Current Market Outlook


Last week, the selling that had been concentrated in growth names spread to the rest of the market through Wednesday, though a late-week bounce helped a bit. Still, not much has changed with the overall environment—growth stocks remain in the dumps, and while bounces are possible (many fell 20% to 30% in just the past three weeks), there’s a lot of damage to repair. The broad market is obviously in better shape, where we still see some good opportunities (mostly after bullish earnings pops), but even there the action is turning choppy and challenging, with news-driven moves, rotation and whipsaws. Overall, we’re fine taking a swing or two at stocks and sectors that are still in favor, but we also think it’s best to stay relatively cautious until we see broad buying power emerge.

This week’s list is almost all turnaround and cyclical-type stories, and our Top Pick is International Game Technology (IGT), which is benefiting from both the reopening of casinos and also the growth wave in sports betting.

Stock Name	Price	Buy Range	Loss Limit
AutoNation (AN)	105	101.5-104	91.5-93.5
Callaway Golf (ELY)	34	32.5-34.5	28.5-29.5
Camping World Holdings (CWH)	45	44-46	39-40
CF Industries (CF)	55	52.5-55	47-48.5
Cimarex Energy (XEC)	74	71.5-74.5	61-63
International Game Technology (IGT)	22	21-22.5	17.5-18.5
Leggett & Platt, Incorporated (LEG)	56	53-55	49-50
Summit Materials (SUM)	34	31.5-33	28.5-29.5
WestRock Company (WRK)	62	58.5-60.5	53-54
Yeti Holdings (YETI)	86	83.5-86.5	76-77

Fears and evidence of rising inflation hammered Wall Street this week so today we are selling two lagging positions and adding a blue-chip inflation hedge. The Fed may begin pulling back on monetary stimulus and increasing interest rates. It is possible that all of this is being overdone and that inflation will be only transitory, in which case market bulls will swoop in to buy stocks at some point. We need to stay in the middle. Avoid panic selling and buy conservative quality.

Today, we are recommending a classic re-opening play.

Our latest recommendation operates golf courses as well as “entertainment” golf venues (high tech driving ranges). Traditional golf is booming and “entertainment” golf will boom in 2021 as vaccine penetration continues to increase and life returns to normal.



Some additional details:

• The company will roll out its new concept (modern adult mini golf) and expects strong revenue growth.
• Insider ownership is high, and there has been recent insider buying.
• Downside is limited given asset value of golf operations business and existing entertainment venues.
• My price target implies 100% upside, but in my bull case scenario, we could see ~250% upside.

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

While stocks may well trend higher over the rest of the year, it is unlikely the recent remarkable pace higher can last. The easy money and sky-high returns of the earlier recovery may be over. But the party for income investors is still going strong.

You can find yields of 6% or 7% and even higher on stocks with good momentum and a positive outlook over the remainder of the year. These kinds of yields haven’t been around since 2010, when stocks were still depressed from the financial crisis. Those yields didn’t last. And neither will these.



In this issue I highlight a phenomenal stock. It sells at a cheap valuation, has great momentum and a sky-high 7% yield that is not only safe and secure, but the payout is likely to grow at a high rate going forward.

The Cabot Profit Booster portfolio continues to be in the right stocks, even as sector rotation intensifies and countless stocks have come under intense selling pressure. This is a great situation, and sparked a great question from a CPB subscriber:

The market’s main trend remains up and thus I continue to recommend that you be heavily invested in stocks that can help you meet your investing goals, all while remaining diversified to reduce risk.

However, it’s become increasingly difficult to hold on to growth stocks. Last week I dealt with that by recommending a low-risk income stock with decent growth potential, and this week I’m recommending a very cyclical stock in an industry that was recently deeply out of favor.



As for our current holdings, this week there are two sells and three downgrades to Hold.



Details inside.

Current Market Outlook


While there are still a handful of growth stocks in decent shape, the spate of setups we saw during the past few weeks has been replaced by a ton of breakdowns, including many big winners from last year slicing below longer-term support. Meanwhile, the broad market is OK, while some areas (commodity stocks, financials and many turnaround situations) are accelerating higher. For the here and now, sticking with what’s working (and avoiding what’s cracked) is key, but also keep in mind that such divergences can lead to wild action and reversals. Thus, some buying here or there is fine, but pick your spots (and stocks) carefully, take partial profits on the way up and don’t get too aggressive.

This week’s list is chock-full of names that are thriving in this environment, including a few that are getting going after multi-month rests. Our Top Pick is Wesco (WCC), a dominant electronic products distributor, which just gapped out of a base on earnings last week.

Stock Name	Price	Buy Range	Loss Limit
Celanese (CE)	167	162-166	149-152
Cleveland-Cliffs (CLF)	21	19.5-21	16.5-17.5
Devon Energy (DVN)	26	25-26.5	21.5-22.5
Fortune Brands Home & Security (FBHS)	112	107-110	97-99
Franklin Resources, Inc. (BEN)	35	33-34.5	29.5-30.5
Funko, Inc. (FNKO)	23	22-23.5	19-20
Revolve Group (RVLV)	48	52-54	45-47
Schlumberger (SLB)	32	29.5-31	26.5-27.5
Under Armour, Inc. (UAA)	23	22.5-24	20.5-21
WESCO International (WCC)	108	105-108.5	94-96

This month we are changing things up a little and featuring a small company I suspect you’ve never heard of. It’s an up-and-coming Canadian media production and distribution company.

The company’s content has increasingly shown up on Netflix, AppleTV+, HBO Max, Amazon and Peacock. Much of the programming is for kids and families, which is where the growth and more significant deal flow is. But the company has also had many years of success in reality TV.



It is a speculative investment and trading liquidity is thin, so treat it appropriately and space out share purchases. Part of the strategy here is that we’re following a micro-cap fund that I respect into this trade, and their successful track record, philosophy and long-term holding strategy lends credibility beyond the increasingly visible presence of the company’s programming.

We’re going through a period of tremendous stock price volatility, very similar to the aftermath of a correction in the broader stock market, except this particular price action is affecting random individual stocks and industries.

Growth stocks snapped back today after yesterday’s blood bath, and our trend-following market timing indicators remain positive. Thus, we’re sticking with a heavily invested position, though are keeping a close eye on growth stocks and their reactions to earnings during the next couple of weeks.

There are no rating changes in today’s update.

We’re going to be laser focused on earnings for the next three weeks given that 11 of our positions will report within that time frame.

Emerging market stocks have been attempting to bounce after a sharp selloff in late June, but haven’t been able to hold up to investors’ fears of a trade war between the U.S. and China.

Crista has three portfolio changes today.

Markets remain strong. The major stock market indexes all ended last week in the black and, after a brief pause Monday, advanced strongly yesterday. Earnings season has began and only rating change today moving a position to hold.

Earnings Season – Second quarter earnings season began late last week. Your brokerage firm probably provides quarterly earnings estimates on a thousand stocks. Call your advisor or use their website chat box to find out where to locate the quarterly earnings estimates.

Talk of trade wars continues to dominate stock market news but investors appear increasingly willing to shrug off related concerns. They do in the U.S. at least, where stocks are faring far better than in both the European Union and emerging markets.

If you own shares of Walt Disney (DIS), it’s time to decide whether you’re planning to hold it forever because you’re in love with the stock, or whether you’d rather trade it for an undervalued growth stock, thereby lowering your portfolio risk and increasing your chances of achieving capital appreciation.

The market’s bounce off support last week was encouraging, and while we remain in a news-driven, choppy environment, our current cash level is too high given the mostly positive evidence. Thus, tonight, we’re adding two new stocks leaving us with a cash position of 20%.

Markets ended last week with a strong performance, despite the mid-week holiday, which typically reduces trading. For now, I have no portfolio changes. If you’re looking to a do a little buying, we have plenty of options in every tier of the portfolio.

Shares of this animal health company fell after the announcement of its recent acquisition, but it appears that was an overreaction.

It’s been just over a week since the first Issue of Cabot Early Opportunities became available and I’d first like to thank all of you for jumping in early, and for the loads of positive feedback I’ve received.

Yesterday, investment manager Elliott Management Corp. sent a letter to Marathon Petroleum (MPC), the nation’s largest energy refiner, seeking changes that could potentially increase the MPC share price.

This preferred stock is issued by a large regional bank and pays above average yields.

Our second recommendation is a sale of a company whose guidance has faltered.

The shares of our first idea today were just initiated with a ‘Buy’ rating at Jefferies. Our second recommendation is a sale of a company whose guidance has faltered.

While this company is straightening out its financial snafu, the shares are trading at bargain levels and analysts are predicting 30% annual growth over the next five years for the company.

Continue to step lightly. The overall market is still positive, but it’s clear that the buyers aren’t in firm control—the environment is news driven and rotational, with few stocks hitting new highs.

Analysts are forecasting annual growth of 43.9% next year for this tech company.

The shares of this transportation company were recently upgraded by KeyBank to ‘Overweight’.

In the broad market, all is well, as all trend-following indicators are positive, and the number of stocks hitting new lows has been minuscule in recent days.

Coverage of the shares of this industrial and energy services provider were recently initiated by Credit Suisse with an ‘Outperform’ rating, and upgraded by Raymond James to ‘Outperform’.

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.