This month’s Cabot Enterprising Model contains 16 companies that offer you a mix of “low” and “moderate” risk stocks to add to your portfolio, including a new company that operates entirely within Canada.

In this Mid-Year Top Picks issue, we feature our top five picks, which averaged 54.85% gains, plus updates on all our Top Picks. Going forward, analysts expect the three industries to grow the fastest in the remainder of the year to be energy, information technology and financials, and we have plenty of ideas in each of those sectors.

In addition to a detailed explanation of the market’s moves and our portfolio’s holdings, we write about the puzzling failure of the average investor to take part in the equity rally and how to handle stocks around their Initial public offerings.

This week’s featured stock is a fast-growing Chinese stock that dominates its mass-market business segment. Conservative investors will probably want to give it a pass, but risk-takers can jump on board. It has great growth potential!

Current Market Outlook


Last week’s rally was very encouraging. Some major indexes and a handful of leading growth stocks hit new highs, and many others set up well. Coming after a six-week consolidation, it’s enough to put some sidelined cash to work, and we’re bumping our Market Monitor up a notch in response. That said, be sure to keep your feet on the ground and pick your spots, as the rally has come on extremely light volume (not the end of the world, but it does show a lack of conviction), the Nasdaq is still shy of new highs, and earnings season, which is now underway, is sure to have a big impact on individual stocks into early August.

This week’s list has a broad array of stocks from various sectors that attracted buyers as soon as the pressure came off the market. Our Top Pick is Western Digital (WDC), which lifted to new highs on good volume last week and has already preannounced solid results.

Stock Name	Price	Buy Range	Loss Limit
Applied Optoelectronics (AAOI)	0.00	79-83	73-75
CoStar Group (CSGP)	589.55	265-271	245-248
Dana Holding (DAN)	0.00	22.5-23.5	21-21.5
E*Trade Financial (ETFC)	0.00	37.5-40	35-36
Facebook, Inc. (FB)	0.00	156-160	147-151
IPG Photonics (IPGP)	0.00	148-153	137-140
Kite Pharma (KITE)	0.00	99-104	87-90
New Relic (NEWR)	103.70	45.5-47.5	41.5-43
Ryanair DAC (RYAAY)	0.00	111-1151	102-104
Western Digital Corporation (WDC)	0.00	92-95	84-86

This month’s Cabot Value Model contains a diversified list of Buy recommendations, with a bias toward high quality companies in the Technology and Financial sectors.

Chinese stocks have bounced higher this week, giving the Cabot Emerging Markets Timer a much stronger buy signal. Coming after a stretch of flat trading dating back to mid-May, this newly strengthened signal is great news, and we have a Chinese internet stock to recommend that should benefit greatly from the support.

Writing this Top Picks Mid-Year Update issue is sort of like opening a Christmas present. While I continually keep my eyes on the stocks, I’m always excited to find out the final results—which contributors—and stocks—not only came in on top in terms of returns but also beat the averages.

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.

I’ve steered clear of small caps that would have been heavily influenced by either a Trump or Clinton victory, so I don’t expect to make any moves in our current portfolio based solely on today’s results.

While many investors will be selling stocks in panic today, fearful of the unknown, I recommend that you sit calmly. Wait for the panic to pass and the dust to settle.

Southwest Airlines (LUV) reported weak sales and earnings, and increasing costs could put a damper on earnings for an extended period. I recommend selling your LUV shares now.

Momo Inc. (MOMO) reported earnings before the open today and the results looked great, with revenue, earnings and guidance all coming in ahead of analysts expectations.

Universal Electronics (UEIC) is being added to the Buy Low Opportunities Portfolio at Strong Buy. We have an opportunity to buy a stock that fell a ridiculous amount based on minor news at a low price today.

With the market remaining under intense pressure, you should remain cautious until the buyers show up. Today we’re selling one-third of one position, which will leave the Model Portfolio with nearly 60% in cash.

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.