Cabot Stock of the Week Issue: October 28, 2024

Pre-election breath-holding has taken hold of the stock market ahead of next Tuesday’s presidential election, which is better than pre-election selling. With a 50/50 election a week away, investors are hedging for either a Donald Trump or Kamala Harris win. As long as there’s a clear winner within a few days of the election (and not a couple months, a la the 2000 Bush-Gore, “hanging chads” recount election), Wall Street will likely be ecstatic to have an answer, and stocks will resume their two-year uptrend.

As for the Stock of the Week portfolio, we take the pause in that uptrend as a chance to clean out a few recent laggards, with three sells today. But, as always, we counterbalance the selling with a new addition, and it’s a high-growth one recommended just last week by Mike Cintolo to his Cabot Top Ten Trader audience. It’s a name that’s been a Mike and Cabot favorite for some time.

Here it is, with Mike’s latest thoughts.

Samsara Inc. (IOT)

Samsara is the pioneer of what it dubs the Connected Operations Cloud, a platform that dramatically boosts efficiencies and delivers cost savings for firms that have large amounts of physical assets—think state departments of transportation, trucking firms, delivery outfits, waste management operations, construction operators, even airlines with lots of ground vehicles—by creating a single system of record that tells clients how all these pieces are being utilized. Basically, thanks to a massive hoard of data points (more than 10 trillion data points and growing), Samsara’s offering does everything from predictive maintenance to finding better routes for drivers (less idling and wasted fuel) to safety training and tracking (lower insurance premiums, fewer accidents) to standardized incident reports and even to tax optimization (depending on what localities assets were located in). All three core areas—equipment monitoring, telematics, video-based safety—are growing north of 30% per year, and a new product seems to be a hit; called asset tags, they’re small, Bluetooth, industrial-grade devices that can go on any piece of small equipment (think a toolbox or a power washer, etc.) to collect data on location, how it’s being utilized and much more. One of the least respected parts of the story is that, because of the real cost savings here (usually many times the subscription amount), Samsara sells into the operations budget (not the tech budget), which is much more stable and grows over time. The one downside here is valuation, which admittedly is in nosebleed territory (north of 20x revenue!), but there’s no question that this company is getting much bigger in the years ahead.

As for the stock, IOT has been the poster child of stop-start action during the past year, with the end result being that the stock made one point (from 31 to 32) of net progress from June 2023 to early August of this year. But the Q2 report later in August looks to have finally changed the stock’s character, with three straight big-volume up weeks sending the stock (and, importantly, the relative performance line) to new highs. Now shares have chopped slightly higher for a month as the 25-day line offers support. If you’re not yet in we’re OK starting small here. BUY

Current Recommendations

Changes Since Last Week:
Dick’s Sporting Goods (DKS) Moves from Buy to Sell
Novo Nordisk (NVO) Moves from Hold to Sell
Veralto (VLTO) Moves from Buy to Sell

It’s house-cleaning week. Can’t say I didn’t warn you! For weeks, I’ve been winging about the super-sized nature of the Stock of the Week portfolio – 28 stocks entering this week, three more than our preferred cap of 25 stocks. So, this week, with some “help” from a stagnant market and some mixed earnings results, we say goodbye to three positions – DKS, NVO and VLTO. Dick’s and Veralto are two of the few stocks in our portfolio that are below our entry point; NVO was one of the best stocks in our portfolio as recently as this summer but has been in a slow death spiral since. It’s time to sell NVO before our considerable gains deteriorate any further.

The rest of the portfolio looks good, especially Tesla (TSLA), whose decent Q3 earnings results were met with overwhelmingly positive investor response, pushing shares up 26% (!) to a new 52-week high.

Here’s what’s happening with all of our stocks as we enter the last week of October.

Updates

Alibaba (BABA), originally recommended by Clif Droke in his Cabot Turnaround Letter, was down a couple points after being forced to fork over $443.5 million in a shareholder lawsuit over monopoly claims. The U.S. class-action lawsuit covers BABA shareholders who held the American depositary receipt (ADR) from November 2019 to December 2020. The claim was that U.S. BABA investors lost money when it gave misleading statements in regard to the monopoly exertion and the share price fell significantly. Shares of BABA are up Monday morning likely in part due to the years-long lawsuit finally being settled. While damage may have been done to the share price in 2020, it has very little bearing on BABA stock today and is now firmly in the rear-view mirror. BUY

AST SpaceMobile (ASTS), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, gave back about half its gains from the previous week, when the stock was up 14% on no news. After a monster run from 2 to as high as 38 in the first eight months of the year, ASTS shares have sagged back to the 25-26 range since successfully launching its five BlueBird satellites into low-Earth orbit last month. Now, we await news that limited space-based broadband internet service (straight to people’s smartphones) has begun, and to see what comes next. Fortunately, the stock has already more than doubled since we recommended it in mid-July, so we can afford to be patient. BUY

Aviva plc (AVVIY), originally recommended by Bruce Kaser in Cabot Value Investor, has been going in the wrong direction on no company-specific news. Shares of the U.K.-based life insurance and investment management firm were down nearly 6% this past week and are now in the low 12s after topping out in the mid-13s in late August. With no obvious reason for the downturn, and with shares still trading above their early-August lows, I’ll keep our rating at Buy for now. But a dip below 12 may change that calculus. Aviva 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 0.32x sales. The 7.2% dividend yield adds to our total return. BUY

Blackstone Inc. (BX), originally recommended by Mike Cintolo in Cabot Top Ten Trader, mostly held its gains after an 11% post-earnings run-up to new all-time highs the week before. Third-quarter revenue improved 50% year over year, earnings per share were up 40%, and both numbers easily topped analyst estimates. Net inflows were $40.5 billion – a three-year high – while assets under management (AUM) jumped 12% year over year to $820.5 billion. The latter number was driven by a strong third quarter in the equity market, which is a big reason why Mike dubbed BX a “Bull Market Stock.” Blackstone has certainly lived up to that name: We added BX shares to the portfolio in August 2023, about 10 months into the new bull market, and it hasn’t disappointed, advancing more than 60% to reach new all-time highs above 170. With the bull market still very much intact, I’m keeping the stock at Buy. BUY

Broadcom Inc. (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor, was down 3.5% this week as chip stocks lost a bit of momentum on some mixed earnings results (not Broadcom’s) after a hot few weeks (NVDA shares were down more than 1.5%). The stock has still more than doubled since we recommended it less than 15 months ago and is projected to grow revenues by 44% this year and EPS by 14%. I still like the upside, even though the stock has traded sideways for about four months now. BUY

Capital One Financial Group (COF), originally recommended by yours truly in the Growth/Income portfolio of my Cabot Value Investor advisory, was up 4.5% this week after a strong Q3 earnings report last Thursday. Revenue improved 6.4% year over year and narrowly topped estimates, and while earnings per share declined slightly from a year ago, they easily (by 17%) beat estimates. There wasn’t much of an update on the call about the status of the pending deal to acquire Discover Financial (DFS) for $35 billion. Company executives had previously predicted the deal would get done by either the end of this year or in early 2025. If approved, the deal would instantly make Capital One the largest credit card issuer in the U.S. The stock remains cheap, trading 11.5x forward earnings and at 98% of book value. The stock has 13% upside to the 185 price target I set in Cabot Value Investor. BUY

Cava Group (CAVA), originally recommended by Mike Cintolo in Cabot Growth Investor, keeps ascending to new heights, up another 2.5% this week to nearly reach 140 a share. In his latest update, Mike wrote, “Cava Group (CAVA) has been very quiet, creeping slightly to new price and relative performance highs on extremely light volume in recent days. Such action isn’t the best—sometimes it leads to a shakeout—but it’s obviously not bad, with perception continuing to levitate. We don’t have any brand new thoughts here: We’ll stay on Hold, looking for some sort of test of support to potentially go back to Buy, though we’re keeping an open mind given the stock’s big run. Earnings are due November 12.” We will stay on Hold a Half, after selling our other half a few weeks ago to book profits after the stock had doubled in just five months. HOLD A HALF

Centuri Holdings Inc. (CTRI), originally recommended by Clif Droke in his Cabot Turnaround Letter, was flat in its first week in the Stock of the Week portfolio. The only news was that the company will report third-quarter earnings on November 6. 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.

More specifically, its offerings include gas utility services, including maintenance, repair, installation and replacement services for natural gas local distribution utility companies, with a focus on the modernization of infrastructure. The Phoenix-based company also provides electric utility services that include design, maintenance and repair, upgrade and expansion services for transmission and distribution infrastructure. Among its customers are electric, gas and combination utility companies, as well as renewable energy and 5G datacom providers.

CTRI came public at 23 a share this April; it currently trades at 18 a share, knocked backward by a rough second quarter. But as Clif noted last week, “Wall Street sees a massive 63% leap in earnings next year, with additional strong double-digit growth in each of the next few years as the massive-scale utilities buildout boom presumably gathers steam in support of electric grid modernization, EV and alternative energy structure, and of course, AI. Of particular interest, hedge fund manager Carl Icahn has recently initiated a nearly 3 million-share stake in Centuri which, given Icahn’s history of picking winners, should bode well for the stock’s turnaround prospects.” BUY

Constellation Energy Corporation (CEG), originally recommended by Tom Hutchinson in the Dividend Growth Tier of his Cabot Dividend Investor advisory, was off about 2% this week as the stock continues to take a breather in the wake of its massive deal with Microsoft. As Tom wrote in his latest update, “This nuclear energy provider has become a bona fide superstar. … CEG had a huge one-day, 22% move higher after it was announced that Microsoft 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 are now more likely.” BUY

Dick’s Sporting Goods (DKS), originally recommended by yours truly in my Cabot Value Investor advisory, just isn’t getting the job done, spitting back the 3% this week that it had gained the previous week. While our losses are modest, it’s now our biggest loser in the portfolio at -6%. Let’s say goodbye to it. While I like the stock’s long-term prospects and the sports apparel retailer’s knack for steady, reliable growth, and plan on keeping it in the Cabot Value Investor portfolio (where we got it at a better price point), the fact is it’s the weakest performer in our overcrowded Stock of the Week portfolio. So, it’s time to sell. MOVE FROM BUY TO SELL

DoorDash Inc. (DASH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was up another 1.5% to reach new highs above 155. The company reports earnings this Wednesday, October 30. Good things are expected in the quarter from this online food delivery powerhouse: 22% sales growth with earnings per share of 21 cents, up from a 19-cents-per-share loss a year ago. Given the run-up in the share price (+54% in the last three months), it’s possible the strong Q3 numbers are already baked into the share price. With that in mind, I’d keep new buys small until after the report. BUY

Dutch Bros (BROS), originally recommended by Carl Delfeld in his Cabot Explorer advisory, was up nearly 3% on no news. The company reports earnings on November 6. Dutch Bros is a fast-growing drive-through coffee store chain with 912 locations and plans to add 165 new stores this year and increase its tally to 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 off about 1% ahead of earnings this Wednesday, October 30. Analysts anticipate 27.4% revenue growth and for EPS to balloon to $1.45 from a mere 10 cents in the same quarter a year ago. It’s quite possible those top-line estimates are conservative, considering the company has posted four consecutive quarters of EPS beats. LLY stock has been stuck in the mud since mid-July, though it remains one of our top performers. Perhaps another good quarterly report will be the thing to get shares going again. BUY

Flutter Entertainment (FLUT), originally recommended by Mike Cintolo in Cabot Top Ten Trader, was down 1.5% this week on no news. In his latest update, Mike wrote, “Flutter Entertainment (FLUT) has acted better following its sharp, U.K. tax-induced selloff two weeks ago, holding north of its 50-day line (near 224) and the spike low (around 218)—though there hasn’t been much buying, either, with shares mostly moving sideways after an initial bounce. As we always do, we’ll play it by the book here—a drop into the 210 to 215 area would be a red flag and might have us trimming or simply moving on entirely. That said, we still think the most likely scenario is an upside resumption in the days or weeks ahead, driven by the underlying growth story and the stock’s big base. We’ll stay on Buy, though we’re remaining flexible to see what comes.” Let’s stay on Buy as well. Plenty of upside for the biggest player in the nascent and fast-growing online sports betting industry – so much so that JMP Securities raised its price target from 255 to 287 earlier this month. BUY

GoDaddy Inc. (GDDY), originally recommended by Tyler Laundon in Cabot Early Opportunities, was down about 2% this week ahead of earnings this Wednesday, October 30. Analysts anticipate 7% revenue growth and 38% EPS growth. We have a 24% gain in just under six months on shares of this website domain registration giant, although the stock has been in a bit of a malaise in the last two months since topping out above 167 in late August. Perhaps Wednesday’s earnings report can reinvigorate some momentum in GDDY. BUY

Intuitive Surgical (ISRG), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, gave back about a third of its 6% gain after earnings the previous week. Adjusted earnings per share grew 26% year over year while sales improved 17%, also topping analyst estimates. 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. All of that is bullish for ISRG stock – though after jumping to record highs after earnings, an extended pause makes sense. BUY

iShares MSCI India Small-Cap ETF (SMIN), originally recommended by Carl Delfeld in his Cabot Explorer advisory, has had a rough couple weeks, falling from 85 to 81 as Indian stocks as a whole have pulled back. The fund is still north of its early-August lows in the mid-79 range, so we’ll hang in there for now. But a dip below that level would likely prompt us to cut bait. 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, was up 4% this week to reach new all-time highs above 39! There was no news. In his latest update, Tyler wrote, “Klaviyo (KVYO) should report on November 5. The stock has been gaining momentum and (has reached) all-time highs, which were struck right after KVYO came public last September. A number of analysts have picked up coverage or increased price targets lately, including Barclays (price target raised from 32 to 41), Baird (PT increased from 35 to 42) and Benchmark (new coverage, Buy rating and PT of 42). Recall that Klaviyo is a software company with a marketing platform for online retailers, mainly Shopify (SHOP).” BUY

Main Street Capital Corp. (MAIN), originally recommended by Tom Hutchinson in the High Yield Tier of his Cabot Dividend Investor advisory, pulled back from new highs above 52 to 51. The monthly dividend payer will report earnings on November 7. The share price appreciation is nice. But the monthly dividend payments are the main (no pun intended) draw of this business development company. Its 7.9% dividend yield makes this one of the steadiest, most reliable income generators in the market. BUY

Microsoft (MSFT), originally recommended by Tyler Laundon in Cabot Early Opportunities, was up 2.5% ahead of earnings this Wednesday, October 30. Analysts see revenue growth of 30% with EPS growth of 14%. The stock is touching its highest levels all month, which could be an indication that another solid quarter is in store. Stay tuned. BUY

Netflix, Inc. (NFLX), originally recommended by Tyler Laundon in Cabot Early Opportunities, pulled back about 2.5% after gapping up 12% on the heels of another strong earnings report last week. The Q3 results further demonstrated Netflix’s accelerating dominance in the streaming video wars: 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. It’s clear the company is firing on all cylinders right now, and this week’s mini-pullback looks like a buying opportunity. BUY

Novo Nordisk (NVO), originally recommended by Carl Delfeld in Cabot Explorer, has been in freefall for two months, and down 24% from its June highs. It has now fallen to its lowest point since January. We had a great run with this co-leader of the revolutionary weight-loss drug subsector, along with Eli Lilly, but it seems the shine has come off and that investor enthusiasm has fizzled. At some point the nascent industry’s growth will come back into focus and shares will get bought up again, but it’s probably only worth keeping one GLP-1 stock in our portfolio – not two. Given NVO’s continued weakness, LLY looks like the more resilient stock. It’s time to sell NVO and take our 70%-plus profit before it disintegrates any further. MOVE FROM HOLD TO SELL

On Holding (ONON), originally recommended by Mike Cintolo in Cabot Growth Investor, was up 5% this week and is back near October highs. The immediate bounce off support at 47 in the last few trading days – on no news – has been encouraging and shows that Wall Street is still high on this upstart footwear company. BUY

Sea Limited (SE), originally recommended by Carl Delfeld in his Cabot Explorer advisory, has been holding at 99 for most of October, taking a long, deep breath after more than doubling in the first nine months of the year. This multi-pronged, Singapore-based company is a great way to capture growth in one of the fastest-growing regions of the world – Southeast Asia – and it still trades at less than a third of its late-2021 highs even after this year’s big runup. This is one of my favorite stocks in our portfolio. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, once again proved why it’s one of the most resilient stocks on the market. The EV giant finally reported a solid quarter, and shares exploded, advancing from 213 to new 52-week highs above 270 (+27%!) in just the last few trading days. It’s the stock’s sharpest rally since 2013! Sales, while just shy of analyst estimates, improved 8% year over year, while earnings per share (72 cents) blew past analyst estimates (58 cents). CEO Elon Musk forecast 2025 vehicle growth in the 20-30% range, ahead of the 15% that was expected (although Musk is notorious for overpromising). Meanwhile, profit margins, which had dwindled in recent quarters, improved thanks to $739 million in environmental regulatory credits. It doesn’t sound like all that much, but after three straight underwhelming quarters, it was enough minor victories to result in a major windfall for shares. Piper Sandler raised its 2025 price target to 315, 16% higher than the current price. BUY

Unilever (UL), originally recommended by Carl Delfeld in Cabot Explorer, held firm at 62 despite reporting earnings last Thursday. The global consumer staples giant reported underlying sales growth of 4.5% – better than estimates, but perhaps not enough to knock investors’ socks off. Under relatively new CEO Hans Schumacher, the company is focusing on “doing fewer things, better and with greater impact.” That includes separating out its Ben & Jerry’s ice cream business in 2025, for example. As for 2024, Unilever reiterated its full-year guidance. 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 down another 1% after a rather mixed earnings report two weeks ago. In his latest update, Tom wrote, “The health insurance behemoth stock had a nice move higher since July. But it has been a sideways slog in recent weeks. UNH stumbled earlier this month after reporting earnings that the market didn’t like. UnitedHealth shares plunged after the company’s forecasts for 2024 and 2025 fell short of investors’ expectations. The numbers are only slightly below what was expected, and this company tends to outperform forecasts. But the company cited higher medical expenses and stricter federal reimbursement levels for the shortfall. Other stocks in the industry are falling as well. We’ll see if the negativity lasts.” Let’s do the same. BUY

Veralto (VLTO), originally recommended by Tyler Laundon in his Cabot Early Opportunities advisory, was down about 8% after reporting fairly tepid earnings results last Wednesday. That prompted Tyler to sell. Here’s what he had to say about it: “The bottom line is I didn’t hear enough on the Q3 report or see enough in the chart this morning to warrant holding VLTO through the election and November Fed meeting. So we’re going to let VLTO go today right around our break even, and I’ll keep an eye on it for inclusion in the future.

“For the record, the company grew Q3 revenue by 4.7% to $1.3 billion (beating by 0.7%) and grew EPS by 18.7% to $0.89, beating by $0.04. The business is doing generally well, and M&A will continue to be a part of the story. Though the recently acquired TraceGains business is expected to be mildly dilutive in 2025.

“I love spin-off stories since they’re often sleeper stocks that crank higher in a strong market, but at the moment we’re moving back to the sidelines in VLTO.” With a minor loss (we got in later than Tyler), let’s do the same. MOVE FROM BUY TO SELL

The next Cabot Stock of the Week issue will be published on November 4, 2024.

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