Following a monster week of earnings, a Federal Reserve interest rate hike, and the January Jobs report, “risk on” continues to be the theme in early 2023 as the Nasdaq once again led the indexes higher.

This month we are dialing up the risk a little with a small software company that has a potentially disruptive platform that streamlines back-office processes for small and mid-sized businesses.

There are risks. The economy isn’t super strong, and this is a competitive market. But this company has a truly innovative set of solutions, is in one of the market’s most beat-up sectors and has new products and a low-cost customer acquisition strategy.

It’s also profitable and generates positive free cash flow, two attributes that make it an attractive acquisition target.

Enjoy!

This week could be a doozy for the market as traders are eagerly awaiting the “big” Federal Reserve announcement on Wednesday, as well as a monster week of earnings reports, and the January Jobs Report on Friday. Buckle up!

If you’ve been expecting a straight-up advance with dozens of leaders lifting off, the past couple of weeks have been disappointing—but after the damage seen last year, we’re not going to make the perfect the enemy of the good: At this point, the intermediate-term trend is still sideways but a couple of good days could change that, and the broad market remains in fine shape despite some potholes of late (including today). Obviously, things can change, but with the evidence continuing to crawl in the right direction, we’re nudging our Market Monitor up to a level 6 today.

This week’s list does have a few growth-ier ideas, but the majority remain cyclicals and recent earnings plays. Our Top Pick is a turnaround in the retail space that’s cheap-ish, has a long-term growth story and popped on earnings last week. Aim for dips.

It’s been an encouraging start to the year for stocks, but another Fed rate hike – and whatever choice words Jerome Powell has to say – could throw the brakes on the rally this week, at least temporarily. To prepare for another potential pullback, today we’re adding some protection in the form of a high-yield dividend payer from the healthcare industry. It’s a stock with some real momentum – up 18% in the last five weeks – but still trades at about half of where it was a year ago. And Tom Hutchinson just upgraded it to Buy in Cabot Dividend Investor.

As the February 17, 2023 expiration cycle nears we are in good shape to make some decent profits from our current positions. In fact, there is a good chance that we will have an opportunity to buy back a few of our positions this week and immediately sell more premium. Moreover, I intend on adding one to two new trades to the mix this week; of course, as always, Mr. Market will help to dictate our path.

I wanted to start adding a few March positions last week, but decided to push them off towards the beginning of this week. I intend on adding at least two, if not three, March expiration trades this week as we are only 46 days away from the March 17, 2023 expiration cycle.

We’ve had a good start to earnings season with three out of three successful trades. We hope to extend our winning streak this week using two or three of the stocks mentioned below.

Ahead of the “big” Federal Reserve announcement on Wednesday, the market surged higher last week.

Ahead of the “big” Federal Reserve announcement on Wednesday, the market surged higher last week.

Nobody is going to argue that there aren’t still issues when looking at the market’s evidence. The long-term trend, which by our measures has been down for a full year at this point, is still bearish. The intermediate-term trend remains effectively neutral, with most indexes stuck within two-month ranges. And growth stocks are hit or miss, especially ones that have held up well—while some names that were crushed last year are bouncing, many near their highs are having trouble finding buyers.

Tesla doesn’t look sick to me. Last night it reported Q4 net income of $3.69 billion and revenue of $24.3 billion, up 59% and 37%, respectively, from a year earlier. Tesla sold 405,278 vehicles, up 31% from a year earlier and stated it knows it needs to produce cheaper EVs to become a bigger automaker. With EVs on the brain, this week we go to Sweden for an under-the-radar electric vehicle maker that is gaining momentum based on performance and styling.

It’s earnings season. That 3-to-4-week period where most public companies report their results. I find earnings season to be a great time to check in on your holdings. Many think that the market is too short-term oriented and that quarterly earnings don’t really matter—what matters is annual progress.

We continue to watch in amazement the values that the market puts on electric vehicle makers, with the most recent example of Rivian Automotive (RIVN). Since its IPO at $78/share, RIVN shares have doubled, making the EV company’s roughly 900 million shares worth a total of about $144 billion. This makes it the #3 most valuable car company in the world.

What inflation? What supply-chain issues? Headlines be damned. This market is on the cusp of yet another new all-time high.

The bull market is back. But there seems to be a disconnect between recent stock performance and the headlines. What’s going on?

The idea that gold prices can rise while the dollar is strengthening appears, at first glance, to be a contradiction. After all, how can gold (which is priced in dollars) advance when the dollar is moving higher at the same time?

This week’s Friday Update includes our comments on earnings from eight companies. Also, Toshiba (TOSYY) reported earnings this morning, along with its plan to split into three companies.

First a quick personal note. Our backup plan for the kids today (out of school because of the holiday) fell through so I’ll be spending much of the day with two young, energetic boys who could care less about the stock market! I’ll be keeping tabs on things but may not get to email responses today unless a response is super timely.

Looking at the bigger picture, nothing has changed with our overall thoughts: The evidence tells us it’s a bull market and that the intermediate-term uptrend remains intact.

Like nature, stock markets have seasons. We experienced a brief but frigid winter about 18 months ago when nearly every stock wilted as capital markets froze (no pun intended, mostly). Then, just as surely as spring follows winter, an exceptionally generous dose of warm sunshine, water and fertilizer in the forms of extremely aggressive monetary and fiscal liquidity and stimulus returned the stock market to brilliant health where nearly every stock blossomed with vibrant growth.

Times are good. After a rough September, the market soared 8% higher to a new all-time high. Earnings have been spectacular, and the bull market is back, although the market has pulled back in the last couple days.

The long-awaited infrastructure bill is putting more wind in our sails and, after eight months of working through a bear market turned range-bound slog, we’re enjoying a bull market in Greentech once more.

This week’s Friday Update includes our comments on earnings from eight companies.

Today I want to address our BBWI and VSCO stock holdings, as well as the BBWI1 option from the LB spin-off.

Most of our stocks continue to build bases, so I remain patient, waiting for a renewed advance by the sector. The standout stock in our portfolio is Innovative Industrial Properties (IIPR), which broke out to a new high last week after a great report.

These preferred shares are issued by one of the largest banks in the nation. Emerging from some of its legal woes, the bank has a fairly new management team.

Time to Take Some Profit in Nucor

**NOTE: Due to time constraints from the Cabot Wealth Summit, the Cabot Early Opportunities issue scheduled for Wednesday, August 18, 2021 will instead be published on Thursday August 19.**
It’s been a busy earnings season and we have a lot to cover. I don’t have reports on every company that has released results just yet, but I have most of them.

This utility beat both earnings and revenue estimates for the last quarter. The shares have a current annual dividend yield of 2.12%, paid quarterly.

This small bank beat analysts’ EPS estimates by $0.03 last quarter, earning $0.31 per share. The bank has a current annual dividend yield of 4.15%, paid quarterly.

Avalara (AVLR) shares are rising today after the company beat expectations and gave a solid outlook for the rest of the year. Maintaining at buy.

This small bank beat analysts’ EPS estimates by $0.03 last quarter, earning $0.31 per share. The bank has a current annual dividend yield of 4.15%, paid quarterly.

Revolve (RVLV) beat expectations in Q2 but concerns that the story has been “as good as it can get” and that things will slow down in the coming quarters, in part due to Delta variant circulation curbing going-out activities, are hammering shares today (-20% at the worst, better now). All things considered the selling appears overdone and I expect a bounce in the coming days. How RVLV acts in the near future will determine its standing in our portfolio, but at the moment aggressive investors may want to step in to buy. Formally, we are maintaining at hold to see how this earnings report is digested over the coming days.

Oaktree reported a reasonably strong quarter, with net investment income (adjusted for the merger with Oaktree Strategic Income) of $0.19/share, sharply higher than $0.12 a year ago and the consensus estimate for $0.14. Net asset value, or NAV, increased 2% from the prior quarter and 19% from a year ago (despite paying out roughly 8% of its NAV in dividends during this period).

The earnings of this construction company are forecasted to grow by 37.8% this quarter.

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.