August 9, 2021

The bull market remains intact, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is in the semiconductor industry, which as we all know, is enjoying great demand in a supply-constrained world.

As for the current portfolio, most of our stocks look good, but Progyny (PGNY) is a sell, simply because it is our biggest loser.

Details inside.

Lastly, I hope you’ll join me for the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. We have an incredible line-up of experts ready to share their best picks.

Cabot Stock of the Week 360

While the bull market has struggled in recent months, it is not dead yet. And as second-quarter reports have increasingly been revealing an economy that continues to expand at faster-than-expected rates, buyers have been rewarding a wide variety of stocks, on both the value and growth side. Here in Cabot Stock of the Week, of course, I preach a diet of variety, the better to build and nurture a resilient, diversified portfolio, so I’m happy to recommend all kinds of stocks. Today’s is a technology stock with great growth prospects that was originally recommended by Carl Delfeld in Cabot Explorer and here are Carl’s latest thoughts.

Marvell Technology (MRVL)
Semiconductors are crucial and the most strategically important technology because they are the materials and circuitry needed to produce microchips that are at the heart of everything from smartphones to advanced satellites. You might think of these microchips as the brains inside all advanced technology. One trillion chips a year are made and an electric vehicle contains about 3,000 microchips.

Semiconductor producers stand to benefit from Biden’s $2.3 trillion infrastructure package that goes beyond fixing roads and bridges to expanding broadband internet access and boosting funding for research and development.

The best play on 5G may be smart devices – what is known as the “Internet of Things”. This is the name for all the web-enabled devices that collect, send and act on data using sensors, processors and other hardware to talk to each other.

5G is much more than just a faster internet; it will have a major impact on many industries and services from robotics to artificial intelligence, self-driving cars and, of course, smartphones.

The 5G launch is off and running with AT&T, Verizon, Sprint and T-Mobile leading the international carriers moving forward. Many investors still don’t appreciate just how revolutionary 5G will be. Because its bandwidth has a much higher capacity, network data speeds will be 10 times faster than under the current 4G standard. Mobile data speeds could be up to 100 times faster.

My recommendation on all these developments is Marvell Technology Group (MRVL). Marvell is headquartered in Bermuda with operations in the U.S., China, Taiwan, Japan, India, South Korea, Vietnam and several other countries.

Marvell designs, develops and sells a wide variety of semiconductor products that are at the core of 5G-capable networks, processors and devices as they partner with and transition from 4G to 5G. The company’s embedded processors and products are cutting-edge and already generate $3 billion in annual sales.

New markets are emerging in which Marvell has a first-mover advantage such as virtual reality, drones, data integration and consumer and industrial robotics. These are all huge markets, giving Marvell a long runway of growth as the company expects double-digit growth in both sales and net profit for 2021.

The company is helping telecom carriers such as Samsung and Nokia deploy 5G networks across the world. The South Korean giant announced earlier this year that it has developed a chip platform with Marvell that will be deployed in 5G networks this year. The Samsung partnership gives Marvell a ticket to attack this huge market as the Korean company has won deals to deploy 5G networks in the U.S. and Japan and is now conducting trials with telecom carriers in Europe.

Marvell is also growing through acquisitions. A few months ago, the company announced a buyout of fiber-optic component and data center chipmaker Inphi (IPHI) for $10 billion. Marvell also announced recently that it has partnered with Samsung Electronics to jointly develop a new System-on-Chip (SoC) to support 5G networks while reducing chipset power consumption by up to 70% more than previous solutions.

Just last week the company announced it plans to acquire networking-chip startup Innovium for $1.1 billion of stock to further build its cloud business.

The company’s revenue increased 20% year over year in the first quarter of fiscal 2022 to $832 million while earnings increased to $0.29 per share from $0.18 per share in the year-ago period.

Marvell expects revenue in the second quarter to surge to $1.07 billion, which would translate into 46% year-over-year growth, with the acquisition of chipmaker Inphi alone expected to add $215 million to the company’s top line during the quarter.

Analysts expect Marvell to maintain this impressive growth so I suggest you take advantage of the overall pullback in tech stocks to buy now. BUY

Current Recommendations

The market is looking a bit better this week, and many of our stocks have released excellent earnings reports. But even an excellent earnings report is no guarantee of success, as we see in the case of Progyny, which will now be sold. Details below.

Changes
Progyny (PGNY) to Sell

ASML Holding (ASML), originally recommended by Mike Cintolo in Cabot Growth Investor, is a Dutch manufacturer of high-end photolithography machines in high demand by semiconductor manufacturers—which, as we all know, are working full speed to fulfill the world’s demand for chips. The stock has been climbing steadily all year and hit another new high last week. BUY

Broadcom (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, peaked at 495 back in mid-February, and the stock has been working to break through that level since. In his latest update, Tom wrote, “This recently underperforming tech industry giant is near the 52-week high. The semiconductor industry has been outperforming the market and most analysts expect a very strong period over the next year. I’m hoping this stock can surge after investors start paying attention again after Labor Day.” BUY

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, hit a new high on the first day of July and pulled back normally throughout the month. But last Thursday the company released its second-quarter report, and the stock is up since then. In brief, revenues were $2.66 billion, up 37% from the year before, while funds from operations were $0.85, up 18% from the year before. BUY

Cisco Systems (CSCO), originally recommended by Bruce Kaser in the Growth/Income Portfolio of Cabot Undervalued Stocks Advisor, has been trending higher since last October. In his update last week, Bruce wrote, “CSCO shares are trading above our 55 price target. We are nudging up our price target to 60. In general, we are reluctant to raise our targets this close to an earnings report, but given what we know and anticipate regarding Cisco’s fundamental improvements, we are willing to provide some price target flexibility. The shares trade at 17.4x estimated FY2021 earnings of $3.21 (unchanged in the past week). On FY2022 earnings (which ends in July 2022) of $3.42 (unchanged), the shares trade at 16.3x. On an EV/EBITDA basis on FY2021 estimates, the shares trade at a 12.1x multiple. CSCO shares offer a 2.7% dividend yield.” BUY

DocuSign (DOCU), originally recommended by Mike Cintolo in Cabot Growth Investor and featured here last week, has bounced off its 25-day line and is aiming for its recent high of 310. In his update last week, Mike wrote, “At some point, shares will have a deeper retreat or shakeout, though we’d expect the 10-week line (now around 280) to offer support if the sellers showed up. Right here, it acts as well as could be hoped for. BUY

Driven Brands (DRVN), originally recommended by Tyler Laundon in Cabot Early Opportunities, is the largest automotive services company in North Carolina, having acquired big-name brands such as Maaco, Meineke and CARSTAR. But the stock has only been public since January so it’s little-known by investors. Management expects revenue to expand 44% this year, and adjusted EPS to swell by 164%. BUY

Five Below (FIVE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, appears to be breaking out (finally!) above resistance at 200 that has constrained it since January. In his update last week in Cabot Growth Investor, Mike wrote, “FIVE is making another, low-volume run at resistance near 200. Will this time be the charm? We won’t predict, but we will simply say that resistance is weakened every time it’s tested, and it certainly feels like most sellers have been worn out here. Still, we don’t invest based on how things feel, so we’ll continue to follow the plan: If FIVE can really bust loose, we’ll restore our Buy rating, but with it stuck in this range, we advise sitting tight, with new buying focused on other, stronger situations.” Today’s volume is not yet impressive, so we can’t say the breakout has succeeded yet, but I’m optimistic! HOLD

Floor & Décor (FND), originally recommended in Cabot Growth Investor by Mike Cintolo, hit new highs on three consecutive days last week before reporting second-quarter results and since then the stock has pulled back slightly. In his update just before the report, Mike wrote, “Sector-wise, we’re cautiously optimistic the building stocks are coming out of their two-month correction, and the tumble in interest rates (and mortgage rates) can only help. If FND can get through the report in decent shape, we think the nascent breakout of a seven-month zone can take it far, but as always, we’ll see how it goes. We’ll stay on Buy but will have updates if need be in the days ahead.” From my perspective, the results look terrific—revenues up 86% YoY to $860 million and EPS of $0.73, up 462% YoY—but I’ll give you Mike’s full take next week. BUY

General Motors (GM), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, released its second-quarter results last week, and while the numbers looked great (revenues up 104% from the year before), everyone knows they were due to the post-pandemic bounce. The stock is off a bit since the report, but still in the consolidation pattern of the past few months, so holding still seems fine. I’ll give you Bruce’s full analysis next week. HOLD

HubSpot (HUBS), originally recommended by Tyler Laundon in Cabot Early Opportunities and then by Mike Cintolo in Cabot Top Ten Trader, broke out to a new high on big volume after releasing an excellent second-quarter report. Revenues were up 53% from the prior year to $311 million, while earnings were $0.43 per share, up 26% from the prior year. BUY

Molson Coors Beverage (TAP), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, is off almost 20% since its high of early June, but to Bruce that just means it’s a better bargain. In his update last week, he wrote, “The company’s second-quarter report on July 29 was encouraging. Revenues rose 17%, or +14% excluding currency tailwinds. Sales in Europe in local currencies surged 52% compared to the dry year-ago period, as the economies there reopened, with volumes, pricing and mix all contributing to the increase. Sales in the North America segment, in local currencies, rose 8%, helped by a recovery in Latin America. Revenues were about 4% ahead of the consensus estimate. Adjusted net income of $1.58/share rose 2% from a year ago and was 17% above the consensus estimate. Adjusted EBITDA fell 1.3% ex-currency effects. Profit growth lagged revenue growth as Molson spent much more on marketing this year compared to the belt-tightening a year ago during the pandemic, and as inflation rose in its transportation, brewery and packaging materials costs.

“Also, a year ago, the company won a tax dispute, distorting the comparison with this year. Beating the revenue and earnings estimates is important as it supports our view that investors don’t fully appreciate the resiliency in Molson’s business. The company reaffirmed its 2021 full-year guidance. The adjusted earnings exclude a huge $102 million gain from hedges that the company has on various input costs. These hedges remain in place, and as they are closed out Molson will include those gains in their core profit numbers. This complicated the accounting, but the economic effect is clear – Molson’s actual all-in costs aren’t quite as high as they appear thanks to the hedges.

“Molson’s debt balance is unchanged from year end, but cash is starting to accumulate. After quarter end, the company repaid $1 billion in debt upon its maturity. The company continues to generate good free cash flow and will restart its quarterly dividend at $0.34/share as disclosed a few weeks ago.

“The company is paring as many as 100 smaller and/or low-potential products, many of which are in the economy segment, from its roster. This should boost profits. Also, its Topo Chico Hard Seltzer, Vizzy Hard Lemonade and ZOA products, which are new, are selling exceptionally well.

“TAP shares now have about 40% upside to our 69 price target.” HOLD

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, peaked at 88 in January and bottomed at 68 in February and has been trending slowly higher since. In his latest update, Tom wrote, “The alternative energy utility delivered strong earnings results this quarter with 9% earnings growth over last year’s quarter. It’s right on track for its goals and firing on all cylinders. It looks like this alternative energy utility is benefitting as investors sour on the cyclical stocks. NEE has been trending nicely higher since the moment cyclical stocks started to weaken in June. It’s a great stock for the longer term as alternative energy continues to grow at warp speed and it gets cheaper to produce.” BUY

Nvidia (NVDA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, hit a new high in early July, retreated for about two weeks, but is now back on the upswing, aiming for its old high of 209. Second-quarter results will be out August 18, after the market close. BUY

Progyny (PGNY), originally recommended by Mike Cintolo in Cabot Growth Investor, released its second-quarter report last week, and while the results looked good—revenues up 99% YoY to $139 million and EPS up even more—the stock sold off on big volume in response. Fundamentally, I continue to like this story a lot, but by now you should know my rules about taking losses. PGNY is our biggest loss, so out it goes. Kudos to Mike who had already sold in Cabot Growth Investor. SELL

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then Carl Delfeld in Cabot Explorer, hit a record high last Thursday and remains very close to it today. In Carl’s latest update, he wrote, “Being based in Singapore, Sea has escaped all the fallout from Chinese regulators that are now going after gaming companies. I see further upside potential to Sea’s share price from: (1) strong momentum in its gaming portfolio; (2) the ramp-up of e-commerce revenues; (3) opportunity of growth through Sea Money fintech operations and geographically in India. I would be an incremental buyer of this stock, but long-time holders should take partial profits from time to time.” BUY

Sensata Technologies (ST), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, first topped 60 in early January, and since then has been building a base, so technically, all is well here. And fundamentally, Bruce says there’s a lot to like. In his update last week, he wrote, “Sensata is a $3.8 billion (revenues) producer of nearly 47,000 highly engineered sensors used by automotive (60% of revenues), heavy vehicle, industrial and aerospace customers. About two-thirds of its revenues are generated outside of the United States, with China producing about 21%. Investors undervalue Sensata’s durable franchise. Its sensors are typically critical components that generally produce high profit margins. Also, as the sensors’ reliability is vital to safely and performance, customers are reluctant to switch to another supplier that may have lower prices but also lower or unproven quality.

“Once a threat, electric vehicles are now an opportunity, as the company’s expanded product offering (largely acquired) allows it to sell more content into an EV than it can into an internal combustion engine vehicle.

“ST shares have about 28% upside to our 75 price target. The stock trades at 14.1x estimated 2022 earnings of $4.17 (up about 2.5% this past week). On an EV/EBITDA basis, ST trades at 11.0x estimated 2022 EBITDA. BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, rode its 200-day moving average higher through May, June and July, but the second-quarter report on July 26 sparked new buying that has pushed the stock up and away from that line and now it’s aiming for its June high of 900. Tesla is a company that elicits strong emotions from some people, but if you simply ignore those emotions, and look at the chart and the numbers, you’ve got to conclude that trends are quite good here. BUY

Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor, is one of the four leading cannabis companies in the U.S., and trends are terrific in the industry, with the average company in my portfolio growing revenues 151% over the past year. But this is a young industry, and the fact that marijuana is still illegal under federal laws means institutional investors have been unable to step in to support the stocks, and that means they’re very volatile. If your timing is good, however, your results can be awesome. Trulieve’s second-quarter results will be released before the market open on August 12, so I’ll stick with a hold rating for now. HOLD

The next Cabot Stock of the Week issue will be published on August 16, 2021.

Cabot Wealth Network
Publishing independent investment advice since 1970.

President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
Cabot Heritage Corporation, doing business as Cabot Wealth Network
176 North Street, PO Box 2049, Salem, MA 01970 USA
800-326-8826 | support@cabotwealth.com | CabotWealth.com

Copyright © 2021. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website.

Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.