Issues
Current Market OutlookTurkey’s currency crisis is the latest of what seems like a never-ending string of worries this year (volatility implosions, trade wars, rate hikes, etc.) that have hit the market to some extent. That said, we’re relatively encouraged by what we’ve seen during the past couple of weeks, with the major indexes holding and bouncing off important support, some new leadership emerging on earnings and other leading names forming solid bases. It’s still a tricky, narrow and choppy environment, which is a good reason to pick your spots, honor your stops and hold some cash. But we’re nudging our Market Monitor up another notch, as we see a healthy number of good-looking leading stocks and the market’s major trends remain up.
For the second week in a row, we have a growth-oriented list, a positive sign after the late-July selloff. Our Top Pick is Roku (ROKU), a very volatile name with a very big story. Keep it small, try to buy on dips and expect plenty of wiggles.
| Stock Name | Price | ||
|---|---|---|---|
| Alteryx (AYX) | 132.78 | ||
| Carvana (CVNA) | 82.90 | ||
| CF Industries (CF) | 45.23 | ||
| CyberArk (CYBR) | 111.74 | ||
| Match (MTCH) | 0.00 | ||
| Michael Kors Holdings Limited (KORS) | 73.22 | ||
| Roku, Inc. (ROKU) | 150.46 | ||
| Seattle Genetics (SGEN) | 150.85 | ||
| Teladoc, Inc. (TDOC) | 127.95 | ||
| Wingstop (WING) | 121.52 |
While emerging market stocks (especially Chinese stocks) remain under pressure, we’re starting to see some signs that things may be turning around. Our stocks have been knocked around a bit by earnings season, but we’ve also had some good winners. And we continue to build a watch list of companies with excellent stories and intriguing charts that we will be ready to buy when the general tone of the market improves. Read on for my view on what’s happening right now and why it’s a good time for optimism.
The Dow Jones Industrial Average continues its upward trend, gaining about 900 points since our last issue, helped by another great quarter of corporate earnings. With 81% of the companies in the S&P 500 index reporting, 80% beat earnings estimates and 74% surpassed sales forecasts. Those are the highest numbers since FactSet began reporting in Q3 2008.
The market remains challenging, in that we really don’t know if growth stocks are cooked, or China is in trouble or housing has peaked—but uncertainty has always been part of the game. If you want certainty, buy a bond.
In doing this month’s research, I was struck by the preponderance of excellent investment opportunities within the banking industry – so many that I could fairly easily create a mutual fund entirely devoted to bank stocks!
Current Market OutlookLeading stocks stabilized somewhat during the second half of last week, but we’re still seeing plenty of potholes (mostly on earnings reports) and a bunch of rotation out of fast-growing names and into more cyclical, defensive areas. That’s not to say all growth stocks look terrible—we’re still seeing a good number of positive earnings gaps, including a few in today’s issue—but there remain a bunch of crosscurrents on a day-to-day basis, making it difficult to latch onto top performers. As for the overall market, it’s in solid shape, with the intermediate-term trend tilted up. All in all, we don’t advise hiding in the closet, but it’s important to hold some cash and honor your stops, and on the buy side, to pick your entry points and focus on names that have shown recent, powerful buying.
This week’s Top Ten has a diverse mix of stocks, and happily, it includes a good number of stocks with solid growth stories. Our Top Pick is Paycom Software (PAYC), which staged a fantastic earnings gap (and follow-through) last week.
| Stock Name | Price | ||
|---|---|---|---|
| BJs Wholesale (BJ) | 36.69 | ||
| CarGurus (CARG) | 41.58 | ||
| Chart Industries (GTLS) | 72.05 | ||
| Greenbrier (GBX) | 57.73 | ||
| Illumina Inc. (ILMN) | 289.74 | ||
| Ingevity Corp. (NGVT) | 99.98 | ||
| Neurocrine Biosciences (NBIX) | 123.40 | ||
| Paycom Software (PAYC) | 0.00 | ||
| SodaStream (SODA) | 142.91 | ||
| Zendesk (ZEN) | 82.19 |
With the market on edge we’re going with a slightly larger company than normal with this month’s Cabot Small-Cap Confidential selection. But we’re not being overly conservative. Shares of this software stock have been climbing steadily after a breakout move in May. The reasons? Growth is reaccelerating, profit margins are climbing, and the proportion of recurring revenue is going up.
The overall bull market remains in good shape, but the big event of the past two weeks has been the sharp selloff seen in many leading growth stocks that featured a bunch of abnormal selling. Could this dip be another shorter-term shakeout? Sure, and we’re certainly not sticking our heads in the sand. But the selling has been enough for us to trim our sails, raise some cash and see if the buyers can show some support.
Updates
What a difference a month can make! What an April! The S&P rose 9.6% in April, making it the best single month for the market in six years. It hit an all-time high on Friday.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of some skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings. And for good reasons.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of some skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings. And for good reasons.
The results are in for the month of April. It was fabulous. The S&P rose 9.6%, making it the best single month for the market in six years. It hit an all-time high on Friday.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of minor skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of minor skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings.
Now before you call me crazy concerning today’s newsletter headline, hear me out.
Even though large-cap names have garnered more than a fair share of attention among investors this year, I think a case can be made that companies with big capitalizations have a lot more room to run higher before they can be truly regarded as “overbought” or “played out.”
Even though large-cap names have garnered more than a fair share of attention among investors this year, I think a case can be made that companies with big capitalizations have a lot more room to run higher before they can be truly regarded as “overbought” or “played out.”
The market is digesting the push and pull of higher oil prices, a deeply divided Federal Reserve, prospects for a prolonged blockade of the Strait of Hormuz and fading momentum from the AI trade that helped push markets to all‑time highs earlier this month.
Despite the crosscurrents, the overall tone still tilts bullish, supported by investor comfort (for the time being) with the geopolitical tension, resilience in the U.S. economy, and improving visibility into earnings growth over the coming quarters.
Despite the crosscurrents, the overall tone still tilts bullish, supported by investor comfort (for the time being) with the geopolitical tension, resilience in the U.S. economy, and improving visibility into earnings growth over the coming quarters.
Yesterday, four tech giants, Alphabet, Amazon, Meta and Microsoft, representing 22% of the S&P 500’s market value, reported strong quarterly earnings that highlighted the importance of AI.
You might think the above companies and their AI brethren are “asset light” companies but you would be very wrong.
You might think the above companies and their AI brethren are “asset light” companies but you would be very wrong.
It’s been a glorious April following a miserable March for the market. What happens in May may determine which direction stocks are headed for the rest of the year.
That’s probably overstating things a bit, but May should be crucial for the reasons we discussed last week: namely, the fate of the Iran war, but also the bulk of first-quarter earnings season and the introduction of a new Fed chair.
That’s probably overstating things a bit, but May should be crucial for the reasons we discussed last week: namely, the fate of the Iran war, but also the bulk of first-quarter earnings season and the introduction of a new Fed chair.
What war? This market is moving on. We may not be out of the woods yet, but investors are looking beyond the Iran war.
Stocks have already made up all losses from a rough March and then some. The S&P 500 had fallen 7.7% in the month of March by the 30th. Since then, the index has rallied over 13%. The S&P is now at a higher level than before the war began and is hitting new all-time highs.
Stocks have already made up all losses from a rough March and then some. The S&P 500 had fallen 7.7% in the month of March by the 30th. Since then, the index has rallied over 13%. The S&P is now at a higher level than before the war began and is hitting new all-time highs.
The other day I was paid a visit by a roving ISP salesman who was pitching his company’s fledgling internet service over the local monopoly’s. We struck up a conversation and he asked what I did for a living. When I told him, his eyes lit up and he asked, “Got any good stocks you can recommend?”
Without thinking I blurted out, “Anything AI-related. You can’t go wrong.” The advice was only semi-facetious, for there’s undeniably a degree of truth behind it. My instinctive response to that question also prompted me to consider the question: just how long can the broad market continue its “all things AI” run without broader sector participation
Without thinking I blurted out, “Anything AI-related. You can’t go wrong.” The advice was only semi-facetious, for there’s undeniably a degree of truth behind it. My instinctive response to that question also prompted me to consider the question: just how long can the broad market continue its “all things AI” run without broader sector participation
Note: I’m out of town this week, so I’ll be a bit briefer on the update today—but I’m still checking my laptop a couple of times a day if you have any questions or comments. I’ll be back at my desk come Monday. Cheers.
WHAT TO DO NOW: Remain optimistic. The market and some leaders have hesitated, but all of our market timing indicators are bullish, and most stocks we own or are watching are working. Last Friday, we bought a half-sized stake in Nebius (NBIS) and added a 3% additional stake in ProShares S&P 500 Fund (SSO); earlier this week, we sold our small remaining position in GE Aerospace (GE); and tonight, we’ll buy a half-sized position (5% of the portfolio ) in Cava (CAVA). We’ll still have 46% in cash or so after these moves.
WHAT TO DO NOW: Remain optimistic. The market and some leaders have hesitated, but all of our market timing indicators are bullish, and most stocks we own or are watching are working. Last Friday, we bought a half-sized stake in Nebius (NBIS) and added a 3% additional stake in ProShares S&P 500 Fund (SSO); earlier this week, we sold our small remaining position in GE Aerospace (GE); and tonight, we’ll buy a half-sized position (5% of the portfolio ) in Cava (CAVA). We’ll still have 46% in cash or so after these moves.
Despite all the headline noise lately we’re marching deeper into first‑quarter earnings season with the market’s path of least resistance still pointing higher.
Optimism around the extension of the tentative ceasefire in the Middle East has reduced geopolitical anxiety to a seemingly manageable level. The U.S. economy continues to show resilience, and the corporate earnings outlook points toward meaningful growth in the coming quarters and years.
Optimism around the extension of the tentative ceasefire in the Middle East has reduced geopolitical anxiety to a seemingly manageable level. The U.S. economy continues to show resilience, and the corporate earnings outlook points toward meaningful growth in the coming quarters and years.
The old saying, “History doesn’t repeat itself, but it rhymes,” is an apt one for the stock market these last two years.
In early 2025, the S&P 500 raced to new all-time highs before peaking in late January/early February, only to get dragged down in March and April by a geopolitical crisis (tariffs/Liberation Day), before rallying in a V-shaped pattern as the severity of the crisis abated.
In early 2025, the S&P 500 raced to new all-time highs before peaking in late January/early February, only to get dragged down in March and April by a geopolitical crisis (tariffs/Liberation Day), before rallying in a V-shaped pattern as the severity of the crisis abated.
The market turned on the afterburners. The S&P 500 made up all the March losses and catapulted to a brand new high in a remarkably short time. It’s a market that sure looks like it wants to go higher. But stocks are being held back this week by more war uncertainty.
The current ceasefire with Iran expires on Wenesday night. Talks may not happen, and war talk is growing. The resumption of the war will almost certainly prompt a decline in the market. Aside from that near-term threat, investors are clearly looking past this war. Hopefully, it won’t last much longer.
The current ceasefire with Iran expires on Wenesday night. Talks may not happen, and war talk is growing. The resumption of the war will almost certainly prompt a decline in the market. Aside from that near-term threat, investors are clearly looking past this war. Hopefully, it won’t last much longer.
Alerts
Updates on two stocks and a rating change on another.
This company is transforming itself into a player in the automotive, avionics, and B2B arena.
This chemical company has a ‘1’, or strong buy rating by Wall Street analysts. The shares recently crossed over their 50-day moving average, a bullish indicator.
Celanese Corp. (CE 96.80) reached its Minimum Sell Price of 96.66 today, June 19.
As shares of one of our financial services companies approach long-term price resistance, I’m moving the stock from Strong Buy to Hold, simply because there’s less capital gain potential in the near-term.
Our first idea is an industrial company that clobbered estimates for eight consecutive quarters.
Our second recommendation is some great profit-taking on a previous selection.
Three analysts have raised their earnings estimates for this tech company in the past month, and Wall Street is predicting double-digit growth for the next five years.
One of our stocks moves from Buy to Hold. The company cut the dividend and is implementing a new business plan. The outlook is positive.
We’re starting to see a little uptick in trading ranges, especially among our technology stocks. Given that market risks seem to be on the rise and there is some rotation out of tech stocks (at least for the moment), I’m advising that you take partial profits in two of our outperforming software positions today. Plus, I suggest stepping away from one underperforming position.
Our first idea is a medical device company that is growing at a double-digit rate. The shares are rated ‘Strong Buy’ by Zack’s, citing the company’s growth and rising estimates.
Our second recommendation is a sale of a previous idea.
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.