Led by the meltdown in the financial sector, the market had an awful week. The numbers weren’t pretty as the S&P 500 fell 4.76%, the Dow lost 4.45%, and the Nasdaq declined 4.16%.

The biggest story of the past few weeks has been the Fed’s renewed jawboning for higher-for-longer interest rates, with the Fed Chief even saying hikes could re-accelerate this month (0.5% instead of 0.25%, etc.) if economic data remains too hot. Indeed, since the start of February, Treasury rates have risen an average of three-quarters of a point or more, while futures are starting to price in another 1.25% of hikes this year, up from 0.5% expected just a month ago. Translation: A lot of rate-hike worry has been priced in during the past few weeks.

Market struggles resumed as Fed Chairman Jerome Powell continues to warn of interest rate hikes as inflation concerns linger. MP Materials (MP) was downgraded to sell last week as Elon Musk’s Investor Day comments raised questions about future demand for MP’s rare earths. Most Explorer stocks were steady as Polestar (PSNY) posted strong revenue growth and an ambitious sales target for 2023. This week’s recommendation is a smart way to play China’s emerging market rebound.

A new day, and maybe a new term for some of us. That is, “rolling recession.” After expectations of a hard landing, then soft landing, then pushing a possible recession further down the line, economists have now decided we may just be having a rolling recession, which affects just a few industries at a time.


So, I guess, currently, that could possibly mean that the following sectors which are negative so far in 2023 may be in a recession,

Inflation has come down. But in the past, when inflation stayed this high for this long, it took about a decade to get rid of it. That’s why the inflation rate averaged 7.25% in the decade of the 1970s and 5.82% in the 1980s.

Once that inflation genie gets out of the bottle, it has historically been a long ordeal to get it back in. Higher inflation and interest rates may persist for several years to come. That’s a different economic situation than we have faced in a long time. And it is changing the investment landscape.

As investors, we need to invest in a way that not only keeps pace with inflation but exceeds the rate of inflation in order to actually grow a nest egg in real terms. In this issue, I highlight two portfolio dividend stocks that have a unique ability to thrive during inflation beyond most dividend stocks.

Today, I’m recommending a micro-cap “thrift” (a type of bank) that is likely to get acquired within the next year or two.

Key points:
· Insiders are buying like crazy.
· The stock is buying back its own stock hand-over-fist.
· 70% of thrifts ultimately get acquired, and this thrift will be eligible to be acquired in 12 months.

All the details are inside this month’s Issue. Enjoy!

What started out as another troubling week for the bulls turned encouraging as the indexes rebound nicely on Thursday and Friday.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the March 2023 issue.

We discuss how the post-Cold War peace dividend is shifting to a war tax.

We provide updates on earnings and change our rating on Organon (OGN) from Buy to Sell. The company is spending more to generate sales growth even as that growth is becoming more difficult. Our thesis is broken, but fortunately, we exit with only a small (~6%) loss.

Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the letter is to let me know what you are looking for.

We can’t say the market is out of the woods, as some major indexes still have work to do (small caps were very weak today) and a couple of bad days could be damaging. But just going with what we see, it’s hard not to be encouraged about last week’s action—after a month of pulling back, no primary indicator flipped to negative, and among individual stocks, the vast majority retreated grudgingly before many took off on the upside in recent days. We’re not going to overreact to a day or two of action, but the fact that our screens are turning up many more high-potential names has us nudging our Market Monitor back up to a level 7—though, as always, we’ll see how it goes during this week’s gauntlet of economic reports.

This week’s list is chock-full of solid growth ideas, with a smattering of cyclical exposure as well. Our Top Pick is a growth name that just broke out from a two-year base after earnings.

Stocks rebounded nicely last week, giving hope that the 2023 stock market may be far more resilient than the 2022 market – which could eventually get us out of this bear market malaise. That makes it a good time to buy one of the blue-chip tech stocks that were infamously beaten into submission by last year’s indiscriminate selloff in all things technology. Fortunately, Tyler Laundon is recommending just such a stock – a name this is familiar to all, and yet is embarking on some exciting new ventures that the general public might not be fully aware of. Today, we add this mega-cap technology giant to the Stock of the Week portfolio.

We are loaded up in the Income Wheel Portfolio, although I wouldn’t mind stepping into a few new positions. If I do decide to add a position or two to the portfolio, one will have a low IV and the other will be the exact opposite, with a high IV. The reason, as stated in the past, is that I like to diversify the overall beta of my positions so that our overall level of risk is balanced.



Moreover, nothing has changed over the past few weeks regarding new short-term positions; I still intend to add a jade lizard or two to the mix for the April expiration cycle.

We locked in a small 4.38% gain in our IWM iron condor last week. However, had we waited a few days we could have taken off the trade for a much greater gain. But hey, that’s investing/trading. We take profits when we can, given the information we have at our fingertips. The market was looking particularly weak at the time of our profit-taking, so we thought it was best to go ahead take some small profits and move on to the next opportunity.

Last week, we talked about the pullback in growth stocks. This week, the pullback has expanded to all stocks. The S&P 500 has pulled back ~9% and is on the verge of a correction (defined as a 10% pullback from its recent high).

We comment on recent earnings reports and other company-specific news about our recommended stocks, and include some thoughts on cryptocurrencies and the current burndown in momentum stocks.

The real short version of what’s going on out there is … we’re officially in a bear market in growth. And it’s been particularly tough going in the super-fast-growing small-cap stock arena.

Stocks started off on a positive note today, but once again sold off sharply into the close. At day’s end, the Dow was down another 313 points, and the Nasdaq was off 186 points.

The chances of a recession in the foreseeable future seems exceptionally unlikely. The domestic economy is booming: following last year’s estimated 5.2% growth, the economy is estimated to grow at a 3.3% pace this year. Any further Omicron-related deceleration appears more likely to be a temporary slowing rather than anything more ominous. Bolstering this view: future-watchers expect growth to continue at around a 3% pace in 2023. No recession in sight from their perspective.

As we get towards the end of January, the biggest thing on my mind is the pullback in growth stock. It has been remarkable. According to J.P. Morgan and Bloomberg, the software index is down ~22% from its peak.

The indexes plummeted on rising rate worries and disappointing Goldman Sachs (GS) earnings. The benchmark 10-year Treasury rate soared to 1.85 on Tuesday. That’s the highest level since the pandemic began and up from 1.34% as recently as last month.

Inflation is going on. And it’s starting to sink in. Oil prices are soaring. Interest rates are rising. And the Fed is going to have to be more aggressive than previously anticipated about raising rates and reducing stimulus.

Last year was a stellar one for commodities in general and for industrial metals in particular. Copper, steel, aluminum, nickel and lithium all had stellar gains. There were some declines along the way, but the overall trajectory for the majority of base and semi-precious metals was up.

This week’s Friday Update includes our comments on earnings from Wells Fargo & Company (WFC). We had no price target or ratings changes this week, although we are reviewing Wells Fargo shares as they trade above our price target.

It continues to be a very bumpy ride for small-cap growth stocks, while those names with a slightly more value-oriented profile are providing a somewhat smoother ride. Big picture, there is no doubt the risk-off environment continues. The good news for more aggressive investors is that valuations have come down significantly, as have analyst price targets. That latter point often seems to be one signal that the worst of the selling is in the rearview mirror. Though, clearly, there are many factors in play.

There is this widely held belief that January is a great month for investors. But I always throw cold water on this claim because the fact is, over the past 25 years, it’s been one of the worst months for stocks.

The shares of this mining company were recently upgraded at BMO Capital to ‘Outperform.’

This food company is expected to grow by 13.5% next year. Its shares have a current dividend yield of 2.40%, paid quarterly.

The shares of this food equipment manufacturer are being scooped up by hedge funds, with 35 total funds now owning stock in the company.

Our interest in oil and natural gas exploration and production (E&P) companies has been warming up lately. Many of these stocks are beaten down, yet oil prices have remained resilient, leaving producers like ConocoPhillips meaningfully undervalued.

Sell USB November 19th $60 calls at $2.30 or better

This athletic wear company beat analysts’ earnings estimates by $0.46 last quarter, and 26 analysts have recently boosted the company’s EPS forecasts.

This medical supply company is forecast to grow by 29.6% this year.

This morning we found out that Endava (DAVA) has postponed its Q4 earnings report from tomorrow (September 23) until next Tuesday (September 28).

Monday’s big, sharp market pullback was shocking to some investors, and scary enough to cause many to sell stocks in the fear that the correction would go deeper. It certainly might—the September/October period often brings major corrections—and maybe it should, though should is a word that I try to avoid when writing about the market.

The top five holdings in this ETF are: Enphase Energy Inc (ENPH, 11.34%); SolarEdge Technologies Inc (SEDG, 10.01%); Sunrun Inc (RUN, 7.18%); Xinyi Solar Holdings Ltd (00968, 6.88%); and First Solar Inc (FSLR, 6.21%).

Coverage of the stock of this dynamic tech company was initiated last month by several brokerage companies, with the following ratings: Credit Suisse, Outperform; Wedbush, Outperform; Loop Capital, Buy; and Piper Sandler, Overweight. By the way, this technology is catching on with many real estate pros, as it’s 3-D picture is a great way to show a house!

The broad market gapped sharply lower today on fears China’s Evergrande could cause a domino-effect of loan defaults. That triggered a few of our sell-stops.

Our Cabot Top Ten Trader’s market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Top Ten features.