Despite the sting of today’s pullback that included just about the entire market, the Cabot Emerging Markets Timer is holding on to its buy signal. We’re watching the big Party Congress in Beijing and are paying attention to the flat performance of a few of our stocks over the past few months. But with good profits in many of our stocks, we’re willing to be patient as we head into earnings season.

This month’s Spotlight Stock is a household name that ran into some challenges that put a dent in its stock price. But now with a new management team and favorable industry trends, the turnaround looks promising, and the stock price is certainly discounted—and attractive.

With today’s recommendation, I swing back to the aggressive side, with a technology company that is revolutionizing (well, maybe that’s too strong a word) the marketing industry. In any case, it’s growing very fast and it’s expected to turn profitable this year.

Current Market Outlook


The market remains in great shape with all the major indexes in gear on the upside, a ton of stocks and sectors acting well and a general lack of selling pressure even after the recent run. Surprisingly, we’re still seeing hesitation among investors in terms of money flows, which, from a contrary point of view, is bullish. The next big test for the market and (especially) individual stocks is earnings season—how leading stocks respond (both those that have been running for a while, and new leaders that emerged in September) will have a big say on the market’s short-term future. But given the overall evidence, the odds continue to favor higher prices down the road, so any reasonable dips should be viewed as buying opportunities.

This week’s list is another good-looking mix of growth and industrial stocks with strong charts. Our Top Pick is Adient (ADNT), which owns about one-third of the car seat market and has big earnings, a cheap valuation and a tidy pullback after a powerful September breakout. Keep new positions small ahead of earnings.

Stock Name	Price	Buy Range	Loss Limit
Adient (ADNT)	0.00	82-85	75-77
Atlassian (TEAM)	182.16	38-40	35.5-37
Baidu (BIDU)	0.00	257-267	236-240
CF Industries (CF)	45.23	35-37	32-33
DXC Technology (DXC)	0.00	88.5-91.5	83-84
LPL Financial Holdings (LPLA)	85.22	51-53	47-48.5
Monolithic Power (MPWR)	0.00	109-113	102-104
Sherwin-Williams (SHW)	526.09	370-380	350-355
Thor Industries (THO)	104.76	124-128	114-116
Vishay (VSH)	0.00	20-21	18.5-19

In this issue, I begin to transition stocks from Roy Ward’s Value and Enterprise Models to my new, more consolidated Prudent Model. My top recommendation is a new stock for us, and I give it a thorough write-up.

In tonight’s issue, we go over all our recent moves, dive into the recent action in one of our stocks and review one of our proprietary indicators that, along with some precedent analysis, adds further evidence to the market’s bullish outlook.

Our Spotlight Stock this month is representative of thriving stock markets—a company that owns and operates exchanges for stocks, options, futures and derivatives. It has grown leaps and bounds, both internally and by acquisition, and numerous opportunities for expansion remain. My Feature further explores those opportunities.

Today’s recommendation is a classic steelmaker that has great growth prospects as the U.S. economy speeds along and protectionist measures improve our country’s competitive position. Also, the stock is cheap, so downside risk is limited.

Current Market Outlook


The answer to the question above is simple: Go up! And that’s what all of the major indexes have been doing in recent days, knocking out all-time highs amid a vacuum of selling pressure. Short-term, there are some signs of complacency, and of course earnings season is coming up, which always adds volatility to the mix. Both of those factors probably mean you shouldn’t buy stocks with both fists. But the big picture is clear: It’s a bull market, and while the below-the-surface action continues to show some rotation, the odds favor higher prices ahead. You should be holding your top performers and looking to grab shares of new leaders as opportunities arise.

This week’s list has a nice mix of growth, “old world,” big and small, reflecting the broad strength in the market. Our Top Pick today is HubSpot (HUBS), which is a bit thin and jumpy, but has a great fundamental story and recently broke out on excellent volume.

Stock Name	Price	Buy Range	Loss Limit
BeiGene (BGNE)	170.20	106-112	95-98
Five Below (FIVE)	134.58	54-57	50-52
HubSpot (HUBS)	582.89	82-85	75.5-77
LGI Homes (LGIH)	86.04	49-52	45.5-47.5
MyoKardia (MYOK)	108.56	39-42	34-36
RH Inc. (RH)	252.93	69-73	64-67
ServiceNow (NOW)	341.86	117-122	109-112
Tronox (TROX)	0.00	23.5-25.5	21.5-22.5
United Rentals, Inc. (URI)	0.00	136-140	126-128
Yelp (YELP)	41.30	44-46	40-41

It’s the same basic market story as it has been for the last four months. Technology is floundering while other sectors are killing it. But a couple of events occurring this week could potentially change the dynamic.

For value-focused investors, this year’s prologue has been a welcome change from the turmoil experienced in early 2025.

In just the past few weeks, some of last year’s most ignored or underappreciated laggards have posted outsized gains, with rallies that have made even momentum-driven tech stock traders envious. Even more remarkable is the fact that much of that strength has been concentrated in ultra-defensive areas of the market like consumer staples, utilities and healthcare.

The market rotation continues to be the main story out there this week, though rumblings of a potential strike on Iran, an update from the January FOMC meeting, and a slew of earnings reports and economic data releases have been giving investors plenty to think about.

In terms of the rotation, the equal‑weight S&P 500 ETF (RSP) is up 5.5% so far this year, illustrating that leadership is broadening beyond the narrow group of mega‑cap stocks that drove much of last year’s performance.

Year to date, the S&P 600 SmallCap Index is up 8.3% and the S&P 400 Mid‑Cap Index is up 7.9%. Both are comfortably outperforming the S&P 500, which is up just 0.1%, and the Nasdaq, which is down 2.1%.

Happy Chinese New Year! The year of the horse is upon us.

China is expecting an incredible 9.5 billion trips to be made during the 40-day Lunar New Year travel period. Chinese automakers are also on the move as the country’s numerous brands sold nearly 200,000 vehicles in Britain last year, doubling their market share to almost 10%.

As U.S. investors have shifted from risk-on to risk-off mode in recent months, a clear disparity between the “haves” and the “have-nots” has materialized.

Let’s start with the “have-nots.” Financials have fared the worst so far this year (-4.7%), followed by technology (-3.1%), communication services and consumer discretionary (-2.8% each). The downturn in the two tech-related sectors in particular is a stark departure from recent years, when technology led the charge of the current bull market.

Cyclical stocks are soaring and technology is floundering in the transformed market.

The bull market is turned upside down. For most of the first three years, technology, and particularly AI stocks, soared while most other stocks did very little. Now, previously meandering stocks are killing it while technology sinks.

Strong fourth-quarter earnings are confirming what the market was already doing.

Current estimates based on earnings reported so far are for 13.2% overall S&P earnings growth for the quarter. It’s a solid quarter and the fifth straight quarter of double-digit earnings growth. In terms of sector performance, cyclical companies are killing it, and technology is floundering, just like before earnings.

Like many coffee aficionados, I have something of a love/hate relationship with Starbucks (SBUX). My main gripe is that the company’s food and beverage offerings have always been pricey compared to the fare served in most fast-food restaurants and run-of-the-mill coffee houses.

The outperformance of small caps continues.

Through Tuesday’s close, the S&P 600 is up 10% year to date versus just 1.6% for the S&P 500.

All but three small-cap sectors are outperforming their large-cap counterpart. The strongest small-cap sectors are materials (+20%), energy (+23%), industrials (+17%), and tech (+11.4%).

Let’s talk about the power of staying invested.

Sure, when the market turns south – and I’m not even sure last week’s mini-dip qualifies – it makes sense to pare back on your weakest stocks and put a larger portion of your portfolio in cash. But taking your ball and going home – selling out of all of your stocks when times are tough – is not a winning strategy. Here’s why.

NOTE: We’re sending this a day early as I’m soon to embark on a trip with the kiddos over the next week. I will be working a good amount from the road, though, and will have updates if need be. Also, next week’s issue will be published as scheduled.

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WHAT TO DO NOW: The market remains very mixed, with growth measures still generally pointed sideways to down, while the broad market remains in solid shape. What’s interesting, though, is that we’re seeing more growth stocks kick into gear, along with some huge buying action in a few “cyclical growth” names. Tonight we’re making one move—adding a half-sized stake in Macom Tech (MTSI)—but are keeping our eyes open for a broader character change among growth stocks. Our cash position will be around 53%.

Today could be a big day for cannabis stocks.

The reason: We may get an important update on the rescheduling timeline.

Cannabis investors will be watching closely today to see whether Attorney General Pam Bondi offers a rescheduling update when she appears before the House Judiciary Committee. Upbeat comments could spark a sharp cannabis sector rally. The hearing starts at 10 a.m. EST.

Here are some portfolio notes, for those of you who like to assess your stocks over the weekend. Energy stocks are having what appear to be normal pullbacks. Take advantage of the lower prices, and buy BP plc (BP), ExxonMobil (XOM), Total (TOT) and Tesoro (TSO).

I’m moving two growth stocks from Hold to Buy today, Boise Cascade (BCC) and Goldman Sachs (GS), and provide an update on General Motors (GM)—which is no longer in the Cabot Undervalued Stocks Advisor portfolios—and recommendations on the best stocks to buy today.

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.