Cabot Stock of the Week Issue: January 6, 2025

Happy New Year, indeed! In the wake of a rare down December, stocks have come roaring back to kickstart 2025, up more than 2% through the first three trading days. It’s early yet, but perhaps the bulls are taking control again after a sluggish end to an otherwise very productive 2024.

Still, there were enough yellow flags under the surface to close out the year that it’s worth taking a cautious approach for now. As of late last week, 80% of stocks in the NYSE and S&P 500 were at or below their 50-day moving averages (hat tip to Mike Cintolo for that stat); the Equal Weight index was down 6.6% in December; and the Russell 2000 had fallen 7.7%. So while the headline S&P and Nasdaq indexes were only down about 2-3% from their highs, beneath the surface, there was a lot of selling happening.

Now, it appears that’s changing. But because we’ve been leaning heavily on growth of late, it’s worth adding some insurance to the Stock of the Week portfolio to kick off the new year. So today, we add a mega-cap, high-yield dividend stock that’s been a staple of Tom Hutchinson’s Cabot Dividend Investor portfolio for some time.

Here it is, with Tom’s latest thoughts.

AbbVie Inc. (ABBV)

AbbVie is a U.S.-based biopharmaceutical company formed in 2013 as a spinoff from Abbott Laboratories (ABT). AbbVie is a research-based pharmaceutical company that specializes in small-molecule drugs. It’s a cutting-edge company with a terrific pipeline.

AbbVie became an industry giant because of its mega-blockbuster drug Humira. It’s an autoimmune medication that became the world’s bestselling drug with annual sales of $20 billion. But the tremendous success of that drug became a problem as Humira lost its patent overseas a few years ago, and it lost its U.S. patent in 2023.

Because of shrinking Humira sales, AbbVie posted lower year-over-year revenues in 2023 and in the first half of 2024. But the company is turning it around. AbbVie has long planned for this eventuality and has done a stellar job launching new drugs capable of replacing the diminishing Humira revenue.

It’s worth noting a couple of things at this point. First, AbbVie is well-positioned ahead of a megatrend. The population is aging at warp speed. The main industry beneficiary from the aging population is healthcare. In 2012, total healthcare expenditures in the United States were $2.8 trillion. Since then, spending in the sector has increased about 80% and now accounts for a staggering 20% of total U.S. GDP. Spending is likely to continue to increase going forward.

Second, despite the steep patent cliff (Humira accounted for 75% of revenue a few years ago), the stock has still performed well. The patent cliff was well known by investors, yet ABBV has returned 50% over the past three years and 151% over the last five versus returns for the S&P 500 of 32% and 97% over the same periods, respectively. That’s because even impatient investors realize that the company has stellar new drugs and a pipeline capable of overcoming Humira.

AbbVie’s new immunology drugs, Skyrizi and Rinvoq, are expected to replace Humira’s peak revenues in a short period of time. In fact, management estimates that the combined revenue of these two drugs will be over $19 billion in 2024 and $27 billion by 2027, far exceeding Humira’s peak sales. The pipeline is strong also, and the company estimates that at least five new programs will get regulatory approval in 2025. In addition, Humira, as a biotechnology drug, doesn’t fall off a cliff like regular drugs after a patent loss. Humira is still estimated to generate over $5 billion per year late into the decade.

The past year was supposed to be a tough one as revenues continued to struggle. Longer-term investors planned on enduring 2024 en route to greener pastures ahead. But ABBV “endured” the year with a respectable 15.3% total return. Revenue in the first nine months of 2024 turned the corner and rose 3% over the same period in 2023. Management’s expectation of a return to moderate growth in late 2024 has already come to fruition, and the company expects earnings to accelerate to “robust growth” in 2025 and beyond.

ABBV also pays a strong dividend, currently $6.56 per share annually, which translates to a 3.6% yield at the current price. But the payout has more than quadrupled since the spinoff in 2013. Companies that consistently grow the dividend have been the best-performing group in the market over time.

Another pharmaceutical company faced a huge patent cliff years ago. Eli Lilly and Co. (LLY) endured a huge revenue decline from a patent cliff in 2014. But the strong pipeline overcame the shortfall. In the 10 years since. LLY has returned more than 1,200%. While that level of performance is unlikely, AbbVie also has strong R&D and a promising pipeline.

AbbVie is a cutting-edge company with a stellar pipeline of new drugs and recently launched drugs and treatments. The company is officially moving past the Humira patent expiration that has held the stock back for years. Imagine how the stock will perform without a patent cliff and with strongly growing sales. BUY

Current Recommendations

Changes Since Last Week: None

No changes since our last issue, which was just three full trading days ago. With the market off to a fast start in the very early stages of 2025, most of our stocks are performing quite well, including an excellent debut week from Kyndryl Holdings (KD), up more than 13% already. AST SpaceMobile (AST), Constellation Energy Corp. (CEG) and Dutch Bros. (BROS) all joined KD in rising double-digit percentages in the first few trading days of 2025.

Here’s what’s happening with all our stocks.

Updates

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, has been on a rollercoaster ride the last couple weeks, falling from the high 24s to the low 21s, and now back in the 24 range – all since Christmas. And it’s all happened without much company-specific news. That’s the nature of such a volatile stock that’s still mostly pre-revenue. But AST’s promise keeps bringing investors back in, which is why the stock has more than doubled since we added it to the portfolio last July. The company’s promise is becoming more of a reality after it launched its first five BlueBird satellites into orbit in September and has since inked a few lucrative deals, namely with Vodafone, to help bring broadband internet directly to smartphones around the world all via satellite. It’s a potentially revolutionary idea, which is why ASTS still has way more upside even after doubling in the last six months. 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 4.5% 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 $15.9 billion. That gives AVVIY shares 33% upside from their current price. The 7.3% 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, bounced back about 3% since our last issue, as the market has stabilized a bit. BX is what Mike refers to as a “Bull Market Stock,” meaning it tends to lead – and outperform – in bull markets, as it has done since we added it to the portfolio a year and a half ago. But it works both ways, so when the market is down like it was in December, BX usually falls even further. As long as the bull market is intact, it will remain in our portfolio, and it looks quite buyable here after the recent mini-slide. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, was mostly unchanged this week after a modest bounce-back just before New Year’s. In his latest update, Tom wrote, “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. It has cooled off since and pulled back a little, but it is maintaining almost all the gains. 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. The stock has returned 120% (in the last) year and the future for the stock still looks bright.” We booked profits on half our stake in this high-flying stock last month, following the quick 38% 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, was down a point, from 68 to 67, despite the fact that the Chinese electric vehicle giant sold 207,734 EVs in December, pushing its 2024 total to 1.76 million battery-electric vehicles sold. Total vehicle sales improved 41% for the year, though the biggest jump came in the company’s hybrid models. While fourth-quarter results aren’t due out until March, its sales outpaced Tesla’s for the first time in the third quarter. To me, buying BYD now has the potential to be like buying TSLA shares 10 years ago. BUY

Capital One Financial Group (COF), originally recommended by yours truly in the Growth/Income portfolio of my Cabot Value Investor advisory, is up slightly since our last issue on no news. The company reports earnings in a couple weeks, on January 21. Its proposed $34 billion merger with Discover Financial (DFS) still hangs in the balance, though it’s likely to get approved sometime this 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

Centuri Holdings Inc. (CTRI), originally recommended by Clif Droke in his Cabot Turnaround Letter, is back up to 20 a share, right where it was around Christmas. There’s been no news for this small-cap utility since new CEO Christian Brown took the reins on December 3 – a move that convinced famed activist investor Carl Icahn to up his stake in the company by 38%. BUY

Constellation Energy Corporation (CEG), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, is up nearly 14% in the last week after the nuclear energy company inked new contracts with the U.S. government. The U.S. General Services Administration (GSA) has awarded Constellation over $1 billion in contracts to power 13 federal agencies across five states and in Washington, D.C. over the next 10 years. The government contracts come on the heels of a monster deal with Microsoft to power its escalating AI-related data center needs by reopening the Three Mile Island nuclear plant in Pennsylvania. The big contracts show the increasing dependence on nuclear energy as the U.S. pushes for clean energy, which is becoming increasingly destigmatized and is allegedly “safer” than it was years ago. We now have a 42% gain on CEG in just four months. BUY

DexCom, Inc. (DXCM), originally recommended by Clif Droke in his Cabot Turnaround Letter, is up nearly 4% since our last issue on no major news. 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, is up 4% since our last issue on no news but is still shy of its December highs. Last month, two Wall Street firms (RBC Capital and Truist) raised their price targets on shares of this popular online food delivery app. Both targets are at least 25% higher than the current price. BUY

Dutch Bros (BROS), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was up another 11% this week on no company-specific news. In his latest update, Carl noted, “Dutch Bros (BROS) shares are getting more attention as a compelling growth story. After starting as a pushcart, it has grown to 950 shops across 18 states, generating $1.1 billion in trailing-12-month revenue. Dutch Bros has expanded beyond coffee to lemonades, teas, smoothies, and energy drinks, and it’s starting to test food offerings in select shops. Management has set an aggressive target of having 4,000 locations open in the next 10 to 15 years.” BROS has quickly become one of the best stocks in the Stock of the Week portfolio, up 87% in the four and a half months since we recommended it. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, bounced back slightly after a down week. In his latest update, Tom wrote, “The superstar drug company stock has been in a funk since the summer. It’s down 21% from the high made in early September. LLY was still up 32% (in 2024), and consolidation is probably healthy. The company also announced a $15 billion stock repurchase program and a 15% dividend hike. The repurchase program replaces the $5 billion that was just completed. It is also the seventh consecutive year of a 15% dividend hike. There is also some trepidation in the sector regarding the nomination of RFK Jr. for HHS Secretary. But LLY is unlikely to stay down for long. It is on track to grow earnings by around 70% per year in the years ahead.” BUY

Flutter Entertainment (FLUT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, barely budged this week, which is perhaps an encouraging sign after the stock had fallen the previous few weeks. In his latest update, Mike wrote, “Flutter Entertainment (FLUT) has been dripping lower for weeks now, enough for us to change our rating back to Hold. There’s been no specific news for the decline, but one factor is a historic run of favorites (especially in the NFL) covering their spreads—usually good for the public, bad for the bookies. Frankly, if the market were pulling back but still in good shape, we’d be thinking this is a great buying opportunity … and it still could be. But with the stock unable to get out of its own way and the market looking iffy, we’ll go to Hold here with a mental stop in the upper 240s.” With a solid gain on the stock, and with shares appearing to bottom last Thursday – the day Mike wrote the above commentary – we’ll stay on Buy. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, held firm on 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, bounced back after a down week and is right back to where it was around Christmas. Still, it hasn’t made much headway in two months. Perhaps that will soon change: Five separate Wall Street analysts 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, held its ground at 42, just below the all-time high above 43 the stock hit last month. This morning, Piper Sandler upped its rating on the stock to Overweight and raised its price target from 45 to 50. That’s the third analyst upgrade KVYO has received in the last month. Momentum seems to be building for this mid-cap software solutions stock. BUY

Kyndryl Holdings, Inc. (KD), originally recommended by Mike Cintolo in his Cabot Top Ten Trader advisory, is off to a rousing start, up 13% in its first three trading days in our portfolio! There’s been no company-specific news, but this is a mid-cap stock that’s caught investors’ attention of late. Spun off from IBM three years ago, Kyndryl is, as Mike wrote in this space last week, a “leading global IT infrastructure and consulting provider 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.” All good reasons to buy – even after a huge run-up to kick off 2025. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, briefly breached 60 a share for the first time ever before pulling back just below 59 – still higher than it was a week ago. MAIN shares are now up more than 6% in the last month, going against the grain of the market during a down December. The business development company’s status as a safe haven, not to mention its monthly dividend payments, has likely helped draw people to the stock. Also, as Tom notes, “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 (last) year and just made a new one. MAIN is a rare stock that didn’t have a December swoon. It’s near the high despite the pullback in many cyclical stocks. The improved economic outlook leaves room for further appreciation.” BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up nearly 2% in the last week after the company announced it plans to invest $80 billion in AI-enabled data centers this year. By putting its money where its mouth is, Microsoft further cements its leadership position in the AI arms race. While MSFT shares underperformed last year, up just over 13%, the stock has nearly doubled since launching ChatGPT (with OpenAI) in late 2022. Artificial intelligence fervor is here to stay, and as one of the biggest spenders on AI, Microsoft should continue to benefit from the nascent sector’s momentum. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, continued its post-holiday slump, pulling back another 1.5%. It appears to be normal consolidation after NFLX shares zoomed to record highs above 930 in mid-December. News about the company just keeps getting better: its Christmas Day airing of two NFL games drew rave reviews and averaged 23 million viewers per game; season 2 of Squid Game is a huge hit; and last night, its original film property, Emilia Perez, won Best Picture at the Golden Globe awards. So, there are myriad reasons to believe NFLX shares won’t stay down long – especially if the streaming giant’s toe-dip into live sports is a harbinger of much more to come. 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-plus. In his latest update, Mike wrote, “On Holding (ONON) pulled back along with most things last month, likely egged on by the general environment and strength in the U.S. dollar (which has been straight up over the past three months; that can crimp profits in local-currency terms), but so far it’s tested and held the 50-day line a couple of times, which is normal action. Of course, a decisive move back to the 50 area would be iffy and possibly have us taking partial profits, but at this point, we’re thinking the next big move from this rest period will be up.” I agree. BUY

Primo Brands (PRMB), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, keeps holding steady at 31. There’s been no news since we added it to the portfolio last month. Primo is a unique water/hydration company that started as a way for customers to refill water jugs at designated refill stations, and last 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, 2024. 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, is up slightly since we last wrote, reversing the trend after a few down weeks to close out the year. The Singapore-based company remains a play on the fast-growing Southeast Asian region, offering e-commerce, digital entertainment and digital financial services. Shares have nearly doubled since we added the stock to the portfolio last March and yet still trade at less than a third of their 2021 highs. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is down only slightly since we last wrote, recovering after briefly dipping below 400 a share after its annual deliveries declined for the first time in more than a decade. The rise in popularity of hybrids, tough competition from the aforementioned BYD, reduced subsidies in Europe, and high borrowing costs were all blamed for the delivery shortfall. Plus, it’s been a while since Tesla introduced a new car – not since the Cybertruck, which has received mixed reviews and sales results. The disappointing delivery numbers served to throw a bit of cold water on the honeymoon phase TSLA shares have been in since Donald Trump won the presidential election and promptly installed Tesla CEO Elon Musk in his Cabinet. That could bode well for some of Tesla’s more ambitious but heretofore mostly unrealized initiatives – namely autonomous driving and AI-related products – getting fast-tracked under a Trump presidency. But for now, TSLA shares are still beholden to its EV sales, production and deliveries, the latter of which failed to impress in 2024. 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 made our 8 Finance-Related New Year’s Resolutions for 2025.

The next Cabot Stock of the Week issue will be published on January 13, 2025.

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