Despite a concerning start to the week for the bulls, Friday’s big rally provided some hope that the market could get back in gear. By week’s end the S&P 500 had lost 0.8%, the Dow had fallen 1.24%, and the Nasdaq had gained 0.07%.

We don’t want to write the same thing week after week, but the story remains mostly the same as it has for the past two months: There are definitely some positives out there, including a good number of setups, some positive earnings reactions and a resilient set of major indexes, especially given the banking worries—but the broad market is mostly iffy while we continue to see repeated air pockets and selling on strength. We still think there’s lots of bullish dry tinder that could spark if things go right, but until it happens, we think it’s best to remain cautious.

This week’s list sports more than a few recent earnings winners, as well as a few tight setups. Our Top Pick is a growth name that’s getting costs under control—combined with its cookie-cutter story, that could produce reliable bottom-line growth soon. Try to buy on dips.

Stocks continue to chug along in the same range they’ve largely been in since the end of March. We’ll see if this week’s inflation reports (CPI on Wednesday, PPI on Thursday) move the needle in either direction. In the meantime, one sector that is finally showing signs of life after two years of being beaten to a pulp is cannabis. And so today, we add one of the top cannabis stocks recommended by Cabot Cannabis Investor Chief Analyst Michael Brush. It’s a familiar name to even intermediate-term Stock of the Week readers – and it was up 25% last week!

Details inside.

Our focus this week will be on PayPal (PYPL) and Disney (DIS).

We got back on track this past week with a small winning trade. In total we’ve placed five trades this earnings season, with a 60% win ratio and a cumulative loss of -16.1%. With a few weeks left on the earnings calendar, we have several more opportunities to bring our returns back to breakeven for this cycle or possibly into positive territory.

Our overall return is 28.9% - certainly nothing to write home about, but also no complaints as we thankfully sit in positive territory during what has been an incredibly challenging market for all participants over the past year.

We locked in a small 6.8% profit in our SPY iron condor last week and added another bear call spread, in SPY, to the mix later in the week. Our total cumulative return stands at 124.52% with a win ratio of 87.1% (27/31 winning trades) since we started Quant Trader just under one year ago.

We have two positions on at the moment, both due to expire at the June 16 expiration date. Fortunately, both are hovering around the same price we sold them for, so all is well at the moment. And given we are leaning bearish in both positions, a move lower will obviously immediately help both positions and possibly lead to some early profit taking.

Not much has changed since last week, other than that we are seven days closer to the May 19, 2023, expiration cycle coming to a close. Thankfully, our three remaining May positions all remain in good standing.

We locked in profits in both PFE and KO and immediately sold more premium just over a week ago and I will most likely do the same in our May 19, 2023 positions this week which should bring our total return to around 75%.

Despite a concerning start to the week for the bulls, Friday’s big rally provided some hope that the market could get back in gear. By week’s end the S&P 500 had lost 0.8%, the Dow had fallen 1.24%, and the Nasdaq had gained 0.07%.

Despite a concerning start to the week for the bulls, Friday’s big rally provided some hope that the market could get back in gear. By week’s end the S&P 500 had lost 0.8%, the Dow had fallen 1.24%, and the Nasdaq had gained 0.07%.

The market remains in a rough spot, with a hawkish Fed that continues to raise rates into what’s become a rolling bank crisis, with some big names going under and others walking the plank. Far more important to us than the news is the market’s reaction to the news--and it remains mixed when it comes to the indexes (intermediate-term trend neutral), but growth stocks remain iffy at best, with many good-looking setups falling apart on earnings of late, and with relatively few really powering ahead. All of this can change in a hurry, but until it does, we continue to think growth investors should remain generally cautious and flexible as we wait for a more certain environment that will entice big investors to pile in.

In tonight’s issue, we have no changes to the Model Portfolio (though one small position is on a tight leash), holding north of 60% in cash and working on building our watch list. Elsewhere tonight, we write about the market’s very narrow nature, highlight the housing group (which has a history of trending even in bad markets) and have re-added a few names back to our watch list after some old favorites have popped on earnings.

The Federal Reserve yesterday raised the target for its benchmark interest rate by 0.25% to a new range of 5%-5.25%, the highest since September 2007. This will impact the value and stability of the U.S. dollar and stock markets in several ways.

During the only stable dollar eras of the last century, annual GDP growth averaged 4.9% from 1922-29, 4% from 1948-71, and 3.7% from 1983-2000.

In comparison, over the last two decades, a more volatile dollar saw average growth of only 1.9%. Had the dollar remained stable since 2000, with a steady 3.7% growth, the economy would be nearly 50% greater than it is today, and we probably would have avoided all these financial crises along the way.

For the second month in a row we’re going where the growth appears most resilient. Which means MedTech.

This month it’s another company focused on the spine. But a very specific area. The company specializes in implants for sacroiliac joint (SI) fusion. It already reported Q1 results (beat expectations) and the stock is acting well.

Enjoy!

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the May 2023 issue.

Capital market conditions have tightened in the past year, making companies that hold excess cash more valuable and less reliant on fickle external financing. Our search for cash-rich companies that have real products and services with proven and enduring demand whose shares are out-of-favor turned up three promising stocks. Several currently recommended Cabot Turnaround Letter names would also make this list.

Our research process involves looking at a large number of possible turnaround ideas. As investing legend Peter Lynch once said, “The person that turns over the most rocks wins the game.” We uncovered six stocks that have both promising turnarounds ahead yet also have discounted share prices.

Almost everywhere in the mainstream media and across most Wall Street research firms, there is a common implication that a recession will bring a bear market for stocks.

We’ve been delivered. In just two short weeks the market has gone from a toxic 2022 market sliding toward bear territory to a huge rally that brings back the hope of a mediocre year. Enjoy the high country.

It was ugly two weeks ago. The Russia/Ukraine war was unpredictable and sending ripples through the global economy with soaring food and energy prices. The Fed was a million miles behind the curve in fighting this persistent high inflation.

For more than a year, gold remained stuck in a holding pattern while other metals roared higher in response to global manufacturing demand and supply shortages. All the while, the global economic and geopolitical situation was becoming increasingly tenuous, prompting us to repeatedly wonder when a flight to the safety of gold would transpire.

As market conditions continue to shift, with large-cap U.S. stocks resuming an uptrend in the past two weeks, we are once again making some changes within the tactical Undiscovered Portfolio.

This week’s Friday Update includes our price target increase for one of our energy companies, as well as updates on several recommended companies. We’re not macro-driven, but we are macro-aware, and are thinking about the reserve status of the U.S. dollar. Also, we bid farewell to Ned Johnson, legendary former CEO of Fidelity.

Brazil-based StoneCo (STNE) surged in its first week as an Explorer recommendation, recovering from a sharp sell-off and spurred along by stellar fourth-quarter 2021 financials in which revenue grew by 87% compared to the last quarter of 2020 and the company reported 1.8 million active customers – 2.3 times more than in 2020.

As NATO leaders meet in Brussels and the Russian stock market opens, the Ukraine-Russia conflict continues to send energy and commodities up (see graphic below, courtesy of Bloomberg, as to why). The Euro Stoxx 50 is down 8.7% this year, versus -5.3% for the S&P 500.

The market is looking a lot better than it did a couple of weeks ago even though the Russia-Ukraine conflict continues and the Fed has become more vocal about the need to hike interest rates in order to battle inflation.

What a difference a few days can make. A little over a week ago the market looked like it was about to roll over and die. But since the close on March 14 the S&P 500 has soared more than 8% and the Nasdaq has spiked more than 12%. Will the magnificence last?

I doubt it.

Greentech is in the midst of its best run, on a weekly basis, since the huge bull advance from spring 2020 into the start of 2021. By our Greentech Timer’s definition, it’s a bull market now. Our benchmark index, the Wilderhill Clean Energy Index, is trading over its 20-day and 40-day moving averages, both of which are trending higher, a condition that started Monday. We’re also seeing the most consistently strong buying volume in Greentech in 13 months. Breadth is excellent. Over the past week, 92% of Greentech stocks are higher – 267 out of the 291 we track – and over the past month 83% are higher. It’s quite a swing in sentiment: over the past three months only 37% of Greentech stocks are higher, even after the past four weeks of excellent performance.

One common belief shared by Cathy Wood and the Cabot Undervalued Stocks Advisor. We comment on the impressive recovery of one of our recommendations as they reported strong fourth-quarter earnings, as well as updates on other recommended stocks.

This educational provider is set to pay a walloping $7.01 in special dividends if you are a stockholder as of October 29, 2021.

Following up on today’s weekly earnings review we have a few positions we’re going to step aside from. Big picture, I like the way the market is shaping up. However, we have a portfolio flush with positions and while most are looking good to great we have a few that are slipping, and some that lack near-term catalysts yet have a modest profit. It feels like a good time to lighten up. Here’s what I suggest.

Earnings season kicked off in our portfolio this week and will accelerate into November. Here are brief updates on what we’ve heard, and what I think.

This private equity firm beat EPS estimates by $0.26 last quarter. The shares have a current dividend yield of 4.86%, paid quarterly.

This holding company is set to release earnings on November 1. The company is expected to see earnings rise by 14.03% annually over the next five years.

This giant auto manufacturer is expected to grow its annual earnings by 24.5% over the next five years. The shares have a current dividend yield of 2.5%, paid semi-annually.

Earnings for this Ireland-based airline are forecasted to grow at an annual rate of 58.4% over the next five years.

This Israeli-based baby food company is spreading its wings with its toddler and kid shakes moving into Walmart stores. Please note, these shares are speculative, so please don’t load up on them.

The shares of this utility company were recently upgraded at Wells Fargo to ‘Overweight.’ The shares have a current dividend yield of 5.49%, paid quarterly.

This company stands to gain market share by applying its systems to the current shipping logjams. Descartes is expected to grow at an annual rate of 39.8% over the next five years.

This preferred stock is backed by a giant financial company.

This household name consumer products company beat analysts’ earnings estimates by $0.07 last quarter. The shares are trading at a discounted level, and have an annual current dividend yield of 3.53%, paid quarterly.

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.