Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November issue.

This month we look at the oil refining industry. Unlike many technology stocks, this group is the opposite of “priced for perfection.” The industry’s products will remain relevant for a long time, despite investors’ enthusiasm for a shift to electric-powered vehicles. Also, the pandemic will eventually pass and demand for refined products (gasoline, diesel, heating oil and jet fuel) will return, lifting these company’s earnings and stock prices. We acknowledge the tax and regulatory risks but see real value in the higher quality and better-financed refinery companies.



We also look at technology turnarounds. Successful tech turnarounds are rare, so our discussion briefly explores why this is the case and identifies six that have interesting turnaround potential.



Our feature recommendation is the oil refining company Valero Energy (VLO), offering what we see as the best risk/reward traits among a group with strong cyclical turnaround potential.



The letter also includes a summary of our recent sale of Amplify Energy (AMPY) and our change to a Sell rating on Consolidated Communications (CNSL), 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.

This week’s covered call idea is a play on an old-fashioned car company that has been taking bold steps to change the company, and investors’ perceptions of the stock.

Current Market Outlook


Earnings season. The upcoming U.S. elections. Spiking COVID positives and accompanying Europe lockdowns. All told, what was a cleaner situation a couple of weeks ago has turned into one with a lot of crosscurrents, and that has caused a buyers’ strike of sorts, with the major indexes and many leaders pulling back of late. It’s not a disaster, but today’s action has put the intermediate term back on the fence; basically, it looks like the market is still in a consolidation phase after the big March-through-August rally. It’s a similar deal with leading stocks, as many have taken on water, though few have cracked. (In fact, we see a lot of good setups out there should buyers step up soon.) All in all, we’re not making any huge moves, but we’ll knock our Market Monitor down a notch and keep a close eye on things.

This week’s list is an interesting mix of growth and turnaround situations, including a couple that have their hands in both cookie jars. Our Top Pick is Align Technology (ALGN), which just galloped out of a two-year base after earnings. Aim to buy on weakness.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	448.51	420-440	375-390
AAXN (AAXN)	101.69	99.5-102.5	90-92
Exact Sciences (EXAS)	107.06	103-107	91-93
The Gap, Inc. (GPS)	17.75	19.5-20.5	17-17.5
General Motors Company (GM)	36.83	34-36	31-32
GrowGeneration (GRWG)	17.75	16.5-18	14-15
MercadoLibre, Inc. (MELI)	1270.86	1180-1240	1070-1110
NIO Limited (NIO)	25.86	23.5-25	20.5-21.5
Shift4 Payments (FOUR)	55.98	51.5-54	46-47.5
Square, Inc. (SQ)	176.77	164-171	148-152

With the election just around the corner, there’s a lot of uncertainty in the air. Nevertheless, the bull market is alive and well, as both of Cabot’s trend-following market-timing indicators remain positive, so I continue to recommend that you be heavily invested.

Today’s recommendation is an old friend that is back in the limelight as the online world is increasingly hungry for software that enables machines to understand human voices. It’s a good story, and the stock is on a good pullback now.



As for the current portfolio, there’s just one sell (for a small profit), to make room for the new recommendation.

The overall evidence continues to lean bullish, but growth stocks are on a wild ride, first selling off in August/early September, then rallying for a few weeks before backing off again in recent days. We remain optimistic, but are still taking things on a stock-by-stock basis, pulling the plug on laggards while aiming to put money to work in potential new leaders. This week, we let go of Wingstop on Monday, leaving us with around one-quarter of the portfolio in cash.

In tonight’s issue, we write more about our thoughts on the market and our stocks, talk about one recent sell we wish we had back and dive into two secondary indicators we’re watching closely to tell us when the market (and growth stocks) will decisively break out.

In October’s Issue of Cabot Early Opportunities we zero in on four software and internet companies that are benefiting from a variety of tailwinds, including two that are finding success after years of less-than-stellar performance. We also revisit an old MedTech friend that helps deliver drugs and vaccines around the world.

Enjoy!

This week’s idea is a stock in a hot sector, though can be volatile day-to-day.

Current Market Outlook


We like to go with the evidence that’s in front of us at any given time, and if you do that today, you’ll see that most of the key evidence continues to look solid—the intermediate-term trend of the major indexes is tilted higher (though there’s still some resistance at the early-September highs to chew through), while more and more leading stocks are acting constructively; most have pulled back reasonably (so far) after heady runs during the prior three-plus weeks. Of course, we’re not leaving our brains at the door either, as earnings season (which ramps up this week in a big way) and the upcoming U.S. elections certainly have the potential to carve out a few potholes, while sentiment has picked back up after the August/September dip. Thus, we remain flexible and think picking buy points is vital, but overall, we remain mostly bullish.

This week’s list has a ton of potential pullback buys, though you have to be aware of earnings dates. Our Top Pick is Beyond Meat (BYND), which is enjoying a normal breather and looks to be approaching a good risk-reward entry point.

Stock Name	Price	Buy Range	Loss Limit
Avalara (AVLR)	153.44	147-152	132-135
Beyond Meat (BYND)	183.98	178-185	153-156
Bill.com Holdings (BILL)	116.15	110-114	97-100
Carvana (CVNA)	213.52	207-220	180-187
Deckers Outdoor Corp. (DECK)	253.08	238-246	218-222
Invitae (NVTA)	48.38	47-49.5	41-42.5
Monolithic Power (MPWR)	312.85	300-310	270-275
Paycom Software (PAYC)	383.11	360-375	320-327
Plug Power (PLUG)	16.39	15.6-16.8	13.5-14.0
SunPower (SPWR)	17.62	16.5-17.5	13.5-14.5

The bull market is alive and well, as both of Cabot’s trend-following market-timing indicators are now positive, so I continue to recommend that you be heavily invested.

Today’s recommendation is a fast-growing company helping businesses in the cloud, one of today’s major growth themes. Aggressive investors should love it.



However, the addition of this stock means I need to sell one, and the unfortunate victim is the stock that’s our biggest loser (not that we have many).



Full details in the issue.

The iShares EM Fund has been trading effectively sideways since the middle of May, and that has kept the Emerging Markets Timer above its moving averages. We have one portfolio move tonight.

The market looks healthier today than it has in nearly two weeks. After its big drop on June 9, the Nasdaq found support repeatedly last week, and this Monday brought an impressive surge in all the indexes.

We could see a stock market correction in the near future, due to an abnormal concentration of capital in technology stocks and S&P 500 index ETFs (exchange traded funds).

Small caps broke above their six-month trading range last Friday (albeit very modestly and very briefly) even as tech was selling off hard. The reason appears to be that money was flowing out of small cap tech and, potentially, into small cap financials, industrials and consumer staples.

In this Weekly Update, I report on a sell candidate, plus four companies that raised their dividends. I also include one question from a subscriber with my answer.

We’re focused on seeing how the market and leading growth stocks act following the Friday/Monday wave of selling; so far, there’s been some abnormal selling but most stocks are holding key support. The overall market is also still in good shape, and thus, we’re generally standing pat, with around 22% in cash.

For now, the long-term trend remains up, and so do most of our Cabot Dividend Investor positions. Here’s what’s going on with each of them as we enter summer.

While I don’t think we just saw the end of the run-up in technology stocks, I do think investors should begin to pare back their tech holdings and do these two things: raise cash, and buy undervalued stocks in other sectors.

Market continues to climb a wall of worry. I don’t know if this is the last hurrah of the bull market. A final push before a major retreat. But I do know that we should be mindful of the risks out there.

In this Weekly Update, I include a summary for Five Below (FIVE) which reported quarterly financial results during the past week. I also include a question from a subscriber along with my answer.

Despite today’s pullback, the Emerging Markets Timer is doing just fine, as the iShares EM Fund remains safely above its moving averages. We have three portfolio moves tonight, including booking our profits in two positions and dropping one stock from the Watch list.

Most of the stocks in our Cabot Dividend Investor portfolio are behaving quite well; two stocks streaked to new highs in the last few days. I have no changes to the portfolio this week.

Seven analysts have raised their EPS estimates for this tech company in the past 30 days.

This food distributor has also just been recommended by Zacks, who cited the company’s earnings growth, asset utilization, and upward EPS revisions as attractive.

One stock reports strong fourth quarter and moves from Strong Buy to Hold.

Two recommendations today—an energy company with an improving future, and some profit-taking.

Our second recommendation will be taking some profit.

This gold company is expecting double-digit growth next year.

Last week, we began to see selling begin to appear in some leaders, either through stalling action (selling on the way up) or, more importantly, via some selling on good news. Today we saw the sellers really come out of the woodwork, with many leading growth stocks taking big hits on volume.. As a result, we placing three of our stocks on Hold.

This resource company mines a key ingredient for electric vehicles—a booming market.

One stock moves from Hold to Strong Buy.

The shares of this defense company were recently initiated with a ‘Positive’ rating at Susquehanna.

One stock moves from Buy to Hold and there is price action and/or news on three more.

This potato company beat Wall Street’s earnings forecasts by $0.08 last quarter.

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.