eventually, a breakout will come, and barring a round of disappointing earnings or another about-face by the increasingly dovish Fed, there’s a good chance the break will be to the upside. So we’ll keep plugging along, adding stocks that are in uptrends – and we have quite a few of those at the moment, with 10 (!) of the stocks in the Cabot Stock of the Week portfolio now trading at or near either 52-week or all-time highs.

Today, we add to our collection with a rebounding small-cap stock that should benefit from another big year from the travel industry. It’s a recent recommendation from Mike Cintolo in his Cabot Top Ten Trader advisory. Here it is, with Mike’s latest thoughts.

Tripadvisor (TRIP)

Even after last year’s surge in tourism and travel spending, experts are predicting yet another boom year ahead for air travel. A recent industry survey found that airline passenger traffic will reach nearly five billion this year—4% above pre-pandemic 2019 levels—with 44% saying they will travel more in 2024 than they did last year. These trends favor Tripadvisor, which operates several travel-related websites and mobile apps that are popular for research and bookings for transportation, lodging and dining, attracting over 460 million online visitors each month. However, it’s the company’s subsidiary, Viator, that has taken center stage of late. Viator is billed as the world’s largest online marketplace for tours, attractions and experiences, and it’s clearly benefiting from surging pent-up demand in the wake of the stay-at-home pandemic era. In Q3, Viator reported revenue of $245 million, which increased 41% from the year-ago quarter and made up nearly half of total revenues. The firm sees Viator as a “large” opportunity and the centerpiece of its expansion strategy in the experiences category, and on that score, a major Wall Street bank recently initiated coverage of Tripadvisor with a “buy” rating, pegging Viator’s surge as a “compelling” reason to expect future growth for the company. Beyond the core business, there’s also TheFork, a restaurant reservation platform, which is small ($42 million in revenue) but growing faster than the traditional business (up 20% in the latest quarter). Stepping back, Tripadvisor is also embracing artificial intelligence to improve the customer experience, including a recently launched generative AI-powered itinerary feature, which management sees as a growth driver since members who build an itinerary generate three times higher revenue than the average member. Analysts see mundane top-line growth, though that’s likely conservative.

As for the stock, after hitting a multi-year high near 60 in early 2021, TRIP was the dog’s dinner for the next couple of years. However, the selling climaxed last year after falling to a low near 14, with shares spending the last several months rounding out a bottom. The stock finally showed signs of turning the corner in early November, rallying nicely on multiple weeks of big-volume buying. The past two weeks have been choppy, but not abnormal, with shares nosing lower on light volume as the 25-day line catches up. We’re OK grabbing some shares around here.

Current Recommendations

Changes Since Last Week:

10x Genomics (TXG) Moves from Buy to Hold

We continue to add, not subtract, as our portfolio now swells to a whopping 27 stocks. The only downgrade was 10x Genomics (TXG), which we’ve demoted to Hold after a rough week. It’s possible it will be our first Sell all month in next week’s issue, but we’ll give it some rope thinking the selling (on decent preliminary revenues) might be overdone – a strategy that paid off with Krystal Biotech (KRYS) after it tanked on an overreaction a few months ago, only to rebound steadily ever since. Most of our other stocks are acting well – quite well, in many cases, as the 10 stocks at new highs suggests.

Let’s get into what’s happening with all of them.

Updates

10x Genomics (TXG), originally recommended by Carl Delfeld in his Cabot Explorer advisory, fell off a cliff in the last week, plummeting from 53 to 45. However, that down move essentially only erases the stock’s considerable gains in December and early January, as it is now trading exactly where it was in early December. Wall Street apparently didn’t like the preliminary earnings the company came out with, even though on the surface they seemed “fine,” as Carl noted in his latest update: “The company announced unaudited preliminary revenue of approximately $184 million for the three months ended December 31, 2023, representing 18% growth year over year. 10x is a leader in the emerging field of ‘spatial biology’ which is a cutting-edge life science for making new discoveries about human health and disease.” Even if the sell-off was “unearned,” we’re not going to whistle past the graveyard as shares have now dipped below their 50- and 200-day moving averages. Let’s downgrade TXG to Hold and see what it does from here. If it holds support at 45, a quick bounce-back could be in order. MOVE FROM BUY TO HOLD

Alexandria Real Estate Equities, Inc. (ARE), originally recommended by Tom Hutchinson in the Safe Income Tier of his Cabot Dividend Investor advisory, was down 3% in its first week in the portfolio. No matter – a bit of weakness was to be expected after a huge run-up in late 2023, as Tom wrote last week: “ARE has soared more than 40% since the low of late October. But we didn’t miss the boat. The stock is still more than 40% below the all-time high and at a historically cheap valuation. The company also has a highly reliable and growing business that should thrive in any economy. It’s cheap with strong momentum ahead of a period of likely strong performance as interest rates abate. It has leveled off in the past couple of weeks but should have another leg higher before long.” BUY

American Eagle Outfitters, Inc. (AEO), originally recommended by Mike Cintolo in Cabot Top Ten Trader, has been bouncing around in the 20-21 range after reporting an 8% increase in holiday sales and raising fourth-quarter sales guidance to low-double-digit growth. That bodes well for a stock that’s already delivered a 20% gain in the two and a half months since we added it to the portfolio. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, keeps holding steady right around 11. There’s been no news for this U.K. life insurance and investment management firm of late. Shares have 29% upside to Bruce’s 14 price target. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is down about 3% since our last issue as the bull market rally of November and December appears to be taking a January breather. Perhaps earnings season will be the next catalyst for this “Bull Market Stock” (Mike’s term), or maybe its own earnings report, due out January 25. Regardless, it’s still a bull market, so this remains one of the best ways to play it. In fact, the recent mini-dip looks like a great buying opportunity. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, is up about 3% in the last week and appears on its way back near December highs. In his latest update, Tom wrote, “This former solid dividend paying technology infrastructure stalwart turned into a sex symbol after artificial intelligence spending exploded last spring. AVGO has exploded 75% higher since then. The stock tends to surge higher, then bounce around sideways for a while until the next surge higher. The latest surge was because the company reported earnings that impressed the market. Earnings remained solid and Broadcom also cited future earnings gains from its recent VMware acquisition as well as the potential to double AI revenue from $4 billion in 2023 to over $8 billion in 2024. Until the pattern changes, I expect AVGO to have another surge higher in the next several months.” BUY

BYD (BYDDY), originally recommended by Carl Delfeld in his Cabot Explorer advisory, remains sluggish, stuck in the 52-54 range it’s been in all month. There’s nothing wrong with the company, which overtook Tesla in the latest quarter in terms of battery electric vehicles sold. Rather, BYD is suffering from guilt by association, as Chinese stocks remain out of favor. If anything, the news for China’s electric vehicle leader keeps getting better: The company plans to unveil its advanced driver assistance systems (ADAS, i.e., driverless) at today’s BYD Dream Day event, which could help it become even more competitive with Tesla. Meanwhile, the company is set to expand its footprint into Indonesia – the fourth-most populous country in the world – and is in talks with Brazil’s Sigma Lithium about a potential supply deal, or possibly even a full acquisition. There’s a lot to like about this ever-expanding EV leader; eventually, the share price will catch up with its impressive fundamentals. But until that happens, we’ll keep it at Hold. HOLD

Comcast Corporation (CMCSA), originally recommended by Bruce Kaser in the Growth & Income Portfolio of his Cabot Value Investor advisory, keeps holding at 43. There’s been no news. Earnings are due out January 25, so that could be just the thing to get the stock out of its current rut. BUY

CrowdStrike (CRWD), originally recommended by Mike Cintolo in Cabot Growth Investor, was up 10% in the last week to match its 2021 all-time highs in the mid-280s! Why the strength? Mike explained in his latest update: “This stock has come to life on very nice volume, bursting to higher highs. CrowdStrike has been helped this week by some bullish tidings from a couple of big brokerage firms: One talked about the sector as a whole, thinking rising threats (MGM and Clorox incurred more than $100 million in damages recently; one source said ransomware attacks are up more than 70% from a year ago!), regulatory changes (we wrote about that two weeks ago) and a desire to consolidate on one platform (the average enterprise deploys around 50 different security tools!!) should drive growth. All of that is to the good—but, near term, we’re actually debating possibly selling some shares given the stock’s big run in recent months, and also the move this week, which brought with it a couple of upside gaps. That said, big picture, if the market is going to run a few months, CRWD quacks like a magnet for institutional money, so we’re not going there yet—right now, we’ll stay on Buy a Half, but aim for dips of at least a few points if you want in.” Good advice from Mike as always, and with a 75% gain on the stock in just over four months (!), I’d urge you to do the same. If you got in shortly after our early-September recommendation, now is the time to sell about a quarter or a third of your original position to book profits on our considerable gain. Let the rest ride. If you have not yet bought, you can still do so in small doses, but I’d wait for the next dip. BUY

Dave & Buster’s (PLAY), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was down from 51 to 49 last week. There was no news. The stock is up more than 14% in the last year but trading well below its 2017 highs at 69. After a huge run-up in November and December, the stock was due for a breather. But after two straight weeks of falling, let’s keep a closer eye on this one. BUY

DraftKings (DKNG), originally recommended by Mike Cintolo in Cabot Growth Investor, held firm at 33 this week and appears to have put in a temporary bottom at 32. In his latest update, Mike wrote, “We sold half of DKNG last week as the stock gave up all of its post-breakout upside and knifed below its 50-day line—and it’s been living below that intermediate-term trend line since, despite a bounce. From here, we’ll pretty much play it by the book: The fundamentals here remain on track (it entered Vermont today, its 26^th state), and if the EBITDA forecasts the firm released at its investor day in November prove true (or conservative), investor perception could easily get back on the upswing. Right here, we’ll hold our remaining shares with a mental stop in the 31 to 32 area. Earnings are due February 15.” Last week we downgraded to Hold on recent weakness. We’ll keep it right there. HOLD

Dynatrace (DT), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up 4.5% in the last week to hit new 52-week highs! There was no major news, other than the company hiring a new Chief Marketing Officer (Laura Heisman). Earnings are due out in a couple weeks, so perhaps the Street knows something. Or perhaps the stock is still drawing strength from an upgrade from Jefferies analyst Brett Thill earlier this month. Thill set a price target of 70, 25% higher than the current price. I posted Thill’s research note in last week’s issue, but here it is again in case you missed it: “Dynatrace provides an AI-powered data analytics platform for application performance monitoring (APM), information technology (IT) infrastructure monitoring, and application security. The platform gives companies complete visibility of their IT systems, improves application performance, and reduces downtime by predicting IT issues and remediating problems faster when they occur. Dynatrace is trusted by more than 3,000 large enterprises, including many of the world’s largest financial institutions, health care companies, retailers, and government agencies. With nearly 20 years of monitoring experience, petabytes of IT telemetry data, and the most powerful AI engine in the space, Dynatrace is the best-positioned vendor to serve these large customers. The company is recognized as a technology leader in its category, helping its clients remediate issues faster than most competitors. As a result, Dynatrace has low churn, commands industry-leading free-cash-flow (FCF) margins, and it is winning market share as customers consolidate their IT monitoring spending away from legacy point solutions onto the Dynatrace platform. We see a long runway for profitable growth as customers expand their digital applications and cloud footprints, consolidate more spending onto Dynatrace, and embrace new complementary products.” BUY

Elastic N.V. (ESTC), originally recommended by Tyler Laundon in Cabot Early Opportunities, has recovered all its losses from the first week of January and is right back to where it was in late December at 115. In his latest update, Mike wrote, “ESTC has lost a little ground so far this year, though net-net, it’s still effectively consolidating its huge earnings move from early December—obviously, we’d prefer if the stock simply kited higher, but the action certainly isn’t unreasonable. Business here is solid as the firm’s search offerings are big hits in applications like security and observability; sales were up 17% in Q3 and analysts see earnings up 34% this year. But the bigger question in terms of investor perception is how quickly the tidal wave of interest in the firm’s search solutions for AI platforms—a natural fit—results in actual, meaningful orders. We’re optimistic the best is yet to come, so we’re holding what we own, and think you can grab a small position if you’re not yet in.” With a gain of more than 50% in just over two months, it wouldn’t be a bad idea to book profits on a few shares if you got in early. Otherwise, follow Mike’s advice. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, is hitting new all-time highs! Shares are up another 4% since we last wrote, and the stock is now nearly a double for us. Like with a couple other stocks we mentioned earlier, that means it’s a good time to sell a few shares (a quarter or a third of your remaining position) to lock in some profits. But we will keep the stock at Buy for everyone else, as the momentum for this weight-loss drug producer (Mounjaro) is undeniable. In his latest update, Tom wrote, “This superstar big pharma stock has been a lot like AVGO. It periodically surges higher and then consolidates by going sideways for a while until the next surge higher. LLY closed with a 2023 return of 60% and an average annual return of 52% over the last three years. Weight loss drug Mounjaro was approved by the FDA in November. Some analysts estimate it could potentially be a $20 billion per year drug. That would match the best-selling drug ever. It still has its Alzheimer’s drug up for FDA approval in the months ahead. Earnings are expected to grow at about a 25% per year clip over the next several years, but that number could be higher with the new drugs.” BUY

Green Thumb Industries Inc. (GTBIF), originally recommended by Michael Brush in Cabot Cannabis Investor, is thus far looking like a very well-timed addition! Shares are up more than 16% in the two weeks since we added this cannabis stock, including a 5% jump in early trading today after the Drug Enforcement Administration (DEA) acknowledged that it is reviewing the August recommendation from the Department of Health and Human Services (HHS) that cannabis be rescheduled from a Schedule I to a Schedule III drug. Yes, merely reviewing the request is moving the needle that much for cannabis stocks, which have been starved for a catalyst; now, there are several major potential catalysts, none bigger than rescheduling, which would officially remove marijuana from a list of the most harmful drugs, including heroin, cocaine, LSD, etc. Of course, cannabis stocks remain volatile, and recent momentum could fizzle quickly, at least until rescheduling actually happens. But we’re off to a good start with the largest U.S. cannabis company. BUY

Intel Corporation (INTC), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, has been in the 46-48 range all month after zooming as high as 50 in late December. In his latest update, Tom wrote, “This previously beleaguered and left-for-dead chipmaker stock has been reborn. INTC soared over 50% between late October and the end of the year and finished 2023 with a spectacular 93% return. Earnings indicate that Intel’s turnaround is well on track. It has promising new chips coming out in high-growth areas and its foundry business could be huge. The stock got dirt cheap, and investors are increasingly willing to bet on the company’s future. I expect this to be another strong year for Intel as the turnaround to profitability comes to fruition.” BUY

Krystal Biotech (KRYS), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up about 3% since we last wrote. There’s been no news. This small-cap biotech has been a roller coaster ride, but it appears to have found its footing of late and we have a modest gain on it after three and a half months, so let’s hang in there for further upside. BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, finally broke out of its 365-375 range and is hitting new all-time highs! A new partnership with Vodafone, to bring generative AI and cloud services to Europe and Africa for the next 10 years, is the latest catalyst, as Vodafone is pouring $1.5 billion into customer-focused AI using Microsoft’s Azure OpenAI and CoPilot technologies. It’s the latest example of Microsoft’s leadership position in AI paying dividends. We now have a 56% gain on MSFT stock, and it’s possible this breakout is the start of another longer leg up. BUY

Novo Nordisk (NVO), originally recommended by Carl Delfeld in Cabot Explorer, is off to a solid start in 2024 like fellow weight-loss drug giant Eli Lilly (see above). Though the maker of Ozempic and Wegovy didn’t make the same strides as LLY this past week, shares did briefly touch a new all-time high above 110. In his latest update, Carl wrote, “The obesity drug market remains a focus for investors and was one of the most talked about topics at the annual JPMorgan Healthcare Conference in San Francisco this week. Novo is carving out a huge market for diabetes and obesity that Goldman Sachs estimates will reach a $100 billion market by 2030.” BUY

Nutanix (NTNX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, broke out of its recent 45-47 range to touch a new 52-week high above 50. Mike wrote about why in his latest update: “NTNX’s dip was very modest compared to its recent run, and this week it’s moved back to new highs on solid volume. Interestingly, we’re once again seeing some acquisition rumors for the company—a couple months ago, it was rumored that Hewlett Packard Enterprises (HPE) was sniffing around the firm, though that company looks like it’s going to be gobbling up Juniper Networks; thus, the suitor is unknown, though the firm’s reasonable market cap (just under $12 billion) and leadership position in the IT field would seem to make it attractive. Even so, we don’t trade based on rumors, which can go as fast as they come—but we do see a reasonable dip toward the 10-week line followed by a strong rebound. We’ll stay on Buy, but as always, try to enter on dips if you’re not yet in.” BUY

Pinterest (PINS), originally recommended by Mike Cintolo in Cabot Top Ten Trader, keeps ping-ponging between 36 and 37. There’s been no news. A move back above mid-December highs at 38 would be bullish. BUY

PulteGroup, Inc. (PHM), originally recommended by Mike Cintolo in Cabot Growth Investor, has been holding in the 100-104 range for about the last month, which is impressive considering it ran up from as low as 69 in late October. In his latest update, Mike wrote, “There is tight trading, and then there is tight trading, and PHM (and many other homebuilders) essentially didn’t move the past three weeks despite a modest backup in mortgage rates and the market’s wobbles before some buying this week. That doesn’t necessarily mean it’s off to the races, though—following an end-of-year romp, it’s likely PHM and other homebuilders need to rest a bit, especially if inflation is staying stubbornly elevated (making it less likely the Fed cuts rates anytime soon). Still, we’re focused on the intermediate term, so while we do think new buyers should aim for reasonable dips to enter (especially with earnings starting to come into view—due out January 30), we’re holding on tightly to our position.” BUY

ServiceNow (NOW), originally recommended by Mike Cintolo in his Cabot Top Ten Trader advisory, has broken out to fresh all-time highs! Shares are up nearly 5% since we last wrote on no news, though perhaps next week’s earnings (January 24 release) are being factored in early. We now have a 30% gain on this large-cap software stock. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is off to a rough start in 2024 after more than doubling in 2023. Perhaps that’s to be expected. The latest selling appears to yet again have to do with Elon Musk, who is demanding 25% voting control of the company. Given his many erratic actions of late, it’s no surprise that’s prompting some investors to sell a few shares. I view nearly all Musk comments and mishaps as just noise, not all that relevant to Tesla’s business, which remains strong despite narrowing margins due to price cuts on some of its higher-profile models. Earnings are due out January 24. Let’s see if they can be good enough to right the ship coming off a disappointing third quarter. Keep holding if you already own shares. HOLD

Uber (UBER), originally recommended by Mike Cintolo in Cabot Growth Investor, had regained all its early-January losses and is right back to all-time highs above 63. In his latest update, Mike wrote, “UBER has joined everything else on the market’s rollercoaster so far this year, likely partly due to the after-effects of its S&P 500 inclusion (back on December 18) along with other factors. Still, the selloff was normal, down to the 10-week line, and the ensuing bounce is encouraging (though it has come on light trade). The firm has been mostly quiet on the news front since earnings in early November, with even other news items (like a new rule from the Dept. of Labor that involves defining contractors vs. employees) unlikely to influence Uber’s bottom line much. All in all, we continue to think UBER looks like a liquid leader that can continue to do well assuming the market does. We’ll stay on Buy. Earnings will be reported February 7.” We now have an 87% gain on the stock in 11 months! BUY

Varonis (VRNS), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up 6% since we last wrote to hit new 52-week highs! There’s been no news. Earnings are due out February 5. Varonis sells security software that’s used to protect enterprise data, from sensitive files and emails to confidential customer and patient records, financial data, strategic and product development plans and so much more. BUY

The next Cabot Stock of the Week issue will be published on January 22, 2024.