If you don’t know by now, I’m a big fan of diversification; I love having a portfolio that has hot stocks of fast-growing young companies, low-risk stocks of established companies, high-yielding stocks of underappreciated companies, and more—because you never know which way the market is going to zig, but when you’re diversified you’re always winning somewhere.
Cabot Stock of the Week 251
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After falling for five straight weeks, the market snapped back strongly last week, so much so that we almost have a new buy signal from our intermediate-term trend-following indicator. The rules says it’s smart not to anticipate, so officially I can’t give the all-clear signal yet, but if you’ve been playing it a bit cautiously of late, you should certainly think about getting more aggressive soon; I continue to believe that the market will hit new highs in the months ahead. As for today’s recommendation, it’s a young, fast-growing company whose name you probably know, even if you don’t use its service. The stock was originally recommended by Mike Cintolo in Cabot Top Ten Trader, and here are Mike’s latest thoughts.
Snap (SNAP)
There have been some super-hot IPOs this year, with names like Zoom Communications (ZM), a current Stock of the Week holding, soaring to new highs as the pressure has come off the stock market. But over the past few years, most IPOs that ended up being winners didn’t start out that way; stocks like Facebook and Twilio had nice initial runs, but then suffered months and even years in the doldrums before finally getting going.
We can’t say for sure, but we think there’s a good chance Snap, operator of the popular Snapchat social media app and service, could be following a similar pattern.
The firm came public in February 2017, but a combination of massive valuation, lackluster user growth and a total lack of inspiration from management brought out the sellers and they went to work—SNAP lost more than 80% of its value and didn’t stop falling until the market bottom last December. Now, though, the picture has brightened, and there’s great potential as a new management team is pulling the right levers.
As for the company, Snapchat isn’t something most parents and grandparents use on their own (though we have played around with it a bit with our eight-year old). At the end of March, the firm counted 190 million active users, most of them young. In fact, in its Q1 conference call, management led with the fact that it now reaches 75% of the 13-to-34-year old demographic in the U.S., which is larger than even Instagram.
Two years ago, the camera-based service was most known for its goofiness, allowing users to put silly digital costumes, glasses, dog ears and more on a photo and share it with others. It was a great niche, but not enough to support the hopes investors had, especially as competition mimicked some of the firm’s ideas.
Today, though, Snap has broadened its offerings. “Stories” allow people to collect their photos and videos and share a group of them (such as a bunch you took at a certain event) with friends. Through the Discover service, you can subscribe to friends’ “Stories” and find others that you’re interested in.
Snap has also moved into some original content, with short-form TV shows you can watch right from the app. There are tons of games you can play, too, which feature in-game text and audio chatting. And there are augmented reality offerings that make recognizable landmarks (say, the Capitol Building) digitally transform into a stack of hot dogs and ice cream cones. There are even Spectacles that let users record (via specialized glasses) their actions. Yes, it’s all still goofy, but it’s also fun and free, and users get a kick out of creating some funny content and sharing it with others.
More important to Wall Street is that these new initiatives (as well as a major upgrade to Snap’s Android app that opens faster and has shown signs of boosting engagement) have halted the deterioration in the user base (in Q1, daily active users grew four million, stopping declines in the prior few quarters), while improved ad tools have led to increased monetization; revenues grew 39% in the first quarter (analysts see the top line up more than 30% both this year and next) and, while earnings were in the red, free cash flow came in at around $0.14 per share.
As for the stock, SNAP showed impressive strength after last year’s market bottom, zooming from below 5 to around 12.5 before finally taking a rest in early April. Shares did dip to 10 in May, but actually perked back up toward their highs late last month (despite the awful market) and broke out to new highs last Tuesday, the first day up after the recent low. Since then, the stock has paused at the 14 level, and while there’s a chance the stock will correct to below 13, I think the greater chance is that the stock just keeps climbing. Thus aggressive investors can buy right here and keep the stock on a tight leash, selling if it goes the wrong way.
Snap Inc. (SNAP)
2772 Donald Douglas Loop North
Santa Monica, CA 90405
310-399-3339
http://www.snap.com
CURRENT RECOMMENDATIONS
As the past week has brought a strong rebound to the market, most of our stocks have participated, with the best hitting new highs repeatedly over the past week and most pulling back normally over the past day or two. Odds are very good that this marks the beginning of a new upleg for the market, which will take the indexes out to new highs—in essence following our leading stocks. And how do you get a portfolio of leaders? By selling laggards! Last week the portfolio sold three stocks and all three are lower now than when we sold, so short-term, those were good sells. Make sure you do the same as you work to maintain your own top-quality portfolio. There are no changes in the portfolio this week, save the addition of Snap (SNAP).
AbbVie (ABBV), originally recommended by Tom Hutchinson in Cabot Dividend Investor for the Dividend Growth Tier, has rebounded strongly this week but remains in a long base-building pattern. In his latest update, Tom wrote, “The market continues to treat this stock like a red-headed stepchild. The company is about the best there is in an industry with tailwinds of historic proportions. It pays a high and well-supported dividend. It has done a marvelous job of preparing for the future. But to today’s investor class, those things don’t matter. It’s only about next quarter. Shortsightedness is not a malady in today’s market, it’s a creed and a motto that investors are proud of. Eventually, the short-term prognosis for this company will get good. And when it does, the market will make up for lost time. Until that day, just collect the 5.6% dividend and be patient.” BUY.
Apple (AAPL), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, has surged very strongly over the past week and is now trading above all its moving averages. In her update today, Crista wrote, “AAPL is a great stock for a high-quality, buy-and-hold equity portfolio. Wall Street expects EPS to fall 3.9% in fiscal 2019 (September year end), then to rise 10.5% in 2020. Potential tariffs on U.S. imports from China continue to plague Apple and many technology stocks. AAPL rose rapidly last week, and could reach 210 before resting again—although that would be quite a short-term feat.” HOLD.
Axis Capital Holdings (AXS), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Buy Low Opportunities Portfolio and featured here last week, hit new highs late last week and has pulled back slightly since. In her latest update, Crista wrote, “Axis is a global provider of specialty lines insurance and treaty reinsurance with shareholders’ equity of $5.3 billion and locations in Bermuda, the United States, Europe, Singapore, Middle East, Canada and Latin America. AXS is an undervalued, small-cap stock. Axis reported full-year 2018 EPS of $1.92 in 2018, and is expected to report $4.96 and $5.56 in 2019 and 2020. The stock is actively rising toward its March 2017 all-time high of 66. Buy AXS now.” BUY.
Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson for Cabot Dividend Investor, hit a record high last week and has pulled back slightly since. In Tom’s latest update, he wrote, “This company owns infrastructure assets all over the world and has been upgrading its portfolio of investments by selling lower performing assets and investing in better ones. A few days ago the company announced that it will be looking at data infrastructure assets for similar reasons that I recommended Crown Castle in last month’s issue. It has a portfolio of assets that enjoy monopolies in their area and generate reliable and defensive cash flow. Growth opportunities abound and the stock looks technically strong here.” BUY.
CIT Group (CIT), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Growth Portfolio, has now recovered nearly half of its May loss, and is poised to break out above its 25- and 50-day moving averages if the trend continues. In today’s update, Crista wrote, “CIT Group provides financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries. CEO Ellen Alemany will present at the Morgan Stanley 10th Annual Financials Conference on June 11. CIT is an undervalued growth stock with an attractive dividend yield. Wall Street expects EPS to increase 19.6% and 14.3% in 2019 and 2020. The P/E is 10.1. I’m pleased that CIT did not suffer nearly as much as many other stocks during the May downturn in the broader market. I will likely return CIT to a Buy recommendation soon.” HOLD.
Delta Air Lines (DAL), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, bounced very vigorously last week and has pulled back slightly since. In her latest update, Crista wrote, “DAL is an undervalued growth & income stock. Wall Street’s earnings estimates have been climbing since early March. Delta is now expected to achieve 18.8% EPS growth in 2019, and the P/E is 8.2. The stock is rebounding from the May pullback, with short-term price resistance at 58.” BUY.
Everbridge (EVBG), originally recommended by Tyler Laundon in Cabot Small Cap Confidential, hit a record high yesterday and pulled back a bit today. In Tyler’s update last week, he wrote, “There’s no major new fundamental news, but management did announce a couple of deployments, one with Diebold Nixdorf, a global financial and retail tech company, and one with Nashville and Davidson County, Tennessee. Keep holding.” HOLD.
Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, remains one of the strongest stocks in the portfolio, hitting new highs repeatedly last week and again yesterday. Apparently, fears about competition with the company’s Cologuard test to screen for colon cancer are fading. HOLD.
Huazhu Group Limited (HTHT), originally recommended in Cabot Emerging Markets Investor, is one of the portfolio’s Heritage Stocks, meaning our profit is so great and the potential is so large that I’ve resolved to sit through normal technical sell signals. The past week has brought a good bounce, but that only brings the stock up to its 200-day moving average. Long-term, the stock remains in a serious correction, like most Chinese stocks. HOLD.
Match Group (MTCH), originally recommended by Mike Cintolo of Cabot Top Ten Trader, was so far out of trend when it hit a peak at 75 four weeks ago that its moving averages still haven’t caught up. If you’ve got it, hold tight. And if you don’t own shares of the world’s number one dating service yet, you could nibble here, though risk-averse investors will wait a while longer. BUY.
NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, hit record highs last Wednesday, Thursday and Friday and is now pulling back normally. In his update last week, Tom wrote, “It’s a sweet market for utilities, with uncertainty and falling interest rates. NEE is the best of the lot. Not only do you get defense but growth as well. I slobber all over this stock every week so I won’t go on here. It has good fundamentals and momentum and is well worth holding.” HOLD.
Planet Fitness (PLNT), originally recommended by Mike Cintolo in both Cabot Growth Investor and Cabot Top Ten Trader, hit record highs four weeks ago and remains in a normal correction pattern. In his update last week, Mike wrote, “On one hand, PLNT looks a bit tired, having suffered some big-volume selling in mid-May following a few months with basically zero pullbacks (except a one-day, post-earnings shakeout a month ago). On the other hand, shares are still north of their 50-day line and the stock still looks like relatively rare merchandise, being one of the only national gyms that caters to the mass market, with years of growth ahead. The company presented at a conference this week, though it didn’t break much new ground; the firm is still looking at a total potential market of 4,300 locations (4,000 in the U.S., 300 in Canada), compared to 1,806 at the end of March, with buoyant same-store sales growth (high single digits this year) and cash flow growth this year. A drop below the 73 to 74 area could have us moving to Hold, but with the uptrend intact, we’ll stay on Buy.” BUY.
STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, hit new highs last Wednesday, Thursday and Friday and has pulled back only slightly since. In his update last week, Tom Hutchinson wrote, “This is the right stock at the right time. REITs have been king over the past tumultuous year. And among REITs, STAG is a true gem. It operates in a subsector of the business (industrials) with terrific supply/demand dynamics and does it quite well. But don’t take my word for it. Listen to the market. This stock has absolutely blown away the returns of not only the REIT index but the overall market as well over the past several years. The only problem is that it has gotten expensive and is no longer a bargain. But it still has momentum and for that reason I will continue to hold it.” HOLD.
Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the portfolio’s second Heritage Stock (big profits and big potential) so I’m committed to holding as long as the prospects are good—though I did draw a line in the sand at 141 in recent weeks as the stock and market were really soft. But now the market is strong again (up 6.6% off its bottom) and TSLA is even stronger (up 24.8% off its bottom). The media continue to give Tesla a lot of attention—mostly negative—but more important will be the company’s annual shareholder meeting, which kicks off this afternoon. HOLD.
The Trade Desk (TTD), originally recommended by Mike Cintolo in Cabot Growth Investor, was the portfolio’s top performer a week ago and it hit new highs on the following four days until finally pulling back today. Clearly, more and more investors are discovering this global technology platform for buyers of advertising. HOLD.
Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, hit new highs Friday and Monday and pulled back normally today. Last week Mike wrote, “TWLO has been all over the map in recent weeks (142 to 123 to 145 to 124 and now back into the upper 130s, all in the past month!), but taking a step back, there’s little question the stock remains resilient—it’s been etching higher lows in recent weeks despite the market and a good-sized share offering. There’s been nothing much new from the company, but the overall story, the numbers released in Q1’s report a few weeks back and the chart’s resiliency continue to tell us that this remains one of the leading stocks out there today. Obviously, if the market has another big leg lower, TWLO could easily go along for the ride, but having already sold one-third of our initial position, we’re continuing to give our remaining position plenty of leeway. Until proven otherwise, we see TWLO as an institutional favorite that should do well whenever this correction finishes up.” HOLD.
Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, jumped back above all its moving averages a week go and is now setting up to break out above its old high of 55. In today’s update Crista wrote, “VOYA is a retirement, investment and insurance company serving millions of individuals and 49,000 institutional customers in the United States. Voya has $547 billion in total assets under management and administration. VOYA is an undervalued aggressive growth stock. Analysts expect full-year EPS to grow 36.6% and 14.3% in 2019 and 2020, and the current P/E is 9.8. The company intends to increase the dividend yield to about 1% in the third quarter. There’s a decent chance that VOYA could promptly surpass its April all-time high of 55 and begin a new run-up. Buy VOYA now.” BUY.
Zoom Video Communications (ZM), originally recommended by Mike Cintolo in Cabot Top Ten Trader and featured here two weeks ago, rocketed higher on big volume last Friday after releasing an excellent first quarter report. Revenue was $122 million, up 103% from the year before, and management projected second quarter revenues of about $130 million, while analysts had been forecasting $123 million. Today the stock pulled back a bit, but technical analysis says it should hold above 92. Short-term traders could take a quick profit here, but long-term investors can still buy shares of what may be the best videoconferencing provider in the world. BUY.
THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED June 18, 2019
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