Cabot Top Ten Trader Issue: January 21, 2025

Buyers Stepping up as Worries Ramped

January is living up to its volatile reputation with plenty of wild action so far, and with earnings season now revving up, we’re expecting more ups and downs ahead. Even so, we always go with the evidence, and there’s no doubt it’s begun to improve—the intermediate-term trend, which was negative for most everything out there, is back to neutral; the broad market is showing some rapid, intriguing improvement; and individual stocks have improved their standing, with some popping to new highs. To be clear, this isn’t a buying panic (most names are repairing the damage from the past few weeks; selling on strength is still common), but after a few weeks of tedious action that has brought sentiment down (some near-term measures fell to their lowest levels in over a year last week), we’re OK with gradually extending your line while remaining nimble. We’ll up our Market Monitor to a level 7 today.

This week’s list is a mixed bag, with everything from growth to turnarounds to commodity names. Our Top Pick is EQT (EQT), which looks like one of the leaders of the natural gas sector, which could be starting a group move after being in the doghouse for a couple of years. Try to get in on dips.

Stock 1

Chart Industries (GTLS)

Why the Strength
Chart is a fast-growing player in the broader energy infrastructure space, and its clients are among the biggest in multiple industries within that sector. It manufactures engineered equipment used for the production, distribution and storage of industrial gas and clean energy output, and also provides cryogenic tanks for the biomedical industry. Chart’s products are used in every phase of the liquid gas supply chain, and it boasts a growing order list for large-scale export terminals as those clients rush to meet mushrooming demand for natural gas. Most recently, Chart secured an order from engineering firm Bechtel to provide its IPSMR liquefaction technology and cold boxes (for storage) for Woodside Energy’s Louisiana liquid natural gas (LNG) development project. But while Chart’s oil and gas business is still brisk, it now comprises less than 10% of overall sales as the firm is moving more aggressively into other, equally lucrative opportunities, including the white-hot AI data center buildout. For the latter, Chart provides solutions related to cryogenic storage and thermal management, including cooling systems that are critical for maintaining peak conditions at energy-intensive data centers, as well as carbon capture technology. To further that goal, Chart acquired Howden in 2023, which specializes in air and gas handling products and services, including the manufacture of highly engineered fans, compressors, rotary heat exchangers and steam turbines. The Howden acquisition provides Chart with access to almost any end market that produces energy, including the burgeoning hydrogen market, and in Q3 the combined business has already provided Chart with quarterly cost synergies of $250 million—the original target for 2026. Other highlights of Q3 included revenue of $1.1 billion that increased 18% from a year ago on orders of $1.2 billion that increased 5%, as well as earnings of $2.18 a share that boomed 93%. For 2025, management reported a “strong backlog coverage” with several big players in the LNG, hydrogen and data center end markets, plus additional larger orders anticipated to close in the coming months. Wall Street sees earnings up another 36% this year.

Technical Analysis
After three months of bottom building late last year, the change in character for GTLS came in early November after the Q3 report, as the stock shot up from 120 on big volume and ran all the way to 200 (its highest level since late-2022) before encountering its first meaningful resistance in mid-December. A quick pullback to 175 followed, with shares resuming the rally within a few days and going on to make additional new highs last week. We think it’s best to enter on minor weakness, with a stop near the rising 50-day line.

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Stock 2

Citigroup (C)

Why the Strength
Citigroup is America’s third-largest lender, and like most of its peers, it’s benefiting from massive growth opportunities across several areas of the broader financial sector. For one, strong trading activities and a rebound in mergers and IPOs have contributed to booming profits for the bank, while a focus on lowering expenses, along with a lower cost of credit, has also helped. Moreover, Citigroup is seeing benefits from higher yields as lower-yielding bonds bought years ago mature and are reinvested at more favorable rates, in turn improving the bank’s net interest income (NII), which increased 23% year over year in Q4, to $13 billion. Last week’s quarterly earnings release also featured revenue net of interest expense of $19.6 billion, up 13%, plus earnings of $1.34 a share that beat estimates by 10%. The company said it enters 2025 with “momentum across our business” and expects full-year NII (ex-markets) to be up modestly from last year’s $47 billion and sees 2025 revenue after interest expense increasing 4% (above consensus estimates) while guiding for lower expenses and positive operating leverage. Citi also announced a massive $20 billion share repurchase authorization with plans to buy back $1.5 billion of its common shares in the first quarter (a reason for the stock’s latest show of strength). Further highlights of the quarter included services revenue that grew 15%, thanks to fee growth and higher deposits volume, which led to a 30% increase in return on average tangible common equity (ROTCE, a key metric), well above the firm’s original projected target. Market-related revenue grew 36%, driven by strong performance in equities and fixed income products, while the wealth management business (which management said experienced a “turning point” in 2024) featured ROTCE of 10%. Looking ahead, analysts see another strong year of earnings growth in 2025 (up 27%) while a solid dividend (2.8% yield) and cheap valuation (tangible equity is $89 per share) are added attractions. Citi clearly isn’t a normal Top Ten-type name, but we think it could be leading a group move among the mega-banks.

Technical Analysis
C took flight in late 2023 with the market and had a great run into the 67 area last July. The stock corrected from there, but the low was put in after just two weeks of selling. Following a couple of months of base-building, shares popped after the election, but that led to another couple of months of very tight trading. Last week, though, looks decisive, with C moving to new highs on its heaviest weekly volume in more than a year. We advise aiming to enter on minor dips, though we’re not expecting a big retreat.

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Stock 3

Cloudflare (NET)

Why the Strength
Cloudflare is a cloud services provider with a heavy presence on the operations side of the internet. It’s a content delivery network, or CDN, providing the architecture, network ability and back-end technology to keep websites humming for all but the very largest web players (which usually run their own CDNs). Cloudflare maintains operations in more than 200 cities worldwide because physical closeness to its clients’ users speeds up loading pages and streaming media. Other work is much more sophisticated, like developing cloud infrastructure and blocking some 165 billion cyber threats each day to its 221,000 paying customers. Most of the revenue comes from a much smaller group of clients that spend $100,000 or more with Cloudflare each year; that cohort grew 27% last quarter to 3,265, contributing 65% of revenue. The business has long been a 25%-plus revenue grower, and now it’s AI that promises to be a fresh source of expansion for Cloudflare. Its Worker AI system allows developers to use their own code to run machine learning models on the Cloudflare network. The access is especially desired because it enables scale deployment of AI inference, which is the exposure of AI-trained models to new, unseen data to improve the models’ programming. Cloudflare’s global network – built to speed up the internet – makes the AI product desirable worldwide, since high-powered GPU resources are near every potential customer. Expectations are that Q4, to be reported after the market closes February 6, will show revenue up 25% to about $452 million with net income per share hitting $0.18, up from $0.15 a year earlier, both of which are likely conservative. That Q4 growth rate is about what Wall Street expects for 2025, seeing sales hitting $2.1 billion for this year, though earnings are expected to grow at a slower clip due to higher expected spending to expand AI services. All told, this remains a solid, steady growth idea.

Technical Analysis
NET had a decent rally from its bear market low into early 2024, spiking as high as 116 in February, but shares have been etching a huge consolidation ever since—the stock fell a big 43% from that spike higher, bottomed out for a while and then began to rally back in October. NET made it back to its old highs in December and, after a few weeks of rest, is now toying with multi-year peaks. We’ll set our buy range up a bit from here, looking to enter on a clean breakout.

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Stock 4

Credo Tech (CRDO)

Why the Strength
While more than a few AI-related plays have had big runs during the past year-plus, the AI networking/connectivity theme emerged far more recently—many firms in the space have been talking for months about an upcoming upturn in business, and the Q3 reports in November/December showed the time had arrived, leading to a wave of strength in the stocks. Credo Tech might be the glamour leader in the space, supplying a handful of humongous clients (including Microsoft and other hyperscalers) with various offerings that boost connectivity speed and reliability within data centers, which is huge as AI workloads soar. One of its key offerings is what’s called its active electrical cables, which are used to connect servers to routers and switches and contain special chips to boost speeds; indeed, Credo’s proprietary offering takes up far less space and uses much less power than basic cable alternatives and allow players to keep using their current infrastructure. There are also digital signal processors, retimers and more, but the key is that business has been rebounding nicely over the past three quarters after a rough stretch—and things should accelerate wildly from here, with management saying in its Q3 report (released early December) that demand is even greater than they had expected. Indeed, sales are expected to grow at triple-digit rates for at least the next four quarters (starting in Q4) while earnings explode. As we wrote a few weeks ago, the main risk is that Credo (and, really, most players in this theme) is a down-the-food-chain operation, as its top three customers make up more than half its sales—so if they pull in a bit, investor perception would take a hit. Still, right now, the opposite situation is happening, with big clients buying as much as they can, resulting in some of the fastest growth out there.

Technical Analysis
CRDO originally broke out last May, but things were very choppy from there, with wild dips in the summer followed by a strong push to new highs after the market’s August mini-crash. Still, the real coming out party was in early December, when the stock went wild on the upside following its monstrous guidance hike. Shares chopped sideways from there, though that was a good thing as most growth stocks were hit, and now CRDO is stretching its legs, tagging new price highs last Friday. Today’s volatility (some selling near the prior high) is par for the course in this market, so we’re OK nibbling here if you don’t own any; use a loose stop.

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Stock 5

EQT Inc (EQT) ★ Top Pick ★

Why the Strength
Natural gas prices have been one of the surprise stories of the past couple of months, with the commodity shaking off a couple of years of depressed (sub-$3) prices to surge to the $4 level of late—and with the power demands of AI, perception is rising that gas demand should lift nicely going ahead. That leads us to EQT, which calls itself the U.S.’s only large-scale, vertically integrated natural gas player, with many attractive qualities: It starts with its top-notch acreage that includes 1.1 million core acres that have 30 years (!) of de-risked drilling inventory that carries with it great returns—for 2025, in fact, the firm estimates it would actually be free cash flow breakeven even at $2 natural gas! (Free cash flow through the first three quarters was over $100 million despite gas averaging $2.25.) The firm has also been active on the midstream front, acquiring Equitrans last year (2,000 miles of pipe that largely goes through EQT’s core areas, meaningfully boosting well returns) and then selling a non-controlling stake in a midstream joint venture (made up of much of EQT’s assets) to Blackstone, which brought in $3.5 billion and still leaves EQT with growth and expansion upside. That (along with $1.25 billion of other asset sales) will go to cut the debt load that stacked up from the Equitrans buy, with more coming. But the really big idea is that EQT as a whole is poised to gush cash for a long time to come: Even at $3.50 gas, EQT should crank out something like $4.50 per share of free cash flow on average for the next five years, supporting reduced debt, a modest dividend (1.2% yield) and eventually greater cash returns to shareholders. Obviously, a lot will depend on natural gas prices, but the setup is clearly there for EQT to thrive in the quarters to come.

Technical Analysis
EQT has had some multi-month ups and downs during the past couple of years but overall has been dead money, with a retreat to the 30 level last August bringing the stock to a level it touched in early 2023. But like many natural gas plays, shares started their comeback at that point, slowly at first, then accelerating into November, pausing in December and showing solid upside so far this year. If you want in, try for dips toward round-number support at 50.

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Stock 6

Global E-Online (GLBE)

Why the Strength
As online transactions encompass an increasing percentage of the overall retail sales pie, merchants and customers alike have come to expect a smooth, secure transaction process to facilitate those sales. That’s where Global E-Online enters the picture: The Israel-based outfit provides a direct-to-consumer (DTC) platform that increases online retailers’ conversion rates via a localized, optimized shopping experience in 200 countries. Its services include converting money between 100-plus currencies, offering 150-plus payment methods, tax/duty calculations, prepayments and competitive shipping rates and convenient returns. Strong consumer spending patterns and expectations for continued global economic growth in 2025 are among the reasons why the company is outperforming its industry peers. What’s more, the firm’s recent introduction of a buy online, pick up in store (BOPIS) offering, which leverages in-store distribution, has helped Global’s merchant clients increase their domestic e-commerce sales while attracting new clients. (BOPIS is expected to register compound annual growth of around 12% in each of the next three years; the increasingly popular trend further encourages customers to make add-on purchases, thus boosting loyalty and the likelihood of revisiting the same merchants.) The company reported “great traction” from its recent BOPIS offering, especially among large enterprise clients, which contributed to a stellar third quarter: Total sales of $176 million increased a big 32% year-on-year, driven by several recent successful merchant launches, as well as new bookings that reached an all-time high. Gross merchandise value (GMV) of $1.1 billion increased 35%, and while earnings were in the red, EBITDA was positive and lifted 41%. Other highlights of the quarter included new customer launches and expansions with luxury giants Harrods and Victoria’s Secret, along with Disney in Australia and New Zealand, plus “significant” launches with the Manchester United and Bayern Munich sports clubs. For 2025, revenues are expected to continue cranking ahead at 30%-plus rates while earnings turn positive and EBITDA leaps.

Technical Analysis
GLBE had a base failure last February that brought shares down to the upper 20s, and while the stock did find support there, it took until October for it to finally tighten up and set up properly for a sustained upmove. The earnings gap in November was a great one, and shares rallied to multi-year highs before chopping sideways with growth stocks for a few weeks. GLBE recently found support near the 10-week line and looks buyable around here or on a minor wobble.

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Stock 7

Howmet Aerospace (HWM)

Why the Strength
Powerful momentum in the commercial aerospace market, driven by increased air travel demand and the need for commercial airliners to replace fleets, is the main reason why Howmet (covered in the November 25 issue) is outperforming. The company is a leading provider of engineered metal products (mainly aluminum and titanium) used in defense and commercial transportation applications, and it also offers fastening systems, bearings and forged aluminum wheels for heavy trucks. But the defense and aerospace businesses are leading the way forward entering the new year, with the commercial transportation market expected to rebound in the second half of the year. In its Q3 earnings call, Howmet cited vibrant passenger and air freight demand, along with a record backlog of new orders for aircraft, as growth catalysts for 2025. At a recent industry conference, Howmet emphasized its expectations that this year will be better than last in terms of overall commercial aircraft production, bolstered by a sizable backlog, easing supply chains and aircraft manufacturers improving their own labor utilization and output. Beyond the aerospace industry, the company also sees a massive opportunity ahead in the AI data center boom as players in this space increasingly rely on “aero derivatives” like smaller gas turbines, or larger J-class turbines, for energy generation purposes. Management notes that the intensive demands of artificial intelligence (with an AI search requiring 10x the electricity of a Google search) and cryptocurrency mining will consume ever-increasing amounts of energy, which will benefit Howmet since it’s the leading supplier of industrial gas turbine (IGT) blades. It believes its IGT revenues could potentially double, driven by higher turbine installations and attractive margins in their engine products segment—which prompted a major Wall Street institution to upgrade the shares (a reason for the recent strength). Analysts see the bottom line increasing by around 20% in each of the next three years as growth remains steady and margins expand.

Technical Analysis
HWM broke out back in November 2023, so its overall run isn’t in the early innings—that said, its pattern of modest pullbacks to or a bit below the 50-day line followed by big-volume support continues. Indeed, the latest six-week consolidation saw shares fall 11% and toy with the 50-day line, but last week’s action was superb, with HWM racing to new price and RP highs on many days of solid volume. We’re OK grabbing some here or (preferably) on dips if you’re not yet in.

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Stock 8

PayPal (PYPL)

Why the Strength
PayPal was the original new-age payment platform, with its core offering (as well as its Venmo money transfer service, which was the first of its kind) seeing huge uptake among consumers and merchants, where it makes it easier than ever for buyers to check out quickly and securely. The problem, of course, was competition from various payment parties (Apple Pay was a big one) that slowed growth to a crawl and dented the stock for a couple of years—but now PayPal is something of a turnaround situation, with the top brass expanding its platform’s reach and capabilities (including new PayPal and Venmo rewards debit cards, express checkouts, recurring payments for subscriptions, added features for Shopify merchants, links to Amazon Prime for shipping benefits, etc.) and producing slow but stable growth, with more on the way. In Q3, revenues were up 6%, total payment volume of $423 billion was up 9% and other core user metrics (monthly active accounts, transactions per account) were up similarly, though earnings (up 22%) and free cash flow (up 31% and totaling about $1.40 per share, well ahead of reported earnings) grew much faster. Indeed, one of the attractions here is that PayPal is something of a cash cow and is using that to boost returns—in the first nine months of the year, its share count fell a very solid 6.2%, with $6 billion of purchases likely for 2024 as a whole and more on the way this year. Clearly, the super-growth days of 2017-2020 are gone, but slow steady growth with tons of cash flow (along with a reasonable valuation, 17x earnings) should keep big investors interested. Earnings are due February 4.

Technical Analysis
PYPL had a horrid few years that brought the stock to a low near 50 in October 2023, and shares were still meandering in the mid-50s last July before finally getting going, with the Q2 report kicking off a new uptrend. The stock had a great run into early December, when the 90 level brought in some sellers, including a nasty-looking drop two weeks ago. But that is now looking like it might be a shakeout, with PYPL roaring back to new closing price and RP peaks last week. After today’s dip, we’ll set our buy range up a bit, looking to enter on further strength.

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Stock 9

RH Inc (RH)

Why the Strength
Despite one of the worst housing markets in the last 30 years, luxury home goods provider RH Inc. is on track for a huge business rebound in 2025. The company, which specializes in traditional furniture, lighting, textiles, rugs and bathware—as well as baby, child and teen products—saw demand for its offerings accelerate as it exited the year, thanks in part to product line investments and brand improvements. (On a related note, last week’s release of the December U.S. retail sales report was led by an 8% year-on-year increase in the furniture and home furnishings category, so spending in this category is strong despite weakness in other retail segments.) The firm’s growth is being driven by its namesake RH brand, which saw demand increase 24% in November alone after the publication of the company’s new RH Modern Sourcebook (which includes 89 new collections across furniture, upholstery, lighting, rugs and textiles), with continued strength into December (up 30%). Management attributed the strong demand to its offerings having “a level of design and quality inaccessible in the current market,” as well as a value proposition that is “disruptive across multiple markets.” The firm sees its new collections and improved in-stock selection significantly increasing its market share gains in the first half of 2025, with its baby, child and teen businesses continuing to drive growth for the full year. Additionally, RH sees “significant opportunity” in its acquired Waterworks business (which management called “the most desired brand in the luxury bath and kitchen category”), with plans to introduce the brand across the RH platform this year. (Waterworks is currently a $200 million business, with RH seeing the potential to become a billion-dollar global brand on the platform.) In Q3, RH reported revenue of $812 million that increased 8% (the second quarter of growth after a couple of tough years), with per-share earnings of $2.48 that were up from a loss a year ago. Analysts see the bottom line racing ahead to $13 per share this year, and the way these turnarounds go, even that should prove conservative.

Technical Analysis
RH spent years bottoming out after its post-pandemic bust phase, with a couple of rally attempts falling flat as business remained challenging. But the earnings reaction in September changed things, with RH moving sideways for a few weeks afterwards before lifting to multi-year highs in mid-December after its Q3 report, The pullback from there was tedious, but found support at the 25-day line and RH is back near its highs. We’ll aim to enter on a normal exhale.

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Stock 10

SharkNinja (SN)

Why the Strength
SharkNinja sales have grown nearly 30% in the past year as its innovative line of consumer kitchen and household products are finding buyers willing to pay increasingly higher prices for things like espresso machines ($500) and a robot vacuum-mop ($800). SharkNinja has been in business 20 years, making kitchen-related small appliances under the Ninja brand and gear for elsewhere in the home under the Shark label. The business thrives on rolling out new products that incrementally solve problems consumers have. Its latest—the Shark Cryoglow—moves it into the skincare business. It’s an LED face mask that offers anti-aging treatments and it was the most searched product for some major retailers just three weeks after its U.K. launch in Q4. Management promotes its brands through aggressive multichannel marketing including TV commercials, social media placements and plentiful media stories. The business sells with whoever will hawk it, from web retailers and brick-and-mortar stores including Ulta, Lowe’s and Sephora, as well as its own direct-to-consumer program. There’s no one thing that makes SharkNinja work with consumers (though its rapid product development cycle is a big plus), which makes it a tough target for competitors to best. The biggest hurdle right now is the existing 25% tariffs on Chinese-made goods, but the company has in large part shifted out of China the past few years and expects to be making all its gear elsewhere in Asia, not subject to the higher China tariffs, by the end of 2025; 35% of its U.S.-sold goods are made in China today. Consensus for Q4 2024 results, which should be out in mid-February, project 18% year-over-year growth to $1.62 billion in the period, with $1.26 of earnings per share, up 35%. Management has been signaling the holiday shopping season was quite robust, so investor expectations probably are heightened.

Technical Analysis
SN went public in 2023 at 30 and has been a consistent gainer since, breaking out in February of last year and again in August on its way to reaching a summit near 112 in October. But the Q3 report brought a huge dip, which definitely had the potential to cause a sustained downtrend given the prior rise—but instead, SN found support after just one week of selling and is now perking up near those prior highs. Today’s selling that showed up near resistance isn’t abnormal, but we’ll set our buy range up from here, entering on a clearer breakout-type move.

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Previously Recommended Stocks

The next Cabot Top Ten Trader issue will be published on January 27, 2025.

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