Cabot Top Ten Trader Issue: February 24, 2025

Air Pockets Everywhere

While there have been some encouraging signs here and there (such as earnings season, which had been producing more winners than losers), the market never could quite kick into gear during the past two months, with lots of selling on strength, tepid breakouts from individual stocks and the major indexes and relatively muted numbers of stocks hitting new highs—and this came after a huge up year for leading titles that ended with lots of speculative issues going wild on the upside in December. Of course, that didn’t necessarily portend doom, but that’s why we never turned very bullish in recent weeks—and now we’ve seen a sudden rug pull, as leaders have hit air pockets. Now, to this point, the selling has been mostly seen in the growth arena; other areas have taken hits but most haven’t flashed abnormal action, so there are still many names that are handling themselves just fine. We’re open to this being the final shakeout to a two-month-long grinding period, but as always we’re taking the evidence as it comes: We’ll yank our Market Monitor down to a level 5, though a lot of it comes down to entry points and what stocks you own.

This week’s list is a hodgepodge of names, with some growth, some turnaround and a few others sprinkled in. Our Top Pick is Insulet (PODD), a great short- and long-term growth story that acts well and should be ready to help lead if the market can turn back up.

Stock 1

Akero Therapeutics (AKRO)

Why the Strength

Akero is a development-stage biotech firm that’s targeting a couple of different forms of steatohepatitis, one dubbed non-alcoholic steatohepatitis (NASH)—an advanced form of fatty liver disease that can be caused by underlying conditions like obesity, metabolic syndrome or Type 2 diabetes—and another dubbed metabolic dysfunction-associated steatohepatitis (MASH), a non-alcohol-related liver disease that involves a dangerous buildup of liver fat, which can lead to liver scarring, or in some cases cirrhosis. The company’s leading drug candidate is efruxifermin (EFX), a genetically engineered fusion protein that’s designed to mimic the activity of the native hormone FGF21, which plays a crucial role in regulating metabolism and alleviating cellular stress. EFX for NASH is currently in Phase 2b clinical testing, though the excitement today revolves around that drug’s potential treatment for MASH, as Akero’s latest strength is the result of recently released results using EFX to treat that disease: The topline data showed that at week 96, 39% of patients treated with 50 mg of EFX experienced a reversal of cirrhosis with no worsening of MASH (versus 15% on placebo). Along with sending the shares soaring, the bullish development also prompted a major investment bank to upgrade the shares in what it called a “game-changing” development in the potential reversibility of cirrhosis, which it said could reduce the need for liver transplants (the standard treatment for severe cirrhosis). The market is wide open given that only one medicine for MASH is currently on the market (Madrigal Pharmaceutical’s resmetirom). Moreover, there are around 22 million MASH patients in the U.S. by some estimates, with nine million of them having clinically significant liver disease—another reason for the optimism surrounding EFX. Financially, the current numbers are basically meaningless, as Q3 saw no sales and a $1.05 EPS loss. But cash holdings at the end of the quarter were $787 million, which the company said will be sufficient to fund its Phase III Synchrony studies for EFX, as well as Akero’s current operating plan, into the second half of 2027. The Q4 report is due out Tuesday before the market opens, but this is mostly about the value of EFX.

Technical Analysis
AKRO hit a lifetime high at 58 in mid-2023 but fell out of bed a few months later in the wake of disappointing clinical results for its lead drug candidate in October that year, plummeting to 11. Since then, shares did recover some, but in a predictably hectic fashion for a speculative situation; indeed, AKRO had a rough decline starting in early November that took the stock below its 40-week line. But the results-induced gap a month ago was outstanding, taking the name back to its old highs, and while it’s come off some since then, the action has been solid given the market. It’s not for the rent money but we’re OK with a nibble here and a loose stop.

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Stock 2

Alibaba (BABA)

Why the Strength

Chinese online retail platform Alibaba is well known as the “Chinese Amazon,” generating most of its revenue from multiple e-commerce businesses (including Taobao and Tmall Group), but it also has a booming cloud business that’s benefiting from AI-related infrastructure demand. On that front, Alibaba Cloud has been growing its data center footprint and services basically everywhere outside of China, including elsewhere in Asia, Europe, the Middle East and North America. Alibaba’s successes on the AI and cloud fronts have prompted the company to increase its commitment to achieving artificial general intelligence (AGI), calling it the “primary objective” of its AI strategy, with plans to invest a whopping $52 billion in AI and cloud infrastructure over the next three years, surpassing the total investment of the past decade. (AGI doesn’t yet exist but is being developed to plan, adapt and solve new problems independently, which AI isn’t capable of.) Beyond that angle are many core businesses that are starting to pick up, often thanks to moves into more international markets: The company’s financial arm, Ant Group, has been increasing the international reach for its digital payment services via partnerships and acquisitions, while its digital wallet offering, Alipay, is being introduced in several new foreign markets. On the e-commerce front, Alibaba is actively trying to expand its footprint internationally, especially through its retail platform AliExpress, which sells directly to consumers worldwide. Last week, Alibaba’s fiscal Q3 report turned heads on Wall Street as revenue of $38 billion increased 5% in dollar terms from a year ago, while earnings of $2.96 beat estimates by 29 cents (the reason for the latest strength). The solid results were led by 13% revenue growth in the Cloud segment, as well as 9% growth in Taobao and Tmall. Looking ahead, management guided for Cloud revenue growth driven by AI to continue accelerating. Wall Street sees earnings jumping 22% higher in Q1 with a 13%-ish gain for the full year, but most are thinking that will prove too low.

Technical Analysis

BABA imploded from 306 to 60 during the post-pandemic bear market, and while there was one big rally off the final low, the stock has been waterlogged for most of the past couple of years. However, last September’s boom (on China’s initial stimulus announcement) was noteworthy, and while the move was given back, shares did hold above prior lows. And now BABA has gone nuts on the upside, with a huge-volume wave of accumulation both before and after the latest report. Today’s dip on the massive AI investment plans was sharp but not abnormal given the recent run. We’ll set our buy range down a bit from here, thinking this dip will find buyers; given the tricky market, though, keep new positions on the small side.

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Stock 3

Alkermes (ALKS)

Why the Strength

Psychiatric and neurological disorders are major causes of death and disability worldwide, with bipolar disorder and schizophrenia two of the leading mental illnesses. Ireland-based Alkermes develops proprietary treatments for both these disorders, as well as for alcohol and opioid addiction, sleep-related neurological conditions, multiple sclerosis and cancer. Among its commercially approved drugs are Vivitrol (for opioid and alcohol addiction) and Aristada Initio and Lybalvi (antipsychotics). The company’s neuroscience pipeline includes the drug combination of olanzapine and samidorphan (Lybalvi), which is already commercially available to treat schizophrenia and bipolar I disorder in adults, while also helping to mitigate weight gain associated with olanzapine—but it’s now in a Phase III study to test its efficacy in treating children and adolescents with these conditions. Meanwhile, the firm’s drug candidate ALKS 2680 is in a Phase II trial for treating narcolepsy types 1 (NT1) and 2 (NT2), and the company believes the drug could potentially expand into sleep-related neurological disorders (which have a huge addressable market). On the strength of ALKS 2680, a major financial institution recently upgraded the shares on the belief that the drug can succeed in NT1 and NT2 where some competition had failed. Alkermes’ Q4 report was the reason for the stock’s latest strength, as revenue of $430 million increased 14% year-on-year, with earnings of 88 cents a share beating estimates by 28 cents. For the full year, the company achieved a major goal of exceeding $1 billion in revenue (up 18%), driven mainly by Lybalvi sales (up 46%) and Vivitrol sales (up 14%). For 2025, the top line is expected to rise another 25% as Alkermes invests to further expand Lybalvi sales while reaccelerating growth of Aristada. It’s a solid growth story with upside if current trials go well.

Technical Analysis
ALKS has been mostly range-bound for years, with slightly higher highs and higher lows but not much net progress from mid-2021. But it looks like we’re starting to see a character change: There was a major bottom last July and a gradual uptrend in the months that followed, and after a five-week dip into early January, the buyers have flexed their muscles, as ALKS leapt to multi-year highs after earnings on three days of excellent volume. Minor weakness would be tempting, with a stop near the prior highs.

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Stock 4

Insulet (PODD) ★ Top Pick ★

Why the Strength

Medical stocks haven’t been real leaders for a very long time, but we think that could change once this growth stock maelstrom finishes up in the days or weeks ahead. Insulet isn’t a household name, but it’s one of the leaders in the insulin pump market: The firm’s Omnipod 5 system is the first tubeless, waterproof automated insulin delivery system in the U.S. with a top-notch algorithm that means patients are within the normal insulin range an extra 17.5% to 20% of the time. Moreover, the product is the only one approved for both Type 1 and Type 2 diabetics (the latter “just” received approval in August 2024 and is a giant, largely untapped market), which is a big reason it was the #1 most prescribed pump last year in the U.S. All in all, 365,000 patients are using the Omnipod 5 in 35 different markets, with another 135,000-plus using some of Insulet’s other (older) pumps. But that could be just the beginning, as “only” 40% of U.S. Type 1 (and 20% of international Type 1) and just a couple percent of Type 2 diabetics globally use any type of pump, so there’s huge growth potential just in grabbing a few percent of those who currently are doing little (like fingersticks). The trend toward greater adoption has actually been playing out for years, with Insulet positing nine straight years of 20%-plus revenue growth (on a currency-neutral basis) while margins and earnings have lifted similarly, and similar growth should continue for a long time to come. In Q4, revenue lifted 17% (international Omnipod revenue was up 33%), and while earnings (down) and EBITDA (up 10%) didn’t grow as fast, that was due solely to a one-time boost a year ago that affected comparisons. The top brass’ initial 2025 estimate sees Omnipod revenue rising 19% in 2025 while operating margins come in near 16.5% (up from 14.9% in 2024). It’s a good short- and long-term growth story.

Technical Analysis

PODD fell off a cliff from May through October of 2023 and, after finishing that year strong, fell into a prolonged base-building effort in 2024 before breaking out around Labor Day. Since then, the action has been very solid, with a quick run-up into early November, and while progress has been limited since then, the stock continues to nose higher even as growth stocks are weak. We’ll set our buy range up a bit from here, thinking a push higher will tell you the stock is ready to go despite the tough environment.

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Stock 5

Life Time Group (LTH)

Why the Strength

Life Time Group Holdings is often thought of as another nationwide fitness center outfit, but it’s really much more than that—the firm operates 177 locations that are almost like fitness-oriented resorts or country clubs that charge a higher price than “regular” gyms (averaging $200 per month): The facilities are huge (40,000 to 140,000 square feet) and obviously have nice gyms but also offer tons of personal training, 55-and-over activities, fancy pools (and water slides!), spas, child care and kids camps and much more. Many even have attached rental properties, too, with indoor and outdoor lounges, concierge services and the like. (Churn at these rentals is reportedly much lower than what’s seen at comparable locations.) Obviously, the firm plays to the higher end of the market, and it’s working, with steady mid- to upper-teens sales growth, and while expansion is expensive, the company has enough of a critical mass (north of 800,000 members) that it’s actually turned free cash flow positive and gotten leverage under control during the past couple of years. From here, it’s a matter of gradually expanding its location count into new geographies, gliding membership prices higher (many are still paying at lower rates) and moving into other country club-type services as demand allows: While the exact number of new locations isn’t always the best metric here (given that many facilities are vastly different sizes), the top brass expects 10 to 12 new openings this year, 12 to 14 in 2026 and likely slightly more than that in 2027 and beyond, which should keep sales and EBITDA growing nicely for years to come. The next big event here is earnings, which are out Thursday before the bell; the firm already pre-announced results in early January (which kicked off the recent run), but the 2025 (and beyond) outlook will be key. Long term, though, there’s little doubt that Life Time will get much bigger over time.

Technical Analysis

LTH had a big correction into October 2023 and then bottomed out for months before finally changing character in May of last year—and it did so decisively, kicking off a persistent (up 14 of 16 weeks!) run to new highs. Shares did stall out after that and eventually sagged, but in a reasonable manner (max pullback of 21%) to the 40-week line near year-end before the early-January Q4 pre-announcement kicked off a fresh run to new highs. Given the market and this week’s quarterly report, we’ll set our buy range down a bit; keep it small if you buy ahead of the report even though the headline numbers have been announced.

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Stock 6

Monday.com (MNDY)

Why the Strength

Monday.com is an Israeli firm that’s one of the new-age workflow software providers, which makes it far easier to plan, coordinate and execute on all types of projects. A lot of the success here doesn’t seem revolutionary, it’s simply that the top brass and development teams have cranked out excellent, easy-to-use products. Indeed, Monday is one of the leaders in no-code/low-code offerings, which basically means its Work platform (the main product, albeit with many different modules clients subscribe to) has easy-to-use functionality (think drag-and-drop items and the like) so that salespeople, HR professionals and other non-techies can easily use it as they execute on projects. Recently, of course, a big draw has been AI integrations: For instance, Monday Service is its first AI-powered enterprise service management product and it recently hit the market, helping service teams deliver better support with the AI automating lots of tasks. (Monday has offered baseline AI usage on its overall platform free to clients and is charging for other AI modules on a consumption basis to encourage use and testing.) All in all, business is growing nicely and should continue to do so if management makes the right moves—in Q4, revenue lifted 32%, same-customer revenue growth was 12% (and is expected to remain near that range for all of this year) while annualized recurring revenue lifted over $1 billion for the first time. Meanwhile, Q4 free cash flow was over $1.35 per share (well ahead of earnings) with a free cash flow margin of 27%. To be fair, free cash flow is supposed to tick up just a few percent this year as margins shrink a bit, but the top line should lift 25% and that’s including 1% or 2% of currency headwinds—and the company usually trashes estimates, too. Monday has what should be a long-lasting growth story as it takes share in a huge market.

Technical Analysis

MNDY has been in a longer-term uptrend for a while, but it’s been tough to trade given the periodic sharp corrections it suffers, including the recent 35% dip late last year. But we’re thinking a decent entry point could be on the horizon, assuming the market hangs in there: After bottoming in early January, MNDY recovered somewhat initially and then gapped very nicely on earnings, and while the latest pullback has been tedious, it’s come mostly on tame volume and doesn’t look unreasonable. A move back above 315 or so should be buyable, showing the dip is finding strong support.

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Stock 7

Penumbra (PEN)

Why the Strength

Penumbra is the dominant market leader in advanced treatments and devices for vascular blockages, a position that led to the business posting better-than-expected fourth-quarter results last week. The company tallied adjusted Q4 revenue of $327.1 million, excluding a one-time Italian government payment; that figure was up nearly 13% from a year ago and bested expectations by about 3% for the quarter, capping off a year in which the business rang up record revenue of $1.2 billion. The bottom line grew much faster (up 28%) and also topped expectations (97 cents beat by six cents) as margins widened, which is really a big part of the story here—business is likely to grow at a low- to mid-double-digit rate sales-wise, but earnings should expand much faster (28% this year, likely even faster growth in 2026 according to Wall Street) as margins swell. Part of that is because Penumbra’s products are still relatively new in the market, having introduced its first product 10 years ago and a series of highly sophisticated surgical instruments more recently. Since 2023 Penumbra has rolled out three lines that drastically reduce the need for more invasive surgery for deep vein thrombosis (DVT) and pulmonary embolism (PE) as well as helping the recovery of neurological vessels after strokes. Lightning Flash allows the insertion of a very small tube into blood vessels and then uses vacuum pressure to remove blockages and monitor for a recovery of blood flow. Similarly, Thunderbolt is an advanced catheter that allows for less-invasive ways to re-establish blood flow through vessels in the brain after strokes. The third, Lightning Bolt, assists with thrombectomies, the emergency removal of blood clots. In the U.S., the product lines are gaining market share at a double-digit rate, with new iterations and peripherals (including a dozen in 2024 alone) coming to market regularly. A long runway of growth remains: Penumbra still only has about a third of the U.S. market, and China and Europe are even younger markets, so there’s no reason sales, earnings and margins can’t kite higher for a long time to come.

Technical Analysis
After a rough decline into last August, PEN had a decent turnaround from there and offered an interesting setup as the new year began—an early-January wobble (on industry M&A news) gave way to a nice rally before a modest dip in recent weeks. But last Wednesday’s Q4 report led to a gap up that brought PEN to 19-month highs before the market’s air pocket dragged it down some. Even so, shares look to be in good position—if you want in, you can start small on minor weakness.

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Stock 8

Royalty Pharma (RPRX)

Why the Strength

Royalty Pharma is the largest buyer of pharmaceutical royalties, with a portfolio of about three dozen regulator-approved products, including 15 blockbusters—those generating more than $1 billion in annual sales. Think of the business as a biotech-focused alternative asset manager: Royalty Pharma is agnostic around the type of therapy, modality and the drug class; rather it aims to use its financial expertise to help facilitate transactions. Typically, management acquires its royalties by buying from other owners, spending at least $2 billion a year on deals. The money often provides companies capital to pay for late-stage clinic testing, to fund product launches or for earlier-stage development efforts. It’s a good business, generating average growth in the low teens over its three decades, with the firm now claiming its portfolio produces 56% of all the royalties paid out in pharma; its deals in place have longevity, too, averaging another 13 years of payments. Despite that, the stock is also nicely priced, gathering up north of $4 per share of earnings—a bargain price-to-trailing earnings of just over 8—while paying a dividend that yields around 2.6%. To be fair, valuation has been crimped by interest rate fears since the business does borrow money to help fuel investments, but it’s working to improve its appeal to investors. Royalty has long paid a 6.5% management fee to an outside entity, but last month announced it’s bringing the business in-house. The move will save the company more than $100 million a year and give Royalty Pharma claim to the intellectual property—the deal-savvy and relationships basically—of the manager firm. At the same time, Royalty’s board authorized a whopping $3 billion share buyback program, with $2 billion of that to happen this year, which makes up something like 10% or a bit more of the current market cap. This year, management projects revenue between $2.9 and $3.05 billion, up 9% on the high end. Guidance usually proves conservative in part because it excludes flows from new acquisitions made during the year. Analysts see the bottom line reaching $4.70 per share, while Royalty Pharma aims to boost the dividend about mid-single digits annually. It smells like a nice turnaround play.

Technical Analysis
Public since mid-2020, RPRX held a range of roughly 35 to 42 until the end of 2022, before a horrific, never-ending decline took the stock to 26 or so in 2023 and, after a mundane recovery, a fall to 24 near the end of last year. But January’s buyback and consolidation plans snaped RPRX out of its funk, with shares moving straight up since then (up 10 weeks in a row), helping shares tag 20-month highs on big volume. Dips of a point or so would be tempting.

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Stock 9

Silicon Labs (SLAB)

Why the Strength

A big part of the AI buildout involves the use of that technology in driving “smart” homes and cities, as well as industrial automation. Integral to this is Internet of Things (IoT) technology that enables physical devices to collect and exchange data, in turn allowing for real-time monitoring, automation and data-driven decision-making across various industries. A leading player in this movement is Silicon Labs, a fabless chipmaker (meaning they design the chips but outsource the manufacturing to foundries) with a primary focus on providing wireless IoT connectivity solutions for industrial, commercial and home applications. Like much of the “regular” (non-AI centric) chip sector, things were recently in a down-cycle, but the stock is turning strong today because a new up-cycle is on the way. In Q4, Silicon Labs’ saw its top line of $166 million increase a big 91% from a year ago, and while the firm reported a per-share loss of 11 cents, that metric was miles ahead of the year-ago $1.19 per-share loss and continues to narrow on a quarterly basis (the figure was in line with estimates). In the earnings call, Silicon said it sees “immense” growth potential for IoT and has been investing significantly in Wi-Fi solutions to accelerate wireless connectivity at the edge, while partnering with Amazon, Google, Samsung, Nvidia, and others in this aim. Another key part of the recent growth is Silicon’s Home & Life segment which, among other products, designs chips used in continuous glucose monitors (CGMs) for diabetes patients. In Q4, it shipped “meaningful volume” to multiple CGM customers, which helped drive the segment’s sequential growth. (The firm said it sees the potential for CGM to comprise nearly 10% of total revenue in the next 12 to 18 months and is “laser-focused” on building momentum in this space.) Looking ahead, management expects sequential revenue growth for the entire business to resume beginning in the current Q1 and sees design wins across several key areas continuing to ramp into production throughout the year. Wall Street sees revenue increasing 35% this year, with earnings expected to enter the black in Q2 and soar from there. It’s an interesting turnaround story.

Technical Analysis
SLAB was out of favor for most of the past couple of years, with a horrid decline into late 2023 and, after a few months of rallying, a brutal correction and consolidation into November. Since then, though, the stock has changed character—it rallied and tightened up into year-end, and it’s been up every week of the new year, kissing new 20-month highs in recent days. We wouldn’t be chasing it here, but dips under 150 would be interesting.

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Stock 10

TD Synnex (SNX)

Why the Strength

TD Synnex is a huge provider of IT hardware, software and integration solutions. Its offerings range from consumer electronics (PCs, mobile devices and printers) to networking infrastructure (hybrid cloud, security and software) and other logistical services. It’s always been a profitable but low-margin business, but after a tough stretch, the big idea here is that as enterprises increase their investments related to AI infrastructure, the firm’s extremely broad array of products with exposure to multiple industries should provide a significant growth tailwind. In recent quarters, Synnex has seen particular strength in its cloud, cybersecurity and software solutions, thanks largely to the expansion of AI, and the firm is strategically integrating AI into its offerings in recognition of the synergistic potential of combining the services. In support of this integration, Synnex recently launched the Innovation Studio in partnership with IBM, which is designed to support partners in adopting and monetizing AI through Synnex’s Destination AI initiative (and which also enables them to develop tailored solutions and proofs of concept, accelerating digital and business transformation). In Q4, revenue of $16 billion increased 10% from a year ago (the fastest growth rate in a while), driven by above-consensus gross billings, while EPS of $3.09 was in line with estimates and flat from a year ago. The top brass emphasized that its cloud, cybersecurity and data and analytics portfolios all grew by double digits in Q4 across all its geographic segments. The outfit also saw particularly strong top-line performance in its Hyve subsidiary (which go into the design and building of custom data centers), as segment revenue grew by double digits, reflecting “surging” cloud adoption and AI-driven demand. In the year ahead, Synnex said the momentum will continue to build thanks to the IT spending environment, and that it’s well positioned to capture opportunities as the demand environment stabilizes, with plans to continue expanding in new areas. It’s not changing the world, but earnings growth should pick up from here, the valuation is low and a modest dividend (1.2% yield) helps the cause.

Technical Analysis
SNX had a nice head of steam going last spring, briefly surpassing its 2021 peak, before the Q1 report dragged it down into what turned into a long, tedious bottoming effort. Shares didn’t implode (19% max correction), though, but meandered sideways for months, finding repeated support near the 40-week line. The turn up came after last month’s Q4 report, which was the catalyst for the runup to record highs, and SNX has held relatively firm in recent days even as the market has wobbled. If you want in, you can start small here or on dips with a tight (percentage) stop under 130.

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Previously Recommended Stocks

The next Cabot Top Ten Trader issue will be published on March 3, 2025.

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