This month’s Cabot Value Model contains a diversified list of high-quality Buy recommendations. Many of these companies have been neglected by investors in 2017 and are now poised to rise dramatically. Buying blue-chip companies seems prudent when the stock market is noticeably overvalued!

In tonight’s Cabot Growth Investor, we review all our stocks and highlight some names we’re watching, including one that’s set up very well ahead of earnings. We also dive into some details about how we run our ship—we’ve gotten a few questions about this lately, and we think this will clear up any questions you may have.

In choosing today’s recommendation, I returned to a sector that was white-hot a few years ago, bringing big profits to investors who got out before the sector collapsed. But now the sector is back in favor and my selection is the leading Chinese stock in the industry.

We have two new additions to the portfolios in today’s issue, one of our stocks has changed its name, and one stock is now rated Sell.

Current Market Outlook


Individual stocks have been somewhat tricky in recent weeks, with some doing great and others chopping around, while earnings season has done its usual job of helping some names while cutting others off at the knees. Even so, there are far more stocks in good shape than not, and the market itself is in fine shape, with all the major indexes we track above intermediate-term support. Things can always change, but with most of the evidence we see bullish, we’re sticking with a positive stance. Moreover, we see a ton of setups out there (especially among growth-oriented stocks and sectors that have consolidated during the past two months or longer) that should do well if the market continue to push higher.

This week’s list has a solid collection of recent earnings winners from a variety of different groups. There are many strong names to choose from, but our Top Pick is Align Technologies (ALGN), which has a great long-term growth story and a strong chart. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Align Technology (ALGN)	316.20	164-169	152-155
Brink’s (BCO)	0.00	75-79	68-70
Caterpillar Inc. (CAT)	0.00	111-113	150-107
Expedia Group (EXPE)	0.00	153-157	145-147
First Solar (FSLR)	83.74	46-48.5	42-44.5
iRobot (IRBT)	103.17	101-107	92-96
Lending Tree (TREE)	411.51	207-217	190-195
Novocure (NVCR)	0.00	19-21	16-17
Proofpoint (PFPT)	113.79	84-86.5	80-82.5
YY Inc. (YY)	0.00	70-73	64-66

Our market timing indicator is positive and our stocks are doing well. We’re heading into earnings season with a powerful wave of momentum providing the power. In this issue I do a little basic review of earnings season and list all the firm dates for companies we own. I also have a new/old stock that boasts very strong numbers and will be reporting in a couple of weeks.

I’m adding a 31-year dividend payer to the Safe Income Tier, and cover all our stocks that have reported earnings so far. You’ll also find some important information on REITs at the end of the issue which you should find valuable if you bought last month’s High Yield Tier addition.

In selecting today’s stock, I swung back to the conservative side, and selected an undervalued stock in the energy/industrial sector that has recently resumed its upward trend as institutions climb back on board.

Current Market Outlook


The market’s action last week—three days up and two days sideways in the S&P 500 and a run to new highs by the Nasdaq—looks excellent, and we think it’s time to put a little more of your sidelined cash to work. Yes, it’s a light-volume summer rally and earnings season will provide plenty of landmines to go along with the blastoffs, so we’re not advising going all in. But given last week’s early progress and stubborn refusal to give any of its advances back, we will bump our Market Monitor up by one step, putting it in the green. As always, we will listen to what the market tells us from here.

This week’s list has a couple of newcomers, including one of three Chinese stocks that have been making great strides. A few stocks with long Top Ten histories also made the grade. Our Top Pick is a Chinese retailer, JD.com (JD), that’s growing revenue at a blazing rate.

Stock Name	Price	Buy Range	Loss Limit
ASML Holding (ASML)	350.01	147-151	136-138
Huazhu Group (HTHT)	30.89	89-93	82-85
JD.com (JD)	39.58	41.5-43.5	38-39
JinkoSolar Holding (JKS)	0.00	26-27.5	24-25
Littelfuse (LFUS)	0.00	177-182	169-173
Netflix, Inc. (NFLX)	423.92	182-188	168-173
NRG Energy (NRG)	0.00	23.5-25	20.5-22
TD Ameritrade (AMTD)	0.00	45-46.5	42-43
Vertex Pharmaceuticals (VRTX)	230.36	152-160	140-145
Workday (WDAY)	194.88	101-104	93-95

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.

==

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.

The Board of Directors of Harman International Industries (HAR) has come to a definitive agreement with Samsung Electronics, in which Samsung will acquire Harman for $8 billion. Harman’s shareholders will receive $112 per share in cash. The deal is expected to close in mid-2017.

Big gains in the stock market during the past week have pushed some stock prices to unsustainable heights. Benchmark Electronics (BHE) and Prudential Financial (PRU) have reached their Min Sell Prices and should be sold.

Sell Harman (Har) due to buyout offer from Samsung, plus other portfolio updates.

Harman International Industries (HAR) agreed to be acquired by Samsung, South Korea for $112.00 per share all cash.

Knight Transportation (KNX 33.85) reached its Minimum Sell Price of 33.84 on Friday, November 11.

It’s time to sell EMAN. I think eMagin remains a mediocre company that has excellent technology and which will continue to have modest success in its military markets. But I don’t think this is “the next big thing.”

USA Technologies (USAT) reported quarterly results this morning that came in just about as expected.

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.