Cabot Stock of the Week Issue: October 14, 2024

It’s mid-October and stocks are at all-time highs. That’s not a sentence anyone has written in the last four years, as October has been notorious for market bottoms – notably the last two Octobers. Perhaps the Fed rate-cut schedule bumped the timing of the bottom up a couple months this year, as early August was the most recent nadir, on the heels of some significant selling, with the S&P 500 down 8.5% and the Nasdaq off in the 13% to 14% range. The indexes have since regained those losses, and then some.

That said, with Q3 earnings season underway, war in the Middle East intensifying and a toss-up presidential election just three weeks away, there are myriad potential landmines out there, any one of which could send shares tumbling again. But as always, we’ll focus on what’s actually happening right now--and with the market at new highs and growth stocks back in gear, let’s take a swing on an early-stage, mid-cap tech stock that Tyler Laundon recently added to his Cabot Early Opportunities portfolio.

Here it is, with Tyler’s latest thoughts.

Klaviyo, Inc. (KVYO)

Klaviyo, which is 12 years old, came public last August. While it is known as a marketing automation platform that helps customers generate returns from marketing investments, the company is also a data specialist.

Its products are geared toward the retail and e-commerce areas of the market (95% of revenue), though recent efforts to expand into other verticals may be starting to bear fruit and could represent expansion opportunities.

Klaviyo’s solutions were designed for online stores on Shopify (SHOP), BigCommerce (BIGC) and Magento (ADBE). Shopify is where most of the action is.

Thus far, email has been Klaviyo’s main channel through which customers reach consumers, but that’s beginning to change. The company has developed mobile push solutions like SMS (text messages), giving clients the option to create campaigns leveraging both SMS and email, which can work well together.

Beyond SMS, other new solutions include Customer Data Platform (CDP) and Reviews, both of which are now adding incremental growth.

As you’d expect, AI is also part of the product development roadmap, though it’s not being monetized directly yet. Thus far the technology is being used as a productivity tool and to help optimize marketing campaigns.

We should hear more about new product performance on the Q3 call, which will wrap around the Black Friday and Cyber Monday shopping events.

Beyond product development, the company has been expanding its market both internationally (EMEA and APAC gaining steam) as well as with smaller customers, from the entrepreneur size up through the recovering small and mid-size businesses (SMB) segment.

Klaviyo posted an impressive Q2 beat on August 7, reporting revenue growth of 35% to $222 million and EPS growth of 50% to $0.15.

That puts the company on track to grow both the top and bottom line in the 30% to 35% range this year, with upside potential from the growth initiatives just discussed.

As for the stock, KVYO came public at a tough time last August. After debuting at 30, the stock trended lower and finally bottomed out in the 21 – 22 range in June. Just prior to the Q2 earnings report on August 7, KVYO was sitting at roughly 23—but then shot up 33% to trade into the low 30s the next day. A little dip to 30 followed in late August, but KVYO never fell apart, and has steadily crept its way up to 37 – the stock’s highest level in its brief history. We’ll take a swing at it here. BUY

Current Recommendations

Changes Since Last Week: None

No changes this week, which leaves us with 28 stocks in the portfolio with the addition of Klaviyo (KVYO). That’s too many, and we’ll need to be more vigilant in our purging in the coming weeks. With most of our portfolio’s stocks up this week – and up overall – it’s been difficult to identify the laggards worth cutting bait on, which is a good problem to have. But 25 stocks would be a more manageable number, so we will – once again – aim to do some pruning in the coming weeks. Stay tuned.

In the meantime, the good times keep rolling in our portfolio, with several of our holdings reaching new all-time highs as of this writing. Here’s what’s happening with all our stocks.

Updates

Alibaba (BABA), originally recommended by Clif Droke in his Cabot Turnaround Letter, was off about 7% after advancing more than 40% in September and the first week of October thanks in large part to China’s sweeping stimulus measures. Here’s what Clif had to say about it all in his update last Friday: “Alibaba Group Holding (BABA) continues to perform well despite a well-earned pullback earlier this week. The stock is up 32% since first being recommended back in August. I’m OK with how the stock has acted lately and plan on retaining that position for now, but I’ll be watching closely for signs of overheating as the China trade gains more attention in the financial news media. Meanwhile, a major institution just upgraded Alibaba from Neutral to Outperform, which provided some additional near-term momentum for the shares.” Keeping at Buy, as last week’s pullback presents a better entry point for those who haven’t yet bought. BUY

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was down marginally this past week, though it took a nearly 5% rally on Friday to get back to that level. There’s been no news … and that’s the problem. The silence from the company since it launched five BlueBird satellites into low-Earth orbit a month ago has been deafening, and shares have pulled back from 30 to 24 since (they topped out at 38 in late August). It doesn’t mean anything’s “gone wrong;” it just means the excitement surrounding the launch phase of this potentially revolutionary company – which hopes to bring satellite broadband internet service to every smartphone – has subsided, and now investors must wait for the service to be up and running. Eventually it will be. Until then, we must sit patiently on our triple-digit return and wait for the next catalyst. If you missed the boat after our July recommendation, now is a good time to get in. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, was up about 1% in the last week on no news. Aviva remains one of the most reliable stocks in our portfolio and is coming off a strong first half of the year in which it reported operating profits of £875 million, up 14% from the first half of 2023 and ahead of analyst estimates. Insurance premiums increased 15%, which helped, as did a 49% boost in its protections business thanks in large part to the company’s acquisition of AIG Life earlier this year. And yet, the stock remains cheap, trading at 10x earnings estimates and at a mere 0.33x sales. The 6.8% dividend yield adds to our total return. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up 3.5% this week, riding the market’s momentum. Earnings are due out this Thursday, October 17, which could either extend this “Bull Market Stock’s” recent run, or throw the brakes on it. Analysts are expecting flat-ish sales and earnings growth, but the key will be assets under management, any update on the real estate portfolio and, of course, any updated tidings on money raising activities. I’d keep new buys small prior to the report, but we will officially keep our rating at Buy. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, is up nearly 5% in the last week to reach a new all-time high! Cantor Fitzgerald raised its price target on the stock to 225, or 22% higher than the current price. It seems momentum for AI-related stocks is back (see Nvidia (NVDA)), and Broadcom is coming off a strong quarter and it’s possible more retail investors are getting involved after the 10-for-1 stock split in June. AVGO shares have more than doubled since we added the stock to the portfolio a little over a year ago. But in general, we’re keeping our rating at Buy given recent momentum, though some near-term wobbles wouldn’t surprise. BUY

Capital One Financial Group (COF), originally recommended by yours truly in the Growth/Income portfolio of my Cabot Value Investor advisory, was up another 2% this week and is off to a good start since we added it to the portfolio two weeks ago. The company reports earnings on October 24, which could serve as a stress test for the share price. Warren Buffett added the stock to the Berkshire Hathaway portfolio last year and it remains undervalued, trading at 11x forward earnings estimates. It may be even cheaper than that if the pending $35 billion deal to buy Discover Financial (DFS) gets approved soon. If approved, it would give Capital One its own payment network, making it less reliant on Visa and Mastercard and adding $2.7 billion in synergies by 2027, according to management. Company executives are optimistic that will happen either later this year or in early 2025. BUY

Cava Group (CAVA), originally recommended by Mike Cintolo in Cabot Growth Investor, was up 5% this week to reach new all-time highs above 130! In his latest update, Mike wrote, “Cava Group (CAVA) has continued to act well with its modest late-September dip to the 25-day line leading to another push to new price and RP highs on modest volume. We’re not ones to argue with the trend for long, and the fact that this stock has digested its giant post-earnings move so well in recent weeks (it’s actually tacked on a bit more gains, net-net) is a good sign—while, of course, the underlying story remains as good as ever. (The firm recently launched its first flavored pita chips as it continues to nudge the menu forward.) If you wanted to nibble here, we wouldn’t argue with you, but we’ll officially remain on Hold a bit longer as we look for a higher-odds entry.” Having issued a rare “Sell Half, Hold the Rest” rating a couple weeks ago on the heels of CAVA doubling in just five months, we’ll maintain our Hold rating as well with the stock already at record highs. HOLD A HALF

Constellation Energy Corporation (CEG), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was only down about 2% which qualifies as a victory considering the ferocity of its run-up (+65% in a month!) prior to that, thanks to the utility company’s record-breaking deal with Microsoft to reopen the notorious nuclear plant on Three Mile Island in Pennsylvania to help power Microsoft’s data centers. In his latest update, Tom wrote, “This nuclear energy provider continues to move higher after the huge spike in September. A few weeks ago, CEG had a huge one-day 22% move higher after it was announced that Microsoft (MSFT) made a deal with Constellation to buy electricity generated from a future reopening of the Three Mile Island nuclear plant in Pennsylvania. Constellation says it is the largest electricity purchase in history. The deal will add to its projected double-digit earnings growth in the years ahead. Also, the electricity demand rise and technology companies’ desire for carbon-free nuclear power is getting a lot of investor attention. Future increases in business from other big technology companies is now more likely.” BUY

Dick’s Sporting Goods (DKS), originally recommended by yours truly in my Cabot Value Investor advisory, is up slightly since we last wrote, though the stock remains in a bit of a malaise. There’s been no news. The sports apparel retailer grew earnings per share by 55% and sales by 7.8% in the second quarter, and it trades at a modest 14x earnings estimates, so I think there’s plenty of upside here. In Cabot Value Investor, I’ve set a price target of 250, or 23% higher than the current price. Keeping at Buy. BUY

DoorDash Inc. (DASH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up more than 4.5% this week to reach its highest point (149) in nearly three years. Tesla’s disappointing Robotaxi event last Thursday (see below) did not pose the threat to DoorDash’s delivery business that some had feared it might, so shares have gotten a bump from that bit of non-news. In his latest update, Mike wrote, “DASH feels like a liquid leader, with a dominant position in most delivery markets (including newer areas like grocery, convenience and drug stores) that should produce steady top-line and surging EBITDA growth.” BUY

Dutch Bros (BROS), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was up nearly 9% this week on no news. It’s possible shares of the upstart drive-through coffee chain are making up for lost time after getting knocked back from 42 to 30 in the last three months for no good reason. Plus, there’s a lot to like about Dutch Bros: The company opened 36 new shops in the latest quarter, driving revenue up 30% year over year. As of the end of June, there were 912 outlets, with a goal of 4,000 within the next few years. BUY

Eli Lilly and Company (LLY), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was up more than 3% this week and has regained most of its September losses. In his latest update, Tom wrote, “While this stud pharma stock recovered strongly from a dip in July and August, it is still stuck at the same price from the beginning of July. But no stock goes straight up forever and LLY is still up over 50% YTD. … LLY stumbled on fears of supply problems for its weight-loss drug but has stated recently that those issues have been resolved. The prognosis is excellent as its leading weight-loss and type 2 diabetes drugs are only just beginning their global market penetration and Lilly has invested $20 billion in manufacturing capacity in the last four years to meet growing demand. Analysts currently forecast 73% annual earnings growth for Lilly for the next five years.” BUY

Flutter Entertainment (FLUT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is roughly flat in the last week despite some pronounced gyrations. Here’s what Mike had to say about it: “Flutter Entertainment (FLUT) definitely saw some churning after its Investor Day, but this came after a solid breakout and upside advance, with the ensuing pullback never even touching the 25-day line, and today saw a decent rally to the stock’s second-highest close ever. We do think there could be further shenanigans in the 250 area, but we like the overall story, numbers and chart here—thus, we’ll fill out our position, buying another half-sized (5%) stake. We’ll use a mental stop in the 210 area (give or take) for the full position, which makes for a solid risk-reward situation.” As an aside, last Friday’s swoon came on reports that the U.K may hike taxes on online sports betting, though at least one analyst came to the stock’s defense today, saying fears were overblown. Mike’s confidence in this online sports betting leader reinforces ours. This mini-October dip looks like a buying opportunity. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up another 5% this week and has nearly clawed its way back to its August highs above 167. There’s been no major news for the company. Its new Airo AI solution, unveiled last November, has been a total game-changer for this website domain registry firm, pushing shares up 120% since the new product was announced. And yet, trading below its August highs, I think there’s more upside here. BUY

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was up about 2% in the last week ahead of this Thursday’s (October 17) earnings report. Analysts are anticipating 11.6% EPS growth on 14.9% revenue growth. The stock has gone nowhere for two months so we could use an earnings beat to reinvigorate investor interest, as the novelty from its introduction of the da Vinci 5 robot surgical system has seemingly worn off. A better-than-expected third quarter could help remind Wall Street why it was so excited about the new product in the first place. BUY

iShares MSCI India Small-Cap ETF (SMIN), originally recommended by Carl Delfeld in his Cabot Explorer advisory, bounced back nicely last week after dipping to its lowest point since mid-August. Shares bounced off support around 82 and are now back up to 85, giving us a solid gain in just over two months. SMIN is a $960 million fund that holds a basket of about 500 small-cap India stocks. It is nicely diversified with the top 10 stocks accounting for just 12% of assets. The lead sector is industrials at 25%, followed by finance at 15%, consumer goods at 14%, basic materials at 13% and healthcare at 10%. It’s a great, high-growth way to gain exposure to the fastest-growing major economy in the world. BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, held on to three-month highs at 51. As Tom noted, this monthly dividend-paying business development company “has a portfolio of smaller companies that are vulnerable to a recession and recent news gives the stock the all-clear to go higher. The BDC reiterated its monthly dividend of $0.245 per share for the rest of the year and announced an additional $0.30 per share supplemental dividend that was paid in September.” This is a steady, income-generating part of our portfolio, and one we may be even more happy to have should the market pull back again. BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up about 2.5% in the last week as the AI narrative has been revived, as fellow leader Nvidia is hitting new all-time highs as of this writing. In fact, given that MSFT shares still trade well below their July highs, they may start to look more attractive opportunistic investors. While Microsoft no longer boats Nvidia-like growth, its projected numbers remain very solid. Microsoft will report Q3 results on October 30. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, is up about 1.5% in the last week ahead of this Thursday’s (October 17) Q3 earnings report. Analysts are expecting big things: 14% sales growth, 37% EPS growth. The streaming giant has topped EPS estimates in three of the last four quarters. We’ll see what happens. With shares just down from all-time highs, it’s possible a strong quarter is already baked into the share price. Given that possibility, I’d keep new buys small ahead of Thursday’s report. BUY

Novo Nordisk (NVO), originally recommended by Carl Delfeld in Cabot Explorer, had a nice bounce-back week, advancing 4% after bottoming at 115 a little more than a week ago. The only real news was that the Danish big pharma company has bought back two million shares in the last two months. Given recent weakness (NVO shares are still down more than 18% from their late-July peak), we’ll keep our rating at Hold after downgrading it last week. But this week’s bounce, on no major news, is encouraging. HOLD

On Holding (ONON), originally recommended by Mike Cintolo in Cabot Growth Investor, was down about 3% this week. In his latest update, Mike wrote, “On Holding (ONON) has been finding resistance in the low-50s area for the past three weeks, with lots of up-down-up-down action. That said, we’re not going too far with that at this point, as the stock is still above its 25-day line and nearly all the action since Labor Day has been on below-average volume. The 50-day line is near 46 and rising, so further dips are possible, especially if the market hiccups, but the odds favor this rest/retreat giving way to higher prices.” BUY

Rocket Companies (RKT), originally recommended by Mike Cintolo in his Cabot Top Ten Trader newsletter, was up about 3.5% in the last week after an ugly downward spiral the previous three weeks. We added RKT to the portfolio on the premise that lower interest rates (and thus lower mortgage rates) would be good for business, but rates have headed higher in recent weeks, so shares have mostly gone the other direction. Perhaps this past week’s bump signals a forthcoming turnaround. Let’s see how it behaves this week. BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was up another 5% and is touching 100 a share for the first time in more than two years! Carl notes that the Singapore-based conglomerate has “several tailwinds such as Shopee exiting non-Asian markets, Free Fire experiencing a resurgence in popularity, and Garena continuing to work with the Indian government to bring Free Fire back to that country. Sea Limited’s revenue surged at least 20% in all three of its segments in its latest quarter.” With an 82% gain in just over seven months, SE has become one of our top performers. If you got in early after our March recommendation, I recommend selling a few shares to book profits with the stock at multi-year highs. But with shares still at less than a third of their 2021 highs, we’ll keep our official rating at Buy. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, may have just Robotaxi’d its way back into Wall Street’s doghouse. Investors have not responded well to last Thursday’s much-hyped Robotaxi “event,” with shares down 8% since. In a Hollywood production on a Warner Bros. sound stage, Elon Musk unveiled a two-door, driverless “Cybercab”, a 20-seat “Robovan” and dancing robots mixing drinks at a bar, which Musk said “will be the biggest product ever, of any kind.” But, given the slow rollouts and empty promises associated with past Tesla product reveals (a robotaxi has been promised as far back as 2019), investors were unimpressed, and wanted more substance. As Ross Gerber of Gerber Kawasaki Wealth Investment Management told Reuters, “His vision is lovely, but somebody has to actualize it. For now, for the next 24 months, Tesla has to sell EVs. Why aren’t we focused on that?”

Indeed, though Musk envisions Tesla becoming a robotics company, it remains an electric vehicle maker. And the last three quarters have been underwhelming. So next week’s earnings report (October 23) will likely determine where shares head next far more than promises of Cybercabs and dancing robots. The stock is still up more than 28% in the last six months and trading well above its August lows. The next 10 days could be a critical crossroads. For now, we’ll keep our rating at Buy. BUY

Unilever (UL), originally recommended by Carl Delfeld in Cabot Explorer, had a solid first week in our portfolio, up from 61 to 63. Some of that runup was related to the aforementioned Elon Musk, who dropped Unilever from his lawsuit against companies who were boycotting running ads on X (ne Twitter). Unilever is a dominant consumer goods giant with a trove of 400 recognizable brands in its diversified portfolio – from Vaseline to Dove – that it sells in over 190 countries. Sixty percent of its sales come from emerging markets, which have higher consumer sales potential due to their growth. That makes this stock a bet on the return to health of the global economy. BUY

UnitedHealth Group Inc (UNH), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was up 2% ahead of tomorrow’s (October 15) earnings report. Analysts are estimating 7.5% revenue growth with 6.7% EPS growth. The stock currently trades at all-time highs above 600 a share, so a strong quarter may not move the needle much more. Officially, we’ll stay on Buy because the stock acts fine, though we’ll update that if need be after the report. BUY

Veralto (VLTO), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, finally moved after being cemented to the 110-111 range since we’d added it to the portfolio, though not by much; it’s up to the mid-113s. We’ll take it. Veralto is a water quality (60% of revenue) and product quality/innovation/printing (40% of revenue) company that was spun out of the large life sciences company, Danaher (DHR), a year ago. With 3% revenue growth and 7.8% EPS forecasted this year, it’s a solid growth story. Earnings are due out October 23. 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 welcomed on the aforementioned Carl Delfeld to discuss his global investing outlook and the “Great Rebalancing” as investors increasingly shift their sites to markets outside the U.S.

The next Cabot Stock of the Week issue will be published on October 21, 2024.

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