The start of 2023 has been a positive for the bulls as the indexes are all higher by approximately 1.5%.

It was a solid week for the major indexes, and even better has been some notable improvement in the broad market—in late December, we saw a key positive divergence from a broad market measure for the Nasdaq, and now we’re starting to see some legit improvement elsewhere, too. Don’t get us wrong, at this point, the major trends are still pointed sideways-to-down, so we’re not going to make too much out of what we see, but it’s fair to say we’re approaching another key juncture: If the market and (importantly) individual stocks are able to build on their recent action, we could get a green light or two and have something to work with. For now, our Market Monitor remains a level 4, but our antennae are up.


This week’s list features a wide array of names, with some commodity and value names combined with a few turnaround and growth titles. Our Top Pick is a solid long-term grower that has some catalysts for this year—as usual, aim to enter on dips.

2023 has started with a bang, pushing a couple stocks in our portfolio to new all-time highs! Both of those high fliers have benefitted greatly from the return to relative normalcy in the wake of Covid, so today we add another stock that stands to get a direct bump from China’s reopening – or at least the loosening of its draconian “zero Covid” policies. The company was a pre-pandemic favorite of Cabot Top Ten Trader Chief Analyst Mike Cintolo and looks like a great value pick now as its business picks up in earnest. So, he’s recommending it again.

We sold some additional premium in Wells Fargo (WFC) late last week and I intend to sell even more as we begin 2023. Our PFE 49 puts are due to expire this week and if all goes well, I plan to buy back the puts for $0.05 and immediately sell more put premium going out to the February 17 expiration cycle.

The same goes for my GDX and KO positions. I intend to buy back our put positions in both underlying stocks and immediately sell more premium. And like PFE, I will be focusing on selling premium for the February 17 expiration cycle.

Earnings season officially starts this Friday with JPMorgan (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) kicking it off prior to the opening bell.


Other than the big banks it’s going to be a slow week for earnings, but hey, earnings season has finally arrived, and I expect that we will have one if not two trades heading into the latter part of the week.

We locked in our first profit of the year last week, a 19.0% return in our IWM January 20, 2023, iron condor. With two weeks remaining in the trade, and only $0.06 worth of premium left, the most prudent move was to take the profits and risk off the table and move on to the next opportunity.

Thankfully, we were given a few opportunities last week and decided to pounce on them by adding two new trades to the mix, another IWM iron condor and another SPY bear call spread. Now the focus will be to add a bull put spread to the mix to balance out the deltas.

Having just returned from vacation, in this morning’s Weekly Update I am going to focus my attention on where we stand with our positions. However, going forward, I/we are fully back to the normal schedule.

Having just returned from vacation, in this morning’s Weekly Update I am going to focus my attention on where we stand with our positions. However, going forward, I/we are fully back to the normal schedule.

This month we’re going with a small software company serving a resilient industry that has been slow to adopt to cloud technology, but which is coming on strong now.

Despite the tough macro environment this company has been beating expectations for many quarters. Management has been raising revenue guidance too, and a tweak to the business model is starting to pay dividends.

Enjoy!

2022 went out with a whimper for the market as the indexes posted one of their worst years on record.

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.

The action in the second half of August was encouraging, but as has been the story of 2021, a lot of that move has been erased so far in September—and that goes for just about everything.

The S&P 500 has finally failed to make a new high every day lately and is 2% below the high-water mark! That doesn’t seem like it should be news but in this market it’s worth noting.

So far, the post-Labor Day market has been just a little bit crummy. Stocks have drifted slightly lower over the past week. While that’s nothing alarming, it is a reversal of the summer market where stocks were drifting slightly higher. It could be that the balance has been tipped toward the negative.

Here we are in September. So far, it’s not bad. But it’s not good either. For the first week after Labor Day, the market has drifted lower. It’s no big deal. But stocks have been losing a battle they were winning in the summer. The bulls were eking it out then. Now the bears are prevailing, slightly.

The market seems expensive, but the S&P 500 keeps making new all-time highs.

Fundamentally, all is well in the marijuana sector as the industry’s leaders continue to grow, both organically and by acquisition. The average rate of revenue growth for the plant-touching companies in our portfolio in the most recent quarter was an amazing 132% from the previous year.

We’re past the earnings season, so there were no companies reporting earnings this week. The next scheduled earnings report looks to be on October 8, with Lamb Weston (LW) reporting.

Despite more grumblings out there about how “we are due for a pullback,” stocks continue to hold up. In fact, many growth stocks have done far better than that and are jumping higher on almost a daily basis.

Over the summer, the strong economy prevailed over concerns about the virus. And the market drifted higher. We’ll see if the scales get tipped the other way in this historically tough month for the market.

We’re close to seeing two sell-stops triggered at the end of today and we’re moving one stock from Watch to Buy.

This week, we are rolling forward our valuation comments – generally dropping our valuation based on 2021 estimates, where appropriate, while adding commentary based on estimates for 2023. Most analysts project that all of their companies will have higher earnings in future years, so we take the 2023 estimates (which are over two years away) with a grain of salt. And, they almost certainly will be wrong – we just don’t know in which direction or by how much. However, these estimates are helpful in understanding the level and direction of consensus opinion, especially between earnings reports when there is usually little hard news or fundamental data at the company level to support estimate changes.

One of the biggest questions that metals investors are asking right now is, “Why hasn’t gold had a meaningful rally this summer?” After all, there are a number of legitimate catalysts for gold to respond to, including widespread worries over the spreading coronavirus variants and the growing threat of inflation. So why hasn’t gold—the ultimate “fear barometer”—taken flight in response to these fears?

This software company beat analysts’ earnings estimates by $0.36 last quarter. It is forecasted to grow earnings at an annual pace of 17.5% over the next five years.

EPS projections for this media company have recently been raised by 8 analysts, and 5-year growth is estimated at 57.4% annually.

Earlier this month, this healthcare tech company began selling its shares to the public.

Yesterday I mentioned that I would follow up today with notes from the Thunderbird Entertainment (TBRD.CA, THBRF) earnings call. Here are a few tidbits from that call.

This REIT is beginning to recover from COVID, and looks very undervalued. The REIT has a current dividend yield of 7.21%, paid quarterly.

The top five holdings in this ETF are: Pfizer Inc (PFE, 5.43% of assets), Sanofi SA ADR (SNY.PA, 5.36%), AstraZeneca PLC ADR (AZN.L, 5.23%), AbbVie Inc (ABBV, 5.06%), and
Novo Nordisk A/S ADR (NVO, 5.06%).

Our first recommendation has a current annual dividend yield of 2,81%, paid quarterly. Its top five holdings include: The Home Depot Inc (HD, 4.58% of assets), International Business Machines Corp (IBM, 4.18%), Pfizer Inc (PFE, 4.17%), PepsiCo Inc (PEP, 4.07%), and Texas Instruments Inc (TXN , 4.01%). Our second recommendation is a sale of a previous idea after disappointing results.

The company is executing on its turnaround, led by the relatively new CEO. However, after our more detailed review of the company’s future prospects, the shares appear to fully discount a robust profit recovery and are trading at our price target. Their Investor Day was uninspiring – while the company is operating much better and has at least a temporary cyclical tailwind, the management is talking about pursuing their growth ambitions, going so far as to outline as much as $4 billion in buying power over the next several years. For perspective, $4 billion in cash flow compares to the company’s current $2.7 billion market cap.

This chemicals company beat analysts’ EPS projections by $0.42 last quarter, and five analysts have boosted their estimates for the company in the last 30 days. The shares have a current annual dividend yield of 2.26%, paid quarterly.

On Friday our five May covered call positions expired.

A triple-digit revenue increase and an exciting acquisition are on taps for this cannabis company.

The shares of this apparel company were just upgraded by Stifel to ‘Buy’. The shares have a current dividend yield of 3.02%, 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.