Cabot Top Ten Trader Issue: February 18, 2025

Earnings Season Remains Encouraging

Most of the overall evidence out there is the same as it has been for weeks, with the major indexes still boxed in their nine- to eleven-week zones, with the broad market looking iffy and with relatively few new highs on most days—still neutral-ish action. But there is one factor that is very encouraging for the bulls: Earnings season, which continues to produce a good-sized batch of gaps higher in growthy names, with another round of winners this past week. Of course, there have been some potholes out there (not unusual) among earnings names and the season isn’t over, so we’ll see how it goes, but as things stand now, there should be plenty of leadership for the market to ride ... if big investors finally click the buy button. We’re far from flooring the accelerator, but given the action of individual names and some other secondary factors, we’ll nudge up our Market Monitor to a level 7, extending our line a bit and aiming to do more of that if things really kick into gear on the upside.

As an example of what we just wrote, seven of this week’s Top Ten gapped on earnings last week, and while some still need a little work, all should have good potential if the market kicks into gear. Our Top Pick is DraftKings (DKNG), which has reemerged after a long base-building effort last year and as some industry worries fade into the background.

Stock 1

Airbnb (ABNB)

Why the Strength
With revenge travel still in full swing, travel companies are estimating a 24% rise in the number of trips people are planning for the year ahead compared to 2024. A big part of this wanderlust is longer-duration vacations, though short-stay rentals are expected to remain in high demand in 2025 despite slower supply growth in available units, which is a key reason for the recent excitement surrounding Airbnb. For 2024, the company outpaced the travel industry’s growth, with Q4 registering the firm’s highest-ever quarter of nights and bookings totals—and with momentum accelerating, the firm has big plans for moving into new markets this year to keep the growth trend alive. A big part of the strategy involves expanding its short-term rentals to other regions outside the U.S. (its biggest market), including Europe, the Middle East, Latin America and Asia Pacific, with a retained focus on expanding its core business and driving “world-class” free cash flow (FCF). In addition, management outlined plans to invest up to $250 million towards launching and scaling new businesses—to be introduced in May and which could lean into experiences, car sharing and cross-border travel—which are expected to make a “significant contribution” to revenue growth. Even with the higher spending, Airbnb expects to maintain “strong profitability” along with full-year adjusted EBITDA margin of at least 35%. The company had a very solid Q4, with revenue of $2.5 billion increasing 12% and earnings of 73 cents beating estimates by 15 cents, while full-year FCF of $4.5 billion rose 18%, with a free cash flow margin of a whopping 40% (!), which helped to fund a modest share buyback program (share count down 3% year-on-year). In the wake of last week’s upbeat results, several Wall Street institutions upgraded the shares, with one bank seeing potential for Airbnb to expand into adjacent markets and new verticals, becoming a “travel and lifestyle marketplace.” Analysts see the top line growing 10%-ish this year and next with earnings and cash flow growth in the same ballpark, though that could prove conservative if several key U.S. cities ease short-term rental restrictions (as is being currently discussed).

Technical Analysis
ABNB has been a blue-chip travel name in the real world, but the stock hasn’t reflected that, with a sloppy, choppy advance into March of last year followed by a sharp 35% drop into August. The rebound from that point wasn’t great, but there was plenty of tightness recently, and last week’s Q4 reaction was noteworthy, with shares rallying more than 14% on quadruple average volume. There is some resistance up around here, but we think a turn may finally be at hand; we’re OK buying some on minor weakness.

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Stock 2

Alamos Gold (AGI)

Why the Strength
Continued worries over inflation and higher tariffs, and the corresponding need for investors to hedge against reduced purchasing power, are prompting more of them to buy gold. Several major Wall Street banks are predicting record gold prices for 2025, with anticipated demand driven by central banks, the increasing popularity of some precious metal ETFs and individual investors. The resulting gold price boom is contributing to record production and sales for Canada-based Alamos, an intermediate gold producer with diversified operations from three mines and a strong portfolio of growth projects across North America. Thanks in part to the recent acquisition of Argonaut Gold (with mines in Canada, Mexico and the U.S.), as well as strong performance from some of Alamos’ other major mining districts, the company delivered record production in Q3 of 152,000 ounces of gold (up 8% year-on-year) with an all-in sustaining cost (AISC) of $1,425 per ounce—well under the average quarterly gold price of $2,475 and today’s price near $2,900. What’s more, the company expects AISC to decrease in the coming years despite continued inflationary pressures, which should provide higher profit margins for the company. For 2024, production increased 7% to a record 567,000 ounces, and combined with strong margin expansion, Alamos posted record free cash flow while investing plenty in high-return growth projects. Even better is what’s to come: Higher gold prices are obviously key, but the company provided three-year production guidance that calls for output growth of 24%, with the start of construction on its Lynn Lake gold project in Manitoba expected to provide additional growth into 2028. Most of the growth for Alamos is in its Canadian properties, which brings with it both high returns and lower political risk; management believes growth will be driven by high-quality, long-life assets with “significant upside potential” that it expects to unlock with its largest exploration budget ever. Analysts see the top and bottom lines surging this year and next, though the Q4 report (due Wednesday after the close) will be key.

Technical Analysis
AGI broke loose from a 20-month base in March of last year and enjoyed a solid, albeit choppy, run into September near 21.5. Shares were up and down after that, with a maximum dip of 19% and with shares tagging the 40-week line around year-end, but the buyers have been in control since, with AGI persistently advancing to new highs. Given that earnings are due out tomorrow afternoon, we’ll set our buy range down a smidge, looking to enter on a bit more of a wobble after Friday’s reversal.

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Stock 3

Confluent (CFLT)

Why the Strength
Confluent is a database developer that focuses on data flow rather than the traditional approach of siloed data that typically keeps data used by operations and data used by analytics separated. Confluent makes data flow more like a central nervous system, allowing corporations’ disparate systems to access and synchronize data sets quickly. In the age of AI, near-instantaneous speed of data distribution is deemed essential to provide what the firms dramatically terms “a single source of truth,” meaning every application is using the same, most up-to-date information. As an example, a global rideshare service uses Confluent’s Tableflow application, which stores data in a more open architecture linked to multiple processors, to make sure pricing, departure and arrival times are accurate worldwide, like for when a customer service rep is located on a different continent than the customer. The company’s platform has a series of other products that restructure data automatically, often eliminating the need for a person to assist the process, and to hold data in ways that make it much faster to access, reducing clients’ operational complexity and providing a good return on investment over time. Confluent still has a legacy, on-premise offering that’s doing well, though the faster growth is in its cloud business that takes care of everything for its 5,800 clients (including 1,381 that spend at least $100k annually with the company). In Q4, total sales lifted 23%, though the cloud business (53% of sales) was up 38%, with earnings remaining in the black despite the fact that margins did tick down a bit. Growth has slowed a bit as the business has gotten bigger, but the tailwinds of AI, along with the longer-term trend toward cloud operations by customers, should result in solid 20%-plus top-line and faster earnings and cash flow growth in 2025 and beyond.

Technical Analysis
CFLT has had solid growth and a good story for the past couple of years, but the stock has simply gyrated sideways since the summer of 2023 (check out the nearly flat 40-week line in the weekly chart below). However, shares showed some bullish action starting in October (up eight weeks in a row), and the recent dip, while tedious, was far less intense than those seen during the past two years. And now, after earnings, CFLT is attacking the high end of the range on excellent volume—we’ll set our buy range a bit higher than here, looking to enter on a resumption of the post-earnings strength.

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Stock 4

DoorDash (DASH)

Why the Strength
DoorDash remains a liquid leader in this market, with a big, long-lasting growth story both from its core restaurant delivery business (where it’s adding half of all new restaurants signing up for a delivery platform) but also from newer offerings that have been coming in ahead of expectations—indeed, in December 2024, one-quarter of the firm’s users ordered from a new (non-restaurant) category as it expands the number of locations it delivers to; at year-end, the firm serves 94 of the top 100 restaurants and 44 of the top 100 retailers in the U.S. (including Wegmens, Lowe’s, Ulta and Walmart Canada, all of which signed up in 2024). And there’s a big advertising component here, too, with 83 of the top 100 restaurants and 21 of the top 25 consumer packaged goods firms advertising on DoorDash’s platform which obviously gets millions of interested eyeballs every day. The potential here remains big even in its “old” restaurant delivery business (still single-digit percentage of all U.S. restaurant sales), and the new verticals are picking up quickly (half of all customers who placed their first online delivery order from grocery, convenience or alcohol stores in 2024 did so through DoorDash). All in all, the firm has a long runway of rapid and reliable growth (what we call the three Rs), which is like catnip to big investors: In Q4, orders were up 19%, marketplace volume rose 21%, revenues lifted 25% and EBITDA boomed 56%; free cash flow totaled about $1 per share in Q4 and north of $4 per share for the year as a whole. Going forward, it should be more of the same as the company’s logistics and the network effect keep it in the lead—it remains a great story.

Technical Analysis
No trend lasts forever, but DASH continues to act in a classicly bullish manner since its base breakout in September of last year. The run of nine weeks up in a row from there usually leads to good things, and indeed, shares traded very tightly during the growth stock wobbles of December and early January. Now DASH is up another five weeks in a row, with volume picking up after last week’s Q4 report. If you want in, you can grab shares here or (preferably) on dips of a few points.

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Stock 5

DraftKings (DKNG) ★ Top Pick ★

Why the Strength
DraftKings is one of the big online sports gambling and iGaming (online casino) players in the U.S., with it and FanDuel (owned by Flutter Entertainment) consistently ranking in the top two for market share despite plenty of competition. Indeed, even in states that legalized online gambling years ago, growth in both dollars bet and users continue to expand nicely, which is a sure sign the industry as a whole has plenty of growth ahead. Last year, though, a couple of big uncertainties held back investor perception: The first was taxes, with many states opting to hike them on gaming; that’s still a worry, though none of the hikes looked prohibitive and DraftKings’ top brass thinks it can deal with them. The second factor was a very lucky (for customers) NFL betting season—at least 75% of favorites won during 10 different weeks this season, up from eight last year and four or five in the prior few years, leading to what turned out to be a crummy Q4 (since the public bets favorites far more than underdogs). But investors are looking ahead, and all of the underlying metrics are headed up, including customers (10.1 million in Q4, up 42% from a year ago and at record low customer acquisition costs), iGaming revenue (up 21%) and structural hold percentage (10.5% last year vs. 9.4% realized because of bad luck), which continues to rise as the firm introduces more parlay and other betting options. Despite the horrid Q4, the firm actually upped its 2025 revenue guidance a bit, looking for 35% growth on the top line, while it stuck with its EBITDA forecast of $950 million, which would be up five-fold from last year as the bottom line accelerates. All told, the underlying story here is as good as ever, and now that last year’s uncertainties are (mostly) in the past, the numbers should resume their move higher.

Technical Analysis
DKNG had a big but choppy advance from late 2022 to March of last year before the sellers took control; shares fell 42% into August and, after an initial bounce, chopped around again for another few months heading into last week. But last Friday looks decisive, with shares moving above resistance near 46 on Thursday and then breaking out on five times average volume on Friday. Today’s retreat was a bit sloppy, but certainly not abnormal given the recent whoosh higher. We’re OK taking a swing at DKNG here with a stop under the recent breakout level.

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Stock 6

Nebius Group (NBIS)

Why the Strength
When we featured Nebius three weeks ago (Jan. 27), the AI-focused business’s biggest challenge was following through on its strategy of stocking up on cutting-edge NVIDIA chips to push its way into the conversation of leading AI developers. In the interim, the DeepSeek news out of China, in which speedy AI development took place on much more commonplace and cheaper silicon, lopped 37% off shares in one day … but Nebius quickly recovered as the market came to believe DeepSeek is just an incremental improvement on existing models it didn’t develop, while its stated cost of about $6 million is a low-ball figure. Basically, experts feel AI will still reward businesses that are pushing to create new advanced models, like Nebius. That’s good, because Nebius sits on more than $2 billion in cash it is spending to hoover up NVIDIA’s Blackwell chipsets to create full-stack (back-end and customer-facing) AI infrastructure. The strategy got a boost when NVIDIA disclosed last week its investment arm now has 1.4 million shares in Nebius. Right now, Nebius is mainly just a plan to build out capability to join Apple, Amazon, Google and Microsoft as major AI providers: The company got its first customer in 2023 and reported $79.6 million in sales for the first three quarters of 2024. However, this year should see hypergrowth, with management projecting 2025 sales building to a year-end run rate somewhere in the middle of a broad range of $500 million to $1 billion. If it sounds like the business has come out of nowhere, that’s partially true: Nebius used to be part of Yandex, a Russian e-commerce giant that was kicked off of the Nasdaq in 2022 with the invasion of Ukraine. The past 30 months were spent cleaving the Russian operations from everything else and it returned to the Nasdaq last fall. The business also holds small worker retraining and autonomous driving businesses and a 28% stake in Clickhouse, a database analytics business. Nebius’s stake was valued at $560 million in a 2022 venture capital round. It’s definitely more speculative, but if the top brass makes the right moves, Nebius looks poised to be a huge player in the AI infrastructure sector.

Technical Analysis
NBIS’s DeepSeek tumble was ugly, but from today’s perspective, it certainly looks like that move was a big shakeout. Indeed, NBIS very quickly rallied back above that day’s high … and kept going, with excellent action on February 7 and again last Friday when it was disclosed NVIDIA bought some shares. If you own some, hang on, but if not, try to grab shares on a dip of a couple of points while using a loose stop to handle the stock’s massive volatility.

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Stock 7

Pinterest (PINS)

Why the Strength
A major part of Pinterest’s growth in the last few years has been its reliance on enterprise-level advertisers with massive spending budgets. But given the finite pool of major advertisers, the picture-sharing social network is turning more toward small- and mid-sized businesses (SMBs) to continue growing its advertising revenue—and with the assistance of AI-powered tools that automate much of the ad campaign setup process for clients, making the platform more accessible and appealing to businesses with limited resources. In its latest earnings call, Pinterest described 2024 as a “banner year” that was capped off by a “milestone” Q4 that featured the company’s first billion-dollar revenue quarter and a record 553 million monthly active users (up a strong 11%). The company attributed its $3.6 billion full-year sales total (up 19% year over year) to its success in “transforming Pinterest’s ad platform into a true lower-funnel performance engine,” an acknowledgment of the increased ad spend among SMBs. Moreover, Pinterest announced the launch of a dedicated mini-site highlighting the benefits of its enhanced AI tools and showing its commitment to helping businesses of all sizes achieve their marketing goals. Aside from the expanded advertising reach, Pinterest also focused heavily on its core offering by improving the user experience by creating a better curation experience through boards and collages and driving “further actionability across core surfaces.” The firm accomplished this in Q4 by showing users how they could use Pinterest for holiday shopping, including offering new gift ideas and products for their loved ones, which resulted in click-through rates that were 40% higher than the average product “pins” (visual bookmarks that provide shopping links). This helped drive quarterly revenue growth of 18%, to $1.2 billion, while EBITDA lifted 28% and sported a big 41% margin. Looking ahead, management guided for EBITDA margin to expand in 2025 (though at a lower rate than last year’s outsized expansion), with Q1 likely to see a 43% bump in that key metric.

Technical Analysis
PINS rode a couple of big earnings gaps in November 2023 and April 2024 to a peak near 45 last spring before the rug was pulled out, with shares collapsing 40% in a few weeks and then spending months building a bottom from there. However, the earnings pop two weeks ago was a great one, and the stock has pulled back grudgingly since then on lessening volume. Of course, one day doesn’t make a trend, so we’ll set our buy range up from here, looking for a resumption of the post-earnings strength to enter.

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Stock 8

Procore Technologies (PCOR)

Why the Strength
Procore Technologies is a name we’ve been following for a while due to its great underlying growth story, and after numerous false starts, we think the stock looks ready to go. The firm is positioned as the leading cloud software platform for the construction industry, specifically for large projects, able to get all the various parties (from owners to contractors and sub-contractors to financiers to suppliers and more) on the same page, reducing delays and speeding up time to completion. The firm has also branched into its own financing of some project activities, resource management and payments (which can be handled through the platform), all while integrating AI-powered modules and revamping its sales model (emphasizing local factors), too. Given how paper-based and old-school much of the big construction world is, Procore’s idea has always made sense, especially as it doesn’t charge per-user fees which incentivizes usage (retention rates are in the 94% range) … though it’s also not immune to industry pressures, which have slowed growth for a while. However, even as growth has come down, profits have been healthy (earnings and free cash flow lifted nicely in 2024), and the Q4 report showed a lot of promise in terms of new sign-ups and expansions among existing customers: The number of clients paying Procore over $1 million boomed 39% and current deferred revenue was up 19%, and while margins were down due to some one-time factors, the top brass expects much better things in 2025, with operating margins likely to come in north of 13%, more than three percentage points over last year. To be fair, the sales model transition could keep top-line growth under wraps for another few quarters (management sees just 12% growth this year), but most are thinking that view will prove conservative.

Technical Analysis
PCOR came public in 2021, crashed during the bear market and, really, hasn’t been able to sustain any “real” momentum, with periodic mutli-month rallies not just running into selling but often bringing the stock back toward its lows, as was seen last summer when the stock crashed after earnings. However, following that, PCOR rallied back nicely into December (actually nosing to new highs) before building a fresh base—and this time, the launching pad was tight and well-controlled (16% deep), so when Q4 results were released last week, the stock burst back toward its highs. We’re OK grabbing some shares here or on dips of a couple of points.

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Stock 9

Qifu Technology (QFIN)

Why the Strength
For China’s expanding population of young urban professionals, loan demand is particularly strong, but obtaining money from a traditional bank can be complicated and normally requires collateral. That’s why the market for loan apps, which offer collateral-free loans (albeit at high interest rates) is booming. Enter Qifu Technology, a top player in the Chinese consumer lending market: The Shanghai-based operation targets the growing number of younger consumers with white-collar jobs (which have a stable income but are underserved by traditional financial institutions). The company’s app, called Qifu Jietiao, is based on its own proprietary risk-management algorithm and makes credit services more accessible and personalized by utilizing technology to provide pre-loan investigation reports that determine credit worthiness; the firm also uses machine learning to identify the needs of customers and data analytics to match borrowers with financial institutions. (Indeed, Qifu’s platform also helps financial institutions access prospective borrowers and underwrite loans with better prospects.) In recent years, the company has built a large base of loyal customers—over 55 million of them—with approved credit lines, of which 62% have credit cards, mortgage loans or auto loans, about half of which are between the ages of 25 and 35. Moreover, nearly 92% of its customers were repeat borrowers last year, resulting in solid revenue for Qifu (which is generated through commissions and fees from financial partners). In Q3, total sales of $623 million increased 6% year-on-year, with per-share earnings of $1.78 beating estimates. Cumulative users with approved credit lines increased 12% in the quarter, with non-credit risk-bearing loans for ongoing services accounting for nearly 55% of total volume. The company’s growth strategy is focused on prioritizing long-term user engagement with its most creditworthy customers in order to facilitate repeat business throughout the different stages of their financial life cycle. Wall Street is bullish and sees double-digit earnings growth this year and next, though some analysts think this could prove too conservative if China’s economic stimulus plans succeed.

Technical Analysis
From early 2022 until mid-2024, QFIN labored to etch out a huge launching pad while staying (mostly) above 15. This effort laid the groundwork for the share price boom that got underway last August when the stock broke out on heavy volume, kicking off a multi-month climb, with the 50-day line serving as support along the way. The last three weeks have seen some small wobbles, but QFIN remains in good shape, nosing to new highs on Friday. We suggest buying on dips with a stop under the 50-day line.

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Stock 10

Roku (ROKU)

Why the Strength
In the wake of cable TV’s demise, the market for streaming content has been sizzling in the last few years as more people migrate to streaming platforms. However, with subscription prices for the most popular services on the rise, a growing number of consumers are turning to free content. Enter Roku, the market leader for streaming video distribution in the U.S. The company’s devices are similar to cable boxes but require no monthly fees or equipment rentals, and they offer thousands of free and paid channels, including Netflix, Hulu, Disney Plus and more. (It generates income by selling ad space on The Roku Channel, enabling the firm to offer the content for free to users.) As of January, Roku has surpassed 90 million streaming households, a significant milestone in the company’s quest to dominate the streaming ecosystem on a global basis. While it already enjoys a top spot in North America, the company has lately been entering new markets, including Europe and Latin America, in order to grab share from platforms like Amazon Fire TV and Google TV. Even more recently, Roku has integrated its operating system into smart TVs, and it’s growing its content with original programming, free ad-supported TV (FAST) channels and exclusive licensing deals. The latest growth spurt has been due to a combination of hardware sales and the expansion of Roku’s platform services, with Q4 revenue of $1.2 billion soaring 22% from a year ago, with the per-share loss of 24 cents beating estimates by 17 cents (the reason for the share price strength). For the full year, streaming households increased 13% while average revenue per user (ARPU, a key metric) of $41.50 rose 4%. Guiding for 2025, management expects ad sales to grow even faster than they did in 2024, driven by expanding third-party partnerships and by streaming services distribution growth, with an added focus on increasing subscription revenue. Analysts see the bottom line in the black by Q3, with consistent mid-teens top-line growth over the next few quarters.

Technical Analysis
ROKU rallied off its bear market low in 2023, but it peaked in December of that year and had a rough washout, falling more than 50% to its low last August. The rally from there was solid, with shares holding above the 40-week line and effectively base-building from mid-October until mid-February. Last week’s gap looks promising, though we’ll set our buy range a bit up from here as we look for some follow-through given that it’s up against some resistance.

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Previously Recommended Stocks

The next Cabot Top Ten Trader issue will be published on February 24, 2025.

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