Markets and especially the tech-heavy Nasdaq index led by semiconductor stocks sold off yesterday. Reasons include perceived rising protectionist and isolationist pressures in both Europe and America. Meanwhile, small-cap stocks continue to rally, and some overseas markets were also up.

As one would expect, our tech stocks pulled back somewhat while all three of our dominator stocks gained ground this week.

Explorer stocks had a good week led by Super Micro (SMCI) up 20% and Cloudflare (NET), up 9%, as PayPal (PYPL) has struggled a bit as it launches a new, higher-margin digital ad business. The S&P 500 is up 14% so far this year but the 10 biggest stocks recently represented almost 37% of the index’s total value, the highest since September 2000, according to FactSet. Use caution and take partial profits if you have some of these in your portfolio.

We have been discussing some great companies and breakthrough technologies, but it is easy to overlook that energy is the foundation of economic and technological development. It is also at the core of how countries secure and project national power.

So today, we add a U.S. renewable energy company that is a leader in an alternative energy source that’s making a comeback.

This morning, from Normandy to Washington, D.C., there will be ceremonies honoring the 80th anniversary of D-Day. Now, we are amidst a different type of struggle, and semiconductor chips are at the heart of it all. And today’s new Explorer recommendation is one of the more important cogs in that global struggle.

Going back to 1960, nearly 85% of the cumulative total return of the S&P 500 Index can be attributed to reinvested dividends. And that’s why today we’re adding a new high-yield fund to the portfolio that gives us exposure to fast-growing overseas markets.

As many analysts focus on inflation and the job market, they miss that earnings per share for companies in the S&P 500 for the first quarter now look to be up 5.2% from a year earlier, according to FactSet. Since profits and profit growth are the lifeblood of an economy and stock market, it pays to watch them closely.

For this week’s new idea, we go to a Canadian-based company focused on a different resource and technology crucial to North America and beyond.

Tech stocks steadied a bit this week as quarterly earnings started coming in. Sea (SE) was up this week on two analyst upgrades. Super Micro (SMCI) will report crucial quarterly earnings early next week.

The Explorer’s one current European stock recommendation is Danish drugmaker Novo Nordisk (NVO). It has passed French luxury group LVMH Moët Hennessy Louis Vuitton to become Europe’s most valuable company.

Inflation appears stuck at a much higher level than acceptable for the Federal Reserve so lower interest rates are on pause. Gold is one beneficiary.

This means that some high-flyer tech stocks may be vulnerable. Meanwhile, Japanese stocks remain near all-time highs.

Fortunately, we have exposure to both gold and Japan in the Explorer portfolio, and today we add to that exposure.

The bull market rages on, and technology stocks continue to garner most of the headlines, some of which we’ll examine today. But our new recommendation isn’t some go-go artificial intelligence play: it’s a small-cap U.S. titanium maker that’s off to a very fast start (+56%) in 2024 ... with plenty more runway ahead.

Bitcoin is sometimes referred to as “digital gold,” but investors should also have some of the real stuff. As J.P. Morgan put it, “Gold is money. Everything else is credit.” So today, with gold prices on the rise, we add exposure to the yellow metal in the form of a low-risk streaming and royalty company.

You may have noticed that last week when Nvidia (NDVA) announced its earnings, its stock rose 16% while Explorer recommendation Super Micro Computer (SMCI) went up 32%.

This is consistent with my view that Super Micro is a leveraged bet on artificial intelligence (AI), and I expect this will also be the case when Nvidia’s stock price moves the other way. Nvidia is now priced at an incredible 32 times trailing annual sales and has a larger market cap than Germany’s entire blue-chip DAX index. Super Micro has already tripled in 2024 so consider taking partial profits. Remember, J.P. Morgan allegedly stated that he made his greatest profits by selling too soon.

The latest earnings reports were mixed but generally encouraging.

The S&P 500 exceeding the 5,000 mark reminds us that while our dynamic economy leads to disruptions in companies and markets, and Fed interest rate moves can impact the market, it is revenue and earnings growth that really drives stock returns over time. Companies normally become more profitable over time, and that’s what leads to higher stock prices. Staying in the market and leveraging the power of compounding returns is important to successful investing.

So today, we expand our portfolio by starting a small position in a brand new asset class.

The Federal Reserve held interest rates steady and signaled it is open to cutting later this year, especially if economic growth and employment slow in an election year. Big tech earnings so far are a mixed bag and below elevated expectations.

But cybersecurity companies have been resilient due to ever-growing demand. And today, we add a familiar cybersecurity name to the Explorer portfolio.

This was a difficult week for stocks. Yesterday the S&P 500 sank 2.3% while the tech-heavy Nasdaq declined 3.6%. Collectively, the so-called “Magnificent Seven” lost $768 billion in market value.

America does face some uncertainty but overall has a strong economy but, as I have highlighted, the stock market has become too concentrated at the top and debt is building up too rapidly. China, on the other hand, faces economic issues such as weak consumption, a property slump, 20% youth unemployment, and a struggling stock market in the red so far in 2023. Given the size and importance of China’s economy, this impacts all markets.

Explorer stocks put in a solid performance this week as Federal Reserve Chairman Jerome Powell was on Capitol Hill for two days of testimony. His remarks were parsed as if he were an oracle, but the takeaway seems that we are moving towards a rate cut dependent on labor markets cooling off a bit more.

I really don’t like paying too much attention to macro issues like interest rates and would rather focus on new ideas that most investors are not following closely. Right now, in a market so dependent on a small number of leading stocks, you can reduce your portfolio’s overall risk profile by adding some stocks in countries and sectors where expectations and downside risk are low.

Please note that next Thursday is July 4^th and therefore there will not be a Cabot Explorer issue though I will send out an alert if there is any significant news on our stocks.

For Explorer stocks this week, Neo Performance (NOPMF) shares were up 12%, and Super Micro (SMCI) gave back half of last week’s 20% gain.

The dollar rose to its highest level since last year as the Federal Reserve breaks with other central banks by keeping interest rates elevated, giving global investors an incentive to move cash to the U.S. to capture higher bond yields.

Inflation cooled for the second straight month in May, the U.S. labor market seems back to pre-pandemic levels, and the economy is expanding at a low but steady pace.

Therefore, the Fed is holding back on interest rate cuts. Probably the right move. Keep the ammo dry for when it is really needed. This was a solid week for Explorer stocks with all making gains except for a small pullback in Super Micro (SCMI).

As we approach the end of May, the S&P 500 is still up 10% for the year, including a 4.6% gain so far in May. But the market was off yesterday as bond yields creep upwards. It was a lackluster week for Explorer stocks as well.

U.S. stocks trade at a P/E ratio over 21x earnings while European stocks trade at a cheaper 14x earnings on average. U.K. stocks look even more compelling at just 12x earnings.

Major indexes are at all-time highs as data indicated inflation retreated a bit. And many of our positions are soaring.

That includes new addition Neo Performance (NOPMF), whose shares were up 17% during the stock’s first week as an Explorer recommendation as the company reported a swing to profitability. It wasn’t our only holding to post double-digit performance last week.

Details inside.

“The whole world is under-followed relative to the Magnificent Seven…Whether you’re looking at a place like Japan… emerging markets… commodity sectors… there’s really a ton of opportunities that people just refuse to look at.”

-Richard Bernstein, CEO and CIO, RBAdvisors

When I started in this business as an institutional stockbroker, Peter Lynch, the portfolio manager for Fidelity’s Magellan fund, was seen as a master of the game. His forte was picking smaller growth stocks. Upon stepping down in 1990 after his fund became too big to make any small-cap stock pick meaningful, he had delivered, over a 13-year period, a 29% per annum return to investors.

His lessons still ring true today.

The first week in April was quiet for Explorer stocks. Looking at what sectors are doing particularly well through the MSCI World index, technology and other cyclical sectors such as energy have outperformed.

Where are the bargains? Consumer staples, Europe, and perhaps even electric vehicle stocks. The EV slowdown can’t be denied – their first-quarter growth rate was a weak 2.7% vs. last year’s 47%. Hybrids vehicles are clearly preferred by many, and on the rise.

This week the Fed left interests rates again unchanged and Super Micro Computer (SMCI) became part of the S&P 500 index. An announcement of a two million convertible shares offering by Super Micro led to a pullback in the stock though long term, it’s smart to raise capital after the sharp rise in the share price.

Elsewhere, Washington is fixated on the potential push to force a change in the ownership of TikTok while China, as strongly expected, objects. This is a bit ironic since X, Instagram, Facebook, and Google aren’t available to Chinese citizens.

Luxury leader LVMH Moët Hennessy (LVMUY) CEO Bernard Arnault has a mantra that can be applied to business and investing: “In times of uncertainty, be patient.”

I would add that this requires playing both defense and offense.

Our offense has been working quite well of late: Super Micro Computer’s (SMCI) share price was up another 40% this week and is now up 300% since the start of the year. Sea (SE) had a good first week in our portfolio as well, up 22% after an encouraging financial report.

It was a relatively quiet week for Explorer stocks as a financial media frenzy focused an unprecedented amount of attention on the expected financials of one stock – Nvidia (NDVA).

Nvidia has quickly become the third most valuable company in the United States.

As of last Friday, about 30% of the S&P 500’s gain for the year was due to Nvidia, according to an S&P analyst.

MP Materials (MP), a rare earths mine and processor, is down about 11% this morning.

MP Materials (MP), a rare earths mine and processor, is down about 11% this morning.

Exscientia (EXAI) is down about 10% this morning.

Exscientia (EXAI) pulled back yesterday but is recovering this morning.

Based on market conditions and to limit losses, I suggest you sell the following two Explorer recommendations:

Due to escalating regulatory risk by Chinese authorities, please sell Pinduoduo stock. I will have more in this Thursday’s update but, in short, the Chinese are exerting their authority on Chinese companies that have used offshore entities to list on U.S. markets. China wants these companies to list in Hong Kong or Shanghai. There may be some trading and arbitrage opportunities developing, but the risk for Pinduoduo is now too high.

To follow up on today’s issue and new recommendation of Fisker, Inc.

Based on the below press release highlighting the agreement for Australia’s Lynas to build a rare earths refinery in Texas, I recommend you sell your MP Materials (MP) position.

Two portfolio stocks reported earnings yesterday and both remain Buys.

This portfolio stock was up 18.3% yesterday in anticipation of earnings that were released after the market closed.

Sell half your position for a 142% gain.

As I mentioned in yesterday’s issue, we got some bad news on this portfolio stock before the market opened regarding an internal investigation of fraud by the company’s COO and several other employees who apparently significantly overstated sales in 2019.