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

Our letter describes our view that 2022 was a bridge year and that we may need some or all of 2023 to complete the bridge-crossing. We also provide our outlook for the stock market, the economy and the geopolitical environment, with some caveats about forecasting and model use provided by Yogi Berra and George Box.

All-in, we see 2023 as a year with many changes but also a year in which consumers, companies and countries – amazing sources of ingenuity and resolve – work their magic to adapt to whatever curve balls are thrown at them. Our optimism is undaunted.

We also have moved our rating for Arcos Dorados (ARCO) from Hold to Sell.

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.

The calendar has flipped, but nothing has changed with the evidence during the past couple of weeks—the intermediate-term trend, which was stubbornly up for a while, has given way, joining the long-term trend on the downside, all while growth stocks underperform. Most indexes and sectors are doing more chopping than plunging, and it’s important to remain open to anything—but, simply put, the onus clearly remains on the bulls to step up. Our Market Monitor remains at a level 4.

Our first list of the New Year casts a wide net, and our Top Pick is a powerful turnaround play that also provides exposure to the improving non-U.S. area of the market.

A new year brings renewed optimism, and boy do we as investors need it after one of the worst years for stocks in recent memory – the fourth-worst in the history of the S&P 500, to be exact. So today, as we enter what is likely to be (though not assured, of course) a better year for stocks – perhaps much better – we try and strike an optimistic tone by adding a promising mid-cap growth stock to the Cabot Stock of the Week portfolio. It’s a brand-new recommendation from Cabot Early Opportunities Chief Analyst Tyler Laundon.

I hope everyone had a wonderful and safe holiday season! Once again, as we enter our last holiday-shortened week, I’m going to keep it short. We currently have one trade on, our IWM iron condor, which looks great at the moment. In fact, it looks like we might see a max win on this one of over 20%. However, the plan this week is to add a bit more exposure to the mix. I want to add another iron condor and hopefully a bull put and bear call for the February expiration cycle. The first goal is to add the February iron condor and then work the other two strategies into the portfolio as the market environment dictates.

I’m going to keep it short today as we enter the last of our holiday-shortened weeks.

The focus, as always, continues to be adding a few positions to the mix. I’ll be adding a new position in WFC this week with the hope of adding at least one, if not two, more underlying stocks to the portfolio as we start out 2023.

Earnings season is right around the corner, but we still have a few weeks of a light earnings calendar. However, this week we do get a quick preview of one of the Dow stocks, Walgreens Boots Alliance (WBA).

Other than WBA there really isn’t much discuss as the majority of the companies due to release earnings this week have little to no options volume. But, as I said before, that all ends in a few weeks when earnings season starts in earnest.

The market is ending the year a lot like it began it -- by going down, led mostly by growth stocks, and that’s keeping us defensive. We do think better times are ahead, and we even saw a positive broad market divergence this week as the Nasdaq retested its lows. But as has been the case all year, we’ll refrain from any major buying until the buyers truly show up.

Tonight’s issue talks about some puke action from individual investors (a good thing) and the fact that, after this bear ends, the market is likely set to resume its advance (not a long-term top), plus we fine tune our watch list (one name broke out today) and dive into some potential leaders, too.

Last but not least, all of us here wish you and yours a happy, healthy and prosperous 2023. Cheers to better times ahead!

As we finish a tough year for stocks we should guard against pessimism since interest rate hikes should slow and level out and lower valuations for growth stocks could ignite a rally. Explorer stocks had little news as we sell one holding and are close to selling MP Materials (MP) as well. This week we go back to a small-cap medical technology stock trading at an attractive price.

Cannabis stocks and exchange-traded funds (ETFs) are ending the year at their lowest levels ever, and everyone knows exactly why. Sector investors were let down by lawmakers in Washington, D.C. who had suggested they’d secure approval of favorable banking reform by year-end while they still had the votes. This reform would have been a game changer since it would provide cannabis companies access to banking services and maybe even listings on major exchanges.

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

In this issue, we discuss our Top Five Stocks for 2023. While we like all of our recommendations, these five have what we believe are the most favorable combinations of risk/return potential and timeliness.

We also review this past year’s capital markets and grade our 2022 outlook. We also provide our outlook for 2023, acknowledging the wisdom of Yogi Berra’s advice that “predictions are difficult, especially about the future.”

Like nearly all asset classes, high-yield bonds had weak performance this past year. However, conditions are more favorable, and investors may want to nibble on new high-yield investments.

Our feature recommendation this month is one of the most disliked stocks in the market, social media company Meta Platforms (META). The company’s core fundamentals are strong but are being obscured by the immense waste of capital that is its metaverse investment. Any relenting on this mission could lead to an impressive turnaround of the company and its remarkably inexpensive stock.

Stocks trend higher over time. And history clearly illustrates that bear markets are ideal times to invest ahead of the next bull market. The average bear market is about 15 months long. And this one is already almost a year old. There is a high-percentage chance that a rally ignites in 2023 that will lead us out of this bear market and into the next bull market.

In our final issue of 2022, we have another Sell and three downgrades as the market ends its worst year in more than a decade with a fitting whimper. But better times are almost assuredly ahead in 2023, and with that in mind, we’re adding a mega-cap with mega-ambitions – tackling the world’s ever-expanding obesity epidemic. It’s a potentially $1.2 trillion market by 2025. And the stock has been one of the market’s few bright spots this year, up 19%. It’s a recent recommendation from Cabot Explorer Chief Analyst Carl Delfeld.

It’s been a volatile week so far, with Monday an excellent day for risk stocks and yesterday a tough day for tech as inflation fears circulated in the market.

The market had its worse day since March yesterday. The worry de jour was the debt limit. I believe the issue will be resolved long before a default occurs one way or another.

Across almost the entire length of the yield curve, interest rates are ticking up. The benchmark 10-year Treasury yield reached 1.53% and may be headed back toward its December 2019 rate of about 1.90%. In an economy that is showing rapid growth, with inflation well above the Fed’s 2% target and likely at 6% or more if housing prices were properly factored in, a sub-2% 10-year Treasury yield doesn’t seem to make sense.

There’s a case to be made that we are in the early innings of a commodity bull market. I’m starting to see lots of articles about a looming energy shortage which will hit this winter.

The market is selling off on Tuesday after briefly recovering last week. The latest worry is the debt limit. While this issue is likely to be resolved without any disaster one way or another, it puts a negative weight on an already teetering market.

Capital market, economic, geo-political and societal changes are happening quickly.

A recent survey by the American Association of Individual Investors (AAII) showed that the percentage of investors who think stocks will rise over the next six months plunged to its lowest level in more than a year.

The big developments over the last week have been the situation with the potential failure of Evergrande (Chinese property developer) and interest rates. As of mid-morning Thursday, we appear to be moving past these potential issues.

Today, markets are rallying as much as they fell on Monday ahead of the Fed meeting this afternoon.

Monday’s market tumble to two-month lows, which was the first gap lower that also pushed the broad market beneath its 40-day moving average since mid-summer, triggered a number of our sell-stops.

Monday’s big, sharp market pullback was shocking to some investors, and scary enough to cause many to sell stocks in the fear that the correction would go deeper. It certainly might—the September/October period often brings major corrections—and maybe it should, though should is a word that I try to avoid when writing about the market.

It’s not news that the stock market has been sloppy lately. After the steady march upward to a doubling of the S&P 500 from the early 2020 low, and a 33% increase from year-end 2019 before the pandemic, one can hardly be disappointed in the market’s performance.

Some of this REIT’s household name tenants are: Whole Foods, Kroger, Petco, U.S. Bank, Chase, and Five Guys. The REIT has a current annual dividend yield of 5.38%, paid monthly.

The top five holdings in this fund are Facebook Inc A (FB, 9.83% of assets), Amazon.com Inc (AMZN, 8.92%), Berkshire Hathaway Inc Class A (BRK.A, 5.68%), Microsoft Corp (MSFT, 5.33%), and Apple Inc (AAPL, 3.18%).

The brightest star in the metals sector of late has unquestionably been lithium. Recent favorable developments pertaining to the electric vehicle (EV) industry have boosted lithium’s profile since the white metal is a critical component for EV batteries.

Back in early 2000, when the Internet stock bubble was preparing for its long deflationary period, the charting service we used categorized Internet stocks into four groups: ISP/Content, E-Commerce, Software and Security/Solutions. At the time, these groups included 470 stocks.

This penny stock is speculative, but has an impressive book of patents and collaborations.

Today we’re going to part ways with two positions that we added in May and which we’ll make a little more than 10% on. Both positions were trading higher a couple weeks ago but have lost some momentum recently.

This penny stock is speculative, but has an impressive book of patents and collaborations.

This biotech is forecasted to grow at an annual rate of 35.6% over the next five years.

Now that it’s (almost) back to regular business for the airlines, our contributor booked some profits on his Top Pick.

This small cap EV charging equipment company just joined the Russell 2000 Index, which should give it even more momentum.

Aptevo filed an 8-K disclosing that Proposal 4 (Company Sale) passed. However, as you can see in the screenshot below, the company made a special point in the footnote that the majority of non-Tang shareholders voted against the immediate sale.

This biotech just received EUA approval from COFEPRIS (Comisión Federal para la Protección contra Riesgos Sanitarios) for COVI-STIX, a sensitive and rapid (approximately 15-minute) diagnostic test. Earnings for the company are expected to rise by 37% annually over the next five years.

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.