Market struggles resumed as Fed Chairman Jerome Powell continues to warn of interest rate hikes as inflation concerns linger. MP Materials (MP) was downgraded to sell last week as Elon Musk’s Investor Day comments raised questions about future demand for MP’s rare earths. Most Explorer stocks were steady as Polestar (PSNY) posted strong revenue growth and an ambitious sales target for 2023. This week’s recommendation is a smart way to play China’s emerging market rebound.

A new day, and maybe a new term for some of us. That is, “rolling recession.” After expectations of a hard landing, then soft landing, then pushing a possible recession further down the line, economists have now decided we may just be having a rolling recession, which affects just a few industries at a time.


So, I guess, currently, that could possibly mean that the following sectors which are negative so far in 2023 may be in a recession,

Inflation has come down. But in the past, when inflation stayed this high for this long, it took about a decade to get rid of it. That’s why the inflation rate averaged 7.25% in the decade of the 1970s and 5.82% in the 1980s.

Once that inflation genie gets out of the bottle, it has historically been a long ordeal to get it back in. Higher inflation and interest rates may persist for several years to come. That’s a different economic situation than we have faced in a long time. And it is changing the investment landscape.

As investors, we need to invest in a way that not only keeps pace with inflation but exceeds the rate of inflation in order to actually grow a nest egg in real terms. In this issue, I highlight two portfolio dividend stocks that have a unique ability to thrive during inflation beyond most dividend stocks.

Today, I’m recommending a micro-cap “thrift” (a type of bank) that is likely to get acquired within the next year or two.

Key points:
· Insiders are buying like crazy.
· The stock is buying back its own stock hand-over-fist.
· 70% of thrifts ultimately get acquired, and this thrift will be eligible to be acquired in 12 months.

All the details are inside this month’s Issue. Enjoy!

What started out as another troubling week for the bulls turned encouraging as the indexes rebound nicely on Thursday and Friday.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the March 2023 issue.

We discuss how the post-Cold War peace dividend is shifting to a war tax.

We provide updates on earnings and change our rating on Organon (OGN) from Buy to Sell. The company is spending more to generate sales growth even as that growth is becoming more difficult. Our thesis is broken, but fortunately, we exit with only a small (~6%) loss.

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.

We can’t say the market is out of the woods, as some major indexes still have work to do (small caps were very weak today) and a couple of bad days could be damaging. But just going with what we see, it’s hard not to be encouraged about last week’s action—after a month of pulling back, no primary indicator flipped to negative, and among individual stocks, the vast majority retreated grudgingly before many took off on the upside in recent days. We’re not going to overreact to a day or two of action, but the fact that our screens are turning up many more high-potential names has us nudging our Market Monitor back up to a level 7—though, as always, we’ll see how it goes during this week’s gauntlet of economic reports.

This week’s list is chock-full of solid growth ideas, with a smattering of cyclical exposure as well. Our Top Pick is a growth name that just broke out from a two-year base after earnings.

Stocks rebounded nicely last week, giving hope that the 2023 stock market may be far more resilient than the 2022 market – which could eventually get us out of this bear market malaise. That makes it a good time to buy one of the blue-chip tech stocks that were infamously beaten into submission by last year’s indiscriminate selloff in all things technology. Fortunately, Tyler Laundon is recommending just such a stock – a name this is familiar to all, and yet is embarking on some exciting new ventures that the general public might not be fully aware of. Today, we add this mega-cap technology giant to the Stock of the Week portfolio.

We are loaded up in the Income Wheel Portfolio, although I wouldn’t mind stepping into a few new positions. If I do decide to add a position or two to the portfolio, one will have a low IV and the other will be the exact opposite, with a high IV. The reason, as stated in the past, is that I like to diversify the overall beta of my positions so that our overall level of risk is balanced.



Moreover, nothing has changed over the past few weeks regarding new short-term positions; I still intend to add a jade lizard or two to the mix for the April expiration cycle.

We locked in a small 4.38% gain in our IWM iron condor last week. However, had we waited a few days we could have taken off the trade for a much greater gain. But hey, that’s investing/trading. We take profits when we can, given the information we have at our fingertips. The market was looking particularly weak at the time of our profit-taking, so we thought it was best to go ahead take some small profits and move on to the next opportunity.

Earnings season is officially behind us. However, there will still be some opportunities as we enter the earnings doldrums.


Looking back on the previous earnings season, our conservative approach led to a 100% win ratio, though we only made 6 trades. Obviously, this is on the lower side for the number of trades that we typically make. But going back to June, when I started all of my options services here at Cabot, I’ve stated on numerous occasions that I intend on taking a more conservative approach while we continue to endure the ongoing signs of a bear market. Remember, it’s always quality over quantity. That being said, when we see a sense of normalcy return to the market, which could be soon (crossing fingers), that number of trades per earnings season will certainly pick back up.

What started out as another troubling week for the bulls turned encouraging as the indexes rebound nicely on Thursday and Friday. By week’s end the S&P 500 gained 1%, the Dow rose 1.1%, and the Nasdaq rebounded 2%.

Bring it on. Persistent high inflation, a rapid Fed tightening cycle, and the explosion of Omicron have barely mussed the bull’s hair.

The market is higher so far today, though volumes and volatility are already fading ahead of the long holiday weekend. As of 11 am EST, the Dow is up 177 points and the Nasdaq is up 98 points.

Big picture, the prominent topics of debate out there continue to be the potential economic impact of Omicron and the longer-term market/stock valuation/investor risk tolerance impact of a rate hike cycle (assuming the Fed can pull that off).

For metal investors, it has been a classic tale of two markets. On the precious metals side of the market, disappointment still reigns as gold remains stuck in neutral and the white metals (led by palladium) are still in the dumps.

This week’s Friday Update is brief, with no earnings reports. As next Friday is a Christmas holiday, we will be publishing our Friday note and podcast next Thursday, December 23.

It’s been a challenging week for growth investors as the stocks that climbed the fastest are getting hit the hardest, such as our Cloudflare (NET) position, despite still posting strong numbers. On the other hand, Oracle (ORCL), where expectations are more modest, jumped from 89 to 104 this week on earnings that beat expectations.

The biggest thing happening is the change in fiscal stimulus and interest rate policy. Yesterday the Fed said it intends to accelerate the tapering process by reducing purchases by $30 billion a month (from $90 billion to $60 billion) starting in January. This is half of what was being purchased a few months ago. The program is on track to end by March 2022.

The Central Bank is coming out with its December announcement this afternoon. The market has been anxiously anticipating this meeting. And it’s a little nervous, as well it should be.

Private equity, the polished-up name for venture capital and leveraged buyout funds, is white-hot. If every market cycle has its own Masters of the Universe (the 1990s had tech mutual funds, the 2000s had hedge funds), the past decade’s MOTU was clearly private equity. Today, everyone wants to get in on the bonanza: MBA graduates, bankers, mutual funds, hedge funds, endowment and pension funds, insurance companies, wealthy individuals … and soon the average retail investor will get government-approved access to private equity investments. Exuberance1 abounds.

All eyes are on the Fed. Sure, there’s inflation and Omicron and some other stuff. But Wall Street types mostly care about the Fed.

This week’s Friday Update is brief, with no earnings or ratings changes. Despite the uncertainty in the broad stock market, there wasn’t much news on our recommended companies.

Despite another dip in the Nasdaq today higher growth stocks have mostly come up off of last week’s lows as early indications suggest the Omicron variant can be held at bay with vaccinations (especially booster shots).

ONTF, CRNC and EVBG Report.

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).

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.