Please ensure Javascript is enabled for purposes of website accessibility
Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 227

One of the things I want you to remember, as the market falls lower and lower and bad news about politics and the economy multiplies, is this: Market tops occur when the news is best, and market bottoms occur when the news is worst. Thus, somewhere ahead is an absolutely terrible news day that will mark the market bottom—but I don’t know where.

What I do know is that it will come, and that the bull market that follows it will be very rewarding, particularly for investors who are prepared for the bull—and I hope that’s you.

Cabot Stock of the Week 227

[premium_html_toc post_id="166510"]

Clear

The market’s major trend remains down, and thus caution remains the watchword; if I had a new account to begin investing now, I would keep a hefty amount of it in cash until the main trend turned up. However, as we approach the end of the year, the odds grow that a good rally will develop that will reward both the most beaten-down value stocks and the most resilient growth stocks—which have held up through recent months simply because they continue to attract new buyers. That’s the case with my recommendation today, which was originally recommended by Mike Cintolo in Cabot Growth Investor. Here are Mike’s latest thoughts.
Twilio (TWLO)

We’re two and a half months into this market downturn, and while seeing stocks get cut off at the knees is never fun, the decline is allowing smart investors to see which growth-oriented names and sectors are resisting the decline.

Right now, Twilio would be our top pick to be a leading glamour stock of the next advance, with a fantastic combination of story, numbers and a resilient chart. It looks like an emerging blue chip to us—the kind of company that can grow rapidly for years and attract hundreds of institutional investors along the way.

So why is Twilio’s future so bright? Because of the firm’s pervasive, well-rounded, customizable and easy-to-program communications platform. Basically, if a company (big or small) wants to automate and simplify communications to customers, clients or coworkers, Twilio is becoming the standard.

The best way to understand the business is to see how the platform is being used by some of Twilio’s top customers. Coca-Cola Enterprises, for instance, uses Twilio to rapidly dispatch service technicians. Airbnb uses it to automatically text rental hosts information of potential guests, including dates and the price of a stay. The Red Cross of Chicago automatically sends texts to volunteers in an area with pertinent info about a disaster. Trulia uses Twilio to power its click-to-call app so potential buyers can hook up with an agent quickly. EMC uses the platform to quickly send texts to employees when an IT service goes down.

Want more? Lyft uses Twilio to provide real-time driver updates with text messages, while allowing passengers and drivers to call one another without sharing their personal phone numbers. Yelp is using the platform to allow restaurants to automatically text users that booked a reservation through its website, and for users to respond. Nordstrom connects shoppers and salespeople via a mobile app so customers can privately text their salespeople when they need assistance.

Just about any business can use Twilio’s communications platform for text, voice, video, chats and messaging apps. And thanks to the company’s proposed acquisition of Sendgrid (likely to be completed in early 2019), the platform will now include email capabilities. Twilio also has a new PAY service that allows developers to process payments over the phone without reading numbers to a customer service rep.

All told, Twilio had a whopping 61,153 active customer accounts at the end of September, up 32% from a year ago, and those accounts spent a big 27% more than they did the prior year. (Twilio gets paid in large part based on usage.) Going forward, there’s no reason tens of thousands more customers won’t sign up in the quarters ahead given that its platform has something for everyone—businesses small, medium and large.

As for the numbers, while many firms fear slowing growth, Twilio is seeing just the opposite. Sales growth has accelerated over the past few quarters (see table below), and earnings have pushed into the black. Long term, we think the firm can grow many-fold from here, and big investors seem to agree; 246 mutual funds owned shares at the end of 2017, but that figure increased to 442 at the end of September and is likely to go much higher over time.

As for the stock, it’s been pushed and pulled by the market in recent weeks, of course, but net-net it’s showing tremendous relative strength. The stock was hit hard in October and finally bottomed near 62, then soared on earnings in November, actually notching a new high. The November low was north of 71, and again, as the market pushed higher in December, TWLO nosed to new highs near 100.

Now TWLO is getting hit again, but volume’s been light, and so far, the stock’s low this month (around 86) is much higher than November’s, which is a stark contrast to the overall market.

Tim’s view: A low-risk buy point might come with a pullback down to 81, where we find the stock’s 50-day moving average, but the portfolio will keep it simple, as usual, by buying tomorrow.

sow227-twlo copy

Twilio Inc. (TWLO)
375 Beale Street
Suite 300
San Francisco, CA 94105
415-390-2337
http://www.twilio.com

image-blank.png
sow227-twlo-data-1024x171.png

image-blank.png

CURRENT RECOMMENDATIONS

csow227-portfolio-1024x472.png

The market remains under pressure, with this morning’s aborted bounce a perfect illustration of how buyers continue to be overpowered by sellers. Eventually that will change—in fact, I continue to think a sustained bounce is likely soon—but until the real trend changes, it’s wisest to keep your exposure to stocks low. Yes, even though I keep recommending a new stock every week! There are a few bright spots this week, and a handful of stocks that deserve buy ratings, but there are also three sells, which will get the portfolio count down to fourteen stocks. Details below.

Alexion Pharmaceuticals (ALXN), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Buy Low Opportunities Portfolio, is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. But the stock hit new lows both yesterday and today, and our loss is growing. So, lacking any fundamental confidence to believe the stock will recover soon, I now recommend cutting the loss short. SELL.

Arena Pharmaceuticals (ARNA), originally recommended by Tyler Laundon in Cabot Small Cap Confidential, hit a recovery high last Thursday but has pulled back over the past couple of days. In his latest update, Tyler wrote, “ARNA was one of our better-performing positions this week, posting an 8% gain. The development-stage biotech just out-licensed its ralinepag asset to United Therapeutics (UTHR) for up to $1.2 billion in exchange for an $800 million upfront payment, a $400 milestone payment, and tiered low-double-digit royalties on global sales. That cash will help Arena move etrasimod, olorinab and other early-stage assets through the pipeline. No new news this week. Keeping at Buy.” BUY.

Canada Goose (GOOS), originally recommended by Mike Cintolo in Cabot Growth Investor, has come down to its 200-day moving average, and is likely to find support here, so I’ll hold onto it. But I don’t recommend buying until the stock demonstrates real strength. GOOS is a fast-growing glamour stock and can move fast in either direction. HOLD.

General Motors (GM), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High-Yield Tier, has been relatively quiet over the past week, as fears that a recession would curtail American’s car-buying are balanced by hopes that tariff cuts in China will lead to more GM sales there. BUY.

Green Dot (GDOT), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is an innovative bank holding company that’s invisible to most Americans, because its products—like prepaid cards—are sold through partners and branded GoBank, MoneyPak, AccountNow, RushCard and RapidPay. But growth is solid and the stock has been making higher lows since bottoming in October. HOLD.

Guess? (GES), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Buy Low Opportunities Portfolio, and now in her Growth & Income Portfolio, is losing support; the stock fell through its October-November lows yesterday and saw few bargain-hunters appear today. Crista is standing by the undervalued dividend-payer, and reasoning that the stock will bounce in 2019, but I don’t like the technical action (and the growing loss), so I’m going to sell here. SELL.

Huazhu Group Limited (HTHT) (previously known as China Lodging Group) was originally recommended by Paul Goodwin of Cabot Emerging Markets Investor and now it’s one of the Heritage Stocks in this portfolio, which means that I’ll hold through periods of poor performance to benefit from the positive long-term fundamentals—and I did hold as Chinese stocks trended down for most of this year. But HTHT bottomed at the end of October, and has been slowly gaining strength since. The sellers are done; now we just wait for the buyers to appear. In the long run, there’s no question that this leading Chinese lodging company will get bigger. In fact, if you don’t own it, you could buy a little here, though officially I’ll leave my rating on Hold given the market environment. HOLD.

Match.com (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader, remains one of the most buoyant stocks is the portfolio, as buyers have pushed it steadily higher over the past four weeks. There’s a lot of overhead to chew through above here, and there’s always a possibility that the rally will fail, but overall, it’s a positive pattern. Fundamentally, Match’s dominant position in the industry promises fine growth for years to come. HOLD.

McCormick & Company (MKC), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her Safe Income Tier, is the safe stock that has outperformed all expectations over the past few months, as investors were drawn to the security of its consumer staples. In last week’s update, Chloe wrote, “McCormick makes spices as well as numerous brand-name sauces, seasonings and condiments. As we saw in October and November, MKC does well when the broad market is doing poorly. MKC is in a sustainable uptrend well supported by its 50-day line. And management just increased their dividend by 10%, McCormick’s 32nd consecutive annual dividend increase. Long-term investors can continue to Buy on pullbacks.” And then last Thursday the sellers took over, driving the stock down to its 50-day moving average, a line it hadn’t touched since September. I actually see more downside potential from here—this stock has come a long way—so I’m going to leave it rated Hold. HOLD.

MedMen (MMNFF), originally recommended by me in Cabot Marijuana Investor, has the potential to be the leading marijuana retailer in the U.S., so the long-term prospects are especially bright in this hot growth sector. But short-term, the stock—like other stocks in the sector— looks pretty terrible. It peaked in mid-October, bottomed two weeks ago, and has been working to stabilize down here since. HOLD.

MiX Telematics (MIXT), originally recommended by Paul Goodwin in Cabot Emerging Markets Investor, is a South African transportation fleet technology company with a solid growth story. The stock blasted off in late October and built a nice base through November, but over the past six trading days it’s given up just over half of that big advance. And I think that’s acceptable given that one of my rules of thumb says that such great growth stocks often give up half the previous advance, as short-term investors get out and longer-term investors get in. In Paul’s latest update, he wrote, “”We don’t see MIXT as a rocket ship, but a steady grower that could emerge from a multi-month base and be a solid anchor in the portfolio.” BUY.

STAG Industrial (STAG), originally recommended by Chloe Lutts Jensen of Cabot Dividend Investor for her High Yield Tier, pulled back sharply over the past two days and is now under its 200-day moving average. In her latest update, Chloe wrote, “STAG is an industrial REIT that owns properties in 37 states that are mostly used as warehouses and fulfillment centers. Major tenants include the Federal government and big logistics companies like FedEx. Investors looking for high yield and monthly income can Buy here. Be sure you’re familiar with how REIT dividends are taxed before investing.” HOLD.

Teladoc Health (TDOC) originally recommended by Mike Cintolo in Cabot Growth Investor, has a great long-term growth story and we have a big long-term profit as well, so we’ve been able to give the stock some rope as it corrected down through its 200-day moving average—falling below 48 both yesterday and today. Technically, a sell is merited here for some readers, particularly if you have a loss. But I’m sticking with it; fundamentally, I continue to have great hopes for the company as it leads the telemedicine industry in the U.S. HOLD.

Tesla (TSLA), originally recommended in Cabot Top Ten Trader, is the second Heritage Stock in the portfolio, and I’ll continue to hold as long as I believe the company has great growth potential. As I write, Tesla is valued at $59 billion, while GM is valued at just $50 billion, a sign of how much is expected of Tesla compared to GM. As for the stock, after getting within a few percent from its all-time high of 390 just two weeks ago, the stock has pulled back normally. Patience. HOLD.

Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, and featured here last week, has sunk a little further since, but selling volume is fading, so if you haven’t bought yet, you could buy here. In her latest update, Crista wrote, “Voya is a retirement, investment and insurance company serving approximately 14.7 million individual and institutional customers in the United States. VOYA is an undervalued aggressive growth stock. Management intends to increase the dividend yield to 1% in 2019.” BUY.

WNS Holdings (WNS), originally recommended by Paul Goodwin in Cabot Emerging Markets Investor, is an Indian outsourcing firm with modest growth and what looked like would be a stable stock. But the stock fell below support at 47 last week and has continued lower since—while most Indian stocks are going up! That’s a signal to cut the loss short and move along. SELL.

THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED January 2, 2019

We appreciate your feedback on this issue. Follow the link below to complete our subscriber satisfaction survey: Go to: www.surveymonkey.com/r/CSOW
Neither Cabot Wealth Network nor our employees are compensated by the companies we recommend. Sources of information are believed to be reliable, but are in no way guaranteed to be complete or without error. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on the information assume all risks. © Cabot Wealth Network. Copying and/or electronic transmission of this report is a violation of U.S. copyright law. For the protection of our subscribers, if copyright laws are violated, the subscription will be terminated. To subscribe or for information on our privacy policy, call 978-745-5532, visit www.cabotwealth.com or write to support@cabotwealth.com.