Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the March 2024 issue.

In this issue we look into the bear case for the energy sector and discuss why energy stocks might provide some tonic for sober investors in an otherwise tech-intoxicated stock market. We highlight a selection of six energy stocks worthy of at least a sip.

This month’s Buy recommendation, VF Corporation (VFC), is a major apparel and footwear maker whose shares have collapsed 83% and now trade at their 2006 price. The new CEO, an unusual selection from outside the industry, is undertaking a complete overhaul of the company, with some early signs of progress.

Thank you for subscribing to the Cabot Value Investor. We hope you enjoy reading the March 2024 issue.

We discuss the similarities between poker and value investing. This past month we moved two stocks from Buy to Sell – Allison Transmission (ALSN) as it reached our price target, and Sensata Technologies (ST) as its management continues to take a path that is not shareholder friendly.

Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the letter is to let me know what you are looking for.

As we plow into March, the overall story remains mostly the same for the market—the primary evidence remains strong, with the trends of the major indexes up, most leading stocks in good shape and with hundreds of stocks hitting new highs.

As we plow into March, the overall story remains mostly the same for the market—the primary evidence remains strong, with the trends of the major indexes up, most leading stocks in good shape and with hundreds of stocks hitting new highs. That’s the main focus, of course, but not to be ignored is the near-term froth seen in many names and the fact that few leaders are at high-odds entry points, extended above moving averages and having been on the run for months. Thus, our advice is unchanged: We’re riding winners higher, but are picking our spots on the buy side, aiming to find earlier-stage stocks. We’ll again leave our Market Monitor at a level 7.

This week’s list has many stocks that have emerged in recent weeks that seem worth a shot, especially if we see a normal retreat in the market. Our Top Pick has a great story and has transformed into a well-sponsored name (nearly 1,500 funds own shares!) as it’s the clear leader in a unique sector.

The party continues on Wall Street, and we’re not going to forecast when it will end. Instead, we’re going to try and capitalize on the strength, a strategy that has worked very well for the Stock of the Week portfolio over the last four months. Today, we take another big swing in a stock that was a home run for Cabot Explorer Chief Analyst Carl Delfeld several years ago, before the sellers came for it. Now, it’s back. It’s an overseas stock that doesn’t have the China stench on it, something that hurt other perfectly good stocks (see BYD (BYDDY)) in the last year.

The S&P 500 is roughly 24% higher without a 2% decline. So, the air is starting to get thin at these price levels. In addition, the rally, without a 2% pullback, has lasted for 88 days. This puts the current bullish streak in the top 25 all-time and top 3 in terms of returns since 1928. The largest move without a 2% decline came in 1994, when the S&P rallied 26.3%.

It can’t be argued that we are witnessing something well outside of normal distribution.

I plan on locking in returns on several of our current positions and immediately selling more premium. In addition, I plan to add at least one more stock to the portfolio, which will bring our total to seven stocks. I also intend on continuing to ladder our positions in perpetuity, so we are collecting premium on a weekly basis. As it stands, we have positions due to expire over the next four consecutive weeks.

Other than that, there really isn’t much to say at the moment. We continue to be pleased with the overall mechanics of our approach and more importantly the overall return, which currently stands at 145.7%.

Earnings season is mostly behind us, but there are a few stragglers yet to report on the calendar. Target is on the agenda this week. With a decent IV rank (58.9) and the ability to create a fairly large range outside of the established expected range, Target (TGT) looks like a potential trading opportunity.

The company is due to report prior to the opening bell Tuesday, so if we decide to place a trade look for an alert around mid-day today.

You may have noticed that last week when Nvidia (NDVA) announced its earnings, its stock rose 16% while Explorer recommendation Super Micro Computer (SMCI) went up 32%.

This is consistent with my view that Super Micro is a leveraged bet on artificial intelligence (AI), and I expect this will also be the case when Nvidia’s stock price moves the other way. Nvidia is now priced at an incredible 32 times trailing annual sales and has a larger market cap than Germany’s entire blue-chip DAX index. Super Micro has already tripled in 2024 so consider taking partial profits. Remember, J.P. Morgan allegedly stated that he made his greatest profits by selling too soon.

In my last update on February 14, I suggested cannabis stocks had fallen enough to be buyable ahead of the expected rescheduling catalyst. That was an opportune entry point.

As of the close February 23, the AdvisorShares Pure U.S. Cannabis (MSOS) and the leveraged version, AdvisorShares MSOS 2X Daily (MSOX), were up 12% and 20%, respectively.

Then investors got impatient again with the lack of progress on catalysts. As of the close February 27, 2024, volatile cannabis stocks had given back most of these gains. The MSOS was up 2.4% and the MSOX was up 1.7%. I think cannabis stocks have weakened enough to consider adding again (more on this below).

The Goldilocks scenario of falling inflation and a still-strong economy is unlikely to last. Interest rates will have to come down before long or the recession that the market is dismissing might be just a little further down the road. But recent higher-than-expected inflation is making lower rates less likely.

Sure, the rally could last for a while. The economy always seems to be more resilient than people expect. But the circumstances behind the rally since October are unlikely to last. This environment will change. For that reason, it doesn’t make sense to chase stocks that have been working so far this year. It’s better to position ahead of a new dynamic that is likely coming.

Change creates opportunity. There are many great income stocks that are not benefiting from this rally. Yet these stocks are selling at historically very cheap valuations with high yields. These stocks also can thrive in a slowing economy. In this issue, I highlight two stocks in particular that are cheap and high-yielding ahead of a period of likely market outperformance.

Despite some heavy selling pressures early last week, the market rallied to close the week following Nvidia’s (NVDA) blowout earnings report that highlighted the growth potential of AI. By week’s end the S&P 500 had gained 1.2%, while the Dow rose marginally and the Nasdaq fell slightly.

These days, AI, or artificial intelligence, is the buzzword du jour.

And it’s easy to understand why.

Play around with ChatGPT, and you will find it to be an incredibly helpful tool.

Longer-term subscribers are no doubt familiar with our immense patience with beleaguered discount retailer Big Lots (BIG). Its shares initially sagged due to bloated inventory, similar to other more highly regarded retailers like Target and Walmart, leading to our initial recommendation. We had expected that its earnings would be weakened as it offloaded its excess goods at sizeable discounts, but also that it would ultimately work its way out of its difficult but by no means impossible situation. At the time, Big Lots had a cash-heavy, nearly debt-free balance sheet, was generating positive free cash flow and traded at a depressed 3x EV/EBITDA multiple. What could go wrong?

Last week was a big week in the market. Game-changing news in the technology sector that significantly improves future earnings projections for many companies is causing the sector to soar.


AI or artificial intelligence had been seen as a huge growth engine going forward as companies invest heavily in the technology. Those growth projections got a huge shot of adrenaline and the AI phenomenon got real when semiconductor company Nvidia (NVDA) reported earnings and guidance that blew the doors off expectations because of much higher investment and spending in the technology than previously thought.

This week’s note includes our comments on earnings from Kohl’s (KSS). Macy’s (M) and Duluth Holdings’ (DLTH) report on June 1. Please note that the monthly edition of the Cabot Turnaround Letter will be published on Wednesday, May 31, and the Catalyst Report will be published on Friday, June 2.

WHAT TO DO NOW: Remain cautious but stay tuned. The market remains very narrow, with a few powerful stocks but the vast, vast majority of names either in no man’s land or acting poorly. For potential leaders, we see many that had been perking up before running into a wall this week—but not (yet) selling off abnormally. If these names can hold soon and resume their upmoves, we’ll like to add at least a couple (maybe more) to the Model Portfolio. Tonight, though, given the extreme narrowness of the advance, we’ll grit our teeth and sit tight, holding about three-quarters in cash and see if these potential leaders can get moving.

The market was looking pretty good through last week. Then this week, with no meaningful progress on the debt ceiling, momentum has deteriorated.


Yesterday afternoon U.S. House Speaker McCarthy was on a roll, saying that things are going a little better, that he won’t put a bill on the floor that spends more than last year and that the President is realizing he has to spend less.



JPMorgan says they put the odds of no debt ceiling deal by early June at around 25% and rising.

The Explorer had a good week with Butterfly (BFLY) up 15% and Solid Power (SLDP) up 10% this week. The S&P 500 has risen 8% in 2023 but the market gains are very narrow and concentrated, with the top five stocks accounting for most of the gains.

The market is near the highest level since last summer and up over 9% YTD. But it hasn’t made a sustained up or down move since the beginning of April.

It’s been more sideways action for most of the last week. The big obsession now is with the debt limit. No agreement has been reached and the crucial, as laid out by Treasury Secretary Janet Yellen, June 1 deadline is fast approaching. The market can’t seem to move higher until the issue is resolved. But it doesn’t really fall because investors expect the usual last-minute deal.

This week, I wanted to share a couple good charts to show why I continue to be bullish on energy stocks.

First, energy still represents a very small weight in the S&P 500.

Energy as a percentage of the S&P 500 reached as high as 16% in 2009. Today it’s under 5%.

The S&P 500 continues to grind higher, now posting a year-to-date gain of 10%. Investors are collectively buying the current narrative that supports these gains: The Fed is poised to cut interest rates later this year to avoid an almost-certain recession.

This week’s note includes our comments on earnings from Vodafone (VOD). Next week, Kohl’s (KSS) reports, with Macy’s (M) and Duluth Holdings (DLTH) reporting on June 1.

Moving Brookfield Asset Management (BAM) to Sell

Moving Organon (OGN) to Sell

We need to buy back the short calls in several of our Dog positions as there is little to no premium left. I plan on rolling most of our Dog positions over the next few days starting with VZ, IBM and DOW today.

With the DIA trading for 335.70, I want to place a short-term bear call spread going out 46 days and outside of the expected range to the upside, or 348. My intent is to take off the trade well before the April 21, 2023, expiration date.

Earnings Season Updates: IOT, RIVN, SNOW, XPOF

Earnings Updates: FTI, PWSC, OPCH

MP Materials (MP), a rare earths mine and processor, is down about 11% this morning.

I’ve decided to hold on to my current LEAPS positions. Theta, or time decay, is still incredibly low so I’m going to hold on for another expiration cycle but plan to sell my LEAPS as we near the April 21, 2023, expiration cycle.

Flywire (FLYW) reported Q4 results after the close yesterday that beat expectations on the top and bottom lines. Revenue was up 42% to $73 million (beat by $7.55 million) while GAAP EPS of -$0.01 beat by $0.11.

There is little to no premium left in our March 3, 2023, 46 calls. As a result, I want to buy back our March 3, 2023, 46 calls, lock in profits and immediately sell more calls.

Even with a probability of success that sits just over 80%, we still have 16 days until our IWM March 17, 2023, iron condor is due to expire.

The market is testing key levels, as are many indicators, but today’s bounce is a small positive. Today’s bulletin is about Shift4 (FOUR), which cracked support on huge volume two weeks ago and hasn’t been able to bounce at all since. We’re going to sell one-third of our position today and see what earnings brings tomorrow. Our cash position will be around 38% after the sale.

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.