As we near the end of 2020, I’m thankful that 2020 was so very good to the leading marijuana stocks, and that we managed, overall, to ride the trend quite profitably.

As I write, the uptrend is intact and we remain fully invested, but as the calendar turns to 2021, there’s a chance that the trend (and the trend of the broad market as well) might turn down.



Thus I’m on alert.



But I learned long ago not to argue with the trend of the market, so until the trend changes, I recommend staying heavily invested.



Full details in the issue.

This is one of the two weeks a year where Cabot Top Ten Trader is not published, which means there won’t be a new Profit Booster covered call trade this week. That being said, I did want to note that our four open positions (AA, UBER, ADNT, CDE) are all in good shape.

The New Year promises to be a great one for dividend stocks. After underperforming the market in 2020, the stars are aligning to make 2021 the year of the dividend.

The distribution of the coronavirus vaccine promises to bring this pandemic to an end and unleash a full and robust recovery in 2021. Energy stocks that had been neglected in the market recovery have caught fire in anticipation of a full recovery in 2021.



A huge and overdue rally in the sector has paused temporarily ahead of a very promising year, giving us an opportunity to get into one of the very best stocks in the sector at a still cheap price.



Global energy giant Chevron (CVX) currently offers the rare combination of great value and momentum, as well as a fat yield. The stock has already moved higher, the rally has a long way to go.

This month we review how the capital markets performed in 2020 and provide our outlook for 2021. We look at the broad equity market and trends below the surface, including growth/value, large/small and sector returns. We also briefly discuss the global equity and commodity markets as well as the U.S. fixed income markets. Our outlook starts with a review of how our 2020 outlook turned out, then dives into what we see for 2021 for the S&P 500, touches upon the rising influence of the two “Easts” and our wariness about speculation, and concludes with some timeless perspective about investing.

The issue also reviews the high yield bond market. We follow the high yield bond market as it provides a different perspective on equity markets. Importantly, there is considerable overlap among high yield bond investors, turnaround investors and private equity investors who may acquire undervalued companies.



Each January, we highlight our “Top Five” stocks for the coming year, based on a combination of favorable risk/return and timeliness. For 2021, our Top Five includes Conduent (CNDT), Meredith Publishing (MDP), Newell Brands (NWL), Signet Jewelers (SIG) and Wells Fargo (WFC).



Our feature recommendation is Ironwood Pharmaceuticals (IRWD). The market views Ironwood as a failed pharmaceutical company but its low share valuation, steady/rising profits and the presence of an effective activist investor make the stock a stand-out value, in our view.



The letter also includes a summary of our recent sales of GameStop (GME) and Freeport-McMoran (FCX), our price target increases for Trinity Industries (TRN), Adient (ADNT), DuPont (DD) and General Motors (GM) as well as the full roster of our current recommendations.



Please feel free to send me your questions and comments. This newsletter is written for you. A great way to get more out of your letter is to let me know what you are looking for.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

Last Friday was the expiration of our December covered call positions, and I’m happy to report it was yet another great month. Here were our final profits and yields:

Note: This is our final issue of Cabot Stock of the Week this year. Next week we get a little “vacation.”

But rest assured we’ll be keeping an eye on the market, where market trends remain very positive as we head toward the end of the year.



Today’s recommendation is a low-risk water company in a foreign country, so it may be the perfect diversification move if you’ve got a lot of U.S. growth stocks.



But to fit it into the portfolio, we’ve got to sell something, and the victim this week is Eli Lilly (LLY), which has brought us a decent profit in a fairly short time.



Full details in the issue.

Current Market Outlook


News of travel restrictions due to a new strain of the virus over in Europe hit the major indexes early today, but when it comes to our analysis, the reason for the initial selloff is secondary—the setup for an air pocket has been around for a couple of weeks as sentiment was elevated and most stocks and indexes were extended to the upside. Thus, today’s hiccups weren’t totally unexpected, but the damage was limited; at day’s end, the major indexes held up well and remain in intermediate-term uptrends, as do most stocks. Near term, further reverberations are likely, so we still think it best to pick your spots and stocks carefully, but with the major evidence still positive, we are too.

This week’s list has a nice mix of stocks benefiting from different trends (growth, reopening, cyclical, etc.). Our Top Pick is Elastic (ESTC), which has finally, decisively gotten going from a long 20-month IPO base.

Stock Name	Price	Buy Range	Loss Limit
Alcoa (AA)	22.12	21-22.5	18-18.7
Cardlytics (CDLX)	146.04	135-141	116-119
Coeur Mining (CDE)	9.88	9.5-10.0	8.2-8.5
Elastic (ESTC)	155.91	147-153	129-133
Floor & Décor (FND)	99.10	95-98	85-87
Kodiak Sciences (KOD)	149.51	136-142	117-120
PayPal (PYPL)	237.79	232-238	209-213
Redfin (RDFN)	78.54	72-75.5	60-63
Smartsheet (SMAR)	72.00	70-73	61-63
WESCO International (WCC)	75.16	72-75.5	62-64

The evidence remains mostly bullish, with the major indexes and a growing number of leading stocks acting well. To be fair, it’s not 1999 out there, as many stocks are suffering a lot of choppy action and sentiment is buoyant--that’s no reason to be negative, but we’re continuing with our step-by-step buying spree.

Last week, we started a new half position in CrowdStrike (CRWD), and tonight, we’re filling out our position in Novocure (NVCR), leaving us with around 20% in cash.

We did not see any significant price movement among our recommended stocks in the previous week.

The overall market remains in good shape, as our trend-following market timing indicators remain clearly bullish, and the Two-Second Indicator, while not positive, continues to show some improvement.

With only four low-volume trading days elapsed since our January issue was published, there’s not much new to report from the markets. The exception is the interest rate front.

This stock rose $6 in after-hours trading on December 22, subsequent to the company’s announcement that “in response to inquiries from interested parties, it has initiated a formal process to explore strategic alternatives for the Company focused on maximizing shareholder value.”

Small caps bounced off their 50-day line last week and are nearing all-time highs. It’s anybody’s guess what will happen in the days ahead as many people will have stepped away from the market, so don’t be surprised if there is some odd trading in some of our stocks. There’s usually some inefficient trading, especially with the microcap stocks, during these periods.

The iShares EM Fund (EEM) has popped back above its 50-day line, which is a plus, but the Emerging Markets Timer remains basically neutral, having made no net progress over the past two months.

This past week there was a 13% gain in one of our newer recommendations and I’m recommending the sale of another.

It’s quite common that a year’s top-performing stocks and industries can fade after the new year arrives as investors shift money into industries that have been long-ignored. “Buy low” doesn’t just refer to stock market corrections and random stocks that have fallen precipitous amounts. “Buy low” can also refer to unrecognized industry-wide opportunities.

As we march toward the end of Q4 and the beginning of 2018, most investors are, rightly, turning their attention to what’s likely to happen in the year ahead. Returns this year have been nothing short of outstanding. While we’ve had bouts of volatility, especially in individual stocks, there’s been astounding breadth of strength across almost all sectors.

Remain mostly bullish, but continue to play things on a stock-by-stock basis. The overall market remains in fine shape, and we’re pleased to see many growth stocks find buyers in recent days (though many still appear to need more time to rest after big runs this year). In the Model Portfolio, we’re buying a 10% position in a leading Bull Market stock that’s pulled back a bit after a decisive breakout. That will leave our cash position near 18%.

The major indexes have moved pretty much straight up since our last update, and many of the troubling divergences we’d been watching have disappeared. Financials and industrial stocks remain strong, while tech stocks have managed to get back on the horse.

The Office of the U.S. Trade Representative and the Department of Commerce have taken a decidedly different approach to U.S. participation in international trade since November 2016. I realize that international trade can be somewhat of a dry topic, but since these decisions are affecting the bottom line in U.S. industry, stock market opportunities are unfolding before us.

The shares of this computing company were just upgraded by Barclay’s to ‘Overweight’.

The major indexes took a hit today, with the Dow losing 179 points and the Nasdaq sinking 121 points.

This silver company is expected to grow at an annual rate of 46.9% over the next five years.

This small bank is looking more and more like a takeover candidate.

This Top Pick has posted some great gains so far this year.

One stock reports third quarter earnings beat and another moves from Hold to Strong Buy.

Many of our stocks seem stuck in the mud—not bad, but not blasting off like some of the market’s leading stocks. Also, looking at the Marijuana Index, we see that it’s now come back down to where it was in mid-January.

Results of the annual Dodd-Frank Act stress test (DFAST) and the Comprehensive Capital Analysis and Review (CCAR) are due on June 21 and June 27, respectively, after the markets close.

The market finished modestly higher yesterday after the Fed decided to hold interest rates steady but hinted at cuts down the road. At day’s end, the Dow was up 38 points while the Nasdaq finished higher by 33 points.

It’s time for a seasonal ETF trade with this agriculture fund.

Adobe Systems (ADBE) reports strong second-quarter results.

We’re buying one software company’s stock today and selling another’s.

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.