September 7, 2021

The bull market remains intact, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is one of my favorite kinds of stocks—a small company that’s not well known but that’s growing fast by making a big difference in a global marketplace.

As for the current portfolio, most of our stocks look good, and many are hitting new highs, but I have two sells, Five Below (FIVE) and Molson Coors (TAP).

Details inside.

Cabot Stock of the Week 364

The long bull market continues, and thus I continue to recommend that you be heavily invested in a portfolio that meets your investment needs. Today’s recommendation is one of my favorite kinds of stocks—a small company that’s not well known but that’s growing fast by making a big difference in a global marketplace. The stock was originally recommended by Tyler Laundon in Cabot Early Opportunities, and here are Tyler’s latest thoughts.

Global-E Online (GLBE)
Global-E Online is a big idea company that has developed a cross-border e-commerce platform empowering businesses to sell to consumers all over the world. Cross-border commerce represents a meaningful market opportunity worth nearly $800 billion today—but that number would be significantly higher if the process wasn’t such a pain in the neck!

The company is on a mission to help businesses sell online in international markets, and to provide a consumer shopping experience that mirrors what people are used to seeing when buying online in their home markets.

This is no small task given the complexities of international sales, which span taxes, duties, delivery, exchange rates, language barriers, local country website variations and more.

Consider what happens if somebody in the U.S. wants to buy a pair of shoes from an Italian company. How do you know if the sizing is accurate? What are the shipping charges? Taxes? When will it arrive? How can you be sure the website is accurately translated and you’re buying the color and material you want? What about reviews? There are so many hurdles to making this a seamless experience.

This is where Global-E comes in. The platform covers the big three categories, tying localized web, payments and fulfillment together into one cohesive package.

Businesses on the Global-E platform give consumers a shopping experience they understand and all-in, to-the-front-door product and delivery prices. This translates into a massive improvement in the customer experience and can drive meaningful sales growth for Global-E customers, some of which report a 60% bump in transactions once on the platform.

In terms of customers, Global-E skews toward more established brands. Many of the over 400 current customers sell luxury, makeup and clothing, and include brands such as Marks & Spencer, Hugo Boss, Cartier, Marc Jacobs, Forever 21, and Versace.

Once customers see how well the platform works, some even hand over domestic operations. This has helped Global-E’s revenue retention rate soar to 140% and drive average cohort growth of 3x. In short, customers spend more money once on the platform because consumers spend more with them.

There are other players in the space, notably Adyen, PayPal (PYPL), BigCommerce (BIGC) and Shopify (SHOP). Shopify likely poses the bigger risk, but so far caters to smaller sellers, while the bigger ones go with Global-E.

Regarding Shopify, before it came public in May Global-E landed a three-year partnership with Shopify that includes a revenue share agreement. This program could drive significant growth in 2023 and beyond once it’s up and running, and/or could pave the way for a more formal tie up of these two companies. As part of the deal SHOP has warrants to buy up to 19.6 million shares of GLBE.

For now, Global-E offers huge growth as an independent company. If we fast forward 5 to 10 years, we may easily see a global e-commerce market that has grown faster than expected simply because this company has reduced pain points.

Revenue is very seasonal but jumped 107% to $136.4 million in 2020 and could be up 70% (to $230 million) in 2021 then growing another 60% (or more) in 2022. Global-E is not profitable and is expected to deliver adjusted EPS of around -$0.55 this year.

The stock came public at 25 on May 12 and closed just 2% above the IPO price. It’s been going up since. The first phase of the rally continued right through the first earnings report (June 3) when GLBE was trading near 35. Shares kept marching higher until they topped out at 64.5 on June 29. A 21% drawdown took some of the shine off the stock, then shares bounced around between 51 and 70 though the end of July. GLBE then rallied to 75 before a two-day, 10-point decline around August 10. Shares recovered quicky, and since the Q2 earnings report (August 16) have traded as high as 83.77. Growth-oriented investors should aim to buy on corrections.

Current Recommendations

The portfolio has seen many stocks hitting new highs in recent days (which is great), but I do have two sells this week. Molson Coors continues to sink, I think it’s best to take profits now, and Five Below is under pressure after a decent (but not excellent) quarterly report. Details below.

Changes
Five Below (FIVE) to Sell
Molson Coors Beverage (TAP) to Sell

ASML Holding (ASML), originally recommended by Mike Cintolo in Cabot Growth Investor, is a Dutch manufacturer of high-end photolithography machines in high demand by semiconductor manufacturers—which, as we all know, are working as quickly as possible to fulfill the world’s demand for chips. The stock has been hot and is therefore likely to have a correction some time, so profit-taking is a possibility here, but I’m going to leave it rated buy because strength often persists longer than expected. BUY

Broadcom (AVGO), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, has pulled back minimally from the new high it hit last week, so is a good buy here. In his latest update, Tom wrote, “This is a cheap technology stock with a solid dividend and great prospects. About 90% of internet traffic uses its systems and the company will also benefit disproportionately in the near term from 5G. AVGO has been sort of floundering along with the rest of the technology sector since February. But technology is where all the growth is beyond the pandemic recovery. And the market never sours on the sector for very long. The stock also just made a new all-time high and could be on the verge of a breakout.” BUY

Brookfield Infrastructure Partners (BIP), originally recommended by Tom Hutchinson in Cabot Dividend Investor for his Dividend Growth Tier, hit another new high last Friday and is off a bit today. In his update last week, Tom wrote, “This infrastructure partnership is another dividend all-star that is slowly slogging to a new all-time high. But the ascent is slow and choppy. BIP is only up 3% since the middle of April. It is completing the Inter Pipeline merger this quarter and earnings will get an immediate boost. Hopefully, this stock can get a move on as infrastructure gets more headlines with the bill Congress likely to pass.” HOLD

ChargePoint (CHPT), originally recommended by Carl Delfeld in Cabot Explorer and featured here last week, gapped up after releasing a great quarterly report last week. Revenue was $56.1 million, up 61% from the year before, with growth coming from commercial, fleet and residential sectors. Even better, the company raised full-year guidance 15% to $225-$235 million. If you haven’t bought yet, you can buy here, as this is one company that is guaranteed to grow as more and more electric vehicle owners demand places to charge. BUY

Cisco Systems (CSCO), originally recommended by Bruce Kaser in the Growth/Income Portfolio of Cabot Undervalued Stocks Advisor, is holding up right near its recent highs. In his latest update, Bruce wrote, “The shares trade at 17.1x estimated FY2022 earnings of $3.43 (up two cents in the past week). On FY2023 earnings (which ends in July 2023) of $3.67, the shares trade at 16.0x. On an EV/EBITDA basis on FY2022 estimates, the shares trade at a 12.2x multiple. CSCO shares offer a 2.5% dividend yield. We continue to like Cisco.” BUY

Dexcom (DXCM), originally recommended by Mike Cintolo in Cabot Growth Investor, is a leading maker of diabetes monitoring and controlling tools and the stock is strong, trading very close to its record high of last week. In his update last week, Mike wrote, “DXCM has popped to new highs this week, though we’re still thinking some modest weakness is possible—and if it comes, buyable.” BUY

DocuSign (DOCU), originally recommended by Mike Cintolo in Cabot Growth Investor, hit a record high four weeks ago, then pulled back to its 50-day moving average on low volume, and is now close to the old high again. In his update last week, Mike wrote, “DOCU hasn’t done much of anything since early July, dragged down in part by some sour stock performance from other former pandemic winners (Peloton, Zoom, etc.). Obviously, we think DocuSign is in a different class—that’s why it blasted off three months ago—but to be fair, the big test will be tonight, when the firm reports earnings—analysts see sales up 42% with earnings of 40 cents per share.” In fact, the firm beat expectations easily, with revenues up 50% and earnings of 47 cents per share. BUY

Five Below (FIVE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then in Cabot Growth Investor, is a different story. In his update last week, Mike wrote, “FIVE was looking as pretty as could be two weeks ago, but a sour earnings report from Dollar General (which talked about rising shipping costs) caused the initial wave of selling, and Five Bellow’s own report last night confirmed that margins will likely be crimped during the next couple of quarters. While the numbers looked fine overall (sales up 52%, earnings up 128%), the sellers hit the stock hard again today because of the cost issue. Fundamentally, we don’t think much has really changed—the major cookie-cutter story is certainly intact, and even on the cost side, management said gross margins could be cut by ‘tens of basis points’ (meaning, say, 0.5%) which is hardly a disaster. Meanwhile, the Q3 guide implied 20% same-store sales growth from 2019 (a better comparison due to last year’s store closures), which was far larger than expectations, so the core business looks healthy. All that said, the fact that the stock has shown so much weakness of late is definitely abnormal—FIVE is actually back near its long-term 200-day line (near 188)! Put it all together and we’re going to hold on tonight, but if this is just a temporary dump, we’d expect FIVE to bounce in the very near future (next couple of days) as there ‘should’ be a good amount of support around here. If not, we’ll move on.” Well, the stock hasn’t bounced yet, and this is our biggest loser (though the loss is still small), so out it goes. SELL

Floor & Décor (FND), originally recommended in Cabot Growth Investor by Mike Cintolo, hit a record high five weeks ago as quarterly results were released, pulled back to its 50-day moving average three weeks ago, and is now heading higher again. In his update last week, Mike wrote, “FND has done a great job of regaining ground of late following the sharp post-earnings pullback to its 50-day line last week. Like many stocks that are up and down, there hasn’t been any real news to drive it, so further volatility is certainly possible. But big picture, we still see the stock as trying to emerge from a seven-month period of no progress, which should lead to good things. Same advice as most of our other stocks: We’re on Buy but new buyers should aim for dips of a couple of points.” BUY

General Motors (GM), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, hit a record high back in early June, but it’s been on a correction since then. In his latest update, Bruce wrote, “We’re keeping GM a Hold for now, as the risk/return balance isn’t as favorable as we would like for the Cabot Undervalued Stocks Advisory. More evidence points to manufacturing defects at LG Chem, the maker of GM’s EV batteries, as the problem behind the recent battery fires. Korean maker Hyundai, which also uses LG Chem batteries, has recently reported battery fires. GM is in a rush to build its own batteries, with what we believe is a goal of dropping LG Chem as a supplier. However, it appears that not all LG Chem batteries are defective, as customers Ford and Volkswagen apparently haven’t had problems. GM’s Bolt recall price tag is now upwards of $1.8 billion. The semiconductor shortage shows few signs of relenting, although we continue to expect that it will be resolved by early 2022. GM shares have 40% upside to our 69 price target.” HOLD

HubSpot (HUBS), originally recommended by Tyler Laundon in Cabot Early Opportunities and then by Mike Cintolo in Cabot Top Ten Trader, hit a record high last week and is off minimally since. I’m keeping it rated hold, thinking a deeper correction is likely. HOLD

Marvell Technology (MRVL), originally recommended by Carl Delfeld in Cabot Explorer, has now pulled back normally from the highs it hit after reporting a great second-quarter report. If you haven’t bought yet and you want to ride the semiconductor growth wave, you can buy here. BUY

Molson Coors Beverage (TAP), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, keeps slipping, and our profit keeps shrinking. Bruce is keeping his price target of 69; he still thinks the stock is cheap. And long term, he’s probably right. But this portfolio can’t always afford to be patient, and I hate seeing our profit shrink, so I’m going to sell here and move on. SELL

NextEra Energy (NEE), originally recommended by Tom Hutchinson of Cabot Dividend Investor for his Safe Income Tier, came very close to equaling its old January high of 88 last week ago, and has pulled back normally since. In his latest update, Tom wrote, “After months of subpar performance, this stock has gotten hot. It’s up 15% since the beginning of July. This normally upward trending juggernaut was having a bad year until recently. It got dissed in the euphoria of the cyclical stock rally and limped along for months. NEE is a highly desirable way for conservative investors to play growth in alternative energy. It wasn’t going to stay down for long. It appears to be reawakening. But we’ll see what a cranky post Labor Day market will do to this uptrend.” BUY

Nvidia (NVDA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, hit a record high last week and is off minimally since. And the stock appeared in Cabot Top Ten Trader again last week, where Mike wrote, “Videogaming is one of the biggest mass markets today, with the number of PC gamers expected to increase from around 1.75 billion in 2020 to nearly 1.86 billion by 2024 (nearly a quarter of the world’s population!). As one of the world’s largest semiconductor companies, Nvidia enjoys a powerful position in this white-hot market, along with an ever-increasing presence in data centers. The fiscal Q2 report showed the extent of Nvidia’s videogame industry dominance, with total revenue rocketing 68% from a year ago, to $6.5 billion, while earnings per share nearly doubled, to $1.04. The superb results were driven by an 85% increase in gaming revenue, which hit a record $3.1 billion, accounting for 47% of the company’s total sales thanks to “exceptionally strong” demand for its Ampere graphics processing units (GPUs) outpacing supply. Encouragingly, Nvidia said that just 20% of its installed base has upgraded to a new Ampere RTX series GPU, paving the way for what management called its ‘biggest ever refresh cycle’ as 80% of clients will need to upgrade in the quarters to come. On the data center front, revenue of $2.4 billion grew 35% from a year ago and 16% sequentially, driven by record sales to hyperscale customers and vertical industries (especially financial services, supercomputing and telecom). What’s more, networking products posted solid results, thanks to upgrades to high-speed products such as ConnectX-6 and new customer wins across cloud, enterprise and high-performance computing. Going forward, Nvidia forecasts $6.8 billion in revenue for Q3 (up 44%), driven largely by accelerating data center demand, a growth rate that will likely prove conservative.

NVDA was one of the first names out of the gate after the May growth stock low, and it enjoyed a huge-volume advance to as high as 208 in early July before pulling back. Since then, shares have tested their 50-day line twice (even shook a bit below it two weeks ago), but now the uptrend is resuming—NVDA has galloped to new highs on solid volume following the quarterly report.” I’ll leave it on hold, expecting some kind of pullback. HOLD

Sea, Ltd. (SE), originally recommended by Mike Cintolo in Cabot Top Ten Trader, and then Carl Delfeld in Cabot Explorer, keeps on hitting new highs, and Carl continues to rate the stock a Buy, while reminding investors with big profits that’s it’s prudent to take some profits from time to time. BUY

Sensata Technologies (ST), originally recommended by Bruce Kaser for the Buy Low Opportunities Portfolio of Cabot Undervalued Stocks Advisor, first topped 60 in early January, and since then has been building a base at that level, so technically, all is well here. In his update last week, Bruce wrote, “ST shares have about 26% upside to our 75 price target. The stock trades at 14.3x estimated 2022 earnings of $4.17 (unchanged this past week). On an EV/EBITDA basis, ST trades at 12.9x estimated 2022 EBITDA.” BUY

Spectrum Brands (SPB), originally recommended by Tom Hutchinson in Cabot Dividend Investor, is a good stock on a substantial correction, trading below all its major moving averages. In his update last week, Tom wrote, “This home essentials retailer has been slightly lower since being added to the portfolio last month as the Delta variant has hurt consumer confidence. But this is no ordinary retailer. Demand for home products is stronger with bad virus news. Plus, demand for home products is likely to remain strong after the pandemic stuff is long over. It’s still a good entry point for the stock if you don’t own it already.” BUY

Tesla (TSLA), originally recommended by Mike Cintolo in Cabot Top Ten Trader, continues to trend higher in concert with its 25-, 50- and 200-day moving averages, and I continue to think the company has even greater growth potential in the energy business than in the automotive. Analysts are looking for earnings per share of $5.00 this year and $7.02 in 2022. BUY

Trulieve (TCNNF), recommended by yours truly in Cabot Marijuana Investor, is one of the four leading cannabis companies in the U.S., and trends are terrific in the industry, with the average company in my portfolio growing revenues 135% over the past year. But this is a young industry, unsupported by institutional investors because of the federal prohibition, and the sector has been weak since topping in February. If you haven’t bought yet, this is probably a great entry point, but until we see real strength, there’s no rush, so I’ll leave it rated Hold. HOLD

The next Cabot Stock of the Week issue will be published on September 13, 2021.

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