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%.

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%.

This month we are going with a small industrial company that is showing how consistent focus on operational improvement can pay dividends.

Once thought of as a highly cyclical company with management that tended to drop the ball, execution has improved dramatically. In 2022 revenue was up 14% and EPS was up 41%.

With exposure to megatrends like infrastructure and global electrification, I see more upside ahead.

Enjoy!

In an effort to keep the portfolio as diversified as possible, this week’s pick is a recent earnings winner whose products are used in the aerospace field.

Last week was the worst week of the market’s recent retreat, and it’s fair to say many pieces of evidence are now at or approaching key levels: Most major indexes closed in on their 50-day lines, many individual potential leaders are in a similar boat, and both the broad market and the growth-vs.-defense dynamic are healthy but showing a bit of wear and tear. Ideally, this three-week dip leads to a resumption of the January rally—but the next few days should tell the tale. Right now, given the late-Friday firmness and today’s bounce, we’ll leave our Market Monitor at a level 6, but we’re watching closely.

Despite the market action, we actually think this week’s list has a bit more juice than the prior couple of weeks. Our Top Pick looks like a fresh leader in the chip sector; it’s extended, so try to buy on a shakeout.

Stocks continued to retreat last week, ensuring a down February after a very promising January. Still, the latest pullback has been fairly modest, with the 200-day moving average now acting as a floor instead of a ceiling, as it did for most of 2022. With the market in a state of flux, we’re adding another dividend stock today – a household name that used to be part of the Stock of the Week portfolio before we sold it late last summer. That looks like a mistake, as the stock has risen 11% since, and seems to be gathering more steam of late. It’s a longtime recommendation of Cabot Dividend Investor Chief Analyst Tom Hutchinson.

The market was steady this past week as the Federal Reserve completed its two-day meeting and announced plans to end its stimulus program but keep rates unchanged. Some highlights among Explorer stocks:

It was a glorious October. The S&P 500 was up about 7% for the month, more than making up for September’s 4.8% decline. Now what?

Halloween is one of my favorite holidays of the year. There is minimal preparation, no gifts to get, no travel – you just get to celebrate with friends & family and watch your kids have the time of their lives.

September was lousy. October was glorious. What can we expect in November and beyond?

Gold continues its recent pattern of tantalizing investors, only to disappoint—a pattern that was on full display last week.

This week’s note includes comments on earnings reports from ten recommended companies as well as The Catalyst Report. Our podcast also includes our views on Facebook (FB) and the metaverse, and the secret of low expectations.

The major indexes are having another good day, and this time so are most leading growth titles. As of 2 p.m. ET, the Dow is up 180 points while the Nasdaq is in the green by 179 points.

This week has been all about earnings, even though we’ve only heard from one company in our portfolio. That company is Repligen (RGEN), which reported this morning (the stock is reacting well). Notes on that report are below.

New highs are good. Nine portfolio positions are at or near the 52-week high. Let’s be happy.

We’re watching with wonder how Tesla is now a $1 trillion company and that Elon Musk, by himself, is worth more than all of ExxonMobil. There is some poetic irony that the pioneer of electric vehicles and solar panels is outshining (no pun intended) the very icon he is working to replace. Tesla is a remarkably powerful one-trick pony that is only starting to develop its potential.

As we head into the end of 2021, the market seems poised for a strong end to the year.

This week’s update includes our comments on earnings from Baker Hughes (BKR) and Mattel (MAT) as well as commentary on several stocks.

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.

This pharmacy chain just got lighter with a sale of a business, and earnings estimates are rising.

While this biotech could certainly go much higher, our contributor is recommending taking profits.

This tech company is being acquired by Microsoft. If you want to hold MSFT shares, keep holding; otherwise, cash in.

We recommended Cohen & Steers Infrastructure Fund, Inc (UTF) on February 3, 2021, at a price of 26.89. Today, it is trading at 27.70. Not much of a move up.

Gold and the precious metal mining stocks are rallying on short covering after reaching an extremely “oversold” market condition earlier this week. August gold is up just 0.80% from last week’s low as of this writing—admittedly nothing to write about—but what is worth mentioning is an article I came across which expands on a theme that was touched on in the last report.

We’re going to step aside from e.l.f Beauty (ELF) today for a very slight loss (roughly 4%). We’ve held the stock for just over a month and it has posted uninspiring performance, especially since reporting on May 26. My original intent was to try to make a relatively quick and modest gain on the stock, but with so many other positions working well there’s little incentive to hold this one.

As I write this, every stock in our portfolio is up today, in what may be the beginning of a new advance for the sector. It’s been more than four months since marijuana stocks’ February peak, so they’ve definitely cooled off, but only time will tell if this is truly the start of a new run. In any case, we’re ready, with the portfolio now 84% invested.

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 Momentum 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 Momentum Trader features.