Issues
Not to sound like a broken record, but day-to-day sector rotation continues to be the story of the last week of trading, and almost all of 2021. The good news is that this is a fine situation for the Cabot Profit Booster portfolio as we are rotating with the market, buying the best stocks, and keeping the portfolio as diversified as possible.
The market’s main trend remains up and thus I continue to recommend that you be heavily invested, always working to “upgrade” your portfolio by selling weak stocks and buying healthier ones.
Today’s recommendation is a well-known big technology stock that’s spent the past eight months going sideways, despite the fact that revenue growth has been accelerating. To me, it’s a very attractive setup.
As for our current holdings, there are no changes. After selling two stocks last week, everything looks good today.
Details inside.
Today’s recommendation is a well-known big technology stock that’s spent the past eight months going sideways, despite the fact that revenue growth has been accelerating. To me, it’s a very attractive setup.
As for our current holdings, there are no changes. After selling two stocks last week, everything looks good today.
Details inside.
Current Market OutlookEarnings season is always important, but it looks even more so this time—many growth stocks have been sitting around for the past two to three months (some even longer), while a decent number of cyclical names have been mostly up-and-down for the past four to five weeks. Thus, a collection of positive, powerful reactions to earnings could result in a bunch of good-looking buying opportunities … but, as always, we have to wait to see that happen before pouncing. Just going with what’s in front of us, nothing much has changed, with a lot of good setups but also a lot of selling in names that approach their old highs. Once that changes (due to earnings reports or anything else), it will be time to get more aggressive, but right now we’re sticking mostly with a buy-on-dips approach and waiting for buyers to really flex their muscle.
This week’s list has a broad mix of names, though most are more cyclical or turnaround plays. Our Top Pick is Steel Dynamics (STLD), which just leapt to new highs out of a tight area on huge volume. You can start a position here or (preferably) on weakness.
| Stock Name | Price | ||
|---|---|---|---|
| Burlington Stores (BURL) | 321 | ||
| Floor & Décor (FND) | 113 | ||
| Goldman Sachs Group, Inc. (GS) | 343 | ||
| Harley-Davidson Inc. (HOG) | 48 | ||
| The Middleby Corporation (MIDD) | 181 | ||
| Okta, Inc. (OKTA) | 285 | ||
| Qorvo (QRVO) | 199 | ||
| Seagate Technology (STX) | 93 | ||
| Steel Dynamics (STLD) | 55 | ||
| Tractor Supply Company (TSCO) | 191 |
We continue to see more and more setups among growth stocks, but overall, the market remains in a spin cycle, with few stocks letting loose on the upside and incessant rotation among stocks and sectors. With the recent rally running into trouble, we cut bait with DraftKings (DKNG) earlier this week, but are willing to give the rest of our names some rope as we head into earnings season. Get all our latest thoughts on our stocks and our latest watch list in tonight’s issue.
In the April Issue of Cabot Early Opportunities we take a look at the red-hot real estate market and muse on the dramatic and lasting impacts from the Covid-19 pandemic.
We also take hints from the market’s action that it continues to be a time to focus on diversifying new buys across different markets. We take this evidence to heart and add five stocks that offer exposure to everything from resort travel to Afib surgical tools to digital transformation services.
Enjoy!
We also take hints from the market’s action that it continues to be a time to focus on diversifying new buys across different markets. We take this evidence to heart and add five stocks that offer exposure to everything from resort travel to Afib surgical tools to digital transformation services.
Enjoy!
April was another strong month for the Cabot Profit Booster portfolio as we locked in gains ranging from 3.7% to 7.9% on our six positions. Speaking of earnings, this week’s pick is a recent earnings season winner that busted out to a new high following reporting quarterly results.
Recent crosscurrents in the market have seen changes among sector leadership, and today we have a broad selloff, but overall, the main trend of the market is up and thus I continue to recommend that you be heavily invested.
Today’s recommendation is an attempt to benefit from sector rotation, by targeting a sector that’s still down; if the sector turns up soon, today’s buyers should profit handsomely.
As for our current holdings, two stocks are upgraded to buy today, while two are downgraded to sell as we cut our losses short. The adage that applies: There’s nothing wrong with being wrong; what’s wrong is staying wrong.
Details inside.
Today’s recommendation is an attempt to benefit from sector rotation, by targeting a sector that’s still down; if the sector turns up soon, today’s buyers should profit handsomely.
As for our current holdings, two stocks are upgraded to buy today, while two are downgraded to sell as we cut our losses short. The adage that applies: There’s nothing wrong with being wrong; what’s wrong is staying wrong.
Details inside.
Current Market OutlookGrowth stocks are still in mostly good shape, which is the good news. And while we see reasons for continued optimism, it’s also hard to be a raging bull right now. There’s quite a bit of rotation underway, and sentiment is still elevated. On top of that, the number of Nasdaq stocks making new lows is more than we’d like to see, which means cross-currents could become a factor in the near term. Still, the weight of evidence prevents us from being overly cautious; plus there are a fair number of nice-looking setups in individual stocks across several industries. With this in mind, we’re leaving our Market Monitor at level 6 for now.
This week’s list includes a mix of growth and cyclical themes, most of which have a solid story.
Our Top Pick is Nvidia (NVDA), an established semiconductor name with a growing presence in the soaring high-performance computing (HPC) market, and which has just broken out to new highs on strong volume.
| Stock Name | Price | ||
|---|---|---|---|
| ArcelorMittal (MT) | 30 | ||
| Brooks Automation, Inc. (BRKS) | 98 | ||
| Jabil Inc. (JBL) | 54 | ||
| JetBlue Airways Corporation (JBLU) | 20 | ||
| KBR Inc. (KBR) | 40 | ||
| Levi Strauss & Co. (LEVI) | 28 | ||
| NVIDIA Corporation (NVDA) | 614 | ||
| Snap-On Inc. (SNA) | 236 | ||
| Square, Inc. (SQ) | 245 | ||
| Vale S.A. (VALE) | 19 |
Updates
I wrote to you recently about upcoming changes in the Global Industry Classification Standard (GICS), which classifies stocks into 11 sectors and dozens of industries, and is commonly used in professional portfolio management as a guideline to portfolio diversity.
Small caps were basically flat over the past week. Since the beginning of May, the S&P 600 Small-Cap Index has made a strong move above prior resistance in the 980 to 990 range. And even with a little dip on Wednesday, the index is sitting right near an all-time high.
There is one change today: from hold to sell at 111.5.
Markets remain volatile, and some stock indexes started to diverge toward the end of last week. The rotation means some stocks are looking stronger than others, but overall the intermediate trend remains up. There are still plenty of yellow flags out there, but the market’s trend remains up, so if you’re underinvested, feel free to do a little buying here.
Remain bullish. Our stance hasn’t changed since last week, as our trend-following indicators are bullish and growth stocks are acting very well in general. Our cash position remains at 20%, though we could do new buying if we see a proper setup.
As early as last summer, I predicted that the S&P 500 would continue rising into early 2018, then experience its overdue correction. I was about a month off on the timing. I was guessing March, but the correction arrived in February. I was right on the size of the downturn, though, almost to the penny. That was a small part technical analysis and a large part luck.
Thursday marked the first day of somewhat significant turbulence in our portfolio in what seems like forever, but indications are that Friday will be back to business as usual, at least for the first part of the day.
Emerging market stocks have had a volatile week, with the iShares EM Fund (EEM) popping above its 25- and 50-day moving averages on Wednesday, but slipping back to the 50-day today.
Two stocks are being sold from the portfolio.
After one strong week in the market, over half the stocks in our portfolio are either at 52-week highs or close to their year-to-date highs. And that’s both good and bad.
Several of our stocks appear capable of beginning a new run-up.
Continue to lean bullish. The market’s rebound today after yesterday’s Italy-induced selloff was very encouraging, and both of our trend-following indicators remain bullish.
Alerts
We’re making some portfolio adjustments today.
The major indexes are tilted to the upside to start the week—however, under the surface, we’re continuing to see increasing selling pressure on most growth stocks.
This building materials company recently announced a new acquisition—Heritage One Door & Carpentry.
This company continues to spin off and acquire other businesses, strengthening its medical and commercial strategy.
As summer morphs into fall and Wall Street returns to full operation, I’m seeing some welcome signs of buying in the cannabis sector. So today we’ll join them, by averaging up in two of our holdings.
The second recommendation is a sale of a previous tech pick.
Our first idea today was just upgraded to ‘Buy’ at Loop Capital.
This contract research company beat analysts’ EPS estimates by $0.18 last quarter and six analysts have recently increased their earnings forecasts for the company.
We’re selling two stocks today.
This regional supermarket also gets a nod from Zacks, scoring an ‘A’ on its VGM (value, growth, momentum score)
One of our portfolio stocks moves from Strong Buy to Hold.
Despite the apparent death of the AMGN/ALXN merger, this stock continues to be a prime candidate for acquisition.
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.