Welcome to our first annual TOP PICKS issue! For this month, I asked the Cabot analysts to give me a couple of their top picks for 2023. I think you will find they have produced a nice selection of companies in diverse sectors. And just as I did in my previous newsletter, Wall Street’s Best Stocks, I’ll keep track of their picks and let you know how they fare.

Today, I’m recommending a biotech company.

Key points:

· I expect a dividend within 15 months representing 126% of its market cap.
· Asymmetric upside potential beyond the upcoming dividend.
· High insider ownership and insider buying.

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

Sure, it was a tough year for stocks. But 2022 was the worst year ever recorded for bonds.

The benchmark 10-year Treasury lost more than 15% in 2022, the worst calendar year performance ever recorded since it started being tracked in the 1920s. The 10-year + Treasury Bond Index lost 29.45% for the year, also the worst performance on record.

But the disastrous year creates an opportunity. Last year seems to have squeezed many years of poor performance into one. Now bonds actually pay decent interest again. And every negative year for bonds ever recorded has been followed by a year of positive returns.

In this issue, I highlight a long-term corporate bond fund. It allows access to some of the highest yielding investment grade bonds in the last 15 years while also providing a monthly income. The fund is very likely to have a positive total return for the year, and perhaps very positive, at a time when the stock market is highly uncertain.

The start of 2023 has been a positive for the bulls as the indexes are all higher by approximately 1.5%.

It was a solid week for the major indexes, and even better has been some notable improvement in the broad market—in late December, we saw a key positive divergence from a broad market measure for the Nasdaq, and now we’re starting to see some legit improvement elsewhere, too. Don’t get us wrong, at this point, the major trends are still pointed sideways-to-down, so we’re not going to make too much out of what we see, but it’s fair to say we’re approaching another key juncture: If the market and (importantly) individual stocks are able to build on their recent action, we could get a green light or two and have something to work with. For now, our Market Monitor remains a level 4, but our antennae are up.


This week’s list features a wide array of names, with some commodity and value names combined with a few turnaround and growth titles. Our Top Pick is a solid long-term grower that has some catalysts for this year—as usual, aim to enter on dips.

2023 has started with a bang, pushing a couple stocks in our portfolio to new all-time highs! Both of those high fliers have benefitted greatly from the return to relative normalcy in the wake of Covid, so today we add another stock that stands to get a direct bump from China’s reopening – or at least the loosening of its draconian “zero Covid” policies. The company was a pre-pandemic favorite of Cabot Top Ten Trader Chief Analyst Mike Cintolo and looks like a great value pick now as its business picks up in earnest. So, he’s recommending it again.

We sold some additional premium in Wells Fargo (WFC) late last week and I intend to sell even more as we begin 2023. Our PFE 49 puts are due to expire this week and if all goes well, I plan to buy back the puts for $0.05 and immediately sell more put premium going out to the February 17 expiration cycle.

The same goes for my GDX and KO positions. I intend to buy back our put positions in both underlying stocks and immediately sell more premium. And like PFE, I will be focusing on selling premium for the February 17 expiration cycle.

Earnings season officially starts this Friday with JPMorgan (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) kicking it off prior to the opening bell.


Other than the big banks it’s going to be a slow week for earnings, but hey, earnings season has finally arrived, and I expect that we will have one if not two trades heading into the latter part of the week.

We locked in our first profit of the year last week, a 19.0% return in our IWM January 20, 2023, iron condor. With two weeks remaining in the trade, and only $0.06 worth of premium left, the most prudent move was to take the profits and risk off the table and move on to the next opportunity.

Thankfully, we were given a few opportunities last week and decided to pounce on them by adding two new trades to the mix, another IWM iron condor and another SPY bear call spread. Now the focus will be to add a bull put spread to the mix to balance out the deltas.

Having just returned from vacation, in this morning’s Weekly Update I am going to focus my attention on where we stand with our positions. However, going forward, I/we are fully back to the normal schedule.

Having just returned from vacation, in this morning’s Weekly Update I am going to focus my attention on where we stand with our positions. However, going forward, I/we are fully back to the normal schedule.

This month we’re going with a small software company serving a resilient industry that has been slow to adopt to cloud technology, but which is coming on strong now.

Despite the tough macro environment this company has been beating expectations for many quarters. Management has been raising revenue guidance too, and a tweak to the business model is starting to pay dividends.

Enjoy!

According to Detrick, “The S&P 500 is up 17.02% YTD at the end of July. Since WWII, this has happened only 12 other times and the rest of the year was higher 11 times. The only time it didn’t work was ’87, but it was up 32% YTD right now (stretched rubber band).” In other words, stocks in motion tend to stay in motion. While I don’t make investment decisions based on these data points, I do find them to be helpful to give me context for what the broader market is likely to do.

It’s a crazy earnings season that the market is treating like a boring one. The second quarter marked the near-full opening up of the economy after the pandemic. It is compared to last year’s second quarter when the economy crashed amidst the lockdowns. Analysts are expecting average earnings growth of 74% for S&P 500 companies, one of the highest quarterly growth rates ever recorded. So far, earnings are exceeding those expectations. And the market is yawning it off. Stocks are doing the same thing as before earnings, trending slightly higher in an up and down fashion. What’s going on?

A key factor holding gold prices back after peaking last August has been the diminution of economic and geopolitical worries following last year’s virus-related economic volatility. In short, gold’s “fear factor”—which I maintain is the dominant driving force behind the metal’s intermediate-term trend—was missing for most of that time.

Today’s note includes earnings updates on 12 companies, the podcast and the Catalyst Report. We publish the Catalyst Report on the Friday after each monthly issue of the Cabot Turnaround Letter. There were no changes to any of our ratings this week.

The U.S. economy is growing more quickly than before the pandemic, both the S&P 500 and S&P 600 are up modestly over the past week and, so far, this earnings season has been a massive improvement over the train wreck of the first-quarter reporting season.

Chinese stocks were hit this week both on American exchanges and overseas as Chinese regulators ratcheted up the pressure through antitrust and regulatory steps that caught many executives and investors off guard. The Golden Dragon index of Chinese technology stocks fell by 15% in two days before rebounding after regulators tried to reassure markets.

A crazy earnings season meets a sideways market. Investors have been looking for a narrative that gains traction. Maybe earnings will provide it.

We remain largely in cash and continue to believe patience and smart entries into new positions will benefit the portfolio in the weeks ahead.

The stock market reached yet another record high on Monday, but it just doesn’t seem the same as earlier records. Investors (and everyone else) is starting to wonder if Covid is now endemic – an inherent component of everyday life. Will cases surge in the winter months and just after holidays instead of going away with a single vaccine cycle? We won’t likely be going back to widespread lockdowns, but previously unfettered socializing and traveling could be restrained, thus suppressing earnings and valuations for many companies.

Investing in micro-caps is fun because you can invest in growth companies at value prices. When investing in pure “value” stocks, your goal is to buy a dollar for 50 cents. The problem is that the dollar of value can shrink over time to 80 cents or 60 cents, especially if the business is facing secular headwinds. The benefit of investing in “growth” companies is the value of your investment can grow over time.

Today’s note includes an update on earnings from Baker Hughes (BKR) and a preliminary trading report from Vodafone (VOD). There were no ratings changes.

Today, for a change, I’ll cover the news first, and the investing advice second. In Illinois, marijuana taxes exceeded alcohol taxes in the first three months of 2021. Marijuana tax revenue amounted to $86,537,000 while alcohol taxes brought in $72,281,000. I expect the gap to widen from here and there’s no question other states have taken note.

This financial company beat analysts’ earnings by $0.03 last quarter.

It is a stink fest out there in the market today and Fisker (FSR) has looked like a hot pile of garbage for weeks. But today we see another big bank jumping in with a buy rating. Bank of America says FSR is worth 30.

The top three holders of this closed-end fund are: Bank of America Corporation, 1.12% of assets; Morgan Stanley, 0.99%; and Wells Fargo & Company, 0.68%. The shares have a current annual dividend yield of 6.18%, paid monthly.

The major indexes are selling off today on various news items. As of 1 pm, the Dow is down 195 points and the Nasdaq is also off 195 points, while the average stock we own or are watching is off around 2.5%.

Porch Group (PRCH) has been very weak recently and moves to hold today. This move hasn’t been unique to PRCH, in fact most SPAC IPOs have been soft for a while now. However, we saw a sizeable decline on Friday and follow-through softness today.

The market has hit an air pocket over the last few sessions and SPAC IPOs have been particularly soft for a few weeks now. Today we’re taking partial gains in a few positions and cutting losses short in another.

Friday afternoon several of the April covered calls that we sold expired worthless, leaving us with “uncovered” stock positions.

This bank is undervalued, and has profited during the pandemic.

The shares of this insurance business were recently upgraded to ‘Buy’ at Goldman Sachs.

The expiration of our April covered calls is tomorrow, and our positions are working very well, though several are now trading below the strike price of our covered call options.

We’ve seen a big improvement in the way many growth and early-stage stocks are acting over the last two weeks. Many of our stocks that sold off in March have been gaining some altitude back, and many of those that were acting well continue to do so.

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.