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5 Best Stocks to Buy in March Report Cover

5 Best Stocks to Buy in March

By Michael Cintolo, Vice President of Investments, Cabot Wealth Network

AppFolio (APPF)

Now here’s a good story: AppFolio is a cloud software firm, but instead of trying to have something for everyone, the firm is laser-focused on one industry, and it’s a big one: Real estate, and more specifically, property management, which touches more than 50 million units that house north of 120 million people, and where many regular functions are very inefficient and make up most of the overall costs. AppFolio’s platform does it all for owners and managers of any type of property—single or multi-family homes, commercial, student or affordable housing, etc.—with a centralized hub to track and manage everything from billings to payments to vendor activity and work orders, while also providing help with needed functions like maintenance, utility management, marketing, leasing, package management and more, thanks in part to an expansive partner network, where dozens of specialized apps are integrated. AppFolio is the leader overall, so it’s not surprising it looks to be ahead in the AI push as well, with the firm already piloting a conservational AI module (dubbed Realm-X) that could bring step-function productivity improvements with everything from communications, billings, information gathering and more, all by just uttering a few words. (Broader availability of Realm-X should come later this year.) The company has a traditional subscription-based business model, and growth here has been both rapid and reliable, with sales rising between 25% and 39% each of the past eight quarters, while earnings, free cash flow and margins balloon (free cash flow margin is expected to be 18% for all of 2024, and that should prove conservative) as the firm inks more customers that have more renters (up to 8.2 million units managed, up 13% from a year ago) that are using more services. The runway of growth is large, too, and investor perception is on the upswing—APPF spent the second half of last year resting and correcting, but the Q4 report brought a massive gap up that shares have held onto despite the narrow market environment. Liquidity here isn’t huge, but we think the stock could be growing up as sponsorship has steadily improved.

Freshpet (FRPT)

We’re continuing to keep an eye out for smaller growth stocks outside of the hot AI/chip/networking area that could kick into gear should the buying pressures broaden. Freshpet is one of them, with a great, long-lasting growth story in an easy, consumer-facing sector. For years, the firm has been the leading player in “fresh” pet food (almost all of it for dogs), which plays into the “pet is part of the family” trend that’s been advancing for years; the food has also been shown to lead to heathier and longer lives for Fido and Whiskers. Freshpet hit some major potholes a couple of years ago, with costs getting out of whack, but now the period of heaviest investment is soon to be in the past, aggressive price hikes were mostly swallowed whole by customers, all while advertising brings in more customers, distribution expands and new manufacturing facilities get busier. That means the superb demand trends seen here (22 straight quarters of at least 25% revenue growth!!) are hitting the bottom line. Indeed, in Q4 (reported in late February), the firm cranked out a surprise profit of 31 cents a share as sales lifted 30%, and more important, the top brass said 2024 would see more of the same, with revenues projected to rise 24% and EBITDA north of $100 million (up more than 50%). And that’s just the beginning of what should be a multi-year growth wave: At an Investor Day last year, management said its household penetration can expand 77% by 2027 (to 20 million households), driving revenues up 138% between 2023 and 2027 as EBITDA booms five-fold thanks to growing awareness (“only” 58% of people are familiar with Freshpet; a national ad campaign is helping here), increased usage (60% of customers use it as a “topper” and not the main meal), better efficiency (new production facility beginning to ramp in Q3 of this year). It’s not changing the world, but all signs point to rapid and reliable growth for a long time to come. As for the stock, it lifted nicely late last year but then traded very tight for many weeks (usually a sign of accumulation)—and the post-earnings reaction was superb, with a gap to nearly two-year highs. The path of least resistance is up.

Palantir (PLTR)

Palantir has seemed perfectly positioned for the AI boom for about a year now: The company’s history as a provider of advanced software for government entities (especially U.S. and friendly militaries) means it’s been leveraging various forms of AI and machine learning for years, putting it way ahead of others when developing a platform that can be mass adopted not just by governments, but by big companies looking to dramatically streamline operations (and do it in a secure, measured way as well, with systems able to take proprietary or public language models and mine through pretty much any type of “data” even including messaging conversations, video, audio and more). The trick was how long it would take for interest to results in real sales; Palantir quickly went to work holding individual “boot camps” with firms that showcase how its platform can be used with that potential client, with 565 in just the past six months or so. And that has been a big factor in the acceleration of demand among the private sector: In Q4, U.S. commercial revenue surged 70% as the customer count lifted 55% and total contract value inked more than doubled (and rose 42% from the prior quarter!), with all of the tidings bullish and new clients sign up and existing clients expand their usage. Of course, from a total-company standpoint, U.S. commercial revenues are still just 22% of revenues, but (a) that’s likely to grow in a big way going ahead, and (b) the top brass had positive things to say about its government business (53% of revenue), which did grow 11% in Q4 and should pick up steam as 2024 moves along. Of course, expectations are high, but whereas most of the focus now is on AI infrastructure (chips, networking gear, etc.) for good reason, Palantir is the clear early leader in providing a platform that can offer direct, meaningful savings to big companies (and, eventually, governments) around the globe. It’s a huge idea, and the stock is beginning to discount it—after a big run last spring, PLTR went nowhere from June through January, but the Q4 report led to a stampede of buying that should lead to higher prices down the road.

Robinhood (HOOD)

If we’re being honest, Robinhood was little more than a meme stock three years ago and one that engaged in some dodgy practices at that; we weren’t surprised to see the stock (which came public right near the peak in 2021) implode more than 90% from its peak. That said, the company has proven to be a survivor, with a growing offering of products attracting more customers, and with the market in good health, HOOD looks like a Bull Market stock that can go far. The firm is best known for its easy-to-use and intuitive trading app as well as its various fee-free trading services for stocks, options and even cryptocurrencies, while offering a 1% match on all IRA deposits (with some restrictions, of course). Basically, it’s a natural place for many newer investors to start their investing journey—and while there remain holes in what can be traded (bonds, mutual funds, preferred stocks, closed-end funds, etc.) the firm has steadily expanded geographically (launched in the U.K. last November; launched crypto trading in the E.U. in December), boosted its offerings for active traders (24 hour trading in many products; 2024 should see index options and futures available for trading), launched a retirement account program (490,000 accounts after one year holding $1.7 billion in assets) and even launched a subscription tier that offers benefits (for $5 per month, you get a much higher yield on your cash deposits, a 3% match on IRA deposits and better trading tools). All of that has led to some solid metrics: At year-end, Robinhood had 23.4 million clients that put away $17.1 billion of deposits during 2023 (up 27% from 2022) and had $103 billion in assets under custody (up 65% from a year ago, thanks partly to the market rally); about 6% of total users are paying for Gold, too, which makes them stickier and higher-value. And along with rising interest rates (higher interest income is helping the entire brokerage sector), that’s led to some solid results, with revenues up 24% in Q4 (interest income was up 41%, transaction revenue up 8%) while earnings nosed into the black and the top brass said it’s aiming to have expenses rise just 5% for all of 2024. (One interesting stat: The company makes $867,000 per employee, which is very high.) Big investors are clearly warming up to the stock—543 funds owned shares at year-end, up from 319 six months before—and HOOD itself looks to be getting going from a year-and-a-half-long bottoming effort thanks to its Q4 reaction last week. If the market’s bull move keeps going and big-picture sentiment gets bubbly, Robinhood could easily surprise on the upside.

XPO Inc. (XPO)

After a two-year slump, the freight shipping industry is turning a corner as retailers restock inventory following a long period of tightening, contributing to an increase in freight rates. XPO is one of North America’s largest less-than-truckload (LTL) transportation providers, with coverage spanning the U.S., Canada, Mexico and the Caribbean, and with a fleet of more than 38,000 semi-trailer trucks across 562 locations. The company has worked to become leaner in recent years after spinning off its contract logistics and truck brokerage businesses, and that strategy appears to be paying off: Its damage claims ratio (a key metric) improved to a new company record in Q4, while customer satisfaction increased by more than 40%. The increased efficiency was also observable in another important measure, namely XPO’s operating ratio (the cost of generating each dollar of revenue), which improved 2% in Q4 from a year ago to 87%. Revenue of nearly $2 billion rose 6%, driven by higher rates (excluding fuel) and an increase in tonnage per day in the North American LTL segment, while per-share earnings of 77 cents beat the consensus by 15 cents. Other metrics were equally sanguine, including on-time performance which improved by three percentage points from last year’s Q4. Aside from its focus on improving efficiency, XPO is also committed to growing its fleet, which it did to the tune of 1,400 new tractors and trailers in 2023—more than any year in its history—and which XPO said will further its strategy to in-source more line-haul miles going forward. The top brass said the company is seeing “strong pricing trends” in early 2024 and expects a solid overall year across all key metrics, with the bankruptcy of Yellow (and a still-strong economy) likely helping the cause. Wall Street sees results accelerating starting early this year, with earnings up 20%-ish this year and a lot more in 2025. The stock discounted some of the better times last year, with a big run into August, but shares mostly calmed down after that—until the big-volume earnings move last month. It’s not on everyone’s lips, but that’s part of why we like it—we think XPO will do well.

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About Cabot Wealth Network

This report is published by Cabot Wealth Network which was founded in 1970 by Carlton Lutts, a disciplined investor with an engineering mind who developed a proprietary stock picking system using technical and fundamental analyses.

Since then Cabot Wealth Network, headquartered in Salem, Massachusetts, has grown to become one of the largest and most-trusted independent investment advisory publishers in the country, serving hundreds of thousands of investors across North America and around the world.

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A growth stock and market timing expert, Michael Cintolo is Chief Investment Strategist of Cabot Wealth Network and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.