Issues
After a nearly 5% drop in September, investors once again stepped in, bought the dip, and have managed to push the market higher for a fourth straight week.
Stocks added to recent gains this past week, driving the Dow and S&P 500 to fresh highs. The S&P 500 rose 1.3%, the Dow climbed 0.4%, and the Nasdaq added 2.7%. And the bullish ways continued Monday as all of the major indexes piled on to recent gains.
Year-to-date the S&P 500, Dow and Nasdaq are up 22.6%, 17.0% and 20.3%, respectively.
And to put things into an even greater perspective the last three years have seen the S&P 500 up 29% in 2019, 16% in 2020 and over 22% in 2021.
The talking heads would have you believe a variety of different reasons for the prolonged rally, but ultimately it comes down to simple supply and demand. Over the past 18 months daily net inflows are triple what they were prior to the pandemic.
And right now, the firepower used to buy the dips, including FOMO (“fear of missing out”) and/or TINA (“there is no alternative”) seem to be enough ammunition to keep pushing the market higher.
Stocks added to recent gains this past week, driving the Dow and S&P 500 to fresh highs. The S&P 500 rose 1.3%, the Dow climbed 0.4%, and the Nasdaq added 2.7%. And the bullish ways continued Monday as all of the major indexes piled on to recent gains.
Year-to-date the S&P 500, Dow and Nasdaq are up 22.6%, 17.0% and 20.3%, respectively.
And to put things into an even greater perspective the last three years have seen the S&P 500 up 29% in 2019, 16% in 2020 and over 22% in 2021.
The talking heads would have you believe a variety of different reasons for the prolonged rally, but ultimately it comes down to simple supply and demand. Over the past 18 months daily net inflows are triple what they were prior to the pandemic.
And right now, the firepower used to buy the dips, including FOMO (“fear of missing out”) and/or TINA (“there is no alternative”) seem to be enough ammunition to keep pushing the market higher.
Last week brought some renewed chop and crosscurrents, with broader indexes finding some sellers and a few stocks hitting potholes before or after earnings. Moreover, we’re seeing indications that complacency has made a quick comeback, and with many good-looking stocks set to report earnings over the next two weeks, some near-term selling wouldn’t surprise us. Even so, all of this looks normal in the context of where the market has come from: The prior three weeks were excellent, the intermediate-term trend is pointed up and the vast majority of stocks are acting well. Could we see another change in character, with the market falling back into its spin-cycle ways of 2021? It’s always possible, but we go with the weight of the evidence, which today remains mostly positive. We’ll leave our Market Monitor at a level 7 today.
This week’s list is another well-rounded one, with some recent earnings winners and stocks from a variety of industries. Our Top Pick is Enphase Energy (ENPH), which appears to be getting going from a deep base after earnings. We prefer entering on a bit of weakness if possible.
| Stock Name | Price | ||
|---|---|---|---|
| Albemarle Corporation (ALB) | 256 | ||
| Bonanza Creek Energy (BCEI) | 56 | ||
| Coinbase (COIN) | 331 | ||
| Dexcom (DXCM) | 627 | ||
| Enphase Energy (ENPH) | 240 | ||
| J.B. Hunt (JBHT) | 196 | ||
| Medpace (MEDP) | 226 | ||
| Marvell Technology Group (MRVL) | 69 | ||
| SLAB (SLAB) | 193 | ||
| WOLF (WOLF) | 131 |
With three strong weeks of action behind us, all market trends are now positive—plus we’ve come through the often-tricky September-October period with minimal losses—so I once again recommend that you be heavily invested in a diversified group of stocks that meet your investing needs.
Today’s recommendation is a consumer name you know well, a medical juggernaut that’s cheap and pays a good dividend.
As for selling, I’m doing none today. The portfolio is full, with most stocks going the right direction.
Details inside.
Today’s recommendation is a consumer name you know well, a medical juggernaut that’s cheap and pays a good dividend.
As for selling, I’m doing none today. The portfolio is full, with most stocks going the right direction.
Details inside.
Facing the usual uncertainty and mixed earnings reports, stocks were a bit choppy this week, prompting the Explorer to exit two positions (details inside). Conversely, Novonix (NVNXF) is up over 100% since August and Cloudflare (NET) continues its strong upward trend. This week we highlight the supply-chain chaos and recommend a new company that’s helping its clients untangle and profit from the disruption.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November 2021 issue.
Consumer staples stocks were pandemic beneficiaries, but now that the worst has passed, many of these stocks have been sold off fairly hard, even as the stock market continues to reach record highs. While investor concerns regarding negative year-over-year sales, tighter margins due to inflation, and the degree to which companies can raise prices have merit, we make our case for four stocks that have been discarded and now look like bargains.
Bank stocks have been strong performers following the pandemic stock market trough, including those we highlighted in late April 2020. Yet, not all have fully participated. We found four that have good fundamentals yet trade at price/earnings multiples below 10x, considerably lower than the peer average of 14.5x.
Consumer staples stocks were pandemic beneficiaries, but now that the worst has passed, many of these stocks have been sold off fairly hard, even as the stock market continues to reach record highs. While investor concerns regarding negative year-over-year sales, tighter margins due to inflation, and the degree to which companies can raise prices have merit, we make our case for four stocks that have been discarded and now look like bargains.
Bank stocks have been strong performers following the pandemic stock market trough, including those we highlighted in late April 2020. Yet, not all have fully participated. We found four that have good fundamentals yet trade at price/earnings multiples below 10x, considerably lower than the peer average of 14.5x.
The marijuana sector peaked in February, corrected strong for a couple of months, and since then has been sinking slowly lower, shaking out weak hands as it prepares for its next upmove.
Fundamentals in the industry remain terrific, as I am confident third-quarter results will soon reveal, and while the trend toward legalization in the U.S. continues, it’s taken a back seat at the federal level for now, so all the action remains at the state level.
In the portfolio today, we continue to hold patiently, with the portfolio more than one-third in cash, waiting for a new uptrend—but if you’re eager to buy now (while things look cheap) I do have some suggestions.
Full details in the issue.
Fundamentals in the industry remain terrific, as I am confident third-quarter results will soon reveal, and while the trend toward legalization in the U.S. continues, it’s taken a back seat at the federal level for now, so all the action remains at the state level.
In the portfolio today, we continue to hold patiently, with the portfolio more than one-third in cash, waiting for a new uptrend—but if you’re eager to buy now (while things look cheap) I do have some suggestions.
Full details in the issue.
You can still find sky-high yields.
Despite the recovery in the overall market, there are still lingering pockets of high yields. It reminds me of the years following the financial crisis. You could still find good stocks that paid a sky-high income relatively easily. But the situation didn’t last. Those high yields on quality stocks evaporated as investors realized the opportunity.
Some of the current high yields probably won’t last long either.
At the same time, it’s a great time for cyclical stocks. The economy is still booming. Plus, we are likely at the point in the economic cycle where such stocks tend to do best. We are likely still in the early stages of a bull market and recovery.
In this issue, I found a stock that benefits from both opportunities. It has a stratospheric 11.5% yield that likely won’t last. At the same time, the yield should be safe and growing as the company is highly cyclical.
Despite the recovery in the overall market, there are still lingering pockets of high yields. It reminds me of the years following the financial crisis. You could still find good stocks that paid a sky-high income relatively easily. But the situation didn’t last. Those high yields on quality stocks evaporated as investors realized the opportunity.
Some of the current high yields probably won’t last long either.
At the same time, it’s a great time for cyclical stocks. The economy is still booming. Plus, we are likely at the point in the economic cycle where such stocks tend to do best. We are likely still in the early stages of a bull market and recovery.
In this issue, I found a stock that benefits from both opportunities. It has a stratospheric 11.5% yield that likely won’t last. At the same time, the yield should be safe and growing as the company is highly cyclical.
Silver Resumes Leadership Position over Gold
After a seemingly interminable decline this summer, silver prices are once again showing strength. And of greater significance, they’ve finally resumed a relative strength position over gold.
As emphasized here, silver leadership is typically a prerequisite for a strengthening gold market. That said, silver’s latest rally is welcome news for our speculative long position in our favorite gold-tracking ETF.
In the industrial metals, aluminum is still strong while copper has lately been the subject of a massive short-covering event. Lithium, meanwhile, is also in a solid position while the uranium market has been resurgent—thanks in part to the Reddit crowd.
After a seemingly interminable decline this summer, silver prices are once again showing strength. And of greater significance, they’ve finally resumed a relative strength position over gold.
As emphasized here, silver leadership is typically a prerequisite for a strengthening gold market. That said, silver’s latest rally is welcome news for our speculative long position in our favorite gold-tracking ETF.
In the industrial metals, aluminum is still strong while copper has lately been the subject of a massive short-covering event. Lithium, meanwhile, is also in a solid position while the uranium market has been resurgent—thanks in part to the Reddit crowd.
Fueled by better-than-expected earnings last week the S&P 500 rose 1.6%, the Dow climbed 1.1%, and the Nasdaq added 1.3%.
Despite the strong week, on Friday traders’ enthusiasm for the recent rally faded a bit after Fed Chairman Jerome Powell’s commented that the central bank was “on track” to begin reducing its purchases of assets.
However, Monday the bulls stepped right back in and once again “bought the dip.”
This week brings earnings announcements from key mega-cap tech names Amazon (AMZN), Facebook (FB), Alphabet (GOOG), and Apple (AAPL). There is also a bevy of blue chips reporting including United Parcel Service (UPS), Visa (V), McDonald’s (MCD), Coca-Cola (KO), Boeing (BA), Merck (MRK), Caterpillar (CAT) and numerous others. Brace yourself, it’s going to be exciting!
Energy has taken off lately and I want to add exposure to the sector. However, I still want to maintain a somewhat conservative stance, especially as this week’s pick will report earnings next week. As a result, I will be selling in-the-money calls on hydrocarbon explorer Marathon Oil (MRO).
Despite the strong week, on Friday traders’ enthusiasm for the recent rally faded a bit after Fed Chairman Jerome Powell’s commented that the central bank was “on track” to begin reducing its purchases of assets.
However, Monday the bulls stepped right back in and once again “bought the dip.”
This week brings earnings announcements from key mega-cap tech names Amazon (AMZN), Facebook (FB), Alphabet (GOOG), and Apple (AAPL). There is also a bevy of blue chips reporting including United Parcel Service (UPS), Visa (V), McDonald’s (MCD), Coca-Cola (KO), Boeing (BA), Merck (MRK), Caterpillar (CAT) and numerous others. Brace yourself, it’s going to be exciting!
Energy has taken off lately and I want to add exposure to the sector. However, I still want to maintain a somewhat conservative stance, especially as this week’s pick will report earnings next week. As a result, I will be selling in-the-money calls on hydrocarbon explorer Marathon Oil (MRO).
The past three weeks have gone about as well as anyone could have hoped (assuming you’re a bull), with three main positive things. First and foremost, the major indexes have rallied enough to quickly flip the intermediate-term trend back up. Second, the upmove has been both broad (most stocks and sectors have rallied, with the rotation of 2021 taking a back seat for now) and coming during a spate of worrisome news (hyperinflation!). And third has been the action of leading stocks (especially growth stocks), many of which have been lighting up the sky. It’s not all peaches and cream, with earnings season set to really pick up steam, and that can always change a stock’s positioning. Thus, you shouldn’t throw caution to the wind, but you also shouldn’t ignore the shift in the evidence—we’ll keep our Market Monitor at a level 7 today but could hike it if we start seeing some bullish earnings gaps.
This week’s list has something for everyone, from small growth stocks to good-sized commodity plays that are seeing earnings boom. But we’re going with an oldie-but-goodie for our Top Pick: Netflix (NFLX), which isn’t the young buck it once was, but business is doing great and the stock is picking up steam after breaking out from a year-long base.
| Stock Name | Price | |
|---|---|---|
| Arch Coal (ARCH) | 97 | |
| Ford Motor Co. (F) | 16 | |
| KKR & Co. Inc. (KKR) | 75 | |
| Marathon Oil (MRO) | 17 | |
| monday.com Ltd. (MNDY) | 383 | |
| MongoDB (MDB) | 519 | |
| Netflix, Inc. (NFLX) | 672 | |
| SiteOne Landscape Supply (SITE) | 228 | |
| Tandem Diabetes (TNDM) | 129 | |
| United Rentals, Inc. (URI) | 366 |
Updates
It’s the middle of the summer swoon. But there’s a lot going on in the market, namely earnings. Overall, this earnings season is shaping up to be positive but uninspired.
Last week’s economic reports delivered good news, presuming that you are rooting for a stable or strong U.S. economy. June retail sales rose 0.4% vs. May, when economists expected an 0.2% increase; and retail sales also rose 3.4% vs. a year ago.
This week marks the beginning of the second-quarter earnings season. I don’t foresee any major changes in the trends in any of our companies, but stock price reactions and trends don’t always line up in the short term.
Our emerging markets (EEM) signal continues to be positive and right on top of its 20-day moving average as China and other emerging markets are bumping along and lacking a decisive uptrend.
Things look pretty darn good. The S&P 500 has broken the 3000 level for the first time ever and is within a whisker of its all-time high. The index is up over 9% since the beginning of June and 20% so far in 2019.
From a stock market point of view, I suggest avoiding homebuilder stocks in the coming years. Companies that build single-family homes will be competing with a glut of existing homes on the market.
This week’s market recap is a familiar story—the major big-cap market indices are doing great! But the small cap index is still wallowing in the mud.
Remain mostly bullish, but continue to pick your spots. The overall market looks great, and our own 7.5% Rule has flashed, portending higher prices in the months ahead.
The market is at new all-time highs. If there’s more bad news, it could go a lot higher. The biggest risk to the market right now is stronger-than-expected second-quarter GDP growth.
Alerts
Please understand that stock market corrections are about market adjustments and reactions to news and economic scenarios.
Wall Street expects this REIT to grow by 10.3% annually over the next five years. The REIT has a current dividend yield of 3.93%, paid quarterly.
This portfolio stock reported preliminary Q4 revenue results a while back that were better than expected, and last night in the official earnings release and on the conference call management announced that profitability was also way above expectations.
This credit information company beat earnings estimates by $0.04 last quarter.
This biopharma handily beat earnings estimates this past week, posting EPS of $0.08, significantly higher than the -$0.06 loss that was expected.
After seven consecutive down days and a swift, brutal stock market correction, we’re bound to see a few up days quite soon. Please be cautious.
This accessories manufacturer/retailer is trading at discounted levels.
This portfolio stock reported last night that Q4 revenue rose 20.6% to $43.5 million (beating by $1.7 million) and that adjusted EPS of -$0.21 beat by $0.07.
The market has been tripped up by what seems to be an overreaction to the potential economic disruption of the coronavirus, but which is more likely the result of a trifecta of potential issues including coronavirus, a previously elevated market trading at high multiples, and uncertainties related to this year’s Presidential election.
With the market’s decline only intensifying today, more stocks are beginning to crack.
Now that the market has fallen substantially, I think we’ve reaped the bulk of the potential profits on our recent purchase of these two ETFs.
Once again, the media has done a splendid job of creating fear and panic among the citizenry.
Portfolios
Strategy
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.