Cabot Top Ten Trader Issue: March 31, 2025

Sellers Still in Control

The market had what amounted to a halfway decent eight-day rally that took the indexes higher into the middle of last week, but nothing really changed for the better with the intermediate-term evidence, and sure enough, the sellers pounced on that move, with most major indexes testing or reaching new correction lows today. Of course, today ended up showing decent support, so we’ll be watching to see how this short-term retest phase goes—given the very negative sentiment and obvious reason for the selling (tariffs), a super-powerful rally from here would be intriguing, especially if some resilient stocks (those that are holding well above their lows from a couple weeks ago) take flight. As always, though, we just go with the here and now, and there’s no question the trends of the major indexes and the vast majority of individual stocks is down, so we continue to remain in a defensive stance. We’ll yank our Market Monitor back down a notch to a level 3, though the main pieces of advice haven’t changed: Hold lots of cash and, if you do buy, keep positions small and honor stops and loss limits. Over time, this decline will set the stage for a buoyant advance with lots of new leadership, but until that payoff arrives, continue to practice patience.

This week’s list is again very well rounded, though not surprisingly, there’s fewer go-go growth names, as more well-situated outfits are favored. Our Top Pick is Ollie’s Bargain Outlet (OLLI), which has both growth and defensive characteristics, and the stock is holding up very well.

Stock 1

Alibaba (BABA)

Why the Strength
Alibaba probably doesn’t need any introduction, as it’s a Chinese tech conglomerate best known for its Amazon.com-like ecommerce platform. Similar to Amazon, Alibaba has extended its business into much more than selling goods on the web through a vast marketplace, but has been so successful in doing so it may be better thought of as a combination of Amazon and Google in China. Alibaba offers everything from content production and streaming to online consumer healthcare businesses, as well as corporate logistics, web search engines and internet mapping services, plus a DoorDash-like home delivery service, Ele.me. That said, the biggest momentum right now is in its young AI arm: In January, Alibaba released a new model of Qwen, its AI platform that the firm says is more advanced than DeepSeek, the free, low-cost model on which it is partly based. Alibaba is in the early stages of monetizing Qwen but expects the AI system to power its significant cloud services business (10% of sales), as well as its search engine Quark. Overall, the company said AI-related revenue rose triple digits in 2024; it’s still a tiny portion of the business, but given Alibaba’s massive presence in China, analysts expect the company to be able to use its market leverage and cash advantages to make itself a significant player. Tech advances aside, commerce is still the biggest of Alibaba’s six business lines, accounting for just about half of the CNY 280 billion of sales (about $39 billion) in the latest quarter. That core business grew 5% in Q3, ending December, after a run of weak periods due to China’s slow recovery from the pandemic. For the current fiscal Q4 (ending in March), sales are seen coming in at CNY 237 billion, up 7%, and most analysts are expecting a gradual acceleration of growth through 2025 and beyond due to Alibaba’s own efforts as well as China’s pedal-to-the-metal stimulus moves.

Technical Analysis
BABA spent most of 2023 and 2024 bottoming out, with the initial stimulus-driven run in September falling flat but hinting that something might be coming—and it did in January, as the stock clearly changed character with six big weeks up in a row (the last four on giant volume). The action since then has been tedious, but given the market’s weakness, it looks normal to us, as BABA has bobbed and weaved as volume has tapered off. If you don’t own any, a small buy around here is fine by us, though we advise a stop just under the 120 area in case something goes awry.

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Stock 2

Darden Restaurants (DRI)

Why the Strength
Darden is a steady Eddie in the casual dining sector, best known for the Olive Garden brand, though it also owns the LongHorn and Ruth’s Chris steak house brands, along with seven others for a total of over 2,100 restaurants across its portfolio. The successful implementation of its strategic growth initiatives, which include a focus on promotional campaigns, operational efficiency and delivery expansion, is a key reason why the stock is outperforming. There’s also an M&A angle here, too: It recently acquired Chuy’s Tex-Mex restaurant chain (over 100 restaurants across 15 states), which Darden sees as being a critical addition to its increasing focus on casual dining. Since Darden’s Fine Dining segment, which includes Ruth’s Chris, has lately seen softer sales as consumers shift more of their spending toward casual dining (in part due to inflation’s stickiness), the Chuy’s addition is seen by many analysts as particularly timely. Chuy’s, which generated total revenue of over $450 million last year, is expected to become a “significant contributor” to Darden’s overall sales picture. Beyond buyouts, Darden has opened a total of 40 new restaurants across its brands over the last year as it slowly expands its footprint—another reason for the latest show of strength. In its just-released fiscal Q3 report, total sales of $3.2 billion increased 6% year over year, while earnings of $2.80 per share were in line with estimates and grew a bit faster than sales. The results were boosted by the new store openings, along with record sales for the Valentine’s Day holiday. Same-restaurant sales grew by around 1%, led by a 3% gain for LongHorn, while Olive Garden grew 0.6%. However, the Fine Dining category experienced a decline of just under 1%, which management intends to mitigate by reducing ad spending to pre-2020 levels, emphasizing operational efficiency and guest loyalty, while also diversifying its offerings. Looking ahead, Darden plans to open up to 65 new restaurants in fiscal 2026 and expects full-year earnings to grow around 7%. A generous dividend (a 2.7% yield) complements the steady outlook.

Technical Analysis
DRI isn’t the fastest horse, but it looks to be early-ish in a fresh advance. The stock topped just above 170 back in mid-2023 and again in March of last year, with that area capping the stock for a full year and a half. But after a few positive buying clues, DRI broke out on earnings in December and has made upside progress since, including a nice-looking snapback over the past two weeks after a shakeout to 180. It held up well today, too, so we’re OK with a small position here, albeit with a tight percentage stop near 190.

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Stock 3

DoorDash (DASH)

Why the Strength
DoorDash came to prominence during the Covid era, which saw the explosive growth of the online food delivery industry, but also saw the company expand its footprint into other areas, including groceries, convenience stores, pet suppliers and, in some locations, even alcohol deliveries. Growth in recent years has come from the overall movement toward deliveries, as well as food merchants competing for visibility on the platform, allowing DoorDash to convert advertising (including sponsored listings, promotions and banners) into a high-margin, recurring sales stream. Another big driver is the firm’s DashPass, its subscription delivery service with over 22 million subscribers, which has played a significant role in the company’s recent financial performance; as is usually the case, those that sign up for the service are among the most loyal customers, keeping them sticky to its platform. To strengthen its overseas presence, DoorDash acquired the Finnish food delivery company Wolt in 2022, which now operates as a sub-brand of DoorDash across 23 countries, particularly in Europe and Asia. The recently introduced Wolt+, a monthly subscription service that provides zero delivery fees on orders from eligible restaurants and stores, is growing faster than peers (and even faster than DashPass) while gaining share across most of the countries it operates in. On the financial front, Q4 revenue of just $2.9 billion increased an eye-opening 25% from a year ago while EBITDA (a better profit metric for the company than earnings) boomed 56%. In the earnings call, the top brass emphasized that with the company’s single-digit penetration in the U.S. restaurant industry, and even smaller globally, there are still “significant” growth opportunities, while scaling its newer categories (where half of merchants opting for a delivery service choose DoorDash) will provide an even longer runway of growth. Wall Street sees sales, EBITDA and free cash flow (which came in north of $4 per share in 2024) lifting steadily for years to come.

Technical Analysis
DASH had a great run from its breakout in September of last year until its peak in mid-February, though we admit the drop that took the stock down to 170 was iffy and seemed to put in a meaningful top. Maybe it has, but we’re impressed with the stock’s show of support after that low, with a recovery back to the 200 level (helped in part by the stock’s addition to the S&P 500 a week ago) followed by recent slippage with the market. That said, DASH held clearly above its recent low today (better than most indexes), which is a positive. We don’t advise entering now, but a strong rally up from here would hint the sellers could be losing control.

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Stock 4

Full Truck Alliance (YMM)

Why the Strength
China, like other major countries, has experienced its fair share of setbacks across its freight logistics sector in recent years, including temporary factory closures, higher operating costs and supply chain disruptions. To its credit, however, that country has emerged as a global leader in AI-enhanced freight logistics solutions, which have significantly improved operational efficiency and reduced costs for shippers. One of the nation’s leaders in this space is Full Truck Alliance, which operates a leading digital freight platform that connects shippers with truckers to facilitate shipments across various ranges, cargo weights and types throughout China. The company also offers freight listing and brokerage services, as well as various value-added services like credit and software solutions, insurance brokerage, electronic toll collection and energy services. Its platform uses machine learning algorithms to forecast factors such as freight demand, load matching and predictive maintenance, which greatly enhance the logistics process, and which consequently led to a significant increase in its user base, with a 24% increase in fulfilled orders, plus 30% growth in average shipper monthly active users (MAUs) in 2024. The success of Full Truck’s AI-based platform has prompted a number of recent analyst upgrades, including a well-publicized increase in holdings of the firm’s stock from a major Wall Street bank. (Total mutual fund ownership lifted to 452 at year-end 2024, up from 321 nine months before; the March-end figure should be released in a couple of weeks.) In Q4, Full Truck saw revenue of $435 million increase 28% from a year ago, while earnings of 14 cents a share were in line with estimates and grew 40%. Other key metrics were equally sanguine, including fulfilled orders of 57 million that rose 24% (driven by priority access and premium cargo bidding mechanism enhancements), plus average shipper MAUs that soared 31%. Looking ahead, the company guided for Q1 revenue of $365 million (up 17% if realized), while earnings are expected to continue growing nicely for the next couple of years. It’s a solid cyclical Chinese story.

Technical Analysis
YMM went public in June 2021 and fell like a stone for most of the next couple of years, with shares hitting a low near 4 in 2022 and spending most of 2023 and early 2024 in the 6 to 8 area. However, the Chinese stimulus proposals in September sparked a change of character (two huge-volume buying weeks) and after a six-week pause, shares spiked to multi-year highs in December and have been grinding higher since with support near the 50-day line. If you want in, you could nibble on a rally above 13.3 (a bit above Friday’s high), with a stop just under 12.

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Stock 5

Harmony Gold (HMY)

Why the Strength
Harmony is South Africa’s largest gold producer by volume, with eight underground mines, one open-pit mine and several surface operations in that country, while also owning gold operations in Papua New Guinea. Although the company has established itself as an international giant in the gold mining space over the last 75 years (known especially for its ability to extract value from aging, deep mines in South Africa, which accounts for 90% of its annual production), Harmony is focusing more these days on growing its international copper footprint. In 2022, the outfit acquired the Eva Copper project in Queensland, Australia, based on a stated goal of diversifying away from the yellow metal and into the red one (which it calls a “future-facing metal”), along with a package of regional exploration tenements (also in Queensland) from Copper Mountain Mining. Harmony has announced plans to start producing copper from the Eva Copper project in 2028 after a projected three-year building process; upon completion, the mine is expected to have output of up to 60,000 metric tons of copper per year, positioning Harmony as a global leader in both gold and copper production. For now, though, gold is still the driver here, with a focus on improving operational efficiency and high-grade gold output, especially in South Africa. Indeed, its Hidden Valley gold-silver project in Papua New Guinea delivered a strong performance in 2024, with the silver used to offset gold mining costs. Additionally, Harmony has partnered with Newmont Mining to develop the Tier 1 Wafi-Golpu project in Papua New Guinea, with an estimated mine life of more than 30 years and accounting for around 45% of Harmony’s total mineral reserves. Financially, the company said it’s “blessed with a robust and flexible balance sheet” and just released half-year results that featured gold revenue of $2 billion that increased 15% in U.S. dollar terms, record operating free cash flow that soared 46% and earnings per share that rose 28%, helped by 23% increase in average gold prices. Its all-in sustaining cost (AISC, a key metric) also improved, declining 4% to $1,500 per ounce. Analysts expect buoyant earnings growth this year and next, though, of course, gold prices will have a lot to say about that.

Technical Analysis
A year ago, HMY had just kicked off a solid rally on the back of the gold price breakout, with shares starting just under 6 and doubling between March and October. That’s when the rally, which had become increasingly choppy in the months leading up to the top, abruptly ended, with the stock giving back 33% over a two-month period. However, when the calendar flipped, HMY found its second wind and returned to the old high in early February (five straight weeks of big, above-average buying volume), and while there was a sharp three-week shakeout with the market, HMY has zoomed to fresh peaks. We’ll set our buy range down from here.

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Stock 6

Life Time Group (LTH)

Why the Strength
Later in this issue we write about Ollie’s Bargain Outlet, a growth outfit that also has defensive characteristics—Life Time, though, is going after those who aren’t worried as much about pricing, playing to the higher end of the consumer market. The company is known as a player in the fitness sector, which is true in a sense, but its locations are really more like resorts or country clubs, with not just workout facilities but lots of personal trainers and classes, pools (both for training and for fun, with waterslides for the kiddos), child care, kids camps and much more, all for a higher price (currently near $200 per month on average, though that figure has been rising of late). The firm has even branched out into rental properties near its facilities, creating good-sized campuses, which reportedly are renting well. (Interestingly, there’s high demand for Life Time’s real estate in general, and the firm is using some sale-leaseback transactions to get liquidity for expansion.) Indeed, retention rates are the highest in the firm’s 32-year history, as is revenue per member and visits per member, all of which is contributing to great results: In Q4, revenues lifted 19%, driven by strong growth in both membership fees and in-center revenue (paying for classes or training, etc.), while EBITDA surged 29% and free cash flow was positive for the third consecutive quarter. Impressively, the top brass raised its 2025 outlook above what it had forecast just in mid-January, generally looking for mid- to upper-teens growth in the top and bottom lines. Helping the cause here is that Life Time could just be getting started—it had 179 centers at year-end, expects to open 10 to 12 this year with possibly more than that in 2026 and 2027, with the top brass saying its new opening pipeline is very robust. Overall, Life Time looks like a solid near- and longer-term growth story that should produce reliable results for many years to come.

Technical Analysis
LTH changed character back in the spring of last year and, after a big multi-month run, etched a fresh consolidation that it broke out from in January. Shares, of course, have hit turbulence of late with the market, but after a sharp dip into early March, shares nearly made it all the way back to the prior high before getting caught up in the latest bout of market selling. Overall, though, LTH is showing relative strength, as it held well above its recent lows even as some indexes test their lows. We’ll set our entry range above 31, looking for a strong rebound to indicate the selling may be nearing an end.

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Stock 7

Ollie’s Bargain Outlet (OLLI) ★ Top Pick ★

Why the Strength
Ollie’s Bargain Outlet has always had a unique story, combining a very solid long-term growth story—including a cookie-cutter aspect—with defensive qualities, so as long as the firm executes (it had some snafus during the pandemic, but those are in the past), it should continue to attract more big investors. The company is a big closeout retailer, with 559 stores that give shoppers deals in the 30% to 70% range on a wide variety of goods (the firm’s motto is “Get Good Stuff Cheap”), from clothing to candy to furniture to lawn/garden and a ton more. The future here has always been bright, as the firm has the size and money to pounce on any deals they want to, buying inventory (usually brand-name stuff) at bargain prices and passing most of those along to customers—and the market for closeout merchandise is both massive and stable, as industry shifts (innovation, packaging changes, changes in demand patters, store closures, etc.) mean there’s a constant supply of merchanise that big firms want to unload. One recent driver here is the bankruptcy of Big Lots, which Ollie has moved in on: It recently acquired 40 of that company’s former locations with below-market leases in existing trade areas, while previous acquisitions of 99 Cents Only stores (another firm that went belly up) are performing well, too. Again, not many others are able to fund such big purchases, giving Ollie a leg up, all of which is leading to great results over the long term: In Q4, sales and earnings were flat-ish from a year ago, but same-store sales did rise 2.8% and the store count was up 9% (the top brass expects the store count to grow about 10% annually), and it thinks that the Big Lots acquisitions will help accelerate growth in the medium term—indeed, Wall Street sees the bottom line lifting 14% this year and next, and that could prove conservative if economic times get rougher, spurring more to seek out cheaper alternatives.

Technical Analysis
OLLI has been making solid progress over the past year, but it’s been doing so in a stair-step fashion, with multi-month bases followed by rushes to new highs. The last upmove occurred in November/December but ran into a wall near 120, leading to a quick dip to 97 and, after a bounce, a few more tests in the mid-90s area (as well as the 40-week line). But earnings brought a big-volume buying wave, and OLLI followed through a bit last week despite the market’s weakness. You can consider a small buy on weakness.

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Stock 8

Primo Brands (PRMB)

Why the Strength
Currently valued at just under $50 billion, the U.S. bottled water industry is on a tear and projected to double in size within a decade, fueled by factors like healthier lifestyle choices among consumers and concerns over tap water safety. Tampa-based Primo is a leader in this space and owns a portfolio of packaged beverages, including well-known brands like Poland Spring, Pure Life, Deer Park and Saratoga, while also providing water dispensers and direct delivery services. Last November, the company merged with industry competitor BlueTriton Brands (formerly Nestlé Waters North America) in a deal valued at $6.5 billion that strengthened Primo’s distribution capabilities. Analysts expect the move to generate $300 million in cost synergies by year-end 2026 and position the combined company for sustained growth in the highly competitive U.S. beverage sector, with Primo believing the deal’s synergies will ramp up significantly from Q2 onward. In Q4, the newly combined company reported a strong finish for 2024 and exceeded net sales and volume expectations across its core water channels. Combined sales growth was primarily driven by volume, which Primo said led to earnings growth and margin expansion. Total revenue of $1.4 billion increased 2% from a year ago, driven by organic growth, while combined adjusted EBITDA (the company’s main profit metric) was $301 million, up 4%, with a combined adjusted EBITDA margin of 19%. (Full-year EBITDA of $1.4 billion increased 20%, with a margin of 20%.) While water doesn’t sound like an exciting growth industry, Primo sees an intriguingly bright future, especially when it comes to cash flow: The firm sees 4%-ish top-line growth annually for the next few years but believes its EBITDA margin can leap from 20% to 25% while CapEx stays in check, which means free cash flow (which totaled $645 million last year, or about $1.70 per share) can lift to $800 million in 2025 ($2.10 or so) and expand faster than sales from there as margins grow. It’s not changing the world, but Primo looks like a special situation, with last year’s merger creating big opportunities and with the business providing a defensive flair.

Technical Analysis
PRMB broke out from a three-year base early last year, and it’s been in a fairly consistent uptrend since, with a basing area last summer and a big shakeout in November the only major rough spots. More recently, shares did pull in with the market, but the damage was relatively limited (35 to 30), and PRMB has ramped back to higher highs even as the market has struggled. If you want in, start small and aim for minor weakness, with a stop in the low 30s.

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Stock 9

Southwest Airlines (LUV)

Why the Strength
In an industry that has as many grumpy customers as anyone, Southwest Air has long been a relatively beloved firm, going at flying in a different way, with a far more fun culture, free checked bags, low-ish fares and no assigned seating—all of which had the firm cranking out decades of solid results, usually remaining profitable even during times when the sector was in chaos. Ironically, though, it was the firm’s move away from these areas that has lit a fire under the stock: Three weeks ago, Southwest announced a slew of changes, including assigned seating (which goes hand in hand with premium seating options), no free checked bags, red-eye flights and, in terms of its rewards program, it’s switched things up, offering far less points on regular fares but adding enhancements to certain company-branded credit cards and perks for more expensive seats; there will also be flight enhancements like better wi-fi, and importantly, the firm is aiming to save $300 million by 2026 through staff reductions and hiring freezes. (Lots of these changes will happen soon, but obviously some will be phased in during the next couple of years.) While definitely drawing the ire of frequent flyers, the moves put Southwest more in line with other carriers … which is seen as a good thing by Wall Street, since (a) most of those peers are cranking out larger profits and margins than Southwest these days, and (b) it kindles (or re-kindles) the idea that Southwest could be acquired, as these changes would make it easier for a competitor to swallow (rather than having to upend the underlying business model after the merger); indeed, one activist hedge fund has likely been a driver of these changes, which adds smoke to a potential M&A story. Of course, how it all plays out is still something of a question mark, but it certainly looks like perception of Southwest’s future bottom line is on the rise, with an M&A angle out there as well.

Technical Analysis
LUV has been a laggard overall and, in recent months, even within its industry group, as the stock has mostly languished for the past year and a half as the mid-30s area capped any advances. The last test of that resistance came in early December, leading to a 23% slide, but the action after that certainly looks like a change in character, with the dramatic overhaul of its offerings bringing a massive-volume rally that took shares back to that mid-30s resistance level. LUV has backed off since then, but it looks like an intriguing turnaround—you could start small here with a stop around 30.

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Stock 10

Spotify (SPOT)

Why the Strength
The dominant streaming music provider on the globe, Spotify is able to make great use of its size to outspend competitors and push through cost increases on customers while being relatively insulated from economic volatility. To a great extent, 2024 was the year Spotify finally was able to monetize the scale of its business, posting it first run of consecutively profitable quarters, including Q4, which saw earnings of $1.82 per share in U.S. dollar terms, a huge €2.12 swing from a loss the prior year period, on revenue of that rose 8% (16% in local currency terms). The fourth quarter, ended December, was the second-best month for adding new users in Spotify’s history, with large markets Brazil and Indonesia seeing accelerating user uptake on features that drive listener loyalty, such as Wrapped, an often-viral recap of what users listened to most through the past year. The current Q1 is usually the streaming service’s slowest period for user and sales growth, with the company saying its monthly average user base should tick up three million from Q4 to 678 million. Revenue should be much stronger, though, rising 25% to €4.2 billion. The reason sales are growing so much more rapidly is that Spotify has been doing a great job of converting people from its free tier to paid; the business scales so well that these days each new premium subscriber basically sends all the new revenue to the bottom line. A new rights deal in January with Universal Music, the biggest music publisher in the world, will see the two companies collaborating on new streaming products, meaning a super-premium (higher-priced) paid tier is probably going to be introduced down the road. For 2025, Wall Street sees profits more than doubling to €10.25 per share on revenue a 16% gain in revenue to €18.17 billion. It’s not a brand-new story, but after years of mundane earnings, the firm’s dominance and sterling bottom-line growth have big investors making the stock a core holding (2,052 funds owned shares at year-end, up from 1,213 nine months prior).

Technical Analysis
SPOT is certainly not a fresh name, per se, as the stock has been moving higher since October 2023. But unlike many extended leaders in recent weeks, the stock has pulled back but done so normally and shown some resilience of late—the 26% dip into early March wasn’t fun, but shares held above the January lows, and then SPOT recouped 80% of the dip before pulling back with the market. Even so, shares are well above the prior low, and a rally toward the 50-day line would be intriguing.

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Previously Recommended Stocks

The next Cabot Top Ten Trader issue will be published on April 7, 2025.

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