Cabot Top Ten Trader Issue: January 13, 2025

*Note: Your next issue of Cabot Top Ten Trader will arrive next Tuesday, January 21 due to the market holiday next Monday, January 20 in observance of Martin Luther King, Jr. Day.

Back in the Soup

The market and some growth stocks held their own around year-end and popped to start the year, but last week was a bad one, with the sellers hitting most everything (including the big-cap indexes) fairly hard. There are tons of crosscurrents out there, from interest rates to political chatter to two huge conferences (medical and retail) going on this week, and we’re starting to see some oversold measures really get stretched—so we’re not hibernating in a bear cave. But the bottom line is that the intermediate-term trend of most indexes, sectors and stocks are down (80%-plus are south of 50-day lines), so right now, we continue to favor being cautious, holding plenty of cash and keeping new positions small until we see legitimate signs the bulls are stepping up. Our Market Monitor now stands at a level 5.

This week’s list has something for everyone, with a lot of good setups for if/when the market does turn up. Our Top Pick is Marvell Technology (MRVL), which has hung in there very well in recent weeks despite the market’s tumble.

Stock 1

Argenx (ARGX)

Why the Strength

Medical and biotech stocks haven’t been able to get out of their own way for a very long time, but the New Year could change that, and if it does, then Argenx looks like a leader in the space. This Belgian’s firm claim to fame is Vyvgart, which was always billed as a “pipeline in a product,” as the firm’s method of action has great potential in many autoimmune indications. Generalized myasthenia gravis (gMG) was the first big approval three years ago and uptake was huge; there were some worries the pipeline-in-a-product idea was fading after a bad trial result or two in 2023, but Japan approved a new indication (for primary immune thrombocytopenia, or ITP) in March and, more important, the U.S. FDA approved a new indication (chronic inflammatory demyelinating polyneuropathy, CIDP) in June, which got big investors on board. All indications are ramping (including 1,000 new CIDP patients by year-end), the market is getting bigger (60,000 gMG potential patients by 2030, up from 17,000 three years ago) and a new delivery method (pre-filled syringe) likely to be FDA approved in April and elsewhere later this year. There will be various trial results coming out this year, which is a risk (as with any biotech firm), as there are tons of new Vyvgart indications being tested (as well as one new drug in Phase II trials), but many analysts see a bunch of those as de-risked given Vyvgart’s history. The numbers here are outstanding, with this morning’s Q4 pre-release continuing that trend: Revenues are cranking ahead at 70%-plus rates, with Q4 rising 76%; earnings have leapt into the black during the past three quarters and, while the Q4 bottom line wasn’t released, analysts see earnings approaching $10 per share in 2025. It’s a good story.

Technical Analysis

ARGX changed character starting last May, when shares began a run of 12 weeks up in a row, including many on big volume, thanks to the CIDP approval and Q2 earnings. Since that time the stock has moved up, though for months, it really didn’t outperform the market. Recently, though, that seems to be changing, with ARGX’s relative performance (RP) line moving up since mid-December while shares continue to trend along the 25-day line. If you don’t own any, we’re OK nibbling here or on modest weakness.

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Stock 2

Constellation Energy (CEG)

Why the Strength
Utilities aren’t normally our focus, but with the white-hot trends in bitcoin mining and data centers, the sector has some powerful multi-year growth tailwinds. Baltimore-based Constellation Energy is a leading competitive retail supplier of electric power, natural gas and energy management services, with 2.5 million customers across the U.S. But the big news came last week, when Constellation agreed to purchase the natural gas and geothermal firm Calpine Corp. for $16 billion, which would combine two of the nation’s largest electricity generators into the biggest independent power provider in the U.S. (the reason for the stock’s latest pop). The move is largely based on the need to address the massive power demand increases driven by the ongoing AI data center buildout; the deal is expected to close in the second half of this year with “significant” boosts to Constellation’s market share expected in the key energy consuming states of California and Texas. Additionally, the acquisition should add $2 billion a year to the company’s free cash flow, with the combined companies having nearly 60 gigawatts of capacity from zero- and low-emission sources, including nuclear, natural gas and geothermal. Of course, business has been healthy: For Q3 Constellation reported revenue of $6.5 billion in Q3, which increased 7% from the year-ago quarter, and earnings of $2.74 beat estimates by six cents and were up 29%. The firm also announced the signing of a 20-year power purchase agreement with Microsoft that will support the launch of the Crane Clean Energy Center nuclear power facility and the restart of Three Mile Island Unit 1, (which management called “a powerful symbol of the rebirth of nuclear energy”). In addition to Crane, Constellation has at least 1,000 megawatts of additional nuclear generation it could bring onto the grid over time. Analysts expect a doubling of generation capacity after the Calpine merger that will boost the earnings power of the combined company—the top brass says the deal will be 20% accretive to the bottom line by 2026.

Technical Analysis
CEG is a bit later-stage, as shares have been running for more than two years—but, despite some very volatile action, the buyers are still in control. That said, the past seven months have seen a big base-on-base formation develop, with two good-sized corrections (34% and 24%) to the 40-week line before buying showed up on news (Three Mile Island back in September; Calpine last week). After kissing new highs last Friday, CEG fell back today, which isn’t a shock given the environment—we’ll set our buy range up from here, looking for a resumption of last week’s buying pressures to enter.

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Stock 3

Delta Air Lines (DAL)

Why the Strength
Delta (covered in the October 21 issue) is the nation’s largest passenger airliner by revenue and market share, and the firm has lately benefited from strong travel demand against an improving industry backdrop. The airline saw its stock rally to a new high last week after it provided very bullish financial results for Q4 and strong guidance for 2025, including management’s prediction that this year could be the best one in the company’s 100-year history as “consumers continue to prioritize experience over goods.” The fourth quarter was highlighted four of the top ten revenue days in Delta’s history, as well as double-digit growth in cash bookings, driven by both leisure and corporate travelers. Revenue of $15.6 billion increased 10% year-on-year, and earnings of $1.85 beat estimates by 6%, with Delta also delivering the most profitable December quarter in the firm’s history, with pre-tax income of $1.6 billion. The strength was broad based, including corporate sales that were up double-digits, led by the technology and financial services sectors. (Delta said the corporate strength should continue, with 90% of companies surveyed expecting their travel volumes to increase sequentially or stay the same in Q1 and further into 2025). There was also strength in Q4 on the international front, with sequential improvement across all three of Delta’s geographies, led by Transatlantic flights, which grew 6% in unit revenue terms and marking the strongest improvement of any of Delta’s segments for 2024, while Pacific flights led overall revenue growth (up 19%). Going forward, the top brass plans to increase capacity by 3% to 4% this year and expects non-fuel unit cost growth to continue in the low-single digits in 2025, while earnings are seen greater than $7.35 per share and free cash flow for the year comes in above $4 billion (compared to $3.4 billion in 2024). It won’t last forever (and rising oil/fuel prices could pose a risk), but the next few quarters at least should be boom times for Delta.

Technical Analysis
DAL peaked near 63 in early 2000, crashed for a couple of months and then spent years trying to work its way back from the pandemic, with wild ups and downs over time, including 30% to 40% drops in mid-2022, late-2023 and mid-2024. But the stock’s fortunes changed last August, when DAL started a persistent uptrend that took it back to its prior high. The latest dip was tedious, but Friday’s earnings pop tells us the trend is up. If you’re game, start small and use a stop just under 60.

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Stock 4

DoorDash (DASH)

Why the Strength
In this uncertain environment, big growth managers are likely putting a premium on what we call the 3 Rs (long Runway of Rapid and Reliable growth) when looking for investment ideas, and we think that’s why a name like DoorDash—which quacks like a liquid, well-traded leader—remains so resilient: While there’s competition, the firm is the King of Delivery, holding a huge market share in restaurant delivery (which still makes up the vast majority of the industry) and gaining more than half of all new restaurant clients that sign up for a delivery provider. And then there are things like grocery, convenience store and other delivery services, where the company is seeing big growth and is signing up about half of all new entrants to the sector. The key over time has been DoorDash’s focus on technology and logistics as well as a willingness to look for underserved restaurants and other potential clients (willing to go outside the major cities, for instance) while offering them unique services (customizable delivery options; it also shares customer data with them). The bottom line is that there’s no reason the company won’t remain in the lead position in a sector that has many, many years of growth ahead. Then there are the numbers, of course, which are steadily improving on the top and bottom line: In Q3, order dollar volume lifted 18%, revenues gained 25% and EBITDA boomed 55% to a very healthy $533 million, while free cash flow came in at north of $1 per share and all of the customer cohort trends reportedly remains bullish (new sign-ons are buying at higher rates than older cohorts, while most are ordering more as time goes on). Growth is expected to slow a touch this year, but the underlying trends are intact. Earnings are due February 11.

Technical Analysis
DASH had a tough correction from March into August (down 31%), but earnings at that point turned the tide up despite the weak market, with a breakout in September leading to a great run (nine weeks up in a row) before the 180 area brought in some selling. Mid-December brought a couple of ugly days, but DASH never really gave up the ghost and currently sits just 7% or so from new highs. We’ll set our entry range up from here, looking to buy if buyers drive the stock above some resistance.

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Stock 5

Expand Energy (EXE)

Why the Strength
The natural gas sector is commanding headlines as freezing temperatures across the U.S. have pushed usage up and natural gas prices to their highest levels in over two years—with inventories further tightening as liquid natural gas (LNG) exports from the U.S. to Europe hitting record levels. On top of that, the massive expansion of domestic data centers is expected to require at least 20,000 megawatts of new natural gas-fired electricity capacity in the next few years. Translation: After a couple years of dry times, U.S.-based gas operators could be on the cusp of one of their best multi-year performances in years, which is a reason for the enthusiasm behind Expand Energy. The Oklahoma-based outfit (formerly Chesapeake Energy) is America’s largest natural gas explorer and producer, with operations in Louisiana, Pennsylvania, West Virginia and Ohio, and is a major producer of gas that’s capable of supplying LNG to Gulf Coast liquefication facilities. Last week, the company said the frigid weather and rising demand have put Expand in a position to increase its production levels to as much as seven billion cubic feet per day in 2025 after deferring capacity among lower prices last year. Further underscoring Expand’s favorable industry position, a major Wall Street bank recently noted the company’s ability to ramp volumes into a bullish natural gas price environment “is a strategic advantage versus [its] peers.” On the financial front, revenue of $648 million in Q3 was 57% lower year-over-year, but earnings of 16 cents a share surpassed estimates by 22 cents; frankly, the fact that the company has been nicely profitable despite horrid pricing is a good sign. Indeed, the firm pays a healthy (2.2% yield) throughout, is aiming for $500 million of debt reduction this year and should return three-quarters of free cash flow above that in dividends or buybacks—which could be a sizable amount if pricing rise from here. Wall Street sees earnings approaching $5 per share this year, though that will come down to natural gas prices and Expand’s production.

Technical Analysis
EXE had a big post-IPO run in 2021 and 2022, reaching north of 105 before finally succumbing to the bear market, with shares dipping to 70 in March 2023 and, after gyrating for a year, retesting that level last August and September. But the stock’s character has changed since then, with a nice rally into October, a three-week rest, and then a run to two-year highs in November. The latest 50-day line test was successful, though after the recent pop, we’ll aim to enter on modest weakness.

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Stock 6

Marvell Technology (MRVL) ★ Top Pick ★

Why the Strength
Marvell makes custom-designed computer chips going into the very large cloud- and AI-based systems used by some of the world’s biggest businesses, as well as some of the most popular consumer electronics, like the iPad. But bigger than consumer products right now are AI-related systems, with investors turning giddy over a boom that’s just beginning; Marvell’s recently signed five-year deal with Amazon Web Services to provide generations of AI chips as well as associated networking products like ethernet switches, optical connectors and active electrical cables, validated that demand is taking off. Custom silicon products for AI is a booming segment for Marvell: For fiscal 2025, ending February 2, management had indicated it would get $500 million in custom AI orders, but recently said they are running well ahead of that goal. Growth in that area should quicken too—Marvell believes the total addressable market for custom AI data center chips will grow to $40 billion by 2028, with expectations they will claim 20% of that. Marvell likely won’t report Q4 until late February, but analysts expect sales to touch $1.8 billion in the period, up 26% from a year ago (a big acceleration from recent quarters), with 59 cents of earnings (up 28%). More importantly, there’s a good chance AI chipset demand will mean a boom in the coming years, with Wall Street already seeing sales jumping more than 40% to $8.15 billion in fiscal 2026 (ending next January), from an expected $5.8 billion for 2025. Marvell’s increased focus on AI data centers provides growth as the company shifts resources from recently sluggish business lines like automobile chips and industrial tech. A danger is that expectations could already be running too hot for the business which, until the emergence of AI last year, had been struggling to find meaningful growth. But providing some support in case of some disappointment is a $3 billion share repurchase program approved last year, which, as of early December, had $2.5 billion remaining. Analysts see the bottom line soaring 76% this year.

Technical Analysis
MRVL broke out in the middle of October and had a nice run for a month before tightening up into earnings in early December—and that report was what really changed perception, leading to a monstrous gap up. That gap occurred just as growth stocks were starting to run into trouble, but MRVL has held firm, refusing to give up any of its October-December gains and holding near the 25-day line so far. If you’re not yet in, we’re OK with a small buy here or (preferably) on dips with a stop around the century mark.

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Stock 7

Planet Fitness (PLNT)

Why the Strength

Aside from being consistently ranked as America’s #1 nationwide gym franchise, Planet Fitness is also one of the nation’s largest chains across all business categories by both revenue and number of locations (currently 2,722 gyms worldwide at year-end, with most of them in the U.S.). The company sees plenty of growth opportunity ahead, with the potential to nearly double its number of gyms—which are known for being bright, clean and energizing—over the next few years, while targeting people who don’t have gym memberships (which management estimates to be around 80% of the North American population). One key to the company’s long-term growth story has been its ability to keep its costs low by offering basic memberships for as little as $15 a month (in addition to a $49 startup fee), which is a big reason for its massive membership (approximately 20 million). But with a sizable portion of that membership comprising older clients, Planet Fitness is focused on penetrating the younger Gen Z and Millennial generations (with the younger demographics comprising only 10% of its current membership and offering a sizable runway). Earnings were the main catalyst for the stock’s recent strength, with Q3 revenue of $292 million increasing 5% from a year ago, plus earnings of 64 cents that beat estimate by six cents and adjusted EBITDA that grew 10%. Twenty-one new Planet Fitness clubs were opened system-wide during Q3, and the firm opened 150 new clubs for the year as a whole—and with additional plans to modernize its equipment, floor plan and overall experience to stay relevant to the younger generations. In the wake of the sanguine results, a number of Wall Street firms upped their target prices, including one major bank that named Planet Fitness its top leisure sector pick for 2025, while another bank named the company among its top names for “above-average growth potential.” Today’s full-year update (system-wide same-store was up 5%) didn’t offer many surprises; analysts expect top- and bottom-line growth of 10% and 17%, respectively, for 2025.

Technical Analysis
After a rough couple of years, PLNT a nice base between January and May of last year before breaking out on the upside in June. Shares nosed to 16-month highs in September before tightening up for six weeks, followed by an upside surge on earnings. Interestingly, PLNT has again tightened up, moving straight sideways near the century mark even as much of the market has struggled. We’ll set our buy range up from here, looking to enter on a breakout.

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Stock 8

Reddit (RDDT)

Why the Strength
Reddit might be the #1 glamour stock in the market right now, and we say that both because of its solid resilence during the month-long period of market weakness (see more on that below) but also because of its unique, one-of-a-kind social media offering that may be the next big draw for advertisers. Reddit is essentially the world’s largest collection of message boards where people with common interests can get together, ask questions, discuss things, rant and more—the pervasiveness here is mind-boggling, with something like 140,000 active boards covering just about any topic, from cutting down trees to cooking to sports teams to destinations to finances to jokes, you name it, there’s almost surely a “subreddit” for it, with moderators keeping the discussion on point. (Reddit is one of the most searched words on Google, too, as it becomes a go-to place for finding information.) User growth has been soaring of late, with Q3 showing 97 million daily active user (up 47%) and 365 million weekly active users (up 53%), bolstered in part by international growth and machine translation services (where someone from, say, France, can read an English post). It doesn’t take a genius to see that this format is perfect for advertisers that want to get their wares in front of interested parties—new recipes or crockpots for the slow cooking board, for instance, or interactive “ask me anything” sessions where someone can directly engage with Reddit users. While smaller, there’s also big potential in data licensing, with Reddit effectively having a proprietary treasure trove of real-conversation data that many would love to mine. Growth here has been accelerating wildly of late (see revenue growth in the table) below, and free cash flow was actually 60 cents per share or so in Q3 while EBITDA margins were 27% (!). Analysts see continued big growth in 2025, and if management pulls the right levers, there’s no reason Reddit can’t grow many-fold from here.

Technical Analysis
RDDT came public in March of last year and had some huge downs and ups until October, when shares finally had enough momentum to hit new closing highs. Then came the earnings report, which blew the roof clean off and led to a massive advance, with shares racing from a prior high near 80 to a peak above 180 last month. Clearly, RDDT had earned the right to pull back from there, especially with the rough growth stock environment—but despite some recent slippage, shares have held up relatively well. Shares are very volatile (10 points per day from high to low!), so we prefer entering on some strength so we’re not catching falling knives.

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Stock 9

Remitly Global (RELY)

Why the Strength
Remitly Global offers digital-based, cross-border money transfers serving immigrants and their families. The Seattle-based business provides currency transfer services between the U.S. and 170 other countries, offering a competitive exchange rate with fees – charged to the sender – of a few dollars that declines to less than 1% the value of the transaction for larger sums. Remitly provides a simple, transparent interface so senders know exactly how much money recipients will be getting. The market opportunity is huge: Consumers send some $2 trillion in cash across borders each year, with Remitly so far claiming a mere 3% of the bank transfer market after 13 years of operation. The low market share shouldn’t be a concern—the business has been grabbing share every quarter and is growing at five times the rate of competitors. It’s also the largest digital-only wiring service and the sole one handling more than $1 billion of currencies in a year. In the most recently reported quarter, Q3 2024, send volume rose 40%, leading to revenue of almost $337 million and a penny of net income. Management says its digital-only platform allows it to gather reams of data all the time on what marketing approaches and service offerings resonate with customers while also having a bit of a competitive moat due to the complexity of cross-border currency regulations. The choppiest part of a transaction for a Remitly user right now is on recipients when they collect the money, when additional fees may be levied by a bank on that end, but recent partnerships with digital fintechs in Africa and Asia are making such snafus less frequent. For the year just ended, Remitly says revenue should come in right around $1.25 billion, with Q4 showing about 30% growth, and the 2025 outlook is bright, with sales likely to rise in the mid-20% range while earnings boom.

Technical Analysis
RELY did well in 2023 but then was crushed on earnings that November and trended down into last summer, with a bottom effort for three months following the ultimate June low. But the earnings reaction on Halloween changed the stock’s character, with three straight big-volume buying weeks kicking off a solid advance that’s see RELY hold north of their 25-day line. It’s a bit thinly traded, but we’re OK with a nibble here or on dips with a stop near the 20 level.

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Stock 10

Robinhood (HOOD)

Why the Strength
The broad market has turned quite weak in recent weeks (small-caps are down 12%, equal-weight big-caps off 8% from their highs), which has dented most big-cap stocks—but Robinhood has been an exception, which is noteworthy given that it’s probably the most “risk-on” of its Bull Market stock peers. The firm first got a name for itself during the meme stock crazy in 2021, which obviously ended badly, but Robinhood continued to expand its offerings to appeal to a wider group of investors (expanding into Europe; index and futures trading and crypto trading in Europe; new trading platform, etc.) as well as many unique products ($60 annual Gold subscription brings higher money market rates and better trading tools; there’s also a Gold credit card offering 3% cash back) and incentives (including 3% IRA matches for Gold members if you stick around for five years, which has helped retirement assets grow from near-nothing a year and a half ago to $10 billion now) that have brought in a stream of new customers (24.3 million clients in Q3, up 4.3%) and assets ($152 billion, up 75%). Of course, big-picture investor sentiment picking up has also helped, but the bottom line is that 2024 was Robinhood’s coming out party: Net deposits through Q3 of last year totaled $34.4 billion, up 175% (!) from the same period in 2023, while trading volumes for options (up 47%), equities (up 65%) and crypto (up 112%) in Q3 soared, leading to a solid 72% gain in transaction revenue. To be fair, interest income is a big piece of the pie here, so that could fade if rates come down—but, obviously, the view these days is that Fed rate cuts may be over for a while. Of course, if the market really tanks, deposits will probably slow and asset levels could fade, but overall Robinhood looks like an emerging blue chip of sorts in the brokerage field, one that’s likely to get a lot bigger over time.

Technical Analysis
HOOD originally broke out last February, though it was anything but a smooth ride with some harrowing corrections along the way, especially last summer. That said, the next breakout came in early October and shares ran up nicely for nine weeks to just above 40 before the market began to run into trouble in early December. Still, while HOOD saw a big initial wobble (44 to 34), the stock nearly hit new highs last week and has been resting normally—far more resilient than most stocks (and all its peers). If you’re game, we’ll set our buy range down a bit from here and use a stop in the mid-30s.

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Previously Recommended Stocks

The next Cabot Top Ten Trader issue will be published on January 21, 2025.

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