The market remains in an uptrend, and many of our leading stocks have been hitting new highs, even though the major indexes haven’t—yet. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks—growth, value, dividend-paying and more. Someday, it will become appropriate to be more cautious, but that time is not now.
Today’s stock is a young technology stock with great growth prospects as it supplies its customers with the tools needed to secure digital operations of all types and sizes. It’s an aggressive, high-risk investment, but the trend is strongly up.
As for the current portfolio, six of our stocks have hit new highs in recent days, so we’re making great progress. The only changes this week are two downgrades from Buy to Hold. Details inside.
Cabot Stock of the Week 239
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The bull market of 2019 continues, though most major indexes have yet to break out to new highs. Thus, the risk remains that the correction that tried to get going two weeks ago will return for another try. But that’s a risk we can bear, as we focus on cultivating a portfolio of the leading growth stocks—those hitting new highs—as well as selecting undervalued and high-quality dividend-paying stocks. So far, it’s been a great year, and this week we add another strong growth stock to the portfolio. The stock was originally recommended by Mike Cintolo in Cabot Top Ten Trader, and here are Mike’s latest thoughts.
Rapid7 (RPD)
Cybersecurity is one of the leading sectors of this new bull market, but the best performers in that space have been lesser-known names that are built from the ground up for the new age of threats. Rapid7 looks like one that’s well positioned to thrive as corporations look to ensure that their data is seen only by people who are authorized to see it.
The company’s popularity stems from its Insight platform, which, at its core, allows clients to easily unify their data from across their various systems and IT infrastructure and then detect attackers, manage risk, secure applications, automate a variety of security checks and actions and even leverage experts (consulting services) if need be. It sounds relatively simply—and it is—and it’s led to excellent and steady growth.
But before we get to the numbers let’s dive into the Insight platform, which has four modules, in a bit more detail. The first module, dubbed InsightVM, provides vulnerability management, enabling users to prioritize risk using analytics and quickly enact changes.
The second, InsightIDR, is used to detect compromised users and suspicious activity across the network and respond rapidly—often automatically—to save data and assets.
Third is InsightAppSec, which, as the name suggests, is all about securing a company’s applications. It’s scalable for any size application portfolio and lets developers collaborate to implement fast-track fixes.
Last but not least is InsightConnect (just rolled out last October), which offers a client’s developers more than 200 plugins that enable them to them automate many manual and repetitive tasks and accelerate security and IT operations.
All told, the company thinks it’s now playing in a $22 billion (and growing) market, and the Insight platform is helping Rapid7 grab an increasing chunk of it. Indeed, the firm’s offering has impressed enough for it to have more than 80 platform integrations with data collaboration, data workflow and data ingestion partners.
All of that has helped Rapid7’s more than 7,800 customers, including many big, recognizable names like Wells Fargo, Domino’s, Adobe, Kimberly-Clark, Macy’s, Comcast, Groupon and Motorola. And those customers are both sticking around (88% to 90% renewal rates each of the past eight quarters) and adding more products (same-customer revenue growth north of 20% every quarter). Encouragingly, customers that came onboard five years ago are now spending 3.6 times as much as they did in their first year—a trend seen across all cohorts through recent years.
Even better (especially for investors) is that all these customers contribute to the firm’s rapidly expanding cache
of recurring revenue. The firm’s key metric is what it calls its annualized recurring revenue, and it’s been skyrocketing of late, up 53% for all of 2018 and management has guided that figure up more than 30% in 2019, which is likely conservative; overall revenues are expected to rise 26% this year, while earnings nose into the black.
All told, it looks like Rapid7 has the products geared for a world where big companies are looking for easy, flexible ways to secure assets across their IT networks. The story, numbers and (as we write about below) chart all point to good things going forward; simply put, Rapid7 looks like a new leader in the cybersecurity arena.
RPD has had a solid couple of years, but as it was a thinly traded stock, movements tended to be jumpy in both directions. But the stock has “grown up” and changed character since the market’s Christmas Eve bottom—shares spiked from 28 to 48 in a straight line and on big volume, paused in a tight range for four weeks (finding support at the stock’s rising 25-day line) and then popped to higher highs last week on another round of big volume. This is a high risk situation, and volatility is to be expected, but there is great growth ahead for investors who can tolerate the action.
Rapid7 (RPD)
100 Summer Street, 13th Floor
Boston, MA 02110
617-247-1717
http://www.rapid7.com
CURRENT RECOMMENDATIONS
While the major indexes have yet to break out to new highs, one-third of the stocks in our portfolio have done exactly that over the past week, while a few others have done it in the weeks before, so we’re definitely making hay here. But don’t forget that the market is a two-way street, and that stocks that have been hottest can suddenly suffer deep corrections. So take a look at your own portfolio, determine which of your stocks are there for the long haul and which will be sold when the going gets tough, and prepare—at least mentally—for that day in the future when the market, “unexpectedly” drops several percent. And if you’re still not heavily invested, or you’re a new reader, take care to reduce your risk by buying only on normal corrections or true breakouts.
AbbVie (ABBV), originally recommended by Tom Hutchinson in Cabot Dividend Investor for the Dividend Growth Tier, still looks like it’s building a bottom, promising that eventually buyers will take charge. In his latest update, Tom wrote, “This is a historically great performing biopharmaceutical stock that is down 14% this year and 31% over the past year because of increasing competition for its top selling Humira drug. I’ve explained the company has plenty of newly launched drugs and a fantastic pipeline that can easily offset the lost revenue. But Humira accounts for 61% of company revenues and until the market sees absolute proof that it can handle the slippage, the stock will probably wallow for a little longer. In the meantime you get 5.5% to hang in there.” BUY.
Apollo Global Management (APO), originally recommended by Crista Huff for the Growth & Income Portfolio of Cabot Undervalued Stocks Advisor, gave us a good buy point last week and this week it’s right back near the top of its six-week trading range, looking like it’s ready to break out to new highs. 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. Last week, Brookfield Asset Management (BAM) agreed to buy Oaktree Capital Group LLC (OAK). Both are peers of Apollo. The merger activity could serve to enhance market valuation of Apollo shares. The stock has traded sideways since early February, with a small pullback and rebound in early March. Watch for a possible near-term run-up to commence. There’s price resistance at 32 and 35.” BUY.
Apple (AAPL), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, and featured here last week, is moving up nicely, but is still far below last year’s high of 232. In Crista’s latest update, she wrote, “Apple is a manufacturer and provider of many popular technology devices and services, including the iPhone, iPad, Mac, App Store, Apple Care, iCloud and more. There are over 1.4 billion active Apple devices globally, which provide a strong and growing revenue base for Apple Services. Last week, Apple and Stanford Medicine reported results of the Apple Heart Study, which monitored the heartbeats of over 400,000 participants who wore the Apple Watch. The study notified 0.5% of the participants (approximately 2000 people) that irregular heartbeats were detected, suggestive of atrial fibrillation (AFib). The stock is slightly undervalued, and continues to rise.” BUY.
Everbridge (EVBG), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and also recommended by Tyler Laundon in Cabot Small-Cap Confidential, looks great, hitting new highs repeatedly. In his update last week, Tyler wrote, “EVBG made another new high on Monday and looks like it could run up a bit more before pausing. That said, it’s made a very nice move year-to-date (up 35%) so it’s not time to back up the truck. I’ve had it rated buy for a while but am moving back to Hold just to reduce the risk of a quick loss on new positions. This week the company launched a new solution, Crisis Management, which integrates with Everbridge’s Critical Event Management (CEM) suite and helps organizations dynamically manage the lifecycle of a critical event, from response to recovery. The key advantage of the new solution, in the company’s words, is that it allows customers to move from automating the management of communications around an incident, to managing the incident itself. Everbridge has done a great job of releasing new solutions that expand its market and drive upsell and cross-sell activity.” I’ll follow Tyler’s lead and downgrade to Hold. If you’re thinking shorter term, you could even put in a mental stop for part of your position. HOLD.
Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, is a volatile stock, but the main trend is up, and the fundamentals at the company are terrific. In his update last week, Mike wrote, “Growth stocks rarely make it easy, with lots of sharp pullbacks that serve to shake out investors. EXAS has certainly done its best, with two quick, painful retreats (one 10%, the other 15%) during the past month. However, the stock held support near 80 (and, like most leading stocks, its 50-day line as well) and is now rushing back toward its highs. Fundamentally, the quarterly report and conference call only reaffirmed the huge potential here; after completing 934,000 tests last year, management is thinking big, with total capacity set to ramp to seven million tests by year-end. Analysts see revenues up 60% this year, 45% in 2020 and more beyond that, thanks in part to Pfizer’s sales force flexing its muscle. (Exact’s long-term goal of the colorectal cancer testing market is still 40%, up from just 4.1% at year end.) Of course, none of those estimates guarantee anything, but it’s clear big investors think the firm is going to become much larger in the years ahead.” BUY.
General Motors (GM), originally recommended in Cabot Dividend Investor for the High-Yield Tier, is not the kind of stock I want to hold long term, but we bought low and we have a profit, and now the goal is to sell near some peak. In his latest update, Tom Hutchinson wrote, “Investing isn’t just about numbers. If it were, GM would be a lot higher priced than it is now. It sells at a microscopic less-than-six-times earnings with a strong dividend. As well, the balance sheet is solid and it’s investing for the future in self-driving and electric cars. But auto companies aren’t getting much love right now. That’s because auto sales have passed the peak in this economic cycle and the global economy is stumbling. But the stock is up 17% so far this year and should have some momentum left.” HOLD.
Huazhu Group Limited (HTHT) (previously known as China Lodging Group) released fourth-quarter results after the market close last Thursday and they were terrific, sparking high-volume buying on Friday that gapped the stock up as high as 42 before it closed at 39. And the stock has kept climbing this week. In the quarter, the company saw revenues increase 20.6% from the year before to $390 million, while adjusted net income saw earnings grow 65% to $53 million. The company opened 214 hotels in the quarter while closing 39, and management says that the network expansion will accelerate in 2019. HTHT 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 of China’s leading hotel operator. If you don’t own it yet and you like the story, you could nibble on the next pullback. HOLD.
Match.com (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader, is the world’s largest online dating service and has great long-term prospects. Last week I mentioned that the stock was at a great entry point, and indeed it’s advanced well since then, climbing back above all its moving averages. There’s still resistance at 58, and I don’t recommend buying exactly here, but if it breaks out to new highs on good volume, feel free to jump on. BUY.
NIO (NIO), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, went from 7 to 10 and back to 7 in two weeks, and now it seems to have found a bottom at 6, basically retesting the bottom that launched the stock last October at its IPO. In his latest update for his readers, Carl wrote, “Importantly, 2019 revenue expectations by management have not changed so we maintain our hold rating on our remaining shares.” If you’re not on board, and you want a piece of what might be called the Tesla of China, you can buy here. The stock may not advance immediately, but I doubt that it will fall below 5.50. BUY.
Planet Fitness (PLNT), originally recommended by Mike Cintolo in both Cabot Growth Investor and Cabot Top Ten Trader, hit another new high today! But volume on the advance has been dwindling, so eventually this stock is going to take a rest—or worse. In last week’s update, Mike wrote, “PLNT is another example of a stock that tries its best to knock you out. In this case, shares meandered for nearly two months while the market was surging and failed repeatedly at resistance near 60, only to follow that with a straight-up move to new price and relative performance (RP) highs during the past couple of weeks. PLNT is usually more of a steady Eddie, so we don’t expect this race higher to continue, but near-term movements aside, we’re very bullish on the firm’s prospects. Management (which usually lowballs its forecast) is looking for sales and cash flow growth of 15% and 20% (respectively) this year, and the long-term goal is for 4,000 locations and 40 million members (compared to 1,800-ish and 12.5 million now). Even if Planet falls shy of those longer-term figures, you’re still looking at years of growth on the way. Hold on if you own some, and if you don’t, try to buy on dips of a couple of points.” BUY.
STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, has climbed back up to the 28.5 level, which is where it topped in mid-February, and if all is well, the stock should pause here, or even better, keep going up! In his latest update, Tom Hutchinson wrote, “STAG is a great REIT. It leases to single tenants in the industrial and light manufacturing space, like warehouses and discount centers. There are many players in this market and Stag does it very well, consistently outperforming its peers. The stock has been a spectacular performer. I like everything about STAG except the price. For now it’s a hold, but if it can form a base here I’ll likely upgrade it to a buy.” HOLD.
Teladoc Health (TDOC) originally recommended by Mike Cintolo in Cabot Growth Investor, is the leader in the virtual medical care market, and has a very bright future, but right now the stock is in consolidation mode. If you’ve got a big profit like the portfolio, and you want to stick with it, good; I think patience will be rewarded. But if your profit is minimal or non-existent, selling and moving on may be your best choice. 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 stock has great growth potential. On the positive side, the company is still growing fast; fourth-quarter revenues were up 120% from the year before, and the fourth quarter marked the first time that electric vehicles outsold hybrid vehicles in the U.S. On the negative side, the unveiling of the new Model Y small SUV/crossover last week triggered selling, not buying. But the stock is once again close to 250, which has marked the lower end of its trading range over the past year, so this is the time to hold patiently. HOLD.
The Trade Desk (TTD), originally recommended by Mike Cintolo in Cabot Growth Investor and featured here two weeks ago, hit a record high last Friday and has pulled back slightly since. If you haven’t bought yet and you like the story of the digitization and automation of the ad-buying process, I recommend waiting for a deeper correction. BUY.
Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, hit another new high yesterday! In his update last week, Mike wrote, “TWLO has suffered two short, sharp declines in recent weeks, first after earnings in mid February and then again last Monday. But both drops found support near the 25-day line (better than many leading stocks), and shares have spurted to new highs in recent days. There’s been nothing new from the company since the earnings report, though a couple of analysts have said positive things about the stock since then, which has helped the cause. To us, Twilio has the feel of an emerging blue chip, with a communications platform that isn’t just attracting new customers by the truckload (up 31% in Q4), but current customers are greatly expanding their usage, too (same-customer revenues up 47% in Q4, one of the highest figures in that metric we remember seeing). We’ll stay on Buy, but as with many stocks that have run higher, you should try to buy after a down day or two.” 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. In his latest update, Carl wrote, “REMX is likely to be relatively quiet until a spike in tensions fuels an upsurge. Commodities have in general pulled back from their late third quarter 2018 highs, which doesn’t help. We still like REMX and, if you bought with us, we advise sitting tight. But we’re moving to a hold rating as we see other stronger situations.” HOLD.
Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, hit a record high yesterday and pulled back slightly today, so the trend here looks great. 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. Analysts expect EPS to grow 34.4% and 15.1% in 2019 and 2020, and the P/E is 9.4. VOYA is showing continued strength, and could retrace its 2018 highs of 54-55 in the near future. The company is prioritizing share repurchases and a large dividend increase this year, which should each contribute to share price appreciation.” BUY.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED March 26, 2019
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