Issues
Current Market OutlookAfter a modest rise last week, the market’s story remains the same—the intermediate- and longer-term trends continue to point up, and leading stocks remain in favor, with a ton gapping up on earnings during the past three weeks. It’s not all good news, of course—the broad market has again turned iffy by a few measures, and the environment is a bit giddy right now as investors count their profits. Thus, we won’t rule out a healthy pullback in the major indexes or some rotation among various stocks and sectors. But at day’s end, we always go with the market’s primary evidence (trend, price/volume, etc.), and today that evidence is solidly bullish, so we are, too.
This week’s list is heavy on small- and mid-sized companies, though a variety of sectors are represented. Our Top Pick is Universal Display (OLED), a leading glamour stock that just soared on earnings after about five months of no progress. Try to buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Axcelis Technologies (ACLS) | 0.00 | ||
| Conn’s Inc. (CONN) | 0.00 | ||
| EPAM Systems (EPAM) | 188.24 | ||
| Insulet (PODD) | 175.69 | ||
| Neurocrine Biosciences (NBIX) | 123.40 | ||
| Old Dominion Freight Line Inc. (ODFL) | 221.91 | ||
| PBF Energy (PBF) | 38.93 | ||
| Trex Company (TREX) | 117.56 | ||
| TRI Pointe Group Inc. (TPH) | 0.00 | ||
| Universal Display (OLED) | 187.54 |
Today’s addition to our portfolio is different from the rest in a number of ways. It’s not a pure-play cloud software stock, though it has a software division that generates 26% of revenue. It’s not a pure-play medical device stock, though it has a medical division that generates 33% of revenue. It’s not even based in the U.S.!
Emerging market stocks in general strengthened this week, keeping our Cabot Emerging Markets Timer firmly on the positive side. Our new stock is an express delivery company with a China-wide network that covers 96% of China cities and towns. We have ratings changes on two of our stocks.
In choosing today’s stock, I leaned conservative, and found a dividend-paying stock with strong growth prospects. When I selected it yesterday, the stock was at the bottom of its recent range, but today it shot up to near the top of that range. It’s still a good story, but I’d like it better where it was yesterday.
Current Market OutlookThere’s still another couple of weeks to go, but so far, earnings season has been good for the market, not only driving the major indexes to new highs last week but reinvigorating many growth stocks and launching a few fresh breakouts and new leadership. In the short-term, we expect continued volatility among the indexes and various sectors based on earnings reports and news flow (both financial and otherwise), with dips possible after last Friday’s moonshot advance. But the evidence remains bullish in the intermediate- and longer-term. Thus, we’re sticking with a bullish stance, and advise you to hold your strong performers and look to latch onto new leaders as they lift off, while getting out of any holdings that crack.
This week’s list has many earnings winners from last week in a variety of industries, as well as a few names set up well ahead of their reports. Our Top Pick is First Solar (FSLR), which looks like a powerful turnaround after blasting ahead following a blowout earnings report. Try to grab shares on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Avis Budget Group (CAR) | 0.00 | ||
| Dana Holding (DAN) | 0.00 | ||
| First Solar (FSLR) | 83.74 | ||
| Flir Systems (FLIR) | 0.00 | ||
| GrubHub (GRUB) | 140.03 | ||
| Polaris Industries (PII) | 0.00 | ||
| PulteGroup (PHM) | 45.93 | ||
| STMicroelectronics (STM) | 30.09 | ||
| SVB Financial Group (SIVB) | 0.00 | ||
| Terex (TEX) | 0.00 |
The market hit a pothole today, which isn’t totally unexpected given the recent run-up; in fact, in the short-term, we don’t see much of an edge either way, as earnings season is underway and growth stocks have generally been lagging.
However, longer-term, the evidence remains piled up on the bullish side of the ledger, both via our trend-following indicators and with a growing number of bullish studies. Thus, we remain heavily invested, though we remain choosy on the buy side given the market’s short-term uncertainties.
However, longer-term, the evidence remains piled up on the bullish side of the ledger, both via our trend-following indicators and with a growing number of bullish studies. Thus, we remain heavily invested, though we remain choosy on the buy side given the market’s short-term uncertainties.
We’re adding a new 5.3% yielding stock to the High Yield Tier. Most of our other positions are rated Buy as well, and the market is strong, so if you’re underinvested, it’s time to put some money to work.
Today’s recommendation is a stock that you may never have heard of, and there are pros and cons to that. But it will certainly bring diversification to the portfolio, and I leave it to you to decide if the stock is right for your portfolio as well.
Updates
WHAT TO DO NOW: Big picture, the market and most leaders look great, and our market timing indicators are in fine shape. Near-term, though, there’s little doubt things have gotten a bit giddy, with many names and indexes extended to the upside. Tonight, we’re placing Cava (CAVA) on Hold as that stock has been caught up in some group weakness; we’ll hold our 45% cash position for now, but stay tuned, as we’d like to add some new names (or add to existing names) in the near future.
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.
Alerts
Brokerage firm Jefferies also likes our first idea—a media company, saying it’s a great buy, based on valuation and international growth prospects. Our second recommendation is a sale of a pharmacy stock.
While the overall market is still in decent shape, there’s no question that growth stocks are being crushed across the board. We’re selling two stocks that have broken down on big volume. That will leave us with nearly 50% in cash.
Sell GM. General Motor’s EPS is now expected to grow less than 1% in 2017, so an expectation of additional capital gains is unrealistic in the foreseeable future. Plus updates on BorgWarner (BWA) and Quanta Services (PWR).
WellCare Health Plans (WCG) is up $50 (60%) since joining the Growth Portfolio in October 2015, and I’m thinking the stock is way overdue for a pullback. Today, I’m pulling the plug on WCG. Sell.
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.