The new bull market encountered its first real hiccup last week, as second-quarter earnings season hasn’t been kind to growth stocks in particular – even ones that blow estimates out of the water. So, a few of our stocks retreated after earnings, only one of which was enough to warrant selling. I view most of the earnings-induced pullbacks as buying opportunities. And today, we add a stock that has something for everyone – it’s a big-cap technology company with an artificial intelligence tilt, plenty of momentum and it pays a dividend. It’s a longtime holding of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

The S&P 500 and every other major index finally decided to take a reprieve last week. The pullback not only helped our August 462/466 bear call spread move into profitable territory, it also led to a return in implied volatility (IV) which has a direct impact on the options premium we sell. Now, with volatility once again at reasonable levels, we are greeted with far more opportunities to sell options premium. The question is, how long will it last?

Our good fortune continues!

Last week we locked in our fourth straight gain for returns of 25%. Our total win rate now stands at 75.7% (25/33 winning trades).

With a win rate of just 60% (9/15 winning trades) in 2022 and total returns reaching a paltry 8.1%, our win rate in 2023 stands at 88.9% (16/18 winning trades) with total returns now reaching 75%. What a difference a year makes! Hopefully, our good fortune continues, and it should if we continue to stick with the mechanics and, more importantly, a disciplined set of risk management guidelines, starting with appropriate and consistent position size.

Last week was the first week in what feels like months that the sellers really took control. And while it was hardly a disaster in terms of the indexes as the S&P 500 fell 1.3%, the Dow lost 1.11% and the Nasdaq declined by 2.85%, the pain was worse in individual stocks, many of which fell hard on earnings.

Last week was the first week in what feels like months that the sellers really took control. And while it was hardly a disaster in terms of the indexes as the S&P 500 fell 1.3%, the Dow lost 1.11% and the Nasdaq declined by 2.85%, the pain was worse in individual stocks, many of which fell hard on earnings.

Not too much to report this week as we simply allow our August positions to erode in value, which as options premium sellers is a good thing. We enter earnings season this week, so I fully expect to add several positions to the portfolio over the coming weeks. We currently have six open position with the intent of getting up between eight and 10.

This month we’re digging into an emerging software star that specializes in helping brands communicate with consumers like you and me.

The details behind the technology are a bit technical. But if you’ve noticed an uptick in personalized emails and text messages letting you know it’s a good night to get takeout, or that those shoes you’ve been pining for are back in stock, you get the picture. Enjoy!

Ahead of the long holiday weekend the market had yet another good week. The S&P 500 gained 1.75%, the Dow rallied 1.5%, and the Nasdaq rose another 1.9%.

This week in an attempt to diversify the portfolio we are adding an energy play.

Thank you for subscribing to the Cabot Value Investor. We hope you enjoy reading the July 2023 issue.

Almost like an annual rite of passage, major banks reported their Federal Reserve stress test results last week. All major banks passed, in that their capital levels were in excess of the minimum requirements under the Doomsday Scenario conditions outlined in the test assumptions. We’re not the biggest fans of these tests, for reasons outlined in our monthly letter.

Citigroup remains a riskier bank relative to other majors, but also has a higher return-potential share valuation, plus a 4.5% dividend yield to reward patient investors.

The major indexes all closed last week near their highs, which is one big factor keeping the top-down evidence very bullish; nothing has changed with our big picture positive thoughts. That said, right now, we don’t think the situation is as strong as the indexes suggest—just looking at a variety of names, it’s clear many are consolidating even as the S&P and Nasdaq tested new high ground late last week. Again, we’re not saying that’s a big bugaboo, but right now, we continue to think being more discerning when looking for entry points makes sense, as does pruning some laggards if you have them. We’ll keep our Market Monitor at a level 7.

This week’s list has something for everyone, with a decent amount of cyclical exposure but also some true blue growth names as well. Our Top Pick is helping to lead a new group move in metal stocks in general (and copper in particular).

Another interest rate hike and negative second-quarter earnings growth have done little to slow the bull market rally or investor confidence, so this week we add a “Bull Market Stock” to take advantage of the strength. It’s a term coined by our Mike Cintolo, so naturally, today we add Mike’s favorite Bull Market Stock, one he recently recommended to his Cabot Top Ten Trader audience, a company that benefits directly anytime there’s a bull market and the big institutions are buying stocks hand over fist.

Over the past several weeks I’ve heard the phrase “the animal spirits have returned” at least six or seven times. Okay, I’ll give you one or two, but seven?

The overall market ends the month with another nice return. The S&P 500, the Nasdaq 100, and the Dow Jones were up 3.0%, 3.8% and 3.1%, respectively, in July. It’s been a tremendous run and one we should be excited about for a variety of reasons. Since mid-March the S&P 500 has gained 19.6% and now sits just 5.0% below its all-time high. To put things in perspective we are looking at one the best years over the past two decades … and one that is currently outperforming 2021 (solid green line).

This is the million-dollar question: With incoming data anything but straightforward the Fed is trying to thread the needle ever so gently to guide the economy down to a soft landing.

The market has been strong over the last month. In fact, the S&P 500 has rebounded more than 9% from the June lows. Is this rally for real?

I doubt it.



There was the normal bounce off the lows and now investors can focus on earnings. The bad inflation report is out of the way and the Fed has tipped its hand that there will be a 0.75% rate hike later this month, which is better than the 1% hike that was expected after the 9.1% June inflation report.

Earnings season is coming!
We didn’t have much news this week, but our companies will start reporting in late July and August.

Other than Citigroup’s earnings release and Barrick Gold’s release of preliminary sales data, no other company produced meaningful news. Perhaps this is to be expected when investors are putting immense weight on company-specific results and their respective outlooks.

The beauty of dividends is that cash keeps rolling in no matter how bad the market stinks.

The market has rebounded off the lows of June, for now. There is a window where investors can focus on earnings. The bad 9.1% inflation number came out last week and the Fed appears to have tipped its hand on a 0.75% rate hike later this month. That’s an improvement form speculation of a 1.0% hike after the inflation report.

A recent addition to the Undiscovered Portfolio is the Renaissance IPO ETF (IPO).

The name and the ticker are pretty much dead giveaways as to the nature of this fund. It tracks the largest, most liquid, newly listed U.S. IPOs.

It’s no secret that gold is, historically, the world’s most widely preferred safe-haven asset in times of economic turmoil. Gold’s polar opposite is copper, which typically benefits the most when the global economy is strong.

By looking at both metals—separately and together—we can get a “snap shot” view of the market’s expectations for the economy’s near-term (six-to-12-month) performance. We can also get some potentially useful trading clues for both metals—and even for silver—when we look at the copper-to-gold ratio.

This note includes our review of earnings from Wells Fargo (WFC) and our ratings change from yesterday for Credit Suisse (CS) from Buy to Sell.

Next week, Mattel (MAT) and Nokia (NOK) report earnings, followed by the earnings deluge which starts the week of July 25^th when 13 companies report.

The Cabot Turnaround Letter is traveling this week, so we will not be including a podcast in this update.

Things were looking up until we received this week’s inflation report courtesy of the June CPI data.

There are a lot of high-quality stocks trading at value prices out there. For next week’s recommendation, I’m looking at semiconductor companies worldwide and will try to pick the stock with the most upside and lowest downside risk. This is as Congress wrangles over the $52 billion CHIPS act to support the domestic semiconductor supply chain.

One of the many market aphorisms that float around in my head says, “Never sell a dull market short.” It reminds us that in theory, low volume and calm trading ranges such as we’ve seen in the cannabis sector recently tend to signify a balance of buying and selling pressures, and thus a likelihood, particularly after the previous one-year decline, that the dullness will soon be replaced by a new uptrend.

This industrial machinery company will report earnings on March 2. The company is expected to post EPS of $0.62 on revenues of $768.71 million.

The shares of this construction company were just upgraded at RBC Capital to ‘Outperform.’

Cloudflare (NET) reported Q4 results yesterday that surpassed expectations. Revenue was up 54% to $193.6 million while adjusted EPS came in at $0.01. As compared to some other software stocks that have beat expectations, Cloudflare reinvested the surplus cash in growth initiatives, so it didn’t flow to the bottom line.

After the close yesterday, SiTime (SITM) reported Q4 results that handily beat expectations. Revenue of $75.7 million was up 88% and beat by $4.7 million while adjusted EPS of $1.32 was up 207% and beat by $0.23. Gross margins increased 2.5% to 69.4%. The company ended the quarter with $559 million in cash (partially thanks to $460 million raised through equity offerings in 2021) and no debt.

This energy company will report earnings on February 15. Current estimates are for EPS of $1.06 on revenues of 3.59 billion. The shares have a current dividend yield of 5.31%, paid quarterly.

This closed-end fund’s annual dividend yield is 5.77%, paid monthly.

Metal stocks have had a stellar run of late—especially considering the relative weakness of other segments of the broad U.S. equity market. But if experience teaches us any lesson, it’s that when things look great, we should be on our toes and anticipating a possible reversal of fortunes (especially considering the cyclical nature of the industry group).

This energy company is raising its dividend to $0.73 per share as of March 1. The current annual dividend yield is 3.07%, paid quarterly.

Shares of this REIT have recently taken a hit, giving it a nice entry point. The current annual dividend yield is 4.31%, paid monthly.

The shares of this medical device company have recently been upgraded at UBS to ‘Buy.’

After the close yesterday, SiTime (SITM) reported Q4 results that handily beat expectations. Revenue of $75.7 million was up 88% and beat by $4.7 million while adjusted EPS of $1.32 was up 207% and beat by $0.23. Gross margins increased 2.5% to 69.4%. The company ended the quarter with $559 million in cash (partially thanks to $460 million raised through equity offerings in 2021) and no debt.

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.