Issues
Current Market OutlookWith the major indices in record territory and the leading growth stocks showing strength, it’s hard to be anything less than bullish right now. Even at these elevated levels, the market has provided us with a few attractive entry points recently. But with earnings season well underway and sentiment still elevated, the potential for near-term volatility has increased. Thus, it’s imperative not to throw caution to the wind in this news-sensitive environment. Given the weight of evidence, being selective when buying is the preferred tactic. The dominant intermediate-term trend is clearly up, though, so you don’t want to be too defensive. We’ll keep our Market Monitor at 7 and see how things go from here.
This week’s list has a nice mix of stocks across several industries benefiting from different trends. Our Top Pick this week is CarParts.com (PRTS), which recently had a high-volume breakout from a huge basing pattern.
| Stock Name | Price | ||
|---|---|---|---|
| Agilent Technologies (A) | 128 | ||
| Analog Devices (ADI) | 160 | ||
| CarParts.com (PRTS) | 21 | ||
| Chegg (CHGG) | 112 | ||
| eXp World Holdings (EXPI) | 80 | ||
| Freeport-McMoRan Inc. (FCX) | 33 | ||
| Johnson Controls International plc (JCI) | 53 | ||
| Pinterest (PINS) | 89 | ||
| Square, Inc. (SQ) | 276 | ||
| Twitter (TWTR) | 74 |
The bull market is alive and well, though frothiness and investor exuberance are reminders that you shouldn’t leave your brain at the door. Always remember to manage your risk.
Speaking of risk, today’s recommendation is more speculative than most of our recommendations, so if you invest, start small. The sector it’s working in is hot, the story is interesting, and the stock’s chart is solidly positive, without being overextended, so I’m intrigued.
As for our current holdings, I’m selling one stock that achieved its target (good) and one that continues to decline and is now our biggest loser (bad).
Details inside.
Speaking of risk, today’s recommendation is more speculative than most of our recommendations, so if you invest, start small. The sector it’s working in is hot, the story is interesting, and the stock’s chart is solidly positive, without being overextended, so I’m intrigued.
As for our current holdings, I’m selling one stock that achieved its target (good) and one that continues to decline and is now our biggest loser (bad).
Details inside.
Put simply, the market’s snapback from the selloff two weeks ago has been extremely impressive, and while it doesn’t erase all of the yellow flags, it’s certainly a positive sign. Because we didn’t drastically change our stance during the weakness (a little trimming), we’re not doing anything drastic during the rebound — at least not yet. We filled out our position in CrowdStrike last week and are placing Pinterest and Twilio back on Buy.
If all goes well, we could have a new addition or two soon, with our top choices written about in tonight’s issue. But tonight, we’ll stand pat and see how the market acts as earnings season continues.
If all goes well, we could have a new addition or two soon, with our top choices written about in tonight’s issue. But tonight, we’ll stand pat and see how the market acts as earnings season continues.
Market performance for the rest of the year will depend upon a full recovery brought on by the vaccines the removal of lockdowns and restrictions. If that doesn’t happen, look out. But I’m confident it will.
Of course, the pricey market indexes don’t apply to many individual stocks. Some stocks are very overvalued while others remain undervalued. At this point, the more conservative play is to target stocks with cheap valuations to buy, especially while many of those bargain stocks also have newfound momentum.
In this issue, I highlight a blue-chip energy stock. It sells at a dirt-cheap valuation while paying a high and safe dividend. It also has strong momentum ahead of what is likely to be a year of vastly improved profits.
Of course, the pricey market indexes don’t apply to many individual stocks. Some stocks are very overvalued while others remain undervalued. At this point, the more conservative play is to target stocks with cheap valuations to buy, especially while many of those bargain stocks also have newfound momentum.
In this issue, I highlight a blue-chip energy stock. It sells at a dirt-cheap valuation while paying a high and safe dividend. It also has strong momentum ahead of what is likely to be a year of vastly improved profits.
Today, we are recommending a mini conglomerate.
The stock is near a 52 week high, but there is at least 50% upside for the stock.
This company’s characteristics include:
All the details are inside this month’s Issue. Enjoy!
The stock is near a 52 week high, but there is at least 50% upside for the stock.
This company’s characteristics include:
- A cheap valuation (0.3x revenue)
- One of the best value creators of all time on the management team
- Several hidden assets that will be spun off in the next year to unlock value
- High insider ownership.
All the details are inside this month’s Issue. Enjoy!
The stock market enjoyed a big upside reversal last week, snapping back strongly from the recent slump. The DJIA rose 3.9% for the week while the S&P 500 gained 4.6%. Big-tech stocks reasserted a leadership role thanks in part to blow-out earnings from Amazon (AMZN) and Alphabet (GOOGL), propelling the Nasdaq to a 6% advance for the week.
Current Market OutlookLast week’s issue was titled “Next Few Days Should be Key,” and we think they were—in a bullish way. The market’s strong snapback to new highs (in the indexes and many leaders) made the prior dip look like a shakeout, which generally bodes well. That said, the action didn’t erase all the yellow flags out there, either, as sentiment is bubbly, many stocks are extended in time and price and, most important, tons of names are set to report earnings in the days ahead, which will be key for the intermediate term. Don’t get us wrong, we’re encouraged, but we still think it’s best to pick your spots on the buy side and trail your stops (and book some partial profits here and there) as opportunities arise. We’ll move our Market Monitor back up a notch and see how things go from here.
This week’s list is brimming with strong names, including more than a few that reacted well to earnings last week. For our Top Pick, we’ll go with Dynatrace (DT), which has just gotten going from a multi-month structure and looks ready for a sustained advance.
| Stock Name | Price | ||
|---|---|---|---|
| Align Technology (ALGN) | 602 | ||
| Bill.com Holdings (BILL) | 179 | ||
| Canada Goose Holdings (GOOS) | 42 | ||
| Dynatrace (DT) | 56 | ||
| PayPal (PYPL) | 282 | ||
| Pinduoduo (PDD) | 188 | ||
| SM Energy (SM) | 12 | ||
| Snap Inc. (SNAP) | 64 | ||
| Tapestry, Inc. (TPR) | 39 | ||
| Zendesk (ZEN) | 156 |
First, note that next week’s Presidents Day holiday means we will publish Cabot Stock of the Week a day later, on Tuesday, February 16th.
As for the market. last week’s GameStop affair had the potential to trigger a broad correction—but it didn’t. Thus, the bull market remains intact, the buyers remain in charge and I am happy to recommend a fast-growing company with a great story today.
Sadly, that means I need to sell something to stay at or under 20 stocks, and the victim today (locking in a nice profit) is Qualcomm (QCOM).
Details inside.
As for the market. last week’s GameStop affair had the potential to trigger a broad correction—but it didn’t. Thus, the bull market remains intact, the buyers remain in charge and I am happy to recommend a fast-growing company with a great story today.
Sadly, that means I need to sell something to stay at or under 20 stocks, and the victim today (locking in a nice profit) is Qualcomm (QCOM).
Details inside.
Updates
There are two portfolio changes in this week’s update.
Even with increased tariff talk and even rockier trading, the markets rebounded strongly Monday. The volatility has increased anxiety, but the consistent bounces are a good sign. In other news, oil prices are bouncing back, interest rates remain subdued, and earnings season begins this week.
We’re still in the midst of a market correction that began in late January. I consider this correction to be perfectly normal, and unrelated to politics, economics, natural disasters or war. In short, the stock market rose for 15 months without resting, and it was overdue to rest. Sometimes things really are that simple.
There are two portfolio changes in this week’s update.
Remain cautious. Our Cabot Tides and Two-Second Indicator remain negative, but the market’s longer-term trend is still up and encouragingly, many stocks are holding support. We think there will be some great opportunities down the road, but until the buyers retake control, it’s best to cut back on new buying and hold a good amount of cash on the sideline.
Markets pulled it together last week, with oversold financial and consumer stocks finding support and delivering gains for the holiday-shortened week. However, the market started this week with another sharp pullback Monday, bringing the Dow and S&P 500 back to their February lows. And markets look set to open lower today after China announced a slew of retaliatory 25% tariffs on U.S. exports. A rebound later this week is likely, but not certain.
As we move forward we’ll look to focus capital on companies with both solid growth profiles and encouraging price charts. One without the other hasn’t been working (and in fact many of these stocks are trending down), so there’s not much incentive to hold underperformers and hope for a quick turnaround.
Our Emerging Markets Timer has turned negative, but its action of the past two months looks more like a trading range than a downtrend. Overall we continue to take things on a stock-by-stock basis; we have several stocks that are teetering on the edge of being kicked out of the portfolio, but we’re inclined to be patient unless a stock’s decline forces our hand.
U.S. stock markets continue to work their way through the 2018 stock market correction. It’s not a bear market—it’s just a correction. And fortunately, the correction did not arrive due to a bearish economic situation, war or a California earthquake. The market simply rose too far, too fast without resting in 2017. As such, most stocks are down from very recent highs while the market digests that gourmet dinner.
Unless you’re a brand new subscriber to Cabot Undervalued Stocks Advisor, you’re aware that as we entered 2018, I had been advising investors to raise cash so that they could buy low during the yet-to-occur-but-overdue stock market correction. There was nothing amiss with U.S. stocks, in my estimation, other than that the markets rose continuously since the November 2016 general election.
Most of the stocks in our portfolio that are holding up well (and in many cases moving higher) are either rated buy or hold, and those that aren’t have already been sold, or are rated hold, and being watched extremely closely.
As I bring you up to date on the remaining Benjamin Graham Value portfolio stocks, I’m aware that some subscribers are not entirely aware of the recent change at Cabot. The Cabot Benjamin Graham Value Investor (BGV) publication has been discontinued (please check your inbox from March 12), and I’ll be writing about its portfolio stocks until such a time as it seems prudent to sell them, one at a time, for better investing opportunities.
Alerts
The market enjoyed a couple rounds of decent buying during the past week, but today brought a huge round of selling as the headlines blared about the inverted yield curve.
Yesterday’s strong market triggered a technical indicator, a follow-through signal that tells us buyers are lurking. Of course, today’s big decline so far isn’t good to see, but nevertheless, this and other measures (awful sentiment, etc.) tell us there should be support on weakness.
A spin-off is in the works for this entertainment company, and analysts are forecasting the company will grow at an annual rate of 16.9% over the next five years.
This 5G player is forecasted to grow at an annual rate of 20% over the next five years.
The good news is that many cannabis companies have been releasing their second quarter reports and the results have been excellent.
In the past 30 days, eight analysts have raised their earnings estimates for this tech company.
Four stocks in our portfolios reported earnings this week.
The top five holdings in this fund are: Total System Services Inc (TSS. 3.93% of total assets); VeriSign Inc (VRSN, 3.62%); Roper Technologies Inc (ROP, 2.75%); Fiserv Inc (FISV, 2.43%); and WellCare Health Plans Inc (WCG, 2.22%).
The market has opened higher today following yesterday’s nice upside reversal. Recent support combined with some positive action among some growth stocks is encouraging.
This software company is forecasted to grow at an annual rate of 51% over the next five years.
One of the portfolio stocks is being sold.
Another sell recommendation whose quarterly earnings disappointed.
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 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.