Current Market Outlook


With 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	Buy Range	Loss Limit
Agilent Technologies (A)	128	127-129	121.5-123
Analog Devices (ADI)	160	156-161	149-151
CarParts.com (PRTS)	21	19.5-22	17-18
Chegg (CHGG)	112	105-111.5	97-100
eXp World Holdings (EXPI)	80	74-79	62-65
Freeport-McMoRan Inc. (FCX)	33	31-33	27.5-28
Johnson Controls International plc (JCI)	53	52-54	49-50
Pinterest (PINS)	89	85.5-88	76-78
Square, Inc. (SQ)	276	263-273	240-250
Twitter (TWTR)	74	68-72	63-66

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.

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.

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:

• 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!

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.

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 Outlook


Last 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	Buy Range	Loss Limit
Align Technology (ALGN)	602	585-605	525-540
Bill.com Holdings (BILL)	179	170-177	150-154
Canada Goose Holdings (GOOS)	42	40-42.5	35.5-37
Dynatrace (DT)	56	53-56	47.5-49
PayPal (PYPL)	282	267-277	240-246
Pinduoduo (PDD)	188	178-186	160-164
SM Energy (SM)	12	10-11	8-8.8
Snap Inc. (SNAP)	64	60.5-63.5	53-54.5
Tapestry, Inc. (TPR)	39	35-37	31.5-33
Zendesk (ZEN)	156	150-155	138-141

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.

It was another good week for small caps, and the S&P 600 Small Cap Index keeps grinding higher. The 1% gain over the past week has the index well above its moving average lines and just slightly behind large caps in terms of year-to-date performance.

Many of our stocks are nearing their fair values, but I recommend that you continue to hold them. As I introduce more undervalued stocks in the coming weeks, you may replace some of your fully valued stocks with the new stocks.

Remain bullish, but keep your eyes open. The overall market looks fine, but remains extended to the upside, which makes finding lower-risk entry points more difficult. We continue to advise holding your uptrending stocks to give them a chance to turn into bigger winners.

The stock market remains hot, and while a pullback is always possible, the trend is firmly up. A lot of stocks are overextended short-term though, including some in our portfolio, so don’t be afraid to take partial profits where you have them, and be selective on the buy side.

We’re going through a highly unusual period in the history of the stock market during which earnings estimates keep rising for a broad spectrum of companies. That’s because we’re experiencing a growing economy, deregulation and lower income tax rates, all of which contribute to rising corporate profits.

I spent a good portion of this past week working on my 2018 Small-Cap Outlook. We’ll be publishing that soon, but I wanted to share a few thoughts from it today, starting with my year-end target for the S&P 600 Small Cap Index.

The iShares EM Fund (EEM) is well on top of its moving averages, which keeps the Emerging Markets Timer remains firmly positive. We have one change tonight.

The U.S. economy is showing modest growth with improvement in capacity utilization, home sales and industrial production, and the bull market continues with Dow closing above 26,000 yesterday.

The stock market remains very strong, and a third of S&P stocks hit new 52-week highs on Friday. The Dow traded over 26,000 for the first time ever yesterday, although all the major indexes then pulled back to end the day lower. Interest rates continue to rise, causing more pain for REITs and utilities, and earnings season has begun in earnest.

Cabot analyst Tyler Laundon writes the introduction to this week’s update. Unsurprisingly, it related to small-cap stocks, which is Tyler’s focus in Cabot Small-Cap Confidential. One rating change.

Our portfolio has soared over the past week right along with the market. Our average gain is 3.2%, and our stocks are beating their benchmark by around 20%.

Remain bullish, but be a bit choosy on the buy side. The market has had a good run but the normal January crosscurrents are pushing around some of last year’s winners. The portfolio now has 10 stocks and a cash position near 16%.

Early Tuesday morning Biopharmaceutical giant AbbVie (ABBV) announced plans to acquire Ireland-based Allergan plc (AGN) for $63 billion. The market hates the deal and AbbVie stock plummeted over 16% on the day. Let’s take a look at the deal and see what’s going on.

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.

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.