Please ensure Javascript is enabled for purposes of website accessibility

A Stock with Long-Term Potential

Nuance Communications (NUAN) has a healthy chart and great numbers.

By Matt Delman


How to Succeed with Cabot

A Stock with Long-Term Potential

Many Read Few Turn the Page

Stock Market Video


There are many types of investing strategies. Some investors like the relative safety of exchange-traded funds, while others prefer going toward small, low-priced stocks with high growth potential. It all depends on your tolerance for risk, which can change throughout your time as an investor. Contributor Elyse Andrews has a few suggestions below to help you get the most from your investments.


Every morning when I look through Investor’s Business Daily, something in its pages catches my eye. It’s a little box, usually in the second section, that details How to Succeed with IBD. It inspired me to write How to Succeed with Cabot.

1.) Select a system. Our newsletters run the gamut of investing systems. From growth and value to options trading to emerging markets to energy; we cover a vast section of the investment landscape. It can be daunting, especially for new investors, to determine which system best suits them, but it’s a very important task.

2.) Read our advice.

Once you determine which system best suits your investing needs, it’s time to sign up for one (or more) of our newsletters. We have our flagship, Cabot Market Letter, which is a traditional growth newsletter that uses our proprietary market timing indicators. Cabot China & Emerging Markets Report applies the Cabot growth system to the emerging markets. Cabot Top Ten Trader is a momentum-based newsletter that many investors use as a source of new ideas. Cabot Benjamin Graham Value Letter is best suited for conservative investors seeking high-quality undervalued stocks. Cabot Global Energy Investor capitalizes on the soaring demand for energy, steering investors to the strongest energy stocks. Cabot Small-Cap Confidential is for long-term investors looking to invest in undiscovered emerging companies. Cabot Options Trader uses short-term options to play the market in both uptrends and downturns. Cabot Stock of the Month recommends picks from several of Cabot’s newsletters to give subscribers a taste of each of them while building a diverse portfolio.

3.) Follow our advice. Some of the most common questions we answer are from subscribers who bought a stock when we recommended it, but failed to sell when we did. They hang on too long, the stock continues to sink and they are paralyzed against taking action. We also hear from people who don’t precisely follow our market timing advice and miss out on big market advances or get pummeled when the market tumbles. Each of the stocks recommended in our newsletters is selected based on the system the letter follows and need to be handled accordingly. For example, at one point our momentum-based newsletter Cabot Top Ten Trader and our value newsletter Cabot Benjamin Graham Value Letter were both recommending Apple (AAPL). But they had different buy targets (and sell strategies). Before jumping into any stock, be sure to know what system you’re using, particularly what sell discipline. Once you find your system and newsletter, follow the advice. It will ensure that you build profits and protect your wealth.

4.) Do your own research. Our newsletters provide detailed write-ups on all of the stocks we recommend, many with both fundamental and technical analysis. We vet every stock carefully before recommending. But it doesn’t hurt for you to do your own due diligence before putting a chunk of your portfolio into a stock. You’ll feel more invested in the decision (pun intended) and confident in your selection if you don’t just take our word for it. On the flip side, don’t invest in stocks that you’ve fallen in love with. You need to keep some emotional distance between yourself and the stocks in your portfolio.

5.) Keep track of your portfolio.

This is very important for improving as an investor. Once you decide which stocks to invest in, keep a record of them and your trades. This will help you see mistakes that you’re making (jumping in before an uptrend is confirmed or like not selling quickly enough) and help you correct them moving forward. Review your record at various intervals depending on how frequently you trade; weekly, monthly, quarterly and yearly are good timeframes to keep in mind.

Today’s stock recommendation comes from Cabot Stock of the Month, one of the best newsletters to get started with Cabot because Editor Tim Lutts scans five Cabot newsletters to select the best stock for the current market conditions. The stock is Nuance Communications (NUAN) and it was originally recommended in Cabot Top Ten Trader. Here’s what Cabot Stock of the Month Editor Tim Lutts wrote about it in November 2011:

“For as long as there have been machines, people have talked to them. Henry Ford talked to his cars. Charles Lindbergh talked to his airplanes. And you probably talk to your computer, particularly when it doesn’t do what you want it to do.

“Until recently, however, the machines didn’t talk back. But that is changing rapidly, thanks to advances in both computing power and natural language processing. And Nuance is the company at the heart of much of this change, thanks to licensing agreements with developers and vendors in a wide variety of industries.

“Many people know the company from its Dragon Naturally Speaking products, which you can install on your computer and (when all works properly) talk to, watching as the computer types your words. But the real growth for Nuance is in licensed software, which is embedded in the hidden computers we interact with every day.

“When you call a bank or an airline, you’re almost guaranteed to reach a computer first, and that computer will likely understand you. Your car’s GPS may accept voice inputs as well, and many manufacturers rely on Nuance for the software in these systems. In the medical field, the company already has a major presence, as doctors have long relied on transcriptions services, and the humans in those services are being supplanted by machines.

“For the most part, however, those machines have been limited by their pre-programmed vocabulary and knowledge. But now the world has Siri, the personal assistant included in Apple new iPhone 4S. Siri is the smartest computer you can talk to yet ... and it will talk back. And Siri uses Nuance’s voice recognition engine.

“Nuance is also behind the intelligence of Cue, the integrated voice control and entertainment system that will be available in next year’s Cadillacs. Among other things, Cue will read your text messages to you as you drive. And Nuance is working with IBM to provide the speech front-end of a health care-oriented Watson question-answering system.

“In sum, for more than a century we’ve been hunting and pecking. For more than two decades, we’ve been pointing and clicking. Now finally, the machines are beginning to understand our natural mode of communication, speaking.

“Nuance already has great numbers. Revenues have grown every year of the past decade, while earnings have grown every year since 2004. After-tax profit margin is a very healthy 33.8%. And while fiscal fourth quarter earnings won’t be released until November 22, management announced last week that results would be better than previously expected.

“Last but not least, NUAN has a healthy chart. The long-term trend is up, and while the stock sank below its 200-day moving average in August and September, it has blasted ahead to new highs since. The ideal buy would be on a pullback to support at 22, and if you want lower risk, you’re welcome to wait for that. We prefer to simply buy here, trusting that the combined strength of the stock and this revitalized market will push the stock higher.”

Just this week Tim wrote: “Nuance Communications (NUAN), broke out to all-time highs yesterday and continued the trend today. The future for the maker of the Siri voice-recognition software in Apple’s iPhone is very bright. BUY.”


Many-Read-Few-Turn-The-PageHere’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

Many Read Few Turn the Page

This is one of the oldest buttons in my collection (I remember my father wearing it years ago), and until 2009, the only one not in a “normal” font. It means that acquiring information is easy, but that actually doing the thinking that allows understanding is difficult, and practiced by relatively few people.

Furthermore, most people read only as much as they need to make sense of things. Few continue reading when new information may contradict cherished beliefs or raise new questions.


For this week’s Stock Market Video, Cabot China & Emerging Markets Report Editor Paul Goodwin talks about the good year it’s so far been for the market. Paul also discusses that volume hasn’t been huge, but some new leaders are trying to emerge. Stocks discussed include Silicon Motion (SIMO), MercadoLibre (MELI) and Nuance Communications (NUAN).
Did you miss an issue of Cabot Wealth Advisory this week? Click on the links below to get caught up on your weekly dose of investing and stock tips.

Cabot Wealth Advisory 1/9/2012 - Is Netflix a Buy Here?

On Monday, Cabot Wealth Advisory Publisher Timothy Lutts discussed how long it takes the market to forget the missteps that caused a company’s stock to plummet. It’s too soon to invest in Netflix, but the housing sector looks to be coming back strong. Featured stocks are Netflix (NFLX), Lumber Liquidators (LL), Toll Brothers (TOL) and Home Depot (HD).

Cabot Wealth Advisory 1/12/2012 - The Best Performing Stocks of 2011

On Thursday, Cabot China & Emerging Markets Editor Paul Goodwin wrote about 10 of the very best-performing stocks of 2011 in a bid to understand what made those companies great and how we could apply lessons learned from them in 2012. Featured stocks include Pharmasset (VRUS), Silicon Motion (SIMO), Inhibitex (INHX) and Medivation (MDVN).


Matt Delman


Cabot Wealth Advisory