Cabot’s “Almost Perfect Stock”

What's Cabot Growth Investor hinting at as the "the perfect stock in these times of social distancing, working from home, telemedicine, and remote learning?"

By Travis Johnson, Stock Gumshoe, October 21, 2020


Today I thought I’d take a quick look at the “you must add it to your holdings now” pitch from Cabot Growth Investor ($497/yr) — the ad is worded quite similarly to past ads saying that they expect a “double in the next 12 months” from these folks, some of which have worked out well (including Teladoc (TDOC), which was a big teaser push from them in the months before the pandemic hit the US, a solid growth stock tied to some very fortunate timing, and before that, Five Below (FIVE) in 2017, which also presaged a strong run).

So will this next one be a big winner? Let’s see if we can ID it for you, then you can make your own judgement… without the pressure of $497 weighing on one side of your mental scales. Here’s how Mike Cintolo gets us revved up about this secret stock:

“We all know there are no perfect stocks—especially now with the Covid-19 crisis turning Wall Street and our lives upside down.

“But if there was one that was almost perfect, this is it.”

And since one of the thing most of the Cabot newsletters look for is strong past performance, it’s no surprise that this stock has already done well in 2020… some clues:

“128% gains year to date — all thanks to 47% revenue growth.”

OK, so it’s some kind of “pandemic winner” we’re dealing with here, no doubt — probably a technology stock benefitting from work/play from home trends. What else?

“… the only flaw I can see in this stock is that few investors know about it. Yet, it is making money hand over fist behind the scenes and it has been for years.”

OK, so it’s not a brand-new startup, and it’s “making money” — maybe that means it’s profitable? Let’s see what else Cintolo drops in the way of hints…

“It’s the perfect stock in these times of social distancing, working from home, telemedicine, and remote learning. That’s because it provides the technology and software to to keep your company’s internet infrastructure up and running.”

OK, so there you go — some kind of web infrastructure or networking technology stock. This is what the ad says they do:

“… ensuring the reliability of company websites, APIs, and applications… and protecting internal resources such as behind-the-firewall applications, teams, and devices.”

What else?

“Shares are up more than 111% from the company’s $15 IPO price”

And…

“With companies shifting operations online, this can only spell even greater profits as demand for its 5G edge-computing services continues to grow.”

And Mike Cintolo’s projection:

“If you can get in at today’s low prices, you could easily see your money jump another 40% after they announce next quarter’s earnings and then double again over the next two years.

“Hold longer term—five to 10 years—and you could easily see a $10,000 investment grow well into $100,000.”

The ad includes a chart of the institutional holders of the stock, but that doesn’t turn out to be terribly helpful — mostly because they apparently used the wrong image, what they included were the top institutional holders of Teladoc from late 2019, not the current holdings in whatever this new “secret” company might be. We’ll be charitable and assume it’s an editing error, not an effort to throw your friendly neighborhood Gumshoe off the scent.

So who might this be, dear friends? Well, thankfully Cabit includes a chart in the pitch, so we can use that for our confirmation — and after tossing the rest of the clues into the Thinkolator’s hopper and setting it to “pulse” for a few minutes, the answer that came out was easily confirmed… this is our old friend Cloudflare (NET).

The chart they use when pitching those 128% gains ends in August, sadly, so it fails to account for the fact that the stock had another strong run after that — perhaps that means Cabot Growth Investor recommended this stock in late August or September and they’re just turning that slightly dated newsletter recommendation into an ad pitch, that kind of thing is fairly common… but either way, yes, this is the edge computing and cybersecurity stock Cloudflare. And yes, I’ve covered it a few times — and after digging into it when I was working on solving a RiskHedge teaser back in May, I started buying it myself.

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