One thing we learned early on in our investing career is to generally ignore the noise. There are so many non-essential factors out there that can lead you astray, preventing you from getting in to (or, equally important, hanging on to) a top performer. One name I like here is AppLovin Corp. (APP), says Mike Cintolo, editor of Cabot Growth Investor.
Big picture, the outlook remains bright for markets, and intermediate term, things are more positive than not. But many stocks have been stuck in the middle for weeks, unable to truly get going much when the buyers swarm but also holding support when a couple of potholes emerge.
The common questions are: Has this been a distributional phase that will lead to a “real” correction for the first time since Halloween, spurred on by, say, a tighter-than-expected Fed? Is it the pause that refreshes, with big investors quietly adding shares at support before another push higher? Or is this going to carry on for a while, with more ping-pong action coming?
For us, we prefer not to predict, but to play the odds — over time, that’s how you make (and keep) good money. Right now, that means sticking with the primary evidence (mostly positive). But given the mini-change of character in the leaders, continuing to hold some cash, booking some partial profits here and there, and staying patient makes sense.
As for APP, it announced what could be big news last week: It inked a deal with a private social shopping site called Flip, with that company integrating Axon into its marketing platform — with AppLovin stating that it’s now making Axon available to others for the first time.
We’ll see how it goes, but AppLovin’s proven results using the AI-powered offering for advertisers means there should be huge opportunities out there. While valuation is a secondary factor to us, it doesn’t hurt that the stock still trades at less than 20 times this year’s earnings and free cash flow projections.
More important, the stock popped on the news, with APP notching new closing highs on heavy volume. It also set a new relative performance (RP) peak. Don’t be surprised if we see further near-term volatility, but the path of least resistance remains up.
Recommended Action: Buy APP.
