Cabot Stock of the Week Issue: January 21, 2025

Now that’s more like it!

After a rocky start to the year, on the heels of a down December, stocks finally got going last week after the December inflation numbers came in cooler than expected, or at least the core inflation numbers did, setting off the first rally of 2025 and sending Treasury yields tumbling back from 14-month highs. Does that mean the market’s early-winter malaise is already over? That may depend on earnings season, which kicked off late last week, and other factors like the early days of Donald Trump’s second term and what the Fed says late next week.

In the meantime, let’s capitalize on the renewed buying and add a speculative stock whose name is likely familiar to some of you. It’s a new pick from Cabot Early Opportunities Chief Analyst Tyler Laundon. Here are Tyler’s latest thoughts on it.

Reddit, Inc. (RDDT)

There’s a case to be made that Reddit (RDDT) will be one of the most popular tech stocks of the year.

Sometimes you have to climb out on a limb for an expensive growth stock.

If you’re not familiar, or just need a refresher, Reddit is an online forum where registered users talk about everything under the sun.

Those conversations happen in subreddits.

The company makes most of its money through advertising. It’s benefiting from AI applications since people are using AI to create content that finds its way to Reddit.

While reliance on advertising means Reddit competes with digital ad platform giants Meta (META) and Google (GOOG), the company’s engagement, monetization and earnings growth suggests it’s more than holding its own.

In Q3, daily average users (DAUs) came in at 97 million (+47%), roughly 20% higher than expected thanks, in part, to machine learning (ML) tools to analyze data and improve the user experience.

The company has been investing in customized content recommendations, elevating conversations and videos, improving search functionality and adding translations, which is helping to drive international growth.

Initiatives like new automations, Reddit Pro (business tools to help discover and engage in communities and conversations relevant to a particular industry) and Reddit Shopping (ecosystem to help people find products they want) should help drive ad growth in 2025.

There also appears to be considerable potential to drive growth through search ads, video ads and the growing user economy, none of which have crept into analyst forecasts yet.

It’s hard not to be impressed by Reddit’s 68% revenue growth from Q3 ($348.4 million, an 11% beat) and profitability (adjusted EPS of $0.61 crushed expectations by $0.23).

That said, consensus expectations haven’t changed much from a month ago. Full-year 2024 revenue growth is still expected to be around 60%, and 2025 revenue expectations are currently landing near 35%.

But as recent history shows, actual results don’t necessarily line up with expectations.

With the trends currently working in Reddit’s favor, and taking note of the exponential growth sometimes enjoyed by social media companies, we’ll step in with a half-size position.

As for the stock, RDDT came public on March 21 at 34 and the stock was up over 100% within a week. It traded back down near its IPO price in April but then got into a groove. By mid-July shares were trading above 70. Another drawdown pulled the stock down to 49 by the Q2 earnings date on August 6, then RDDT spent two and half months grinding back to its all-time high of 78 (from July). The Q3 earnings report on October 29 catalyzed a massive breakout (+42% to close at 116 the next day) and RDDT moved higher through early December until it got to 180. Shares have traded between the 156 and 188 levels over the last five weeks. BUY

Current Recommendations

Changes Since Last Week: Eli Lilly (LLY) Moves from Buy to Hold

At 28 stocks with the addition of Reddit (RDDT), our portfolio is overcrowded again. I wanted to sell something to avoid further bloat, but – with a major boost from the market – it was too good a week for our portfolio, with most of our stocks up at least 5% and some more than 10%. Eli Lilly (LLY) was one exception, as it is now bumping up against six-month lows. I was tempted to sell it. But, LLY has been our single best performer over the last two years, and I don’t think its run is over yet, so I merely downgraded the stock to Hold. Another bad week or two and I might change my mind.

Nearly all the other stocks in our portfolio were up this week, with most threatening to match or top their December highs. Here’s what’s happening with all of them.

Updates

AbbVie (ABBV), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, is not off to the best start for us, falling nearly 3% in each of its first two weeks in the portfolio. There’s been no major company-specific news. AbbVie reports earnings January 31. In his latest update, Tom wrote, “The future looks good for this life science and biotech company. AbbVie is turning the corner from the Humira expiration as new drugs Skyrizi and Rinvoq are expected to generate $19 billion this year, replacing nearly all the peak Humira revenue alone. The company returned to slow revenue growth in the second half of 2024 and is expected to generate ‘robust’ growth this year. There are also several drugs that should receive FDA approval this year. ABBV returned a respectable 15% in 2024 but 2025 should be much better as greener pastures are finally arriving. But an early sticking point is trepidation over the nomination of RFK to HHS and fears about pricing.” BUY

American Airlines (AAL), originally recommended by Clif Droke in his Cabot Turnaround Letter, got off to a good start, rising 5.5% in its first week in our portfolio. The airline will report earnings this Thursday, January 23. Analysts are anticipating 2.8% revenue growth with a whopping 127% EPS growth. The company has topped EPS estimates in three of the last four quarters. Given the run-up in the share price this past week, it’s possible an earnings beat is already baked into AAL’s price. So, if you didn’t buy on our recommendation last week, you may want to wait until after Thursday’s earnings report to start a new position. Officially, however, we’ll stay on Buy. BUY

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, kept holding around support in the high 20s/low 21s on no news. As Tyler noted in his latest issue, “AST SpaceMobile (ASTS) recently signed an agreement for long-term access (80 years) to lower mid-band spectrum in the U.S. The spectrum became available as part of Ligado’s messy restructuring effort and will cost ASTS around $550 million upfront, 4.7 million penny warrants (12-month lockup) and $80 million a year for usage rights. ASTS says this spectrum will help it expand subscriber capacity and peak transmission speeds across the U.S. and Canada. I believe this spectrum will represent the company’s only owned spectrum (i.e., not owned by AT&T (T), Verizon (VZ), etc.) which adds an interesting wrinkle to the ASTS story. That said, the spectrum has apparently been a challenge for Ligado to monetize for terrestrial communications due to interference, (which) may not be an issue given ASTS’ plans to use it for space-based communications.” 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 were down about 8% after 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 had a nice bounce-back this week, rising more than 5% on no news. 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 $16.2 billion. That gives AVVIY shares 31% upside from their current price. The 7.2% dividend yield adds to the appeal. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was back with a vengeance this week, advancing 10% to reach its highest point in a month as the market recovered following the cooler inflation reports. This “Bull Market stock” (Mike’s term) always tends to outperform in bull markets, so this week’s bounce-back was no surprise. The real test comes next Thursday, January 30, when the company reports earnings. Two Wall Street firms, Barclays and Wells Fargo, just lowered their price targets on the stock, so it’s possible BX’s run is on borrowed time. But as long as the bull market remains intact, the stock is likely to remain in our portfolio. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, was up more than 6% this week as Barclays raised its price target on the stock from 205 to 260. In his latest update, Tom wrote, “Sure, AVGO came off the high. But it had to... But it is hanging tough near the top of the range, indicating that it is likely to hold the recent gains. This semiconductor, software and artificial intelligence juggernaut really got a boost from earnings last month. AVGO soared 38% in the two days following the report. The company said demand for its AI chip (XPU) is booming and expects it to generate revenues between $60 billion and $90 billion by 2027. Revenue was $12.2 billion in fiscal 2024. The revelation has captured the imagination of investors.” Having sold half our shares after that 38% post-earnings bounce, we will continue to hang on to the remaining half. HOLD HALF

BYD Co. Ltd. (BYDDY), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was up 10% this week after announcing a new partnership with Grab, Southeast Asia’s leading ride-hailing platform. Under the agreement, Grab drivers in fast-growing Southeast Asia will have access to as many as 50,000 BYD cars. It’s another step in BYD’s global expansion outside of China, where it does roughly 90% of its business. BUY

Capital One Financial Group (COF), originally recommended by yours truly in the Growth/Income portfolio of my Cabot Value Investor advisory, reports earnings after the bell today. Analysts anticipate EPS of $2.80, or 25% year-over-year growth, with 7.5% revenue growth. We’ll see if the company can exceed those optimistic estimates. The stock is up 9% in the last week, so it’s possible an earnings beat is already baked into the share price. Hold off on new buys until after the report. BUY

Centuri Holdings Inc. (CTRI), originally recommended by Clif Droke in his Cabot Turnaround Letter, was up 11% this week on no news. At 22 a share, the stock is trading at its highest point since last June. Shares of the small-cap utility have been on an upward swing since new CEO Christian Brown took over in early December – a move that prompted famed investor Carl Icahn to up his stake in CTRI by 38%. BUY

Constellation Energy Corporation (CEG), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, has been on a tear, advancing 13% this week and 43% year to date. Here’s Tom on why: “This electricity demand story is hot stuff. CEG had yet another huge surge higher. The stock soared more than 25% last Friday after the company announced it will acquire natural gas and geothermal electricity giant Calpine Corp. for $16.4 billion. The deal includes 50 million CEG shares and $4.5 billion in cash plus the assumption of $12.7 billion in debt for a net price of $26.6 billion. The deal is expected to close within the next 12 months. Obviously, the market likes the deal.

“The acquisition makes Constellation the biggest independent electricity provider in the nation at a time when demand for electricity is skyrocketing because of artificial intelligence. The company was already the largest provider of clean energy for electricity, and this makes it a giant. Carbon-friendly power generation is the most desirable for technology companies looking to secure power sources for their massive data center needs. The purchase puts Constellation even more in the cat bird’s seat of a massive trend.” We now have an 81% gain on CEG in just four and a half months. BUY

DexCom, Inc. (DXCM), originally recommended by Clif Droke in his Cabot Turnaround Letter, had a nice bounce-back week, advancing 7.5% after Baird upgraded the stock to Outperform and raised its price target from 86 to 104. The firm said its rating hike is based on DexCom’s potential for U.S. sales growth to surge back to the low-to-mid teens by mid-2025, plus growing confidence that the company’s in-the-works G7 15-day sensor will be approved by the Food and Drug Administration (FDA) for use in hospitals soon. Also, DexCom recently released preliminary, unaudited Q4 earnings results, which were solid. Revenue improved 8% for the quarter and 11% for the year, and the company expects revenue to accelerate to 14% growth this year. Official results won’t be released until February 13. BUY

DoorDash Inc. (DASH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is up 5% in the last week after both Morgan Stanley and Wells Fargo raised their price targets on the stock. There’s been no company news. Shares are still down from their December highs, but the online food delivery giant continues to attract institutional confidence, with four analyst price target boosts in the last month. BUY

Dutch Bros (BROS), originally recommended by Carl Delfeld in his Cabot Explorer advisory, is up 8% in the last week on no company-specific news. Jefferies maintained a “Buy” rating on the stock but raised its price target from 60 to 69. In his latest update, Carl wrote, “Dutch Bros (BROS) shares are up 12% so far this year as the company effectively leverages its Dutch Rewards loyalty program and the stock is getting more attention as a compelling growth story. Dutch Bros seems to have found a way to connect with its customers and offer what people want. As coffee giant Starbucks stumbles, Dutch Bros has expanded beyond coffee to lemonades, teas, smoothies, and energy drinks.” BROS shares have now nearly doubled since we added it to the portfolio five months ago. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was down 8% this week and is bumping up against six-month lows, despite news that its weight-loss drugs reduce the risk of Alzheimer’s. It’s clear that Wall Street’s romance with weight-loss drugs is over, even though sales for Lilly’s Zepbound and Mounjaro remain strong. What has soured Wall Street on the stock in the last week is CEO David Ricks’ comment at the January 14 JPMorgan Healthcare conference that Lilly’s sales growth would come in at 32% in 2024 – slightly less than he’d estimated a few months back. Riding the GLP-1 wave that it created along with former Cabot Stock of the Week holding Novo Nordisk (NVO), LLY has been a very good stock for us, way more than doubling since we recommended it nearly two years ago. But momentum has clearly waned of late, so let’s downgrade the stock to Hold. Another decisive down move from here could prompt us to sell. MOVE FROM BUY TO HOLD

Flutter Entertainment (FLUT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is up 6% in the last week on no news. In his update last Thursday, Mike wrote, “Flutter Entertainment (FLUT) actually found some support even after pre-announcing sour Q4 earnings (due to a string of customer-friendly sports outcomes), though like so many names, it remains choppy and news-driven—FLUT rallied back to its 50-day line yesterday morning before news broke that Maryland would hike its online sports betting tax rate, causing some selling. Thus, the stock remains tedious, but it’s also holding its lows, and the overall correction wasn’t out of character.” To Mike’s point, FLUT is still shy of its December highs, but shares have found life in the last few days, likely in sympathy with the market. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, bounced back nicely in the last week, up more than 5% after encountering some rare weakness in previous weeks. A price target hike (204 to 227) by Morgan Stanley helped. The stock still trades below its December highs but has held up better than most growth stocks and now appears to be gathering momentum again. BUY

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, is up 11% in the last week ahead of this Thursday’s (January 23) earnings report. Analysts are looking for 16% revenue growth and 12% EPS growth as the company continues its rollout of the new da Vinci 5 robot surgical system. It’s possible the strong quarter is already baked into the share price, so I’d keep new buys small ahead of Thursday’s report. BUY

Klaviyo, Inc. (KVYO), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was up 5% this week thanks to a price target hike (from 38 to 47) from Morgan Stanley. That comes on the heels of target hikes from Piper Sandler and Wells Fargo in the last month, as it’s clear this mid-cap software solutions company is making believers out of Wall Street. The stock is still well shy of its December highs, so this could be a good entry point. BUY

Kyndryl Holdings, Inc. (KD), originally recommended by Mike Cintolo in his Cabot Top Ten Trader advisory, is up 6% in the last week on no news. The company will report earnings on February 3. Kyndryl is a mid-cap IT infrastructure and consulting provider that was spun off from IBM three years ago. Most of the Fortune 100 companies depend on Kyndryl’s technology, and most of their contracts with the company yield high-single-digit margins. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, is up from 57 to 60 – a new all-time high! 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 month. Despite a hiccup over the past few weeks, MAIN is a rare stock that didn’t have a December swoon. The improving economic outlook leaves room for further appreciation.” BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up 2.5% in the last week but is still well short of its December highs. In his latest issue, Tyler wrote, “Microsoft (MSFT) has pulled back with the market since mid-December in what should be a temporary bit of weakness. The company is in the pole position in terms of AI while also holding the largest share of IT spend and remaining the preferred public cloud vendor. Lots to like, not much to dislike.” Also, earnings are due out January 29. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up 3.5% in the last week ahead of today’s after-market earnings report. Analysts are expecting big things: 98.8% EPS growth. We’ll see if the company can top those lofty estimates. Regardless, NFLX is a premiere growth stock that should be part of every investor’s long-term portfolio. BUY

On Holding (ONON), originally recommended by Mike Cintolo in Cabot Growth Investor, is finally breaking out of its 55-to-59 range, topping 60 in mid-day Tuesday trading. In his latest update, Mike wrote, “On Holding (ONON) has been struggling some of late, which is why we went to Hold last week; by most accounts, the firm’s fireside chat at the ICR Retail conference this week went well (the stock scored some analyst upgrades), though that hasn’t helped the stock. Like a lot of things out there, ONON is essentially neutral here—it’s not horribly weak (just 9% off its highs) and has set up a nice, low-volume, seven-week launching pad, so we’re comfortable hanging on here. But we’d like to see buyers show up soon, especially if the market’s latest bump gets legs.” It seems the buyers are starting to show up, so we will maintain our Buy rating. BUY

Primo Brands (PRMB), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, is up more than 7% in the last week after weeks of stagnation at the 31 level. BMO Capital initiated coverage of this mid-cap water stock with a 40 price target and Outperform rating. BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, is up 11% in the last week to match its December highs. There was no company-specific news. Sea remains an excellent way to play Southeast Asian growth and has also expanded to parts of Latin America. In addition to its dominant e-commerce platform Shopee, the company offers digital financial services (SeaMoney) and digital entertainment (Garena). The stock has more than doubled since we added it to the portfolio last March and yet it trades at less than a third of its 2021 highs. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, bounced back nicely this week, up 5.5% after briefly dipping below 400 a share. Donald Trump taking office surely helps from a perception standpoint, as he has named Tesla CEO Elon Musk to his cabinet, which could be good for Tesla down the road. The company also reports fourth-quarter earnings on January 29, with a chance to build on its momentum from the third quarter. TSLA shares are now up more than 70% since Trump won the election. BUY

If you have any questions, don’t hesitate to email me at chris@cabotwealth.com.

Here, too, is the latest episode of Cabot Street Check, the weekly podcast I host with my colleague Brad Simmerman. This week, we talked about some “hotspots” we’re watching closely this earnings season.

The next Cabot Stock of the Week issue will be published on January 27, 2025.

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