Issues
The long-awaited pullback appears to have arrived, with fears and uncertainty surrounding the coronavirus and its impact on economic growth bringing out the sellers; our Cabot Tides, in fact, are now on the fence. In the near-term, the odds favor some more pain being dished out, not necessarily because of the virus, but as the market consolidates its strong four-month advance. Big picture, though, this is still a bull market, so while we’ve trimmed a bit, we’re aiming to hold our strong, profitable stocks, thinking higher highs are likely once this pullback does its work.
In the Model Portfolio, we took partial profits on DocuSign and ProShares S&P 500 Fund earlier this week, which lifted our cash position to around 20%. And from here, we’ll just take it as it comes, as we explain in tonight’s issue.
In the Model Portfolio, we took partial profits on DocuSign and ProShares S&P 500 Fund earlier this week, which lifted our cash position to around 20%. And from here, we’ll just take it as it comes, as we explain in tonight’s issue.
The latest issue of Cabot Marijuana Investor is now available, with my current advice on the fifteen stocks in the portfolio.
While coronavirus fears infect the broad market, the good news is that marijuana stocks seem to have an immunity, mainly because they already had their correction last year. Many stocks in the sector are looking better, and I’m now recommending averaging up in three stocks already in the portfolio.
These changes will reduce the portfolio’s cash level to roughly 12%, so we will be well positioned to benefit from the sector’s resumption of its big uptrend.
Full details in the issue.
While coronavirus fears infect the broad market, the good news is that marijuana stocks seem to have an immunity, mainly because they already had their correction last year. Many stocks in the sector are looking better, and I’m now recommending averaging up in three stocks already in the portfolio.
These changes will reduce the portfolio’s cash level to roughly 12%, so we will be well positioned to benefit from the sector’s resumption of its big uptrend.
Full details in the issue.
STMicroelectronics is one of the world’s largest semiconductor companies, delivering solutions that are key to the smartphone and automotive markets. Major customers include Apple and Tesla, though the firm (which is based in Switzerland) sports more than 100,000 customers around the globe.
Current Market OutlookThe rapid spread of China’s coronavirus provided the impetus for a selloff that began last Friday and exploded onto the scene today. Where does that leave us? First, the intermediate-term trend of the indexes is still positive but close to the fence; the big-cap indexes look OK, but the broader measures (small and mid caps) are right around their key 50-day lines. Beyond the charts, it’s likely that more time is needed for investors to trim/hedge after four months of straight-up action. As for leading stocks, we’re taking it on a case-by-case basis—some are looking ragged and ripe for a deeper correction, but most are pulling back normally. If you’re heavily invested, our advice is to follow the usual plan: Hold most of your shares in your strong, profitable stocks, while selling or keeping tight leashes on losers and laggards. We’re moving our Market Monitor down to a level 6.
On the buy side, newer names that are holding up well should be near the top of your shopping list. This week features plenty of those, with our Top Pick being Kansas City Southern (KSU), a reliable grower that just reacted well to earnings.
| Stock Name | Price | ||
|---|---|---|---|
| Agios Pharmaceuticals, Inc. (AGIO) | 52.43 | ||
| Bristol-Myers (BMY) | 66.24 | ||
| Datadog (DDOG) | 81.52 | ||
| Kansas City Southern (KSU) | 176.54 | ||
| Sea Limited (SE) | 132.86 | ||
| Snap Inc. (SNAP) | 16.68 | ||
| STMicroelectronics (STM) | 30.09 | ||
| Taiwan Semiconductor (TSM) | 78.41 | ||
| Wix.com (WIX) | 302.53 | ||
| Zillow (Z) | 76.64 |
The long-awaited market correction has finally begun, and while you may be tempted to tie the correction to fundamental events, I don’t find any value in that—because all that news is public information so it has no real value to us. Instead, I prefer to watch the action of the stocks carefully, to judge where the money is flowing. And the result of my observations today is that we will sell four stocks and downgrade another to hold—and then continue watching.
As for this week’s recommendation, it’s a high-potential little medical stock that most investors haven’t heard of. It’s not for everyone, but it does provide diversity to our portfolio and it may be perfect for yours.
Details in the issue.
As for this week’s recommendation, it’s a high-potential little medical stock that most investors haven’t heard of. It’s not for everyone, but it does provide diversity to our portfolio and it may be perfect for yours.
Details in the issue.
This week’s leading issue is the China virus, which is impacting markets.
We will need to keep an eye on this breaking issue. Still, Virgin Galactic jumped another 14% yesterday and is up over 80% in the last month.
Our emerging market timer is clearly positive and today’s recommendation is an emerging country that is the overlooked big winner from the two recent trade deals. It is in a nice uptrend and has fuel to burn going forward, backed by several positive trends.
We will need to keep an eye on this breaking issue. Still, Virgin Galactic jumped another 14% yesterday and is up over 80% in the last month.
Our emerging market timer is clearly positive and today’s recommendation is an emerging country that is the overlooked big winner from the two recent trade deals. It is in a nice uptrend and has fuel to burn going forward, backed by several positive trends.
Global investment bank Morgan Stanley thrilled investors last week by delivering record profit and revenue numbers, beating Wall Street’s fourth quarter 2019 revenue and earnings estimates, and meeting or exceeding all of CEO Jim Gorman’s performance targets.
Current Market OutlookThe market remains extremely strong, as the combination of a new year and reduced anxiety about China trade has encouraged the bulls and calmed the bears. At the same time, a broad correction is increasingly overdue, as numerous stocks have grown increasingly stretched far above their moving averages. Thus, when you do buy, you need to do so with an eye not just to the potential upside but the potential downside as well.
The ideal buy for many of today’s stocks might be on a brief pullback that finds support. Stocks in this issue range from global giants like Morgan Stanley and Match to smaller, faster-growing technology companies like touch-screen expert Synaptics and chipmaker-for-Apple Cirrus Logic. Our Top Pick this week is iQiYi (IQ), a fast-growing Chinese media/technology company that has its tentacles in numerous fields and is succeeding at many of them.
| Stock Name | Price | ||
|---|---|---|---|
| Cirrus Logic Inc. (CRUS) | 0.00 | ||
| iQIYI (IQ) | 0.00 | ||
| Match (MTCH) | 0.00 | ||
| Morgan Stanley (MS) | 0.00 | ||
| Novocure (NVCR) | 0.00 | ||
| Synaptics (SYNA) | 0.00 | ||
| Teladoc, Inc. (TDOC) | 127.95 | ||
| Thor Industries (THO) | 104.76 | ||
| Toll Brothers Inc. (TOL) | 0.00 | ||
| Vertex Pharmaceuticals (VRTX) | 230.36 |
The market remains in fine health, with all major indexes in strong uptrends and no signs of divergence that typically precede major market tops. Additionally, numerous market-timing indicators tell us the market is likely to be higher months from now. However, as all investors know, corrections will occur, and it’s looking increasingly likely that one is due. So, you should be prepared. This might mean taking profits in stocks that are extended—as many are now. Or it just might mean setting some stops, so that winners don’t turn into losers. In the meantime, there are plenty of fine-looking stocks to buy, and today I’m leaning toward an Asian company that happens to have my favorite fundamental characteristic—accelerating revenue growth.
Details in the issue.
Details in the issue.
Updates
Remain defensive but keep your eyes open. Our Cabot Tides are toying with a buy signal, though the past couple of days have delayed it. Because of that, we’re sticking with our three remaining stocks and a cash position around 75% tonight, but we have our shopping list ready should we get a clear green light in the days ahead.
Last week, The Priceline Group (PCLN) reported fourth-quarter 2015 results that surpassed market earnings per share (EPS) expectations, while Boise Cascade (BCC) reported fourth-quarter 2015 results that disappointed the market. I’m raising the ratings on Carnival (CCL), D.R. Horton (DHI) and Royal Carribean Cruises (RCL) to Buy. I’m lowering the rating on Boise Cascade (BCC) to Hold.
The market is still serving up its fair share of surprises, both to the upside and to the downside. We’ve experienced a few of both in our portfolio, and over the last two weeks, we’ve stepped aside from three stocks (my rationale was detailed in the Special Bulletins). This week, two of our stocks reported, and I moved one to Sell.
The Cabot Emerging Markets Timer has edged its way up to a new buy signal. While we want to be cautious until we get confirmation of this uptrend, we will increase our exposure slightly. We will fill our position in TAL Education, changing its rating from Hold a Half to Buy.
Our portfolio is hunkered down in a pretty conservative stance and we’re selling the rest of our Novo Nordisk (NVO) position today and moving our PowerShares Preferred ETF (PGX) to Hold. We have no other rating changes today.
Global stock, bond, oil and gold markets continue to bounce around as investors look for trends that signal a re-entry into stocks. Today, I’d like to review facts vs. fiction, in order to give us a little more peace as we live through the stock market correction.
This week we had three of our stocks report, and we become incrementally more defensive. Two stocks are moved to Sell. Two more are moved to Hold.
The market is retesting its January 20 lows this week, and some minor positive divergences could lead to another short-term bounce attempt. But the market’s major trends remain down, and our three key market-timing indicators are all bearish. Thus, you should remain mostly on the sideline as we patiently wait for a new bull move to develop. In the Model Portfolio, we sold Amazon (AMZN) on a special hotline Monday morning, leaving us with just two stocks and a cash position near 80%.
Today I’m putting CVS Health (CVS) and Home Depot (HD) on Hold because of the broad market, taking profits in half of our Costco (COST) position and selling half of Novo Nordisk (NVO) with plans to unload the rest in the coming days.
In recent days, several portfolio companies reported quarterly and/or full-year 2015 results. General Motors (GM), Robert Half (RHI), Royal Caribbean Cruises (RCL) and Vulcan Materials (VMC) all surpassed market earnings per share (EPS) expectations.
The Cabot Emerging Markets Timer remains negative, counseling us to stay defensive. We have two changes in the portfolio today; Baidu (BIDU) is changed from Hold a Half to Sell and Sinovac Biotech (SVA) is shifted from Watch to Drop.
We have one portfolio change today: I’m selling half of Nordic American Tankers (NAT) from the High Yield tier based on the stock’s lousy technical action. But there are still plenty of strong performers in our portfolio, including our newest buys, Mattel (MAT) and CVS Health (CVS). Read on for details on recent earnings reports and more.
Alerts
The shares of this Chinese education company were just initiated at Jefferies with a ‘Buy’ rating.
This bank is involved in several M&A transactions, and its stock appears to be heavily discounted.
Declining markets tend to bring on attacks by short-selling specialists, and today that’s what has happened to GDS Holdings (GDS)
Two of our stocks reported earnings last night.
Three analysts have raised their EPS forecast for this global telecom in the past 30 days.
Growth stocks imploded again today as buyers were nowhere to be found. Our Cabot Tides are now on the fence, as the recent selling has driven small caps, mid caps and the Nasdaq to, or slightly below, their 50-day lines. Following up our sale from this morning, we are also selling one other position and moving a few to Hold.
One of our positions fell nearly 7% after reporting earnings Friday, and the stock started today with further losses. With the lack of support, it means more downside is the most likely near-term scenario here and it’s time to sell.
The market fell sharply on Friday on no particular news, with growth stocks again taking the hardest hits. Our trend-following market timing indicators are still positive, and that is a good reason not to get overly pessimistic. We are selling one of our positions though, which dropped after earnings on Friday.
A name change and a stock upgrade to ‘Overweight’ at Barclays, and a $0.28 earnings beat are all giving this turnaround stock a boost.
This poultry producer just posted its second quarter results. Its net income was $1.58 per share and revenue came in at $815.9 million.
Shares of our little hearing aid and continuous glucose monitor stock are rocketing higher today after the company turned in a far better quarter than expected.
Eight of our stocks reported earnings recently.
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 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.