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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 256

The broad market remains in fine health, with all major indexes trending higher and sentiment measures still bullish. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit your investment needs.

Today’s recommendation is a leader in its field, with great long-term growth prospects—as well as dependable recurring revenue—as the U.S. transitions away from fossil fuels to renewable energy sources.

As for the current portfolio, most of our stocks are doing great, but we’ve got to sell one, and it’s a tough choice. Details inside.

Cabot Stock of the Week 256

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Clear

Diversification is a key tenet of successful investing, so you’ll excuse me if I occasionally repeat myself; new readers need to hear these words. Cabot Stock of the Week is your guide to a portfolio that’s diversified not just because it owns 20 stocks (when the portfolio is full) but also because those stocks are chosen using a variety of investment strategies—and thus will provide more stable performance both when the market is rising and when it is falling. Additionally—and this is a factor often overlooked by investors—it also diversifies by time; buying one stock every week minimizes the effects of the market’s swings, while enabling us to benefit from the market’s long-term uptrend. Today, with the market rising, most of our stocks are doing well, so it’s time to add another strong growth stock to the mix. The stock was originally recommended by Mike Cintolo in Cabot Top Ten Trader, but since Mike was flying back from vacation when I selected the stock, the words below are my own.
Sunrun Inc. (RUN)

Solar power stocks were hot stuff 10 years ago, with king-of-the-industry First Solar (FSLR) zooming 1,119% from its 2006 IPO to its peak in 2008. Cabot Growth Investor subscribers did very well with that one, but our advisories have mostly avoided the sector since, as it’s been in a long phase of consolidation from those boom times, hurt first by lower-priced solar panels made in China and most recently by major policy changes by both the U.S. and Chinese governments (the world’s two biggest solar markets) that sharply reduced demand for solar panels last year. That led to widespread selling in the sector last year, which created a major bottom, and now the sector is once again trending higher, with the best stocks hitting new highs.

But Sunrun is not a solar panel maker. Instead, it’s the leading residential solar installer in the U.S., offering rooftop solar systems in 23 states and Puerto Rico. (Number two in the industry is SolarCity, which is owned by Tesla.)

And customers don’t buy solar panels from Sunrun; they simply pay a minimal start-up fee and then enter into long-term (20-plus years) contracts with Sunrun that cut their monthly electric bills by 10% to 40%. This makes the system affordable to the customers, provides a long-term stream of income to Sunrun, and recently has allowed Sunrun to securitize groups of these contracts, given that experience has shown the customer default rate to be just 1% over time.

With more and more industries working to get regular monthly payments from their customers, this arrangement, dubbed solar-as-a-service, is being increasingly well received by consumers.

At the end of the first quarter, Sunrun had 242,000 customers—who also get a stable backup system via the firm’s Brightbox battery storage systems. All told, the company’s current installed base should throw off a net present value of $1.43 billion over the long term.

Meanwhile, back in the industry, the news is getting better. First, all new houses built in California this year will have solar panels—a mandate that will eventually spread to other sunny states. And second, industry groups are expecting higher rates of installation going forward, with one projecting that solar installations overall will jump 25% in the U.S. this year. At Sunrun, management is looking for 17% more installations than last year.

But that projection may soon be updated, as second-quarter earnings will be released after the market close on Wednesday, August 7. And, of course, there’s one major wild card. The political forces that crimped demand in the sector last year are likely—some day—to give way to forces that want to encourage clean solar power through subsidies or tax credits—but there’s no telling when that might be.

As for the stock, RUN came public at 14 in late 2015 and bottomed at 4 in both 2016 and 2017, but it’s been trending up since, hitting new highs for three straight weeks on huge volume before pulling back slightly over the past two weeks. Conclusion: The buyers are totally in charge here, and this pause in the uptrend is an opportunity for more growth-oriented buyers to get on board.

sow256-run

Sunrun Inc. (RUN)
595 Market Street
29th Floor
San Francisco, CA 94105
415-580-6900
http://www.sunrun.com

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CURRENT RECOMMENDATIONS

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The addition of RUN brings the portfolio to 21 stocks, so once again, it’s time to find something to sell. And today it’s difficult, as none of our holdings truly merit a sell signal—most are doing great! But rules are rules, even if I did write them myself, so after thorough consideration, my choice is The Trade Desk (TTD), which hit a new high in June, corrected normally, but has been unable to equal that high since—telling me it’s ripe for a renewed correction. If you have the stock in your portfolio, you may well choose to hold, and that could be fine too. Details below.

Apple (AAPL), originally recommended by Crista Huff for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, remains above all its moving averages, climbing steadily higher. In her update today, Crista wrote, “AAPL is a great stock for a high quality, buy-and-hold equity portfolio. I like the AAPL price chart. A well-received earnings report could easily push AAPL past short-term price resistance at 210 and back toward 230, where the stock last traded in October 2018.” HOLD.

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson for Cabot Dividend Investor, closed at a record high last Wednesday (definitely out of trend) before turning down on Thursday and then plunging on big volume on Friday to tag its 50-day moving average and rocket back upwards. In short, there was a quick selloff, but the stock is back in its normal upward trend. In Tom’s latest update, he wrote, “The company’s asset rotation strategy is coming to fruition and earnings growth has resumed this year. It also pays a 4.58% yield with a dividend that has grown for 12 straight years.” BUY.

CIT Group (CIT), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Growth Portfolio, has pulled back normally over the past week to reconnect with both its 25- and 50-day moving averages, and is a good buy here. In today’s update, Crista wrote, “CIT is expected to report EPS of $1.13, within a range of $1.10-$1.17, on the morning of July 23. CIT is an undervalued growth stock with an attractive dividend yield. Wall Street expects EPS to increase 19.6% and 13.5% in 2019 and 2020. The P/E is 10.7. The stock appears capable of surpassing 54-55, where it traded repeatedly in 2018.” BUY.

Delta Air Lines (DAL), originally recommended by Crista Huff for the Growth Portfolio of Cabot Undervalued Stocks Advisor, continues to hit new highs, though volume on the advance has been tapering off, a sign that a pullback is likely. The stock was a candidate for sale today, given that we’ve accumulated a fairly quick 9% profit (which for an old airline is good) and the chart is rather extended, short term, and the news is good—but a look at the chart convinced me to hold on; DAL hasn’t had a great run higher in over four years, so maybe it’s time! In today’s update, Crista wrote, “Delta is the only major airline that is not experiencing costly problems associated with the grounding of BA MAX 737 jets and associated flight cancellations. Refer to my July 11 Special Bulletin to review Delta’s strong second-quarter results and management’s expectation for continued revenue strength and profitability throughout 2019. The 15% dividend increase brings the current yield up to 2.6%. Full year earnings estimates have been climbing since early March, rising again last week, although not yet reflecting analysts’ revisions subsequent to the second quarter earnings report. Delta is now expected to achieve 23.5% and 5.2% EPS growth in 2019 and 2020, and the P/E is 8.8. I’m moving DAL from Buy to a Hold recommendation in light of the slow 2020 EPS growth rate.” I’ll follow suit. HOLD.

Everbridge (EVBG), originally recommended by Tyler Laundon in Cabot Small-Cap Confidential, advanced for 11 consecutive days before turning down slightly yesterday, but it remains well up and out of trend and is thus a candidate for profit-taking by traders. But I’m sticking with it. In his latest update, Tyler wrote, “Everbridge sells cloud-based software that provides fast, automated communications services during life threatening situations and mission-critical business events. Think hurricanes, active shooter and terrorist attacks. It’s growing in the U.S., but a lot of the recent excitement surrounds international growth. Everbridge is one of the few players out there that can send messages directly to mobile devices in over 200 countries. That’s not an easy thing to compete with. It’s a hot stock (up 13% over the past two weeks) that just broke out to new highs.” HOLD.

Exact Sciences (EXAS), originally recommended by Mike Cintolo in Cabot Growth Investor, hit another new high last Wednesday and has since pulled back to its 25-day moving average, but is looking just fine. The company’s revolutionary, non-invasive Cologuard test for colorectal cancer (which is the second leading cause of cancer death in the U.S.) is making great inroads into the market. 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 so large that I’ve resolved to sit through normal technical sell signals. Long term, China’s largest hotel operator will only get bigger. The stock had a great June, and has corrected over the past two weeks. HOLD.

Luckin Coffee (LK), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, was up big yesterday and pulled back a bit today, and while we do have a pattern of rising lows, we can’t say the stock is truly in an uptrend until we see it break out above 22—and stay there. In his latest update, Carl wrote, “LK is challenging Starbucks’ dominance of China’s coffee market with a leaner and faster strategy. It aims to attract the average millennial as opposed to Starbucks’ more-affluent upper middle class—with cheaper prices, heavy promotions, quick delivery, and mobile ordering. If you have not yet invested in Luckin, which is an aggressive idea that won’t be posting profits for some time, I encourage you to do so starting small up to a half position with a 20% trailing stop loss in place.” BUY.

MakeMyTrip (MMYT), originally recommended by Carl Delfeld in Cabot Emerging Markets Investor, and featured here last week, hit its highest level in two months yesterday and held up well today. MakeMyTrip is an India-based travel company that provides the portfolio with great diversification as well as good long-term growth potential. BUY.

Match Group (MTCH), originally recommended by Mike Cintolo in Cabot Top Ten Trader, had a big spike higher in May and has been consolidating that gain since, and now appears ripe to break out to new highs. If you haven’t bought yet, you could buy a piece of the world’s leading matchmaking service here. Otherwise, hold. HOLD.

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, hit a new high last Wednesday and has pulled back minimally since. In his update last week, Tom wrote, “You can’t argue with results. This stock has been beating the market and the utility index consistently for the past several years. It’s the country’s largest utility, offering stability and growth in its alternative energy business. The combination is delectable for today’s investor. Sure, valuations are getting stretched but offering safe growth in an uncertain market with falling interest rates deserves a premium. It’s a hold here because of the high price, despite the momentum.” HOLD.

Planet Fitness (PLNT), originally recommended by Mike Cintolo in both Cabot Growth Investor and Cabot Top Ten Trader, looks good, though not great. In his last update, Mike wrote, “PLNT snapped back from 70 to 77 after its huge late-June selling wave, which was good to see, though it’s since stalled out just under resistance. Still, the bottom line is that the intermediate-term trend is basically sideways, though the longer-term trend (of the stock, and of course the business) remains solidly up. We sold half during the pullback, and are content to give our remaining smaller position (a bit more than 5% of the portfolio) room to breathe.” Since then the stock has climbed back above both its 25- and 50-day moving averages and is now aiming for its old high of 82. HOLD.

Snap (SNAP), originally recommended by Mike Cintolo in Cabot Top Ten Trader, hit another new high Friday and has pulled back normally since. Technically, everything looks great here. BUY.

STAG Industrial (STAG), originally recommended by Cabot Dividend Investor for the High Yield Tier, has been riding its 25-day moving average higher for the past three weeks, heading for its June high of 31.5. In his latest update, Tom wrote, “This industrial REIT continues to look strong. It broke out to new highs in June and after pulling back slightly it’s been slowly inching back to those June highs. STAG is a high dividend payer with a great niche in a strong REIT sector. Industrial REITs enjoy a high demand that outstrips current supply. The sector seems to be benefitting from the proliferation of e-commerce as much retail space is moving into warehouses. The market loves this monthly dividend payer right now and it still has good momentum.” 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. The stock bottomed with the market at the end of May, and has been recovering lost ground rapidly since, heading back toward its 2017 high of 386. Fundamentally, all trends are good, and the company remains far ahead of all competitors in the marketplace, though of course analysts continue to criticize the company for its lack of profitability. By the time they’re singing its praises, the stock will be much higher. HOLD.

The Trade Desk (TTD), originally recommended by Mike Cintolo in Cabot Growth Investor, continues to ride its 25-day moving average higher, working its way back to last month’s high of 258, but as mentioned above, volume is fading. Plus, as I mentioned last week, Mike no longer has the stock in his portfolio, so I no longer have a guide to follow. You, of course, may choose to hold, but I’m happy taking our sizeable profit here. SELL.

Twilio (TWLO), originally recommended by Mike Cintolo in Cabot Growth Investor, remains above all its moving averages, primed to break out to new highs. In his update last week, Mike wrote, “Twilio held support last week and rallied back toward its highs near 150. It’s not super-strong, and a drop back through 135-ish would probably have us going to Hold. But the chart has been trending up, selling pressure has been light throughout TWLO’s three-month choppy period and we continue to see this name as one of the top growth leaders in the market. Fundamentally, the company is beginning to integrate and expand on its email capabilities (thanks to its acquisition of SendGrid), adding automation and testing features to boost content control and deliverability.” BUY.

Valero (VLO), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Dividend Growth Tier, and featured here two weeks ago, has a fat 4.4% yield and good growth prospects as demand for refining booms. In his update last week, Tom wrote, “In my view, this is the best refiner in the country. The longer trend is still strong for American refiners with the advantage of cheaper crude oil feedstock. And Valero has moved down and is cheap because of temporary factors. Things are turning around and it should also get a boost from the new fuel standards required by the International Maritime Organization (IMO) starting in 2020. I see this as a stock that recently had a down leg in an uptrend. The big rebound in earnings will likely occur in 2020, but the market looks ahead. Meanwhile, analysts are expecting stronger second-quarter earnings, to be reported on July 25.” BUY.

Voya Financial (VOYA), originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor for her Growth Portfolio, looks beautiful, hitting new highs with great frequency. In today’s update, Crista wrote, “Voya Financial 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. CEO Rodney O. Martin, Jr. recently stated, “We intend to increase our common stock dividend to a yield of at least 1% and we expect to do so beginning in the third quarter of 2019.” Investors should expect that announcement during the last week of July, at which time the share price could easily jump as institutional investors who focus on dividend stocks will have yet another good reason to buy VOYA. VOYA is an undervalued growth stock. Analysts expect full-year EPS to grow 35.9% and 14.6% in 2019 and 2020, and the current P/E is 10.4. VOYA recently began reaching new all-time highs after running up against price resistance at 55 repeatedly for 18 months.” BUY.

Zillow (Z), originally recommended in Cabot Growth Investor by Mike Cintolo, hit a record high last Wednesday and has pulled back normally since. In his update last week, Mike wrote, “Zillow was on a hot streak in recent days but hit a good-sized pothole today due to competitive worries; Redfin said it teamed up with Opendoor (which also offers to buy homes from consumers) to allow users to get an offer for their residence through Redfin’s site and apps. This sort of thing wasn’t unexpected; long term, there’s room for more than one player in the home-buying market, and the key to success will be scale and execution, where Zillow has a leg up. Back to the stock, Z had just surged from 43 to 51 over 10 days, so today’s retreat wasn’t abnormal. (Z remains a couple of points above its 25-day line, in fact.) We actually think the dip could be providing a decent entry point—if you don’t own any, you could buy a half-sized position here. For our part, if Z stabilizes soon, we could average up, but tonight we’ll simply hold onto what we have.” BUY.

THE NEXT CABOT STOCK OF THE WEEK WILL BE PUBLISHED July 23, 2019

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