*Note: Your next issue of Cabot Profit Booster will arrive next Wednesday, January 22 due to the market holiday next Monday, January 20 in observance of Martin Luther King, Jr. Day.

Interest rate worries continued to weigh on the market last week as the S&P 500 lost 1.6%, the Dow fell 1.5%, and the Nasdaq declined by 2.3%. This week will have plenty of market-moving events, including the start of earnings season, so expect continued volatility.

The market and some growth stocks held their own around year-end and popped to start the year, but last week was a bad one, with the sellers hitting most everything. There are tons of crosscurrents out there, and we’re starting to see some oversold measures really get stretched, so we’re not hibernating in a bear cave. But the bottom line is that the intermediate-term trend of most indexes, sectors and stocks are down so we continue to favor being cautious. Our Market Monitor now stands at a level 5.

This week’s list has something for everyone, with a lot of good setups for if/when the market does turn up. Our Top Pick has hung in there very well in recent weeks despite the market’s tumble.

The market is in a tough spot, and has been for about a month and a half. It doesn’t mean the bull market is on borrowed time – remember, we had a much deeper correction in July and August, only to have stocks roar to all-time highs by Labor Day – but it does make for a tricky environment in the short term. A news-heavy week (inflation data, the start of earnings season, two big industry conferences) could potentially help turn the tide. But right now, the bears are in control. One subsector that has mostly avoided the recent selling is the airlines. So today, we add one of the stronger airline stocks, courtesy of Cabot Turnaround Letter editor Clif Droke.

Details inside.

Interest rate worries continued to weigh on the market last week as the S&P 500 lost 1.6%, the Dow fell 1.5%, and the Nasdaq declined by 2.3%. This week will have plenty of market-moving events, including the start of earnings season, so expect continued volatility.

Interest rate worries continued to weigh on the market last week as the S&P 500 lost 1.6%, the Dow fell 1.5%, and the Nasdaq declined by 2.3%. This week will have plenty of market-moving events, including the start of earnings season, so expect continued volatility.

Welcome to our 2025 TOP PICKS issue! Our Cabot analysts have kindly shared their top stock ideas for this year. And you’ll find that they include a variety of companies that should be attractive to investors of all styles—growth, value, dividend payers, and companies on the cusp of turning around—as well as small, mid, and large-cap stocks. I hope you’ll find one or more to your liking!

But first, let’s take a look at the economy and the markets and talk about what’s in store for this year.

It’s not 2022 or 2008, of course, but the vast majority of stocks out there are in correction mode, and that includes the growth arena, which after a huge run began to hit turbulence in early December and has generally been under pressure since. Now, there are some rays of light out there, which we discuss in this issue, and we’re not having trouble keeping a full-ish watch list for the next upmove, but we’ve been favoring a cautious stance for a while now and think that remains the right move, as we’ve trimmed further this week and now have 60% on the sideline.

In tonight’s issue, we do write about one big positive factor out there (no strength in defensive stocks), talk about the allure of buying former winners “cheap” and, of course, write about all of our names and a bunch we’re watching for when the buyers retake control.

California is burning and the rest of the country is in a deep freeze. It seems like a metaphor for the mixed messages we’ve been getting from the market in recent weeks, with stocks running very hot and cold since the start of December as the major indexes have mostly held near their highs but the under-the-surface action has been wobbly at best. The last six weeks have been rough on small caps in particular. As both a value investor and a contrarian, that spells opportunity!

So today, we add one of the highest-profile, more beaten-down small-cap stocks out there to our Buy Low Opportunities Portfolio. The stock is miles from its Covid-era highs, but it’s starting to build momentum for the first time in years: shares have tripled since bottoming five months ago. And it’s a name virtually everyone knows.

Details inside.

Editorial Note: With the market closed tomorrow, January 9, we’ve bumped up this week’s Issue to today.

At the end of 2024, we were in a “buy now to win tomorrow” type market. Now, we’re in more of a “buy now to win in the coming quarters” type market.

Given this backdrop, our first portfolio addition of the year is a lower-risk, high-quality software company specializing in digital banking solutions. It’s the fastest grower in its space and is on pace to deliver its first full-year profit in 2025.

Like a lot of stocks in both the software and financial arenas, shares of this company have been a little weak lately. I think that’s good – we can step in at a price modestly lower than just a few weeks ago.

While the outlook for 2025 is positive, things are changing.

Sure, this bull market has driven the S&P 500 nearly 70% higher. But most of the gains are from technology stocks. Until this past summer, nearly all the bull market returns were driven by technology. The rest of the market had done very little.

But the rest of the market is waking up. While artificial intelligence (AI) will likely continue to be a powerful growth catalyst, its dominance over everything else might not be as pronounced in 2025 as it has been in the past. Earnings for other stocks are catching up.

The earning growth difference between the “Magnificent 7” companies and the other 493 S&P 500 companies is expected to plummet from 27.8% last year to 8.3% this year. The rest of the market is cheap, has momentum, and will likely get hot this year as stocks experience an earnings growth spike that could last for years.

In this issue, I highlight a healthcare stock that looks highly promising in 2025. It is poised in front of the aging population megatrend, which makes a successful pick so much easier, and it will likely experience a sizable earning spike in the years ahead. It is an existing portfolio stock of which half the shares were sold last year. It’s a great time to buy back the other half.

With the calendar flipping to 2025 and the long holiday weeks/weekends behind us, most traders will be back at their desks starting yesterday. Let the fun begin!

The new year is off to a good start, with many of the areas that took lumps during December (namely the broad market and growth stocks) showing strength through three days—and, just as important to us, many individual stocks have perked up, with some resilient names pushing to new highs and others that dipped to support bouncing. That’s a good thing, but we’re also keeping in mind the fact that early January is often tricky (lots of sharp moves in both directions), that the intermediate-term trend of most indexes and measures is still neutral-to-negative and that there remain lots of crosscurrents among individual stocks, with some selling off while others strengthen. As we wrote above, we are encouraged and will nudge our Market Monitor up to a level 6, but, while this is a good first step, we want to see the action continue to conclude that the December air pockets are a thing of the past.

For the third straight issue, this week’s list is heavy on growth stocks, which remains a sign that big investors aren’t hunting for safety. Our Top Pick is a name we love fundamentally and whose stock has held up relatively well in recent weeks despite a huge run. If you enter, use a loose stop given its volatility.

The story of the week was yesterday’s slightly hotter-than-expected CPI report, which has shifted the rate cut narrative/speculation to only two cuts this year, down from three, and sent the 10-year yield north of 4.55% (it was below 4.4% last Friday).

While this morning’s better-than-expected PPI number has helped to soften the CPI blow, the debate from here is going to be just how long the Fed is willing to push its luck/try not to rock the boat and keep rates where they are.

Stocks have also been a bit stuck in the mud for the last month or so, partly because investor confidence in the Fed’s interest rate-slashing timetable has waned as inflation has remained stickier than expected. Wednesday’s CPI print didn’t help; March inflation came in at 3.5% year over year, a tad hotter than the 3.4% expected and up from 3.2% in February. The month-over-month increase was 0.4%, higher than the 0.3% bump that was anticipated. Stocks promptly sold off, with all three major indexes down more than 1% in early Wednesday trading.


Eventually, however, inflation will dip below that stubborn 3% threshold, and the Fed will start to cut short-term interest rates. We just don’t know when.

Cannabis stocks are generally flat since I sent you the March 27 issue of Cabot Cannabis Investor.

Given the potential magnitude of near-term catalysts, I suggest continuing to hold exposure to the group, and accumulating on weakness. If you have zero exposure, consider buying some now. If you have full exposure, consider adding on any substantial weakness of 2%-4% or more in this highly volatile group.

It’s still a bull market and a rally. But the S&P has been in a sideways funk since the middle of last month.

April has not had news that the market seems to like. There has been stronger-than-expected economic news. The manufacturing numbers were the highest in about two years, and the Fed upgraded its 2024 GDP forecast from 1.4% to 2.4%. But sometimes good news is bad news.

The next earnings season starts very soon, with Mattel (MAT) set to report on Tuesday, April 23.

The first week in April was quiet for Explorer stocks. Looking at what sectors are doing particularly well through the MSCI World index, technology and other cyclical sectors such as energy have outperformed.

Where are the bargains? Consumer staples, Europe, and perhaps even electric vehicle stocks. The EV slowdown can’t be denied – their first-quarter growth rate was a weak 2.7% vs. last year’s 47%. Hybrids vehicles are clearly preferred by many, and on the rise.

It was a great first quarter. The S&P closed out March up 10% YTD. The index also rallied an impressive 28% from late October through the first quarter. Is there more upside ahead?

Things have been good. The Fed reiterated its intention to lower the Fed Funds rate three times this year at the March meeting. Meanwhile, inflation is way down and the economy is solid. Manufacturing data was much better than expected and the Fed raised its GDP forecast for 2024 from 1.4% to 2.4%.

The market looks great. The quarter ended last week with the S&P posting the strongest first-quarter start in five years. All three major market indexes have now risen for five straight months.

The Fed said it still intends to cut the Fed Funds rate three times this year at the March meeting. Meanwhile, inflation remains subdued, and the economy is surprisingly strong. Manufacturing data was much better than expected and the Fed raised its GDP forecast for 2024 from 1.4% to 2.4%.

In today’s note, we discuss the recent earnings reports from Walgreens Boots Alliance (WBA). Our note also includes the monthly Catalyst Report and a summary of the April edition of the Cabot Turnaround Letter, which was published on Wednesday.

The story of the week in the markets has been that central bankers are still leaning toward cutting rates by mid-year (odds still favor a cut in June). That’s helped stocks do pretty well, with outsized performance in energy, banks, insurers and homebuilders.

I’ve been monitoring the performance of small-cap sector ETFs versus those of the comparable large-cap offerings. It’s been interesting to see small-cap financials, materials and industrials performing far better.

WHAT TO DO NOW: Remain bullish, but continue taking things on a stock-by-stock basis. We’re seeing another round of sharp selling in many leading growth stocks today, though few (if any) have cracked meaningful support. To us, it’s another shot across the bow, not prompting any major moves but putting us on alert with certain names. In the Model Portfolio, we’re making one small move—selling 20% of our stake in CrowdStrike (CRWD)— while doing a quick flip on Celsius (CELH), placing it on Hold after last week’s half-position buy after today’s drop on news. Our cash position will now be 25%, and we’re keeping our eyes on a few names should the selling continue.

I want to sell a bear call spread in SPY going out to the November 17, 2023, expiration cycle. This is more of a protective play just in case we see a continuation of the current trend over the next week or so. By adding a bear call spread we are able to bring our deltas closer to a neutral state.

We sold a SPY November 17, 2023, bear call spread in late September for $0.74. It’s now worth roughly $0.03. A week later we initiated a SPY November 17, 2023, bull put spread for $0.58, essentially legging-in to an iron condor.

We have a couple positions with calls due to expire today, so let’s get ahead of it and buy back our short calls and immediately sell more calls to collect another round of premium.

I will be exiting the Mastercard (MA) trade today. I will discuss the trade in greater detail in our upcoming weekly issue.

I will be exiting the American Express (AXP) trade today. I will discuss the trade in greater detail in our upcoming weekly issue.

Alphatec (ATEC) Taps Equity Market to the Tune of $150 Million

We allowed our calls to expire worthless, thereby reaping all of the call premium. Now it’s time to start selling more call premium.

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 Momentum 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 Momentum Trader features.