Current Market Outlook


The top-down view of the market remains just so-so, with the intermediate-term trend effectively on the fence—most indexes are hanging around their 50-day lines and have recouped about half of the recent corrections. Thus, some caution is still in order, especially as further news-driven moves are likely in the days and weeks ahead. However, the leaders (and potential leaders) of the market are very impressive, with more and more flashing constructive action, including some that are rallying on outsized volume, both of which are a sign that big investors are getting comfortable putting money to work. It’s not a wild bull market obviously, with relatively few stocks hitting new highs, but it’s safe to say the evidence has improved, causing us to nudge up our Market Monitor today.

This week’s list has a bunch of good-looking stocks that have seen good-volume buying of late. Our Top Pick is Datadog (DDOG), which has returned to form after a big-volume breakout last week. Start small and add if the stock and market improve from here.

Stock Name	Price	Buy Range	Loss Limit
Alibaba (BABA)	288	280-288	260-265
Datadog (DDOG)	107	103-107	92-94
Purple Innovation (PRPL)	25	23-24.5	20-21
Seres Therapeutics (MCRB)	30	27.5-29.5	23-24
SolarEdge Technologies Inc. (SEDG)	273	243-257	218-224
STMicroelectronics (STM)	33	32-33.5	29-30
Teck Resources Limited (TECK)	14	13-14.2	11.5-11.9
Twilio (TWLO)	283	277-287	250-255
Twitter (TWTR)	47	44-46	40-41
Zendesk (ZEN)	105	101-105	92-94

While automobiles have become more consumer-friendly over the last decade there are still a lot of clunky technologies that drivers deal with.

Sometimes mobile devices pair seamlessly, sometimes they don’t. Sometimes, a car’s infotainment system functions so poorly that drivers are more distracted than they were in the good old days of reaching for cassette tapes under the passenger seat.



Today we’re investing in a company that’s developing a digital ecosystem for connected and autonomous vehicles that will make driving safer and more enjoyable for everyone.



It’s an under-the-radar story still, but not for long. Enjoy!

This was a good week for the Explorer portfolio as all our positions advanced, led by NovoCure (NVCR), Sea Limited (SE) and Virgin Galactic (SPCE), which jumped 25% this past week. We now head into the fourth quarter, which may bring some turbulence as the election approaches. We will take what the market gives us but will be on guard. Our emerging markets timer (EEM) is still positive.

Today, we have a new recommendation in emerging markets that we hope will benefit from the biggest shopping day in the world.

Over the past seven weeks, we’ve been steadily lightening up in our marijuana stock portfolio, initially taking profits within a day of the top, and more recently continuing to shift to cash as the sector weakened.

Today we’re raising just a little more cash, with the sale of Aphria (APHA)—a sale that will take us to a roughly 52% cash position.



But overall, I’m still very bullish on the sector as a whole as a long-term investment and I fully expect to be moving back into the leading stocks in the sector once the tide starts coming in again.



Full details in the issue.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the September 30th issue.

This month we look at stocks that might benefit from the (eventual) arrival of a post-Covid world. Currently, the news seems uninspiring – new cases are accelerating in some regions that may foreshadow a return of economically-crippling lockdowns, and hopes are dimming for a vaccine in the near future.



Many stocks have surged already in anticipation of this yearned-for world, but many remain moribund. Some laggards are likely to be zombies – still alive but burdened with overwhelming debt loads. We avoided these, and instead found several that should prosper with the return of a fully-opened economy and also have more resilient capital structures to help them endure while we all wait.



We also looked at publicly-traded chicken processors and found that the sky is not actually falling, even if the shares seem to imply an atmospheric tumbling. Near-term wholesale chicken prices have become meaningfully but temporarily depressed, in our view. We highlight three stocks and discuss their risk/return nuances, along with a fourth intriguing commodity food company.



Our feature recommendation, Western Digital (WDC), trades at a depressed valuation but has major strategic changes underway.



The letter also includes a summary of our recent sale of Gilead Sciences (GILD) 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 and 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.



Thanks!

The healthcare industry has had its share of ups and downs, with most of the attention being showered on the biotechs that hope to produce COVID-19 vaccines. But after the recent outlook upgrade of today’s recommendation, investors may want to broaden their healthcare watch list.

Current Market Outlook


Most of the issues the market had been suffering from are still out there—even after today’s rally, the intermediate-term trend of the major indexes is questionable at best (still technically down), while relatively few stocks are really moving ahead (the number of new highs remains tame). That said, we have begun to see support show up in the market, partially in the indexes but more so among leading (and potential leading) stocks; we’re seeing many show resilience and a bunch begin to set up in legitimate launching pads. That doesn’t mean these stocks are guaranteed to get going, but it’s a first step to keep an eye on going forward.

This week’s list contains a group of names that’s attracting money, including a few that have popped on news. Our Top Pick is CrowdStrike (CRWD), which is one of the few growth-oriented stocks that’s actually been slowly pushing higher in recent weeks as the market has come in.

Stock Name	Price	Buy Range	Loss Limit
Blueprint Medicines (BPMC)	88.88	84.5-87.5	77.5-79.5
CrowdStrike (CRWD)	137.38	133-138	117-120
Digital Turbine (APPS)	30.98	28-30	24.5-25.5
DraftKings Inc. (DKNG)	56.91	54-58	45-47
Generac Holdings (GNRC)	190.24	180-185	165-168
JinkoSolar Holding (JKS)	37.78	34.5-36.5	29.5-31
Owens & Minor (OMI)	21.67	19.5-20.5	17-18
QUALCOMM Incorporated (QCOM)	118.47	115-119	105-107
Sea Limited (SE)	160.00	156-161	138-141
Square, Inc. (SQ)	160.79	157-162	140-143

This morning brought some broad buying to the market, though not enough to reverse the negative signal by our intermediate-term trend-following indicator last week. And that means that raising cash—by selling your weakest growth stocks—is still a good idea.

For Cabot Stock of the Week, I’ve singled out three to sell today (Big Lots - BIG), (RingCentral – RNG) and (Global X Cybersecurity ETF – BUG), but you may have others in your own portfolio.



As for new buying, this week I’m going with a low-risk recommendation from Cabot Dividend Investor, which has a good growth story and pays a 3.1% dividend.

The iShares EM Fund is holding up well, staying comfortably above its 25-day moving average, so our Buy signal remains in place. While our stocks are holding up well, there’s a lot of sideways movement in the portfolio. We have no changes to the portfolio tonight.

If you want to build a buy-and-hold portfolio of attractive takeover targets, look no further than undervalued small- and mid-cap growth stocks. Presuming normal stock market action, you’ll reap the benefits associated with owning growth stocks, and you’ll periodically reap the additional exciting benefit of owning takeover stocks.

The market continues to be a bit sketchy, and the S&P 600 Small Cap Index is still trading right around the 820 level, which has served as a rough support line thus far this year.

In this Weekly Update, I summarize the latest news for eight companies. Max Buy and Min Sell Prices are the recent price targets appearing in the Cabot Enterprising Model Issue 277E, for which you received the link on August 10.

Remain cautious on the buy side, but continue to hold your top performers. Our Cabot Tides and Two-Second Indicator are both negative, which tells us to hold some cash and cut back on new buying. At the same time, many growth stocks (including a few we own) continue to act well, so we’re also sitting tight with our strong, profitable stocks.

The market deteriorated further this week, so dividend investors should continue to act cautiously. While the major indexes staged a nice comeback yesterday, it isn’t enough to erase the damage done at the end of last week.

Last week, Jim Cramer did a TV segment on “broken companies” vs. “broken stocks.” His point bears repeating.

Despite the weakness in the broad market, most of our stocks have held up well. Over that past week, not one of our remaining stocks fell, and only Primo Water (PRMW) failed to move at all. Our average gain of 3.4% this week was almost 4% better than the S&P 600 Small Cap Index.

Stock market action will likely moderate as investors, looking for bargains, will step in and buy stocks, although once-a-week tumbles could reappear on a regular basis. Hold conservative and defensive stocks to avoid large losses.

The iShares EM Fund has been jumpy, but is still well above its 50-day moving averages, keeping our Buy signal in place, if a little bruised.

The stock market has begun to recover from last week’s war of words-induced selloff, and I’m moving one stock back to Buy today. However, it’s not time for the all-clear yet; last week’s selloff was preceded by significant deterioration under the surface of the market, so we’ll need to see more proof that the bulls are back before jumping back in the water.

This semiconductor industry supplier is forecasted to grow at an annual rate of 115.28% over the next five years.

The earnings estimates for this wireless tower REIT were recently raised by 13 analysts.

The market’s larger, longer-term trend remains up, and the odds are that the market will be higher later this year. But short-term, the market remains in a correction, and marijuana stocks, as a whole, are not fighting the trend.

This health insurer beat analysts’ earnings estimates by $0.22 last quarter.

Selling two previous ideas.

Selling two previous ideas.

Today, we are recommending the purchase of a semiconductor equipment company and selling two previous ideas.

This global technology fund is benefiting from doubled-digit returns in many of its holdings.

This real estate software/analytics company is setting a pace for double-digit earnings (estimated at 24.11% annually) for the next five years.

Today, I’m creating a fourth portfolio category within Cabot Undervalued Stocks Advisor: Special Situations. This will be a portfolio for capital gain opportunities that do not conveniently fit into the other three portfolios.

Here’s a fund that employs a ‘smart beta’ style to increase performance.

Investing in up markets is easy. From the December low until recently, the strong market provided a huge tailwind that sent marijuana stocks soaring—and had our portfolio, at the peak, up 57.2% year-to-date.

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.