What’s Cabot’s May “Stock of the Month” in the Cloud Computing Sector?

Sleuthifying Cabot's new teased "Double your money guaranteed" pick

Like several other newsletter families, Cabot runs a relatively low-cost service that culls picks from all of their newsletters and picks a monthly favorite — the service is called the Cabot Stock of the Month Report, and they typically tease it with their “double your money guarantee.” (That guarantee is not terribly different from the guarantees of other publishers — in this case, they say that if you don’t have the opportunity to double your money with their picks in the next year you “won’t pay a dime.” Not that they’ll make up for the absence of doubling stocks, of course, just that they’ll refund you your newsletter subscription price.)

I haven’t looked at one of these teasers for a while, but after immersing myself in “value” stocks for a week or two I thought it was high time to take a look at something a bit “growthier” … the Cabot folks tend to focus on technicals and momentum growth stocks most of the time, so as I glance into my crystal ball I foresee that we’ll end up with a teased pick that’s a rapid grower and that looks pretty expensive. Sometimes that works out great, obviously, so even though I tend to be wary of growth valuations (I failed to buy Netflix when I was writing about it in the teens back in 2007, he reflects bitterly), I do like to give them a chance. And readers are asking, so it’s answers we’ll seek.

Here’s the come-on in the email from Timothy Lutts:

“Just look at our May Cabot Stock of the Month and you’ll see why I can make you this money-doubling guarantee.

“Like Amazon, this company is also riding the wave of profit growth but it’s in the fast growing cloud computing sector. So it’s no wonder analysts are forecasting Amazon-like earnings growth for this sector leader: 100% for next quarter and 600% earnings growth next year!

“With 12 months gains of 64%, we see this as the beginning of a huge new profit run as the company just received approval from the U.S. General Services Administration to contract federal, local, and state customers.”

And then, in the full ad letter that links to, we get a few more clues:

“Big name insiders at T. Rowe Price, Morgan Stanley, and Greylock LLLC Group—along with 17 other top institutional fund mangers—together—own shares worth more than $2.5 billion because they see what we do here: Another game-changing Amazon.com with a 1290% gain.

“It’s no wonder: The company’s Q1 revenue and billings crushed analyst’s expectations, led by 81% revenue growth and 96% renewals.

“And that’s just fundamentally. On the technical side the company boasts a terrific chart. The company came public in June of 2012 at 18, topped above 39 in September, bottomed at 26 in January, and returned to 38 in March, where it spent six weeks gathering strength before breaking out on big volume last month after an excellent earnings report.”

Amazon is another growth stock that I’ve missed, so we can break out the pity party now — though Amazon certainly hasn’t been climbing because they “crushed expectations” for earnings, it’s all been about revenue growth for them and I remain uncomfortable with the valuation Amazon stock carries. (For what it’s worth, as I examine my blind spot in this area, I thought it was expensive at $50 years ago … it’s now near $300 as they continue chocking up giant revenue gains and deciding not to be profitable — the theory is that they’ll just someday decide they’ve gotten big enough, and then Jeff Bezos will stop investing in expansion and decide to start making money, but until then the big revenue growth and almost nonexistent earnings have so far worked spectacularly for shareholders).

But anyway, we’re not talking about my past failures to buy rapid growth stocks (if we were, we’d have to throw Priceline on the pile, and Boston Beer, and … Arg! OK, I’ll stop now). What’s this pick from the Cabot folks?

According to the Mighty, Mighty Thinkolator, which continues to stand by its 99% accuracy record, today we’re looking at ServiceNow (NOW).

Which I’ve never looked at before in my life. This was an IPO last June, it did indeed book 81% revenue growth last quarter, and all those past price points are accurate — it’s been a wild ride in this stock’s short history. It’s not a tiny stock, the company has a market cap of $5 billion and it’s got plenty of cash (thanks to that IPO), but it has been growing revenues very quickly and not turning a profit. Analysts are projecting the company to turn profitable in 2014, with an estimated forward PE of about 200, and they are projecting 600% growth next year and 50% annual growth for several years out into the fut