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

We comment on the price of gold and what we see as its primary drivers. Gold is now trading above $2,000/ounce. We also provide updates on our recommended stocks.

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.

The market put on a constructive show last week, though today was a bit sloppy, as the surprise OPEC supply cut hiked oil prices brought some rotation ... and provided a reminder we’re still in a very news-driven environment. All in all the story remains mostly the same: There are positives, especially among growth titles, but the market is bifurcated and tricky, with a lot of stocks still in the doghouse. At this point we think playing things mostly halfway (good amount of cash, some nibbling on strong names) is still the best stance. We’ll leave our Market Monitor at a level 5 tonight.

This week’s list is a bit more mixed than in recent weeks, with less growth and more cyclical and cheap situations. Our Top Pick is an old friend in the cybersecurity space that has a few months of positive momentum as Wall Street anticipates big profit growth ahead.

The market is arguably the healthiest it’s been since 2021 – remarkable considering all the economic and sociopolitical hand grenades tossed at investors in the first quarter of 2023. So, this week we lean into the recent strength by adding another growth stock in the form of a small-cap semiconductor play with strong ties to Apple. It’s a stock recently recommended by Cabot Early Opportunities Chief Analyst Tyler Laundon, and one that has plenty of momentum – up 35% year to date.

Earnings season is finally near, but we still have one week of little to no trading opportunities. Constellation Brands (STZ) offers the best opportunity of the week, but liquidity could be a potential issue. Otherwise, the metrics of the trade look quite appealing.

We currently have two open positions, a bear call spread in DIA and an iron condor in IWM. Our deltas are currently skewed towards the bearish side of things, so we will need to balance out our deltas by adding a bull put spread or some other bullish leaning strategy. So the focus this week will be adding some positive deltas to the mix to bring the portfolio closer to a delta-neutral state.

We need to sell premium early this week in Wells Fargo (WFC) and Gold Miners (GDX). I plan on entering new positions on Monday or Tuesday so be on the lookout for a trade alert or two over the next few days. Additionally, I hope to add a few brand new stocks to the mix this week as I want to ramp up the number of our positions in our Income Wheel Portfolio.

Many of the underlying trends in cannabis continue to be favorable even if this is not reflected in the stock prices, which are down sharply this month.

States continue to advance legalization of recreational use. Lawmakers remind us that federal regulatory reform in banking remains on the table, and will get taken up by key Congressional committees this year. Europe should begin to advance recreational use legalization within the next several weeks, starting with Germany. Cannabis sector insiders are stepping up to buy stock. Industry consulting firms continue to affirm robust sales growth projections of 13% a year through 2027. There are tentative signs that price compression is neutralizing.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the April 2023 issue.

This issue focuses exclusively on the banking industry. Given the recent turmoil and the second- and third-largest bank failures in U.S. history, we examine the question on the minds of value and contrarian investors: is it time to jump back into bank stocks?

Our feature recommendation this month is First Horizon Corp (FHN), a relatively plain mid-sized regional bank that provides an appealing way to exploit the bank sell-off: merger arbitrage. Due to regulatory delays, the bank’s shares trade at a 33% discount to the $25/share all-cash offer from TD Bank Group, a large and well-capitalized Canadian bank. We believe that the deal will close at the $25 price, providing an attractive return, even as the shares’ discounted valuation offers considerable downside protection.

Despite ongoing banking fears, impressively the S&P 500 gained 1.26% last week, while the Dow rose by 1.48% and the Nasdaq added 1.14%. How this situation will play out this week is a complete toss-up, though I have to say I’ve been impressed by the resiliency of the bulls in the face of bad news … for now!

The banking situation has changed the Fed. The damage done by previous rate hikes is making the Central Bank far less hawkish. The risk is shifting from the Inflation/Fed cycle to recession. The end of this cycle may have been expedited. And stocks could rally out of this bear market sooner than thought.

Of course, the banking issues might not be over yet. And the timing and severity of a possible recession is still unknown. Things may get worse in the market before they get better. For now, defensive stocks that can maintain earnings growth in a worsening economy or recession are better places to be.

The market held its own last week and we’re now even seeing the worst areas out there bounce as a bit of stability shows up in the banking sector. That said, on the charts, not much has changed—some growth stocks are acting resiliently but the broad market is still buried. We’re open to anything, including the scenario where an easier Fed combined with limited bank reverberations leads to a sustained advance. Right now, most of the market is hanging in there, but we need to see continued buying before changing our stance. We’ll leave our Market Monitor at a level 5 today.

This week’s list is a bit broader with some turnaround situations out there. Out Top Pick is an old pandemic darling that, after crashing, has spent months bottoming out and is now perking up

“Resilient” is not a word that would have described stocks in 2022, but through the first quarter of 2023, that’s precisely what they’ve been in the face of a bank meltdown, more interest rate hikes and still-high inflation. It bodes well for the back half of the year when perhaps some – maybe all? – of those worries subside. In the meantime, we have to say goodbye to a couple underperforming stocks today, while adding a growth play that lies outside U.S. borders. It’s a Mexican consumer products stock that takes advantage of Mexico’s cheap manufacturing costs – and the stock is up 22% year to date!

The Central Bank is coming out with its December announcement this afternoon. The market has been anxiously anticipating this meeting. And it’s a little nervous, as well it should be.

Private equity, the polished-up name for venture capital and leveraged buyout funds, is white-hot. If every market cycle has its own Masters of the Universe (the 1990s had tech mutual funds, the 2000s had hedge funds), the past decade’s MOTU was clearly private equity. Today, everyone wants to get in on the bonanza: MBA graduates, bankers, mutual funds, hedge funds, endowment and pension funds, insurance companies, wealthy individuals … and soon the average retail investor will get government-approved access to private equity investments. Exuberance1 abounds.

All eyes are on the Fed. Sure, there’s inflation and Omicron and some other stuff. But Wall Street types mostly care about the Fed.

This week’s Friday Update is brief, with no earnings or ratings changes. Despite the uncertainty in the broad stock market, there wasn’t much news on our recommended companies.

Despite another dip in the Nasdaq today higher growth stocks have mostly come up off of last week’s lows as early indications suggest the Omicron variant can be held at bay with vaccinations (especially booster shots).

After a solid three-day rally, stocks sold off again today—the Dow was actually up a point but the Nasdaq fell 270 points (1.7%) and most growth stocks were down in the 3% to 5% range.

Our comments this week are mostly questions. Day-to-day gyrations make sense on the surface. Yesterday, the market surged on news of China easing its monetary policy combined with a growing sense of relief that the Omicron variant is milder than previously understood. But in the wider context, the market’s position and trend makes less sense.

The past week brought a swift correction to Greentech with the sector falling more than 16% from last Wednesday to Monday’s intraday low.

Everything was going so well. And then things turned sour on a dime. The party pooper virus is up to its old tricks again.

Selling panics are never fun, but they can be quite useful for gauging gold demand, for extreme financial market volatility often reveals just how much safe-haven interest truly exists for the metal. And we’re about to find out just what participants think about gold after shunning it for most of this year.

This past Wednesday we published the December edition of the Cabot Turnaround Letter. Our first article, “Year-end Selling: Turning Other’s Losses into Gains,” describes three reasons why many investors, including highly experienced professional managers, tend to sell weak stocks toward year end without regard to price or value – and how this can produce quick profits for nimble investors. We include six stocks that look well-positioned to bounce.

The market has entered a rough patch, especially for tech and stocks that have not been demonstrating relative strength. Explorer stocks are all over the map, with Coupa (COUP) and Cloudflare (NET) showing some weakness, many positions holding steady, and Novonix (NVNXF) up 25% in the last week.

This transaction service company is due to report earnings on August 3. Estimates call for EPS of $0.57 on $138.35M in revenues.

This biopharma has a new distribution agreement for its obesity drug, and is expected to grow by 47% this year, then 16.1% annually over the next five years.

While copper futures prices remain firm, copper ETFs have come under renewed selling pressure late this week, thanks in part to persistent strength in the U.S. dollar and in spite of widespread hopes of additional monetary easing measures in China.

In keeping with its investments in interesting properties, this REIT just agreed to provide a $79.5 million mezzanine loan investment related to the development of the more than $250 million Great Wolf Lodge Mid-Atlantic project in Perryville, MD. The shares have a current annual dividend yield of 4.18%, paid quarterly.

Coverage of the shares of this engineering and construction company has recently been initiated at Cowen & Co., with an ‘Outperform’ rating, and at Piper Sandler with an ‘Overweight’ ranking.

Repligen (RGEN) reported Q2 results before the bell today that surpassed expectations and has the stock up nicely (6% at mid-day) and bucking the broader market weakness. Revenue was up 86% to $163 million, beating by nearly $19 million, while adjusted EPS of $0.79 rose by 88% and beat by $0.27. Management raised full-year guidance to a range of $625 million to $645 million (up 71% to 76%), well above consensus estimates of $586 million. Adjusted EPS guidance goes to $2.71 - $2.78, way above consensus of $1.71. Gross margins are up a lot, from 57.9% in the year ago quarter to 62% in Q2.

Whether it was a meltdown in Chinese stocks due to regulatory actions, fears of renewed virus restrictions (and mask mandates) or inflation jitters, the market is getting hit sharply today, and growth stocks are going along for the ride—as of 1 p.m. ET, the Dow is off 195 points, while the Nasdaq is down 291 points and growth-y indexes are down 3%-plus. We’re not going to draw a massive conclusion from one day of trading, especially as it comes on the heels of what was a darn good few days for growth stocks following last Monday’s shakeout. But it is a sign that the endless choppy phase might not be in the rearview mirror.

The top five holders of this fund are Fort Pitt Capital Group, LLC, 2.12%; Morgan Stanley, 1.85%; Wells Fargo & Company, 1.39%; and Invesco Ltd., 1.35%; and 1607 Capital Partners, LLC, 1.19%. The fund has a current annual dividend yield of 5.22%, paid monthly.

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.

Bank of America just raised its price target to $194 for this used car dealer.

This ETF utilizes a covered call strategy, in which investors sell call options while owning an equivalent amount of the underlying security.

Our first idea is a utility that is growing its renewable energy sources and has a current annual dividend yield of 3.94%, paid quarterly. And we are selling an insurance company with a great dividend but mediocre performance.

A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.

A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.

Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.

Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.

Our Cabot Momentum 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 Momentum Trader features.