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 248

Short-term, the market remains under pressure, notwithstanding today’s strength, so certain defensive measures remain appropriate. But long-term, the market’s main trend remains up, so I don’t recommend any wholesale changes, just minor fine-tuning.

Today, that involves upgrading one strong stock to buy, while selling two stocks that have weakened in face of growing fears of tariffs on China.

As for today’s new recommendation, it’s a high-risk stock with great long-term potential—if we can just get on board at the right time! Details in the issue.

Cabot Stock of the Week 248

[premium_html_toc post_id="177772"]

Clear

Long term, the great bull market of 2019 remains intact. But short term, the market remains in a correction, with investors’ greatest concern being the China tariff situation. Thus, investing today calls for a delicate balance between short-term caution and long-term confidence—and the balance point is different for everyone. In the Cabot Stock of the Week portfolio, we came into this week fully invested, simply because no stocks were weak enough to merit selling last week—but that is not the case today, so we are building cash. As for new buying, you may wish to defer it if building cash is more appropriate for your current situation. Otherwise, give today’s recommendation some consideration. It does present risk—there’s no question about that—but the long-term prospects for the industry (marijuana) and all its leaders are very bright.

Now, long-time readers with good memories may recall that twice before I’ve recommended marijuana stocks for this portfolio (Cronos and MedMen), and twice before I’ve sold them at a loss—though Cronos had a 30% profit at one point that I suggested taking profits on.

So why recommend one again?

Because this is the fastest-growing industry in the U.S. and because the well-diversified portfolio of my Cabot Marijuana Investor is up 48% year to date as I write. Thus, overall trends are great, but my marksmanship in selecting marijuana stocks for Cabot Stock of the Week has been off. Will the third time be the charm? Let’s see.
Cresco Labs (CRLBF)

Based in Chicago, Cresco Labs is one of the largest vertically integrated multistate operators (MSOs) in the cannabis industry in the United States. In the latest quarter, revenues were $17.0 million, up 411% from the year before. In Canada, such fast growth rates are typical because the marijuana market went legal last October. In the U.S., marijuana is still definitely illegal according to federal law, but the leading companies are growing fast anyway, for two reasons. First, more and more states continue to legalize, and second, the biggest, most well funded companies in the industry are gobbling up competitors fast.

On April 1, in fact, Cresco announced that it had reached an agreement to acquire Origin House. Origin had first quarter revenues of about $9 million, and Cresco is paying about $825 million for the company. Short term, that looks like a ridiculous price, but long term, it looks smart. That’s because Origin House (based in Canada) has about 60% of the California retail market, delivering over fifty cannabis brands to more than 500 dispensaries in California, and as legalization spreads across the country, that expertise should translate into market share nationally.

The acquisition is the largest public company acquisition in the history of the U.S. cannabis industry, and the combined entity will be one of the largest vertically integrated multi-state operators in the country, with operations in 11 states, comprising 15 production facilities, 21 operational retail dispensaries and 51 retail licenses.

Cultivation and processing will be in California, Nevada, Arizona, Illinois, Ohio, Pennsylvania, and Massachusetts. Retail stores will be in Nevada, Arizona, Illinois, Ohio, Pennsylvania and Massachusetts. And in the works are operations in Michigan, Florida, New York and Maryland.

Of course, there is competition out there; my Cabot Marijuana Investor also owns two other leading MSOs in the U.S. But Cresco was founded and is led by attorneys, who have proven adept at getting licenses in highly populated, highly regulated markets. Additionally, it has deep branding/marketing expertise, thanks to executives who’ve honed their talents at Gatorade, MillerCoors, Nike, Pandora and Lifeway Foods.

Long term, all the MSOs want to develop the Marlboro of the industry, but it’s way too early to call a winner. Cresco’s five brands are Cresco – an everyday cannabis brand with above-average quality; remedi – designed for the medically-minded patient; Reserve – a premium cannabis line; Mindy’s Artisanal Edibles – a line of culinary-backed, cannabis-infused edibles (chocolates and baked goods) created by James Beard Award-winning chef Mindy Segal; and Mindy’s Kitchen – fruit chews, hard sweets and gummies. All told, Cresco has approximately 350 products and 5,000 SKUs.

Valuation-wise, no stock in the cannabis industry can be called a bargain today, but relative to its peers, Cresco looks attractive to me. And the chart looks good, too. Like the sector as a whole, the stock advanced all year, peaking on April 1 when the acquisition of Origin House was announced and closing at new highs for four consecutive days. And since then it’s consolidated that gain normally, trading in a range between 11 and 13, with outliers to 10.5 and 13.5 and volume steadily shrinking. Over the past week the stock has found support at 11 and is now riding its 50-day moving average higher, so I think it’s a decent buy here, and the portfolio will buy tomorrow. But if you’re looking to lower risk, you could wait for a dip to 10.5 again, and also wait for the release of the firm’s first-quarter report, which will be released on May 29, after the market close.

sow248-crlbf

Cresco Labs (CRLBF)
520 West Erie Street
Suite 220
Chicago, IL 60654
http://www.crescolabs.com

image-blank.png
sow248crlbf-data-xls-1024x169.jpg

image-blank.png

CURRENT RECOMMENDATIONS

csow248-portfolio-1024x533.jpg

Most of the stocks in the portfolio look good; eight of them have hit new highs over the past two weeks. But there’s been some serious damage done to some thanks to increasing worries about the U.S-China trade war, and those worries are responsible, in part, for the portfolio’s two sells today, Baidu and Qualcomm. Long-term, however, all major indicators say that once the current correction is over, the market will resume its uptrend and move to new highs later this year. So don’t despair. Tend to your own portfolio, selling your own big losers and weak stocks, so that you always have a diversified portfolio of high-potential stocks—along with enough cash to both provide comfort and enable you to take advantage of buying opportunities. Details below.

AbbVie (ABBV), originally recommended by Tom Hutchinson in Cabot Dividend Investor for the Dividend Growth Tier, has done quite well since it bottomed at 76 two weeks ago, but it still faces resistance at its April high of 83. In his latest update, Tom wrote, “This is one of the best (possibly the very best) large pharmaceutical companies in a sector soft spot. It’s a great time to get in on the cheap and collect a 5.4% yield while you wait. The market is waiting for proof that its newly launched drugs and pipeline can provide revenue to overcome the slippage in sales of its top selling Humira drug. I’m confident that will happen sooner or later. In the meantime, it should be a solid down market stock because it’s already had the stuffing knocked out of it, down 37% from its January 2018 high.” BUY.

Apple (AAPL), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, has been under pressure recently, and the reasons are quite obvious. Still, Crista is bullish. In her update today, she wrote, “Last week, the Supreme Court allowed antitrust lawsuits against Apple to go forward. (This decision by the court does not signify an opinion regarding guilt or innocence.) Consumers and app developers are now free to sue Apple on the questions of Apple’s monopoly with regard to apps being offered on iPhones, and also regarding app pricing. Such lawsuits will likely take many years to wind their way through the courts, and are not expected to have any near- or medium-term impact on the company. AAPL’s share price is exhibiting weakness on trade war jitters, and will probably climb to price resistance at 230 later this year. AAPL is a great stock for a high quality, buy-and-hold equity portfolio. Earnings growth is not always double-digit, but the company is a consumer products and services powerhouse and a cash machine.” BUY.

Baidu (BIDU), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, and featured here last week, fell out of bed last Friday, as fears of China tariffs grew. My optimistic stance is that these fears are overblown, but I can’t argue with the stock, which is now telling me the downtrend in the stock is still intact and our buy was premature. We rarely sell a new recommendation so quickly, but that’s what the evidence tells me to do. SELL.

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson for Cabot Dividend Investor, has pulled back normally from its record high last week. In his latest update, Tom wrote, “Never underestimate the staying power of a defensive, non-cyclical business model and a high dividend payout. In the past tumultuous week the stock moved higher. The earnings report was good a couple of weeks ago and the global infrastructure company is poised to grow earnings at a much-better-than-the-market clip over the course of the year. The chart looks good.” BUY.

CIT Group (CIT), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Growth Portfolio, rebounded modestly over the past week, but remains in the basing pattern that’s contained it since mid-February. In her latest update, Crista wrote, “CIT operates both a bank holding company and a financial holding company that provide financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. The company held its annual meeting of shareholders last week. Investors may access the company’s annual report on their website. CIT is an undervalued growth stock with an attractive dividend yield. The price chart is moderately bullish, with some upside resistance at 55, then lots of capital gain potential thereafter.” BUY.

Delta Air Lines (DAL), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, is currently building a base at its 50-day moving average, while its 200-day moving average, now at 53, approaches. In today’s update, Crista wrote, “DAL is an undervalued growth and income stock. First-quarter 2019 SEC filings show billionaire Leon Cooperman establishing a new position in DAL with a purchase of 125,000 shares. Delta is expected to achieve 18.2% EPS growth in 2019, and the P/E is 8.1. The price chart weakened in May, and could easily languish in the near term.” BUY.

Everbridge (EVBG), originally recommended by Mike Cintolo in Cabot Top Ten Trader and also followed by Tyler Laundon of Cabot Small Cap Confidential, hit record highs on four consecutive days last week and finally pulled back yesterday. In Tyler’s update last week, he wrote, “Management spoke yesterday at the JP Morgan conference, then moves on to Needham next Tuesday, Baird on June 4 and Stifel on June 10. Scarcity value, expected revenue growth of 33% this year and 25% next, and EPS losses getting cut in half each year before expected first profits in 2021 are just three of the reasons the stock is doing well. It’s trading at a premium valuation.” HOLD.

Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, has bounced back strongly over the past week and is now—just barely—once again trading above all its moving averages. Exact Sciences’ Cologuard is an easy-to-use colon cancer screening system that has excellent growth potential, even as competition begins to emerge. HOLD.

Huazhu Group Limited (HTHT), originally recommended in Cabot Emerging Markets Investor, is one of the Heritage Stocks in the portfolio, meaning our profit is so big and the prospects for growth still so substantial that I’m committed to holding as long as those prospects remain intact. As the largest lodging chain in China, the company is almost guaranteed to get a lot bigger—over time. But right now, the stock, like most Chinese stocks, is under pressure. First quarter results will be released tomorrow, May 22, after the market close. HOLD.

LexinFintech Holdings (LX), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, reported its first quarter results last week. Total outstanding principal loan balances were $5.5 billion, up 65% from the year before, while loan originations were up 36% from the year before. Revenue was $293 million, up 22%, while net income per ADS was $0.48, up 228%. All good. But the stock remains in a normal correction, having dropped below its 50-day moving average yesterday. Chinese stocks in general are quite weak, but I don’t see any negative effect from tariffs for this fast-growing company. In his latest update, Carl wrote, “This high-growth fintech idea is currently trading at a very reasonable valuation and, if you have not taken a position yet, I encourage you to take advantage of this week’s turmoil to buy a half position.” BUY.

Match Group (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader, had a great run following the release of its first quarter report two weeks ago, hitting new highs as recently as last Friday, and now it’s begun a normal pullback. Traders could take some profits here, but long-term investors will sit tight. Match is the global leader in online dating. If you don’t own it yet, wait a while for the stock to cool off. BUY.

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, has just hit record highs for four days in a row. In his update last week, Tom wrote, “This is a good environment for utilities, and NEE is the sexiest one of the lot. Not only does it generate steady, defensive and predictable returns and income, but it also offers a higher level of earnings growth than its peers with its magnificent alternative energy business. Hopefully the stock will get a boost in the changing market dynamic. And unlike most utilities, NEE doesn’t trade at an exorbitant valuation.” HOLD.

Planet Fitness (PLNT), originally recommended by Mike Cintolo in both Cabot Growth Investor and Cabot Top Ten Trader, hit record highs last Thursday and Friday and has pulled back normally this week. In his update last week, Mike wrote, “Planet Fitness looks great, storming back to new highs after its one-day post-earnings shakeout (which has been a common theme with growth stocks this year) two weeks ago as investors continue to discount a very bright future thanks to quick growth in the store base and buoyant comparable location revenues (up double digits in Q1). We don’t think the stock is a great buy this second, especially with the market still iffy; if you don’t own any, we’d ideally look for dips back into the 76 area. But, bigger picture, the immediate snapback in the stock is a great sign the buyers are in control.” Well, the stock is back near 76, so if you don’t own it, consider a nibble here. BUY.

Qualcomm (QCOM), originally recommended by Mike Cintolo in Cabot Top Ten Trader, fell apart in recent days as fears grew that the blacklisting of Chinese electronics manufacturer Huawei would reduce demand for Qualcomm’s chips, and now the stock is right back near the top of its gap up in mid-April. From here, the stock could bounce, or it could fall apart, so it’s a little tricky to decide what to do—but in the end, two factors weigh heavily on my decision. First, QCOM is a very well known and very cyclical technology stock, which typically makes big moves as institutional investors amplify major trends—and it looks like a new downtrend is developing. Second, Mike never succeeded in getting QCOM in the portfolio of Cabot Top Ten Trader, as the stock traded above his buy range (78-82) for the two weeks following his recommendation, so he doesn’t follow it any more. Put those together, and the conclusion is sell. SELL.

Rapid7 (RPD), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and also recommended by Tyler Laundon in Cabot Small Cap Confidential, continues to build a base in the low 50s, very close to its all-time highs. In his latest update, Tyler wrote, “RPD is consolidating gains near its 52-week high after reporting a great quarter last week. There’s no news and I’m sticking with a Hold rating for now.” HOLD.

STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, is also building a base very close to its all-time highs. In his update last week, Tom Hutchinson wrote, “On the one hand this industrial REIT looks pricey or at least fairly valued. But considering the increase in needed industrial space with the explosion of Amazon and the like combined with STAG’s track record of successful acquisitions, it has the growth to support it. In the first quarter revenue was up 15%, from the year ago quarter, and adjusted funds from operations soared 21%. It’s a good stock for this market and it can go higher.” HOLD.

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, remains a challenge, as the stock has slipped to its lowest point since 2016 on fears that demand is waning for its Model 3, that sales will become increasingly more difficult in China as competitors improve and trade relations with China deteriorate, and that cash will become tight at the company. It is certainly not a buy here; it’s headed the wrong way. But for long-term investors with big profits, who are treating it as a Heritage Stock, I still believe holding makes sense, because the company is still the technology leader of the industry and it still has the potential to thrive. However, I may be wrong, and thus I will draw a line in the sand now. Last week I mentioned that the low of 2016 was an important level. For the record, that was 141. So, if the stock closes below 141 at the end of any week, I’ll sell. HOLD.

The Trade Desk (TTD), originally recommended by Mike Cintolo in Cabot Growth Investor, rebounded strongly last week and now sits right at its 50-day moving average—still in a long-term uptrend. HOLD.

Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, hit another record high last week and has corrected minimally since. In Mike’s issue of Cabot Top Ten Trader on Monday, he wrote, “Twilio continues to look like one of the well-traded leaders of this bull phase, with a growth story and growth numbers that are hard to beat. Starting with the story, the company’s communications platform is the best in the industry and is extremely pervasive—whether you’re Coca-Cola using it to automatically alert servicemen of vending machines are out of order, Trulia using it to quickly text agents when a potential buyer fills out a contact form online or little old Cabot using it to route some phone calls to the right person, Twilio appeals to thousands of firms. And as the need to communicate with vendors, customers, employees and suppliers grows, so, too, will use of the platform. (Indeed, the firm’s same-customer revenue growth of 46% in Q1 is about as high as we’ve ever seen.) Moreover, the acquisition of SendGrid’s best-in-class email capabilities not only boosts the platform’s usefulness but also adds 84,000 customers and, hence, a ton of cross- and up-selling opportunities. As for the numbers, revenue growth has accelerated for a few straight quarters (even without the SendGrid buyout, revenue growth came in at 60% in Q1), with earnings consistently in the black (though not growing much as Twilio invests heavily). Analysts see the top line up 70% this year and another 33% next, with earnings set to pick up steam in 2020, but all of those figures could easily prove conservative given the underlying trends” Mike upgraded the stock to Buy in Cabot Growth Investor, and I’ll do likewise. BUY.

Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, looks fine; it pulled back to its 50-day moving average last week and has now resumed its advance, heading for its old high of 55. In today’s update Crista wrote, “VOYA is an undervalued aggressive growth stock. Analysts expect full-year EPS to grow 36.4% and 14.5% in 2019 and 2020, and the current P/E is 9.6. The price chart remains relatively bullish. I anticipate VOYA performing better than the broader market for the balance of 2019.” BUY.

THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED May 28, 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.