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Cabot Top Ten Trader and the Stock Guru Behind It

Our system looks for stocks with a unique mix of shorter-term relative strength (to tell you buyers are active now) and longer-term relative strength (to tell you the overall path of least resistance is up) and then takes out the illiquid stocks. I’m usually left with a few dozen names out of more than 10,000 in the market—all of which are under intense accumulation.

Every once in a while, I like to have a talk with one of Cabot’s analysts about one of their advisories. It’s interesting (and useful) to know what’s on their minds and how they see their advice used by subscribers.

Today, I’m talking with Mike Cintolo about Cabot Top Ten Trader, which comes out every Monday after the market closes.

Mike Cintolo is a man of relatively few obsessions, but when he gets interested in something, he jumps in with both feet and a backpack. I like to claim, modestly, that I was responsible for setting his feet on the path to a deep and knowledgeable appreciation of bourbon whiskey. But in two areas, his enthusiasm, scholarship and expertise leave me far behind.

I’m not going to write about Mike’s love of the NFL in general and the New England Patriots in particular. I’ll just note that Mike’s mood has lifted slightly now that NFL training camp is on the horizon, but that he won’t be a fully engaged person until The Season starts.

What I am going to write about is Mike’s extraordinary dedication to growth stock investing, something that he apparently learned at his father’s knee, but has made both his vocation and his avocation.

He reads books on growth investing, then reads them again, searching for just one idea or observation that will give him a bit of leverage in his trading and help him to explain growth investing to his subscribers.

Every weekend, 50 weeks of the year, Mike will scan the entire universe of stocks that trade on U.S. stock exchanges, looking for the 10 stocks at the very top of the growth world. They trade enough volume (above $20 million a day) and their prices are usually above 12, which makes them attractive targets for institutional investors. And they have strong stories with the potential for huge growth.

The summary of those 10 stocks goes out to subscribers by email every Monday in Cabot Top Ten Trader.

I asked Mike a few questions about Top Ten (which is what we call it in-house). Here’s what he had to say.


An Interview with Mike Cintolo

Paul: What ‘s the single most important thing a stock has to have to qualify for inclusion in Top Ten?

Mike: I’m looking for a stock that combines strong price performance with the potential for continued sponsorship by institutional investors. Sometimes that potential comes from being a first mover in a developing field and sometimes it’s an unexpectedly strong quarterly report that catches investors’ attention. But a great stock chart that shows rising interest is an absolute requirement.

Our system looks for stocks with a unique mix of shorter-term relative strength (to tell you buyers are active now) and longer-term relative strength (to tell you the overall path of least resistance is up) and then takes out the illiquid stocks. I’m usually left with a few dozen names out of more than 10,000 in the market—all of which are under intense accumulation.

We do a lot more than just drop names in subscribers’ lap, though. We explain why the stock is strong, and describe its prospects for the future—if we think the stock is more of a short-term trade, we’ll say it. And if we think it could be a big winner over time, we’ll say that, too. We give suggested buy ranges and loss limits, and provide follow-up as well.

Paul: Most growth investors don’t buy 10 stocks every week, so how do subscribers use all that information?

Mike: A write-up in Top Ten will tell people why the stock is strong, analyze its chart, summarize its fundamentals and give a suggested buy range and loss limit. But investors need to do their own due diligence on stocks before they buy them. Top Ten will present a great slate of candidates every week, but it’s up to each person to make the final selections.

Paul: There’s a Top Pick every week. How do you make that selection?

Mike: That’s an informed guess. I’m following the markets for eight hours a day, five days a week, and I use everything I know about how markets and specific sectors are performing and the stocks themselves to pick the setup that looks best to me.

Paul: Top Ten has a great record of finding stocks early in their advances, but what’s your batting average in picking winners?

Mike: Well, our batting average can range between 40% and 60% depending on the environment. Sometimes it’s much higher, like earlier this year, when nearly every stock we featured in February and March made at least some upward progress. But, really, I don’t even think much about our batting average, and the reason is that what counts over time isn’t how often you’re right or wrong, but how much you make when you’re right or wrong. To me, we want to lose small and win big (or at least bigger), and we do a good job of that.

By the way, we follow up on every Top Ten stock on page 12 of every Monday’s issue, and offer sell advice (plus more general market commentary) in our Friday supplement. Subscribers still do the work of buying and selling, but we take responsibility for following every pick we made.

Paul: Who’s the ideal subscriber to Cabot Top Ten Trader?

Mike: The ideal subscriber is an active investor who’s looking for new ideas or wants to keep up with the strongest stocks in the markets. Top Ten will give that kind of investor a load of useful information they won’t get anywhere else. Our proprietary screens are constantly keeping subscribers updated on what’s leading the market. It basically tells you where, in the ocean of stocks, to drop your anchor if you want to catch the biggest fish.

Paul: What kind of environments does Top Ten thrive in?

Mike: A roaring bull market is best—in a bull market, Top Ten highlights a ton of big winners multiple times, giving subscribers ample opportunity to grab them.

But what’s really great about Top Ten is that there are no biases; whatever is working will show up in Top Ten, whether it’s defensive, income-oriented stocks (we actually have a few REITs show up every once in a while), tech stocks, energy stocks … you name it, our screens will find it.

In fact, I remember joking with (Cabot publisher) Tim Lutts in early 2004 about how a bunch of refiners were showing up in Top Ten—Valero, Tesoro and the like. We were so skeptical about whether they were going to work we were basically mocking them; remember, this was after 15 years of tech stocks leading the way higher in the market. Thankfully we didn’t listen to our own biases—those and many other energy names like Southwestern Energy and Ultra Petroleum turned into huge winners for Top Ten subscribers!

Paul: You mentioned market timing—does Top Ten have a market timing system, and if so, how does it work?

Mike: We do have one, and it’s summed up on the first page of every issue via a simple red-yellow-green barometer. The system is really derived from the same sort of trend-following measures we use in Cabot Growth Investor and your Cabot Emerging Markets Investor (now Cabot Global Stocks Explorer).

I would say the main difference Top Ten’s and Cabot’s other growth market timing systems is that in Top Ten, I put more emphasis on the action of individual stocks. Every week, I go through a few dozen stocks to select the Top Ten. If I see a bunch of sour action, I might lean cautious no matter what the major indexes are doing.

Conversely, if I see a bunch of constructive set-ups, I might do the opposite.
Encouragingly, that’s what I’m seeing now—despite the endless worries of the past few months, including the recent Brexit selloff, most stocks have held their own. And, in terms of the market as a whole, the immediate snap back following two big down days likely bodes well. In fact, I think there’s a chance that Brexit may have been the throw-in-the-towel moment for the remaining weak hands. I’m optimistic.


A Chinese Mixture of Facebook and Twitter

My stock pick today is a Chinese stock that appeared in Top Ten on June 20. I also have it in the portfolio of Cabot Global Stocks Explorer, the advisory that I write. It’s a social networking platform that’s a mixture of Facebook and Twitter, and it’s been enjoying phenomenal earnings growth. The stock has also been acting well despite the challenges the market has presented.

Here’s an excerpt from Mike’s write-up in the June 20 issue of Cabot Top Ten Trader.

WB stock chart
Weibo is a social networking platform that can be called the Twitter and Facebook of China all wrapped into one. Weibo was launched in 2010 as a messaging service of the Chinese Web portal (which still owns a majority of its stock), but was spun off in 2014. Weibo’s user base has grown rapidly; at the end of 2012, the company had 97 million monthly active users (MAUs), which increased to 129 million in 2013 and 176 million in 2014. And when Weibo reported its Q1 results, daily active users had reached 120 million for the month of March, with more than 90% of users accessing the service via mobile devices. The company makes money by offering advertising and marketing opportunities aimed at users, and revenue grew 43% in 2015 and 24% in Q1. Weibo turned profitable in 2015, and has reported six quarters of EPS growth over 100%, including a 600% leap in Q1 2016. Weibo is one of a cluster of Chinese companies (including Baidu, Alibaba and Tencent Holdings) that are thriving as more and more Chinese access the internet—and make purchases—on mobile devices. Like Facebook, Weibo’s popularity is a self-reinforcing trend; the more people become users, the more others want to join. Weibo is a definite Chinese success story, and analysts project that EPS will grow by 72% in 2016 and 69% in 2017.

WB came public in April 2014 at 17, and settled into a trading range centered on 20, with a couple of spikes into the higher 20s. But the stock corrected strongly in late 2014 and again in July and August 2015, with each correction followed by a run back to 21. The stock finally got past that stubborn resistance at 21 in April, running all the way to 29 in early June. The stock’s rising 25-day moving average is just below 26, and should provide support. WB is volatile, but a buy on minor weakness with a relatively loose stop should work out.”

Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.