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 234

Market trends remain quite positive, and I continue to recommend that you work to get more invested. According to our market timing indicators, the odds are still very good that months from now, the market will be higher.
With today’s recommendation, I jump back on the growth track, with a stock that we sold for a 61% profit last year. The company has one of Mike Cintolo’s favorite growth stories, and if you owned it then, maybe you’d like to own it again, too.
As for the current portfolio, overall, we’re making great progress as the bull market pulls our stocks along; four are hitting new highs! But not all stocks are participating, and now it’s time to sell one. Details inside.

Cabot Stock of the Week 234

[premium_html_toc post_id="170658"]

Clear

This advisory recommends one stock per week, rain or shine, bull market or bear. It also recommends selling an average of one stock per week, on average, simply to keep the portfolio at or below my self-imposed limit of 20 stocks. One of the benefits of selling an average of one stock per week is that it encourages me to get rid of my poorest performers; too many investors just hang on and hang on to failing stocks, hoping that things will get better. However, sometimes I find that I’ve sold too hastily, and that I want a stock back in the portfolio—and that’s the case today. Planet Fitness was a recommended sell last May (we took a nine-month profit of 61%) after the stock sold off following a mixed earnings report, but today I’m reinstating it, along with a new write-up by Mike Cintolo, who originally recommended the stock.
Planet Fitness (PLNT)
Long, Steady Growth Outlook

When you cut through all the fluff, institutional investors—those who drive stocks up or down over time via their buying and selling—are driven by two things: A company’s growth outlook, and the dependability of that growth outlook. Usually these two things don’t go hand in hand; fast-growing firms often are highly cyclical or have lots of competition, while very dependable operations are usually plodding blue chips.

But when you can combine the two, you really have something, and that’s the case with many cookie-cutter retail companies, where firms are able to drive growth for many years in part by simply opening up more stores. There are a few top-notch cookie-cutter stories out there, and one of our favorites is Planet Fitness, a nationwide fitness center brand.

Yes, there are gyms and fitness centers all over the place; most communities have one or more providers to choose from. But Planet Fitness has separated itself in a couple of different ways, the most important of which is the environment: the company appeals to just about every type of exerciser by providing high-quality equipment, a community feel and a consistent, reliable non-intimidating culture across all of its locations (no “gymtimidation,” as the company calls it). This isn’t an old school gym for muscle-heads, in other words, but something for everyone trying to stay in shape and shed a few pounds.

Indeed, as of the middle of last year, 35% of its members were younger than 35, while 22% were over 55; 29% of members had incomes less than $50,000, while 27% had incomes north of $100,000; and just over half of members were female. So clearly the strategy is working.

Another reason for its success: the price. For $10 a month, a member can have access to any single Planet Fitness location, though more than 60% of the 12.2 million members opt for the Black Card membership (price was recently hiked to $22 per month), which allows a member to use any location, bring a friend, get free hydro-massages and more.

Thus, Planet Fitness has succeeded in attracting more and more members, which is obviously key. But just as important is the firm’s great business model. For its franchisees (nearly all of locations are franchised), there’s minimal required staffing, no perishable inventory and an attractive return on investment, with an average of 39% cash flow margin after the initial investment. As a testament to the attractiveness, 95% of Planet Fitness’ new openings are from current franchise groups (though no one group represents more than 5% of revenue) who want to boost their exposure.

And all of that leads to the great cookie-cutter aspect of the story. At the end of September, the company had 1,646 locations, but management has about 500 to 600 committed new openings for the next three years. Longer-term, the top brass thinks there’s room for around 4,000 Planet Fitness locations in the U.S. and another 300 in Canada. Throw in the occasional price hike and new equipment purchases that help goose same-store sales results, and there’s every reason to think this company can grow at 15% to 20% rates for many years to come.

As for the stock, it’s had a good-sized run, which, combined with the market correction, scared us away from new buying in the latter half of 2018. But the action during the market’s plunge was extremely encouraging—PLNT reacted well to earnings in early November, etched higher lows as the downturn went on, and then, when the market surged in early January, raced ahead to new highs on five straight days of heavy volume.

Since then, the stock has calmly consolidated, which is usually a sign of accumulation. Some near-term wobbles are possible, especially with earnings likely out later this month or early March, but overall, the recent month-long base appears to provide a decent entry point.

Planet Fitness (PLNT)

sow234-plnt
image-blank.png
sow234-plnt-data-1024x169.jpg

image-blank.png

CURRENT RECOMMENDATIONS

csow234-portfolio-1024x441.jpg

The portfolio continues to make great progress; we now have four stocks hitting new highs (EVBG, MTCH, STAG and TWLO) and one close to it (ARNA). With today’s addition, the portfolio grows to a population of 18, two short of the full complement of 20. Unfortunately, this week I’m selling a stock (MMNFF), which takes the number back to 17. If you’re running your own portfolio, you certainly don’t need to mimic my recommendations exactly, but you do need a system. An investor without a system is quickly lost.

AbbVie (ABBV), originally recommended by Tom Hutchinson in Cabot Dividend Investor for the Dividend Growth Tier, and recommended here last week, continues to base between 77 and 81, so if you haven’t bought yet, you can still aim to get on board in the low end of this buying range. In his latest update, Tom wrote, “Longer term, the drug-maker has one of the very best pipelines in the business and it’s riding the tailwind of the aging population megatrend. It’s selling at just a little over 9x forward earnings with a 5.4% yield. ABBV might not take off in the next several months but it should be a long-term winner, and is selling at a bargain price with a great yield.” BUY.

Apollo Global Management (APO), originally recommended by Crista Huff for the Growth & Income Portfolio of Cabot Undervalued Stocks Advisor, has indeed encountered resistance at its 200-day moving average, where I said it might. In her latest update, Crista wrote, “Apollo is an alternative asset manager with assets under management (AUM) totaling $280 billion, dispersed among credit, private equity and real estate investments. APO is an undervalued mid-cap growth & income stock. A pullback after the recent run-up is normal and expected.” HOLD.

Arena Pharmaceuticals (ARNA), originally recommended by Tyler Laundon in Cabot Small Cap Confidential, closed at a high of 49 last Tuesday (very close to its record high of last June), sold off minimally later in the week and climbed right back up to the high today. In Tyler’s latest update, he wrote, “ARNA has made a really nice move in the month of February after rallying off a double bottom in the low-30 range (first in August, then in November). Early this week it traded up to a multi-year high near 50 (which it also did in June and early October). We didn’t get the big breakout to fresh highs just yet, but this is encouraging action, and improving sentiment in the biotech sector (IBB crossed back above its 50-day line in January) could help Arena break out to a new high. That said, with the stock trading near overhead resistance, it’s equally possible shares could retreat in the near term. If you’re in the stock it’s a good hold here, but I’d like to either see a breakout, or a lower entry point, for those looking to buy shares. Therefore, I’m moving Arena to hold, for now.” I’ll follow suit. HOLD.

Canada Goose (GOOS), originally recommended by Mike Cintolo in Cabot Growth Investor, continues to climb back toward its November high of 70. Earnings will be announced before the market open this Thursday, February 14. HOLD.

Delek U.S. Holdings (DK), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Buy Low Opportunities Portfolio, continues to build a bottom. In her latest update, Crista wrote, “Delek is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations. Delek is the largest licensee of 7-Eleven stores in the U.S. Delek owns 63.4% of Delek Logistics Partners, LP (DKL), which operates through two segments: Pipelines and Transportation, and Wholesale Marketing and Terminaling. Delek is expected to report fourth quarter EPS of $1.25 on the afternoon of February 19, within a range of $1.11-$1.38; and $2.4 billion revenue, within a range of $2.2-$2.7 billion. DK is an extremely undervalued small-cap growth stock. There’s plenty of room between the current share price and upside price resistance at 40 for new investors to achieve attractive capital gains in the near-term. I expect DK to surpass 40 later this year.” BUY.

Everbridge (EVBG), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is now trading at all-time highs, which is terrific, but volume has not been big, so there remains the possibility of a pullback, possibly down to the stock’s 50-day moving average at 60—which could be a nice entry point. Earnings will be announced after the market close on February 19. BUY.

General Motors (GM), originally recommended in Cabot Dividend Investor for the High-Yield Tier, gapped out to a six-month high last Wednesday on an excellent earnings report—results topped expectations, as did the forecast for 2019—but the stock gave it all back the next day, and since then it’s been stabilizing in the 38-39 range. In his latest update, Tom wrote, “I like the internals of GM a lot. It’s cranking out great cars, growing profit margins and paying a nice dividend that should be safe. But the external environment is not great for autos, with the slowing global economy and China trade frictions.” HOLD.

Green Dot (GDOT), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is the world’s largest prepaid debit card company as ranked by market capitalization as well as the payments platform company used by Apple, Uber and Intuit. But the stock has not been performing as expected; in fact, it’s only slightly off its December bottom, essentially flat since October. If the portfolio were full I’d ditch it now, but as I’ve explained before, I’m still working to get the portfolio full, and I still think GDOT is better than cash. Fourth-quarter results will be released February 20 after the market close and maybe that will get the stock moving. HOLD.

Huazhu Group Limited (HTHT) (previously known as China Lodging Group) was originally recommended in 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. The stock bottomed in November, before the broad Chinese market, and has been working its way higher since. If you don’t own it, you could aim to buy on the next pullback to the 50-day moving average, now at 31. Long term, I have great confidence in China’s leading hotel operator. BUY.

Match.com (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is the world’s leading provider of dating products, with brands like Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs and Hinge available in over 40 languages to users all over the world. Fourth-quarter earnings were released last Wednesday and the results were excellent; revenues were up 21% from the prior year to $457; average subscribers grew from 7 million to 8.2 million; and adjusted EBITDA grew 15% to $176 million. Looking forward, prospects for growth remain excellent as well. The stock spiked higher on the news, pulled back the following day and enjoyed a record-high close yesterday. The trend is up, but if you don’t own it, I recommend you wait for the next pullback. HOLD.

MedMen (MMNFF), originally recommended by me in Cabot Marijuana Investor, remains a major disappointment; while most marijuana stocks are moving higher, MMNFF is going down. As far as I can see, there’s no one reason for this, though the biggest may be that the stock was the most popular (overvalued) and so is now cooling off—and that’s a temporary problem. In Cabot Marijuana Investor, I’m sticking with the stock, as I have a long-term horizon and I definitely don’t buy a new stock every week—but in this portfolio, it’s time to move on. SELL.

STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, hit a record high last week and climbed even higher today, as investors looking forward to a great quarterly report after the market close on Wednesday climb on board. In Chief Analyst Tom Hutchinson’s latest update, he wrote, “While REIT performance sputtered in December the group was up an impressive 11.42% in January, meaning REITs are officially back in favor. And this owner of industrial properties consistently outperforms other REITs.” HOLD.

Teladoc Health (TDOC) originally recommended by Mike Cintolo in Cabot Growth Investor, continues to climber higher, as it has every week since Christmas—but it still has a ways to go before it encounters resistance at its old September high around 86. Fourth-quarter earnings will be released after the market close on February 27. HOLD.

Tesla (TSLA), originally recommended by Mike Cintolo 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. The stock remains in the wide trading range (250-390) that has constrained it since mid-2017, but the fundamental story remains solid, as Tesla transitions from a niche manufacturer to the technology leader of the automotive industry. Last week the company began selling Model 3s in China and Europe, where there are still no comparable cars. In fact, I laughed when I saw an Audi commercial during the Super Bowl that promised that Audi is aiming to get a third of its revenues from electric or hybrid-electric cars by 2025; that’s six years away! By then, I think it’s entirely possible that competitive forces will send at least one more European manufacturer to the graveyard—or the auction block—a la Saab and Volvo. HOLD.

Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, remains one of the market’s top performers, hitting new highs as more and more investors learn about the company’s growing dominance in the communications field. In his update last week, Mike wrote, “Shares romped a whopping 41 points (!) from their December low to this week’s high, and have pulled back only eight points so far; the 25-day line is down around 102. In other words, this retreat barely registers on the stock’s chart, at least so far. That said, the next major move is likely to come down to earnings, which are due out next Tuesday [tonight]—analysts are looking for revenue growth of 61% and earnings of four cents per share. Equally important will be the 2019 outlook, especially with the Sendgrid buyout being completed.” BUY.

Van Eck Rare Earths/Strategic Metals (REMX), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, is a diversification play with potential for great growth as technology requires more rare earths. Plus, it has a yield of 13.9%. Since bouncing off the bottom after Christmas, the stock has been building a base between 14 and 15. If you haven’t bought yet, and you’d appreciate the diversification, I suggest trying to buy in the lower half of that range. BUY.

Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, reported excellent fourth-quarter results last Tuesday after the market close; EPS was $1.32, beating expectations of $1.22, and stock repurchases for the quarter totaled $275 million. In response, the stock gapped higher on Wednesday, pulled back for a few days and today recorded its highest close of the year. In Crista’s latest update, she wrote, “VOYA is an undervalued aggressive growth stock. Final full-year 2018 EPS rose 110% vs. 2017. Analysts expect EPS to grow 33.2% in 2019, and the P/E is 8.9. Management intends to increase the dividend yield to 1% in 2019. I anticipate VOYA trading between 45 and 55 in the coming months. VOYA is up 28% from its December lows. A pullback is overdue, after which I will likely return VOYA to a Strong Buy recommendation.” HOLD.

THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED February 19, 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.