Cabot Stock of the Week Issue: November 11, 2024

We made it! The election is over, with a quick resolution. Earnings season is largely behind us. And the Fed matched investor expectations by cutting rates by another 25 basis points. The result? A market at fresh all-time highs, and with newfound momentum on the heels of a sluggish October. And the Stock of the Week portfolio is performing even better, with no fewer than 10 stocks (!) trading at new all-time or 52-week highs as of this writing.

So, let’s lean into the go-go growth environment while it lasts – there tends to be a two-and-half-month honeymoon period between presidential elections and inaugurations, with an average gain of 8.1% during that span after the last three elections. Today, we add a mid-cap fintech software stock that Tyler Laundon introduced to his Cabot Early Opportunities readers last month.

Here it is, with Tyler’s latest thoughts.

OneStream, Inc. (OS)

OneStream (OS), which was founded in 2010 and went public in July, is an early mover in the market for finance software.

Management is hoping the company’s software will become the operating system for modern finance, freeing CFOs and finance departments from the tedious, error-prone and time-consuming workarounds that other departments have shed by adopting comprehensive cloud-based software platforms.

The chief concerns that have held widespread adoption of finance software back are security and data integrity. OneStream thinks those concerns are fading quickly as the cloud computing environment has matured.

OneStream’s software, which features embedded AI and ML for enterprises, helps CFOs with planning, forecasting, employee performance, decision making, analytics and more.

Roughly 11% of revenue comes from on-premise software licenses sold mostly to government entities while 81% comes from cloud software sold under the typical subscription model. Professional services make up the balance.

When the company reported Q3 results last Thursday, November 7, revenue grew by 21% to $129.1 million (beating by $5.1 million), with subscription revenue growing 39% to $110.7 million. That’s a rare growth rate in software these days.

Adjusted EPS of $0.08 beat expectations by $0.08.

Analyst reaction to the earnings report was extremely positive, with data from FactSet showing 11 analysts increased their growth estimates. Part of the reason is that OneStream is gaining traction with its Sensible ML product, which is being charged for as a separately priced AI product, a rarity among application software companies.

I’ll let a few quotes from various analysts following the stock tell the bullish story:

JP Morgan: “We continue to lean positively on the longer-term fundamental setup for the company, as we believe it is well-positioned to gain share as a platform consolidator …”

BofA: “With a differentiated and developer friendly platform, we believe OneStream is well positioned to be a long-term share gainer in a large $44bn total addressable market. We believe the 3Q24 results are the first to establish what the beat-and-raise cadence could be over the medium-term. We continue to be long-term bullish on the stock.”

Morgan Stanley: “Another quarter of best-in-class execution further highlights OneStream’s differentiated platform. While management called out a consistent market environment QoQ, they did note more of an appetite for transformational projects within the Office of the CFO …”

Consensus estimates are now calling for revenue to grow by 20.4% to $583.3 million in 2025, with EPS growing 168% from $0.05 this year to $0.12 next year.

The only catch here is that lockup expiration is today, Monday, November 11. With the stock having done well since its July IPO, it’s very possible it could face some near-term selling pressure.

OS came public at 20 on July 24 and rallied 35% the first day. The stock ran higher, to 32.5, into the Q2 2024 report on September 3, after which it pulled back to 27.4. Buyers quickly stepped in and pushed OS back to 35.2 by the end of September, but another drawdown pulled shares down to 27.9 over the next two weeks.

Since then, OS has been making higher highs and higher lows, though the stock is a little volatile and has traded in a relatively wide range. The high of 34.1 from last week was struck prior to the earnings report, and this morning’s open in the mid-32s implies buyers are still lined up.

Whether or not any shares offered following today’s lockup expiration are absorbed quickly remains to be seen. BUY

Current Recommendations

Changes Since Last Week:

Unilever (UL) Moves from Buy to Sell

We have one sell today, as Unilever suffers mostly by comparison to the rest of our portfolio. Ten of our stocks have risen to either all-time or 52-week highs, with two of them (BROS, TSLA) up more than 40% in just the last week! There are countless others demonstrating uncommon strength now that we’ve made it to the other side of a historically tense election cycle.

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

Updates

Alibaba (BABA), originally recommended by Clif Droke in his Cabot Turnaround Letter, was down from 98 to 96 as most Chinese stocks took a step back in the wake of Donald Trump’s election, on the belief that his election will re-escalate U.S.-China tensions and, more specifically, tariffs. But Alibaba doesn’t do business in the U.S., as the e-commerce giant is focused mostly on China and Southeast Asia, so it should not be impacted by another Trump term, hence the modest selloff. Much more importantly, today is Alibaba’s annual “Singles Day” (11/11 = all single numbers…get it?), which is always a boon for the company the same way Black Friday and Cyber Monday are for Amazon. It’s China’s largest online shopping day of the year. Also, this Friday, November 15, the company reports earnings; analysts anticipate modest 5.4% sales growth. Pivotal week for Alibaba. Let’s see how it all goes. BUY

American Tower (AMT), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, had a rough first week in the portfolio, falling more than 4% despite the strong week for the market. It’s likely due to lingering weakness from the cell tower REIT’s October 29 earnings report. The company beat estimates but lowered full-year guidance. As Tom notes, “The company attributed the reduction in the yearly forecast to the sale of one of its subsidiaries as well as lower spending by major telecom providers amid an uncertain economy. It was a disappointment for a stock that had been riding high not long ago. But the trend for cell tower demand remains strong and things should trend higher over time.” BUY

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was down from 23 to 22, dipping as low as 21 at one point – a three-month low. There was no news. The real test comes this Thursday, November 14, when this upstart space-based, straight-to-smartphones internet provider releases third-quarter earnings. It will be the first window into how lucrative the venture could eventually become; until now, AST SpaceMobile has been mostly pre-revenue. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, held firm this week as the stock has stopped its late-October bleeding. There was no news. This U.K.-based life insurance and investment management firm is growing well (+14% operating profits in the first half of the year) and is undervalued at just 10x forward earnings estimates, 0.32x sales and a microscopic 0.04 Enterprise Value/Revenue ratio. In Cabot Value Investor, it has a price target of 14 – 16% higher than the current price. The 7.3% dividend yield adds to our total return thus far. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up more than 8% to reach new all-time highs above 180! The reason for the runup was obvious: the market had a very good week after the election, and BX – which Mike calls a “Bull Market Stock,” because it tends to outperform in bull markets – had an even better week. As long as the bull market remains intact, BX will remain part of the Stock of the Week portfolio. BX shares are now up more than 72% since we added the stock to the portfolio in August 2023 – roughly double the 37% gain in the S&P 500 during that time. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, is up 6% in the last week and briefly touched new 52-week highs above 183 before pulling back slightly. The move was part of a broader post-election rally in artificial intelligence stocks. Also, it was revealed that the hedge fund Citadel had upped its stake in Broadcom by 64% during the second (June-ended) quarter. Broadcom’s networking solutions have been a big seller in helping fuel AI-powered data centers. Its Jericho3-AI fabric can connect up to 32,000 GPUs (graphics processing units) to maximize their computing potential. Broadcom isn’t just an AI story: it also provides chips and accessories for smartphones, cybersecurity solutions and optical components used in industrial equipment. The stock has now more than doubled since we added it to the portfolio 15 months ago – with more potential upside ahead. BUY

Capital One Financial Group (COF), originally recommended by yours truly in the Growth/Income portfolio of my Cabot Value Investor advisory, is up 18% in the last week to reach new all-time highs above 190! Trump’s win was viewed as bullish for most banks, and his anti-regulatory stance is a particular tailwind for Capital One, which is awaiting approval on its $35 billion deal to acquire Discover Financial (DFS), which would make it the largest credit card issuer in the U.S. It’s no longer quite the value play it was when we added the stock at 148 a share a month ago, but at 12x earnings and 1.85x sales, it’s not overly expensive either. So I’m keeping COF at Buy, knowing there could be a pullback in the short term once this post-election honeymoon phase ends. BUY

Cava Group (CAVA), originally recommended by Mike Cintolo in Cabot Growth Investor, was up more than 12% ahead of earnings tomorrow (November 12). Here’s what Mike had to say about it: “Cava Group (CAVA) continues to act just fine, with a near-test of its 10-week line last week before rallying back in recent days. If you want to be critical, you can say that shares have been losing a little steam, but the trend is up and, besides, the big event comes … Tuesday (November 12) when earnings are due: Wall Street is expecting sales to rise 33% and earnings of 11 cents per share, but same-store sales and other tidings will probably affect perception just as much. As always, we’ll take it as it comes—after such a big run over the past 11 months, we’re not ruling anything out, but there’s no question that Cava’s growth story is special, so we’re optimistic many big investors are still eager to build positions.” We will stay on Hold a Half as well, after booking profits on half our position several weeks ago. HOLD A HALF

Centuri Holdings Inc. (CTRI), originally recommended by Clif Droke in his Cabot Turnaround Letter, reported earnings last Wednesday that missed estimates, but the stock was up from 19 to 21 anyway as the company also reported that it has hired Christian Brown as its new President and CEO, effective December 3. Brown, who had formerly served as CEO of global energy and infrastructure company EnerMech from 2020 to 2024, will succeed Paul Caudill, who was appointed interim CEO and president since July 31. As for the earnings, the company reported a 4-cent loss per share, flat versus a year ago but just shy of estimates. Revenue of $720.1 million fell short of the $741 million estimate. Thankfully, the market chose to focus more on the new CEO/President hire. Centuri is a small-cap utility company that partners with regulated utilities to help build and maintain the energy network that powers millions of homes and businesses across the U.S. and Canada. The stock is a recent addition to the portfolio and remains a Buy, despite the earnings miss. BUY

Constellation Energy Corporation (CEG), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was up 5% this week, regaining some of its losses from the previous week, when a nuclear energy deal between Amazon and Talen Energy was (temporarily?) rejected. The market likely a) is more optimistic that the deal could be renewed under a Trump presidency, and that Constellation’s own record deal with Microsoft to reopen the nuclear plant on Pennsylvania’s Three Mile Island to power Microsoft’s data centers will remain intact, and b) paying closer attention to Constellation’s largely overshadowed earnings report from last Monday. Results were better than expected with stellar earnings growth of 28% and revenue growth of 7% over last year’s quarter. Guidance for 2024 was also raised. So, it appears the rejection of the Amazon-Talen Energy deal may have been a temporary speedbump. BUY

DoorDash Inc. (DASH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up 11% this week to reach a new 52-week high above 173! It appears to have been a delayed reaction to the previous week’s earnings report, which gave DASH shares only a modest bump initially (probably due to election fears) but is now fueling an acceleration of a rally in DASH shares that has lasted for nine consecutive weeks. Sales were up 25% and EBITDA improved by a whopping 52%. While sales were roughly in line with estimates, earnings per share of 38 cents nearly doubled the 20-cent estimate. It was DoorDash’s first quarterly profit since the company came public in 2020. Meanwhile, total orders from the food delivery app increased 18%, to $643 million. This online food delivery upstart is off to a very nice start for us, posting a 37% gain in just three months. BUY

Dutch Bros (BROS), originally recommended by Carl Delfeld in his Cabot Explorer advisory, has gone through the roof since reporting earnings last Wednesday, with shares up 46%! Earnings per share for the fast-growing drive-through coffee chain came in at 16 cents, well ahead of 12-cent estimates. Sales improved 28%, to $338.2 million. Also, the company opened 38 new stores across 11 states, and company-operated store revenue improved by 30%. Dutch Bros also rolled out mobile ordering in 90% of its locations. On the heels of such a strong quarter, the company upped full-year sales guidance to a range of $1.25 billion to $1.6 billion while boosting adjusted EBITDA to a $215 million to $220 million range. The company hopes to open 150 new shops in 2024; it has 940 locations after adding 38 in the third quarter. This is an impressive growth story, and we already have a solid gain on it. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, recovered some of its earnings-related losses from the previous week, rebounding about 3.5%. Here’s Tom with more details on the earnings report: “The superstar drug company finally laid an egg with its earnings report last week. Sales of its new weight-loss drug Zepbound were far lower than expected. The company also slashed earnings guidance for the year and lowered the high end of revenue guidance. The stock is down 11% since last week’s report and about 18% from the high. What does it all mean?

“It isn’t clear. It may be the end of the hype period for weight-loss drugs, and we need to see what the more normalized market will be going forward. It’s also unclear if approvals for new applications can offset the reduced revenue expectations. We will have to wait and see. But a company that is still up 38% YTD and 204% over the last three years has finally stumbled a bit. It is still expected to earn over 70% per year over the next five years and has more high-potential drugs in the pipeline.” LLY has been one of the best-performing stocks in our portfolio the last couple years but has clearly hit a bit of a rough patch. Often, that’s the best time to buy – when excellent companies are knocked back. So, keeping our Buy rating, with this week’s bounce-back an encouraging first step. BUY

Flutter Entertainment (FLUT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up nearly 8% this week ahead of tomorrow’s (November 12) earnings report. In his latest update, Mike wrote, “Flutter Entertainment (FLUT) has essentially built a base (between 220 and 250) on top of its prior base (which lasted for 15 months) and remains in position to get going. Indeed, the stock has again bounced off its 10-week line, bolstered by the market and some minor good news on the gambling front (Missouri passed a referendum on Tuesday) that should present a solid opportunity. Still, our game plan remains the same: A drop much below the recent lows could have us selling (at least going to Hold), but we still think the odds favor an eventual upside breakout.” Let’s see whether tomorrow’s earnings reports adds to FLUT’s recent rally – or if a solid quarter is already baked into the share price. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up 11% in the last week to reach new all-time highs above 183! Why the strength? Similar to DoorDash, there appears to have been a delayed post-earnings rally in the wake of the election, as GoDaddy reported encouraging results a couple weeks ago. Revenue of $1.15 billion just eked past the $1.14 billion estimate, while EPS of $1.32 beat the $1.24 estimate by 6.4%. EBITDA of $366.5 million came in 10% higher than expected. Year over year, revenue improved 7.3% while EPS jumped 48%. That’s good continued growth for the web domain registry company, which has been resurgent since introducing its first AI product, Airo, a year ago. Shares have more than doubled since and, after a period of mild sluggishness, have pushed above their August highs. BUY

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was up 5.5% to (stop me if you’ve heard this one) reach a new all-time high! The company is coming off a solid quarter: Adjusted earnings per share grew 26% year over year while sales improved 17%. The number of procedures using Intuitive’s famed da Vinci robotic surgical system was up 18%, and its new da Vinci 5 system is becoming an increasingly bigger part of the pie; of the 379 new da Vincis Intuitive placed in the quarter (up 21.5% YOY), 110 of them were da Vinci 5s, up from 70 in the second quarter. Mind you, the company is in the midst of a gradual launch of the da Vinci 5 and plans to ramp up in 2025, kicking off a multi-year replacement cycle. A pause in the share price would make sense after the stock has risen more than 10% since earnings. But given that the da Vinci 5 rollout just began, there’s plenty of upside ahead. BUY

iShares MSCI India Small-Cap ETF (SMIN), originally recommended by Carl Delfeld in his Cabot Explorer advisory, keeps ping-ponging between 81 and 82, with almost no movement in the last three months. Still, it’s up 17% year to date. The SMIN is a $960 million fund that holds a basket of about 500 small-cap India stocks. It’s a high-growth way to gain exposure to the fastest-growing major economy in the world. BUY

Klaviyo, Inc. (KYVO), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, imploded after reporting earnings last week, falling 16%. It wasn’t a bad quarter, so the selloff is a bit of a head-scratcher, especially given the week the market just had. Here was Tyler’s attempt to make sense of it: “Klaviyo (KVYO), one of our marketing technology names, is seeing shares trade down today despite the company beating Q3 expectations and raising guidance. Revenue grew 33.7% to $235.1 million (beating by 3.9%) while EPS grew 62% to $0.15 and beat by $0.04. Full-year 2024 guidance (only one quarter left) calls for revenue of $923 - $925 million (+32%) vs. prior guide of $910 - $918 million.

“On the call management talked about strong growth in the entrepreneur segment, helped by Shopify (SHOP) and digital marketing efforts, good performance in mid-market and enterprise markets, and subdued performance in the more value-oriented small- and mid-sized business (SMB) market. No big surprises there.

“Klaviyo’s growth plan is relatively straightforward: expand in the entrepreneur and mid-market enterprise spaces, as well as internationally (41% in Q3), and broaden out the portfolio.

“This leaves the middle market (SMB) a bit of a question market. It has been a drag on revenue retention. To be clear, Klaviyo isn’t the only one with SMB weakness, it’s an industry thing. But coupled with a modest beat (even for a company growing north of 30% this matters) and a first glance at 2025 that implies revenue growth slightly below 30%, and you have a stock that’s trading down.

“Stepping back, it’s worth considering that (1) Klaviyo is still growing very quickly, (2) the SMB market may well improve, especially under a growth-oriented Trump administration, and (3) marketing technology is an increasingly important piece of the tech stack for anybody selling online (which is everybody).

“Taking it all in, I think KVYO is more of a buy than a sell on this downside move. Keeping at buy and will be watching closely.” Let’s do the same. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, was up slightly despite some disappointing earnings results. Both sales and earnings fell short of consensus estimates. Year over year, revenues improved by 11% while EPS was up a penny, from 99 cents to a dollar ($1.02 was expected). The market mostly shrugged off the underwhelming quarter, and the stock is trading near 52-week highs above 52. Share price appreciation isn’t the main selling point here; Main Street is a monthly dividend payer with a whopping 8% yield. Combine that with our modest gains thus far, and it makes for a solid income generator. Let’s hang in there in case the stock breaks above overhead resistance at 52. BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up about 1.5% this week despite pulling back a bit today. In the wake of Trump’s win, it seems less likely Microsoft’s Constellation Energy nuclear energy deal (see CEG write-up) will be unwound. Microsoft paid Constellation billions to reopen the infamous Three Mile Island nuclear plant in Pennsylvania to help power its new AI data centers. Microsoft remains an AI leader, which is one of many reasons it belongs in any long-term growth portfolio. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up another 6.5% to top 800 a share for the first time ever! There was no company-specific news. But the streaming giant is likely still drawing strength from its Q3 earnings report a few weeks ago. Earnings per share improved 45% year over year, while revenue was up 15%. Ad-tier memberships (i.e., lower-priced subscriptions that include commercials) were up 35% and accounted for 50% of sign-ups in countries where it’s available (it’s coming to Canada in 2025). The company also added 5.1 million new subscribers in the quarter. Like MSFT, NFLX belongs in any long-term portfolio. BUY

On Holding (ONON), originally recommended by Mike Cintolo in Cabot Growth Investor, had a banner week, rising more than 14% and more than regaining all its losses from the previous couple weeks (losses that prompted us to downgrade to Hold). The company will report earnings tomorrow (November 12), so it’s very possible a good quarter is already baked into the share price. Sales are expected to rise 34% with EPS of 23 cents. With the stock currently bumping up against the high end of its monthslong range (52), we’ll see if earnings can be the thing to push it through that resistance. Keeping at Hold for now. HOLD

Samsara Inc. (IOT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up 14% to push to new all-time highs above 53! There was no major news. We added Samsara to the portfolio two weeks ago because, as Mike puts it, “the firm’s platform for clients with huge numbers of physical assets saves tons of time and money, to the point where it usually sells into a customer’s operations budget, which is far more steady than the tech budget. Growth has been rapid and reliable, and after more than a year of super-tedious ups and downs, IOT’s three big-volume weeks after earnings in early September are a sign the stock’s character has changed. More recently shares have consolidated for a few weeks on light trade but are now bouncing back. All in all, we like the story, numbers and chart here—and think it’s a solid risk-reward situation.” BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, hasn’t budged much for a month after more than doubling in the nine months prior to that. Perhaps tomorrow’s (November 12) earnings report will get it moving again. Analysts are looking for 23% sales growth with EPS turning positive, to 26 cents, after a 26-cent loss a year ago. It’s a play on Southeast Asian growth, with its multi-pronged business offering e-commerce, digital entertainment and digital financial services in that fast-growing region of the world. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is SO back! The stock has added 100 points since we last wrote, jumping from 241 to 341 – a 41% uptick! This is the highest the stock has been since March 2022. It has everything to do with Donald Trump, or, more accurately, Elon Musk’s big bet on Donald Trump. Wedbush analysts raised their price target on the stock to 400, saying they “believe the Trump White House win will be a gamechanger for the autonomous and AI story for Tesla and Musk over the coming years.” In a Trump presidency, Tesla is likely to receive billions in new government contracts. A 41% jump in a matter of days isn’t normal for a mega-cap tech stock, however, no matter how big the catalyst, so I’d expect some consolidation once the initial fervor cools. But there’s no doubt TSLA is back in Wall Street’s good graces, and Stock of the Week’s greatest success hasn’t only made our longtime subscribers rich – it’s now helping our new readers profit, with shares up 59% in the last year. BUY

Unilever (UL), originally recommended by Carl Delfeld in Cabot Explorer, just isn’t getting the job done, falling from 62 to 58 the last couple weeks despite reporting decent earnings. So let’s get rid of it. In a portfolio full of stocks either hitting new highs or building up a head of steam, there’s no point in having a floundering underperformer like Unilever. MOVE FROM BUY TO SELL

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 Mike Cintolo joined us to discuss this new leg of the bull market.

The next Cabot Stock of the Week issue will be published on November 18, 2024.

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