Issues
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.
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 market’s evidence has worsened of late, with our Cabot Tides flipping to bearish earlier this week, and going along with that is a dearth of stocks hitting new highs. To be fair, it’s not all bad news — we’re seeing fresher leadership hold up relatively well, even during this latest decline, while the longer-term signposts are still positive — but we continue to think a relatively cautious stance is appropriate. Since the last issue, we’ve had a couple sells and three buys (repositioning the portfolio into some more resilient names), but we’re still holding onto about 44% in cash.
In tonight’s issue, we go over all our positions (including the new buys, which we think are battling for pole position for the market’s next advance) and talk about one simple chart tool that can help you spot other potential leaders going forward, too.
In tonight’s issue, we go over all our positions (including the new buys, which we think are battling for pole position for the market’s next advance) and talk about one simple chart tool that can help you spot other potential leaders going forward, too.
The incredible rally from the March lows has been disrupted. After soaring a remarkable 60% from the March lows, the S&P has pulled back more than 8% from the high. The selloff was long overdue and frankly healthy. It couldn’t continue the torrid pace higher forever.
The recent pullback has put several high quality stocks back in the buy range. In this issue, I highlight one of the very best large companies on the market. The recent turbulence has caused a rare pullback in the price that presents a buying opportunity in a stock that is rarely ever cheap. It also generates substantial call premiums and fantastic income potential.
The recent pullback has put several high quality stocks back in the buy range. In this issue, I highlight one of the very best large companies on the market. The recent turbulence has caused a rare pullback in the price that presents a buying opportunity in a stock that is rarely ever cheap. It also generates substantial call premiums and fantastic income potential.
This week we are going right back to a stock that we were involved with last month, which has handled the market weakness very well.
Current Market OutlookToday’s market dip pulled all the major indexes we track below their 50-day lines, which officially puts the kibosh on the intermediate-term uptrend. Since we pulled in our horns weeks ago, we’re not changing our stance much: We remain cautious, with the indexes having issues and rotation coming fast and furiously among individual stocks. That said, we’re not sticking our head in the sand, either, as we’re seeing a decent number of issues either show signs of bottoming out (some of the virus winners are finally finding support) or holding firm despite the market’s wobbles. We continue to advise taking it slow and holding some cash given the overall environment, but select nibbling is OK, preferably on dips and shakeouts.
This week’s list has many names acting well, though their day-to-day action remains volatile. Our Top Pick is Seattle Genetics (SGEN), which looks like it’s starting to emerge from a two-month correction; we think you can start small here or on dips.
| Stock Name | Price | ||
|---|---|---|---|
| AGCO Corporation (AGCO) | 70.77 | ||
| Brinker International, Inc. (EAT) | 44.58 | ||
| Exelixis (EXEL) | 25.80 | ||
| Kingsoft Cloud Holdings (KC) | 36.80 | ||
| NIO Limited (NIO) | 18.80 | ||
| Norfolk Southern (NSC) | 214.26 | ||
| Pinterest (PINS) | 36.85 | ||
| Seattle Genetics (SGEN) | 178.88 | ||
| Toll Brothers Inc. (TOL) | 47.02 | ||
| TopBuild (BLD) | 157.72 |
With this morning’s broad selling, the intermediate-term of the market is now down—but the long-term trend is still up! How you handle this depends partly on your own risk tolerance and partly on how your stocks are acting. If your stocks look good, I favor holding, but if they’re falling, I recommend selling.
In this advisory, the only immediate change is the sale of one stock, LGI Homes (LGI) to create room for our new one.
And that new one, by the way, comes from a sector that is definitely outside our usual hunting ground. But fundamental trends look good, so this just might turn into a great investment!
Full details in the issue.
In this advisory, the only immediate change is the sale of one stock, LGI Homes (LGI) to create room for our new one.
And that new one, by the way, comes from a sector that is definitely outside our usual hunting ground. But fundamental trends look good, so this just might turn into a great investment!
Full details in the issue.
The markets have been a bit choppy of late, with the Dow Jones Industrial Average rising to 29,000 at the beginning of the month, then retreating and rising again. It looks like Fall may be a little volatile. As you’ll see in our Advisor Sentiment Barometer and Market Views, sentiment remains bullish, with a hint of caution.
That stands to reason, as we’ve been on a fairly unstoppable uptrend for quite some time. So, a period of catching our breath is not necessarily a bad thing. Especially, as the economy continues to hold its own, with consumer credit, job openings and the CPI all steadily improving. Unemployment, of course, remains the biggest challenge, but hopefully, the eventual end of COVID-19 will restore some semblance of normality to our hospitality and entertainment industries, which have suffered the most.
In the meantime, our contributors have continued to find some very interesting stock picks. We begin this month’s issue with our Spotlight Stock, a REIT with above average yield, and a Dividend Aristocrat. In my Feature article, I further explore the REIT industry and explain why it’s almost always a good time to hold a REIT or two in your portfolio
That stands to reason, as we’ve been on a fairly unstoppable uptrend for quite some time. So, a period of catching our breath is not necessarily a bad thing. Especially, as the economy continues to hold its own, with consumer credit, job openings and the CPI all steadily improving. Unemployment, of course, remains the biggest challenge, but hopefully, the eventual end of COVID-19 will restore some semblance of normality to our hospitality and entertainment industries, which have suffered the most.
In the meantime, our contributors have continued to find some very interesting stock picks. We begin this month’s issue with our Spotlight Stock, a REIT with above average yield, and a Dividend Aristocrat. In my Feature article, I further explore the REIT industry and explain why it’s almost always a good time to hold a REIT or two in your portfolio
The market’s uptrend is under a bit of pressure and the Fed’s dovish stand on interest rates is a sign of weakness that is unlikely to impress Wall Street. Nevertheless, Sea Limited (SE) has regained its momentum and NovoCure (NVCR) is up 35% over the past two weeks. And our emerging markets timer (EEM) is positive. This week we go to Australia for a new fintech idea that has been on a tear, but fortunately has pulled back for a decent entry point.
Updates
It looks like we’re in for an up week in the stock market. Stocks are reacting well to election results in France, in which a moderate candidate took the lead, with an outsider standing in second place. It seems like voters around the world are weary of their recent political regimes, choosing instead to either vote for moderates or vote for opposite political extremes from what they recently experienced.
Small caps got their mojo back this week. The asset class jumped 3.2%, driven by strong performance in consumer discretionary (up 5%), tech (up 4%) and industrials (up 3.7%). In fact, everything was up except energy (down 5%).
Thirteen Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news during the past week. This update also includes two Sell alerts.
Our Cabot Tides turned negative last week, though we didn’t take any action in the Model Portfolio as we already had 29% in cash. We’ve seen a modest bounce this week, and with our Cabot Trend Lines and Two-Second Indicator still positive, we think the next big move is up. But until we get a new Tides buy signal, we’re holding some cash and taking things on a stock-by-stock basis.
The odds of a June interest rate increase have now fallen to 47%, from 60% earlier this month. A December rate hike is seen as even less likely, with odds currently at 37%, down from 56%. That’s led to additional gains in bond alternatives like utilities.
A Bloomberg article implies that Chipotle Mexican Grill (CMG) is struggling financially. Yet the fact is that Chipotle is a wildly profitable company, with aggressive earnings growth, and without a trace of long-term debt. That’s quite a feat in corporate America.
Small caps continue to trend sideways as they have since the beginning of 2017. In the S&P 600 Small Cap Index, this means trading mostly in the 820 to 860 range with a few spikes above and a few below. There’s no doubt the market rally has lost momentum as the small cap index has traded mostly below its intermediate trend line over the last five weeks.
None of our Cabot Benjamin Graham Value Investor companies reported quarterly financial results during the past week, but today’s update includes subscriber questions about two Enterprising Model stocks with my responses.
The Emerging Markets Timer is in relatively good shape, as the iShares EM Fund is staying in contact with its 25-day moving average. Many of our stocks are acting great. We sold three laggards in last week’s issue and our only action today will be to move one stock back to a Buy rating.
Mike Cintolo, our market timing expert, wrote earlier this week that he wouldn’t be surprised to see this correction develop one more leg down, and it looks like that’s what we’re getting. All the major indexes opened significantly lower yesterday, and while they rebounded partially in the afternoon, the turbulence sent the VIX surging to its highest level since the U.S. election.
I’m not an energy industry wonk, but the 2017 crude oil export situation is so vastly different than it has been for most of our adult lifetimes that it’s worth paying renewed and inquisitive attention to energy stocks.
None of our Cabot Benjamin Graham Value Investor companies reported quarterly financial results during the past week, but I have analyzed the automotive industry for you and present my advice here. I also include complete instructions on how to access the Top 275 Value Stock spreadsheet on Google Drive.
Alerts
In the past 30 days, 13 analysts have raised their EPS estimates for this trucking company.
Coverage of the shares of this pharmaceutical company were just initiated at Berenberg, with a ‘Buy’ rating.
The top five holdings of this ETF are: AdvisorShares Sage Core Reserves ETF (HOLD), 35.79% of assets; Fidelity Instl Govt 657 C, 4.83%; PTC Inc (PTC), 4.42%; MasTec Inc (MTZ), 3.73%; and MSCI Inc (MSCI), 3.68 %.
One of our positions reports a strong earnings and revenue beat. For now it’s still a hold as we are awaiting a pullback, but it should be a buy candidate in the near future.
Gold is looking more favorable, and this ETF gives you wide exposure.
We’re moving a stock from Buy to Hold.
This media/entertainment company is forecast to grow by 64% next year, and 16 analysts have increased their earnings estimates for the company in the past 30 days.
One stock moves from Buy to Strong Buy and four more stocks in the portfolio report quarterly earnings.
The top three sectors in this fund are Technology (21.4% of assets); Financial Services (15.66%); and Healthcare (14.89%).
Three of the stocks in the portfolio please the market with their quarterly earnings releases.
This life sciences company beat analysts’ earnings estimates by $0.07 last quarter.
Two of our stocks report strong earnings.
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.