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Stock of the Week
The Best Stock to Buy Now

Cabot Stock of the Week 284

The market has snapped back in a surprisingly strong fashion, but breadth has narrowed, so I’m still suspicious of this rebound. However, there are still plenty of great charts as well as stories to go along with them, and today’s recommendation is one of them. In fact, you may even be a user of the company’s products!

As for the current portfolio, there are no changes today.

Details in the issue.

Cabot Stock of the Week 284

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Our portfolio remains less than fully invested, as the market correction that began three weeks ago is likely not complete even though the rebound of the past week has been reassuring to many investors. Today’s recommended stock is a familiar name to most people, but it’s not a big name to investors yet, and that may change if management continues to pull the right levers. The stock was first recommended by Mike Cintolo in Cabot Growth Investor and here are Mike’s latest thoughts.

Yeti (YETI)
Our ideal growth stock candidate is one that sports a revolutionary new product that’s changing the way all of us live, work or enjoy entertainment. Looking back at our 50 years (yes, Cabot Growth Investor started back in 1970!), most of our biggest winners fit in this category.Yeti, though, does not—coolers, mugs and other drinkware don’t get the heart thumping, per se. But the bigger idea here is that Yeti has the makings of one of the next big consumer brands, something that often produces big, steady gains over time for earnings, sales and, of course, the stock price.
Starting at the top, Yeti has carved out a position as the top-of-the-line brand in the aforementioned products—the company’s drinkware (56% of revenue) and coolers (41%) will keep your drink ice cold (or piping hot) for hours at a time. Yes, a lot of these are used for beer, wine and other cocktails (I live in a sea town, and it’s hard to see a family without a couple of Yeti tumblers), but they work just as well for iced tea, coffee and more. And when it comes to the coolers, the firm’s mid- to large-sized offerings can keep things ice cold for many days.

Indeed, Yeti got its start with hunting and fishing enthusiasts, which is why the products work so well; they were built to last days on a hunting trip, for instance. But the company has branched out in a big way since, targeting all types of outdoor activity (beach, campfire, party, even at work) and thus aiming for the mass market. For example, just 9% of customers were female back in 2015, but today, one-third are. And the firm’s brand awareness has increased six-fold by one measure over that time.
The company’s growth drivers are numerous. First and foremost, it’s making hay in the direct-to-consumer channel (read: e-commerce)—in Q3, e-commerce sales rose 31% and represented 40% of total revenue (up from 36% a year ago). Second, it’s expanding internationally, which currently brings in just 4% of business—Japan, Canada, Australia and much of western Europe are open for business, both wholesale and (except for Japan) via e-commerce. Third, Yeti is even opening a few of its own retail stores (just five now, mostly for show/brand building).

Of course, being positioned at the top of the market, Yeti’s products fetch a premium price—a wine tumbler will cost you $25, a 20-ounce tumbler $30 and a mid-sized cooler that fits 21 beers will run $250. Because of that, there are knockoff products (especially for its drinkware), but those haven’t dented the firm’s business; frankly, having tried one or two knockoffs, I can testify that the $5 or $7 savings isn’t worth it.

Going forward, the plan is simple: Keep expanding, keep innovating (Yeti brought out 11 new products last year) and keep becoming more well known both in the U.S. and overseas. Longer-term, there’s no reason why the firm’s brand awareness can’t double or triple from here in the U.S. alone, with plenty more upside overseas.

As with most retail winners, the story isn’t going to produce lightning-fast growth, but that growth should be reliable and have a long runway, both of which should attract big investors. As of the end of September, 281 funds had taken a position, up from 151 just nine months before.

As for the stock, it came public in October 2018, and after a rough couple of months, surged to new highs through April 2019. But then began a long consolidation—10 months later, YETI is still within the confines of that range for the most part. But we think it may be ready to get going, as shares have etched many higher lows and are perched near all-time highs. Earnings are due out Thursday (February 13), and a positive reaction could kick off a new advance.

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Current Recommendations

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Today’s addition of Yeti (YETI) to the portfolio brings our count to 19 stocks, one short of my limit of 20, and given the state of the market, that feels a bit heavy. Yet after thorough analysis of all these stocks, I can’t find any that deserve to be sold—though some are close. So I’ll simply hold them all for now and take it on a stock-by-stock basis, listening to the messages of each one—and by next week the odds are very good that we’ll sell one or more.

Details below.

Alexandria Real Estate Equities (ARE), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Safe Income Tier, is strong, but pricey. In his update last week Tom wrote,The research lab and life science REIT announced solid earnings on Monday and the stock jumped to new all-time highs. Funds from operations grew 5.4% in 2019 over the previous year and revenues climbed 15.4% as the company grew its property portfolio. The relentless slog higher for this stock just got a nice bump. With everything going so well for the stock I’m tempted to take profits on part of the position. But the momentum is still great and the stock is a trooper in down markets. So I will continue to hold the whole position for now.” HOLD.

Axonics (AXNX), originally recommended by Tyler Laundon in Cabot Early Opportunities, and featured here two weeks ago, is up a bit from last week but still in a fine buying area. Axonics has a disruptive solution for patients who suffer from overactive bladder (OAB), Urinary Retention (UR) and Fecal Incontinence (FI). This is a market where Medtronic leads, but Axonics’ neurostimulator is better and cheaper so doctors are switching teams fast. Analysts see sales growing from $14 million in 2019 to $80 million in 2020 (up 470%). BUY.

Broadcom (AVGO), originally recommended by Crista Huff for the Growth & Income portfolio of Cabot Undervalued Stocks Advisor, and featured here last week, has been trading in a range between 300 and 325 since early November, building a base for its next advance, so buying here looks sensible. In Crista’s latest update, she wrote, “The California Institute of Technology won a $1.1 billion jury verdict in a patent infringement case against Apple and Broadcom last week, in which Broadcom was alleged to have appropriated CalTech’s technology in wi-fi chips used in iPhones. Broadcom’s liability is $270 million, and the company plans to appeal the verdict. Wall Street expects EPS to grow 9.1% and 9.9% in 2020 and 2021 (November year end). Management projects their 2020 revenue mix will consist of approximately 72% semiconductor solutions and 28% infrastructure software, totaling $25 billion. AVGO rose to a new all-time high in late November, but rather than immediately climbing, the stock has been trading between 300-325. No one has missed their opportunity to capitalize on the next run-up, which might require a slightly more bullish attitude in the broader market before it can really gather momentum. AVGO is a great choice for technology investors, dividend-growth investors, and large-cap growth investors.” BUY.

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his High-Yield Tier, hit another record high last Thursday and has pulled back minimally since, but it’s really still building a base between 54 and 55—and this morning’s release of Q4 results didn’t change that. For the quarter, funds from operations (FFO) were $358 million, up from $326 million last year. In his update last week, Tom advised that his readers take profits on a third of their holding before the report (to reduce risk), but if you’re still holding, you’ve dodged a potential bullet, so you can keep holding. HOLD.

Designer Brands Inc. (DBI), originally recommended by Crista Huff in Cabot Undervalued Stocks Advisor for her Buy Low Opportunities portfolio, is still a loser for us, and still not rising, but Crista remains patient, focused on the long term. In her update last week, she wrote, “Consensus earnings estimates project EPS falling 8.4% in fiscal 2019 (January 2020 year-end) and growing 19.7% in 2020. The 2020 P/E is low at 8.0. DBI is an undervalued, small-cap stock with a huge dividend yield. Dividend investors should buy now, to lock in the large current yield. Patient growth investors can buy now, while the stock is at the bottom of its trading range.” HOLD.

Disney (DIS), originally recommended by Mike Cintolo in Cabot Top Ten Trader, reported its quarterly results last Tuesday and the stock is basically unchanged from then, still in a positive technical pattern, and thus attractive for both traders and long-term investors. HOLD.

Endava (DAVA), originally recommended by Tyler Laundon in Cabot Early Opportunities, is a U.K.-based company that bridges the gap between consultants and traditional IT services companies, helping organizations succeed in an increasingly technological world. Revenue should be up around 26% this year. The stock has climbed higher over the past week and is very close to breaking out above its high of December into what would be record-high territory. HOLD.

Huazhu Group Limited (HTHT), originally recommended in Cabot Global Stocks Explorer, is one of the portfolio’s Heritage Stocks, meaning our profit is so great and the potential so large that I’ve resolved to hold the stock through normal technical sell signals. The stock suffered from the original = coronavirus-related selling wave, but it bottomed two weeks ago so the next move should be up. Long-term, its position as China’s leading hotel operator should bring big gains. HOLD.

Inphi (IPHI), originally recommended by Mike Cintolo in Cabot Growth Investor, rocketed to a new high last week on big volume and has calmed down since. In last week’s update, Mike wrote, “Inphi reported another fine quarter on Tuesday evening—while sales (up 19% from a year ago) and earnings (up 4%) didn’t wow, they both topped estimates. But more important were management’s comments that confirmed the demand environment for the company’s various high-speed wares should pick up meaningfully going forward; the fact that the accretive buyout of eSilicon closed in early January was also a plus. At this point, analysts see earnings now surging 40% this year and another 48% in 2021 as upgrade cycles and further telecom/data center buildouts accelerate. The stock was all over the place before (virus selloff) and after (up, down, then back up) the report, which isn’t ideal. We’re watching the action closely, but right now, shares remain in an overall uptrend (50-day line is near 76.5) so we’re fine staying on Buy.” BUY.

Luckin Coffee (LK), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, is not a stock for the faint of heart; after soaring from 20 to 50 in two months, it pulled back as deeply as 27.5 two weeks ago, thanks to both profit-taking and coronavirus fears. But that was probably the bottom, and now the stock is preparing for its next uptrend—though there’s little way of knowing how that will unfold. In his latest update, Carl wrote, “I have been recommending that you take some Luckin profits off the table but, in the wake of the sharp pullback, I would be a buyer of LK at 40 or lower.” HOLD.

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, hit another new high last Friday! In his update last week, report, Tom wrote, “The market is still uncertain. Therefore, defense is still popular. And utility stocks are basking in the glory. This regulated utility and alternative energy is the very best of a favored sector. And the stock’s performance is reflecting that reality. NEE has moved off the all-time high just a bit but I wouldn’t be surprised if it makes a new one before too long. The stock has gotten overpriced but the momentum is great, and the stock should do well if the market suffers another rough patch in the weeks ahead.” HOLD.

Qorvo (QRVO), originally recommended by Mike Cintolo in Cabot Top Ten Trader, spiked to a record high briefly last Thursday but has been trending lower since, so it’s time to get worried. In his latest update in Cabot Growth Investor, Mike wrote, “QRVO remains our weakest stock following its huge reversal and retreat after earnings last week. Fundamentally, we don’t think the 5G smartphone story has anywhere to go but up, and the stock’s overall advance is likely still in the early-ish stages, with the multi-year breakout occurring just four months ago. Thus, we’re willing to give the stock a chance, but we’ll just play it by the book—a close much below the 104-105 area would likely have us cutting bait, though above there, we’re happy to hold on, giving QRVO a chance to gather strength for a new upmove.” Thus, for the moment I’ll hold (because there’s support nearby as well as the potential for a rebound), but if Mike bails, I’ll likely join him. HOLD.

Ring Central (RNG), originally recommended by Mike Cintolo in Cabot Growth Investor, is one of the leading providers of Unified Communications Services, which integrate a variety of communications technologies using cloud-based services and thus enable both employees and customers to get what they need from enterprises large and small. The stock hit another new high last Tuesday and has pulled back minimally since. HOLD.

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, hit another new high last Wednesday and has lost little ground since. In Mike’s update in Cabot Growth Investor last week, he wrote, “Sea continues to act well, suffering only modest bouts of selling here and there, but holding near its high. There has been a bit of selling on strength this week, and with the 50-day line down near 40.5, some sort of shakeout is possible. But there’s no doubt the trend is strongly up and that any modest dip has brought in support. We’ll stay on Buy, though like many names, we’d prefer new buyers enter on a dip of a point or two. Earnings are due out March 4.” BUY.

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, is the portfolio’s second Heritage Stock (big profits and big potential) and it’s certainly been a hot one lately, propelled by fundamental developments, changes of investor sentiment and short covering. But I think last week’s blowoff high of 969 may stand for a while; technically, the stock needs a rest. Long-term, however, I remain optimistic, as the company not only leads the electric car revolution but is also making great strides in the energy business and beginning to compete in the automobile insurance business (in California). And short-term, today’s good news is that the company has restarted production at its China factory (following the coronavirus suspension) on the earliest day permitted by Chinese authorities. HOLD.

Trulieve (TCNNF), originally recommended by yours truly in Cabot Marijuana Investor, continues to consolidate between 10 and 11.5, trading roughly in sync with the sector, as it leaves the effects of the short-sellers’ attack in the rearview mirror. Aggressive investors can buy here. BUY.

Vertex Pharmaceuticals (VRTX), originally recommended by Mike Cintolo in Cabot Growth Investor, hit more record highs last Wednesday and Thursday before pulling back slightly. In last week’s update, Mike wrote, “Vertex reported a great Q4 last Thursday evening, with sales up 62%, earnings up 31% (both smashing estimates) and hiking guidance for 2020 as a whole. Suffice it to say that Vertex confirmed the next couple of years at least should be lucrative (earnings expected to rise 44% this year and 33% in 2021) as Trikafta sales boom, which should keep big investors interested. We’re OK buying some here or on any dips. BUY.

Virgin Galactic (SPCE), originally recommended by Carl Delfeld in Cabot Global Stocks Explorer, nearly tripled from late December through late January, and now it’s in a well-deserved consolidation phase, trading in a range between 17 and 19. The lack of selling pressure is impressive! In last week’s update, Carl wrote, “The company has reservations from over 600 people in 60 countries, accounting for $80 million in deposits and $120 million in potential revenue. The big payoff is down the road, with hypersonic point-to-point travel. While a business jet takes 11 hours to fly from Los Angeles to Tokyo, a hypersonic vehicle traveling at five times the speed of sound could make the same journey in just two hours. This is an aggressive idea that has made a strong move since being added to the Explorer portfolio but I believe there is more upside as the company is likely to remain in the media spotlight throughout 2020. The stock has a lot of momentum behind it and management is very media savvy.” BUY.


The next Cabot Stock of the Week issue will be published on February 18, 2020.

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