The Fed’s latest roundhouse to the market this week has caused another round of selling, but we think more damage was done to sentiment to this point than the evidence; we remain defensive and patient, but we’re also keeping a close eye on things, as a few good days (and some real breakouts from potential leading stocks) could give us something to work with.

In the meantime, we sit with just two stocks but are spending many hours filling up our watch list and monitoring earnings season for new potential leaders. We’re eager to add some exposure, but we’ll wait for things to stabilize first; in the meantime, check out all our latest thoughts in tonight’s issue.

With market jitters returning following the Fed’s meeting yesterday, we’re going back to a segment that’s served us well so far this year – MedTech.

Today’s portfolio addition is another highly specialized company that’s doing things far better than the competition and growing by over 30%.

Enjoy!

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the November 2022 issue.

While sharp declines in hyper-growth tech stocks to below their pre-pandemic prices may seem like the proverbial “end of days” has arrived, the fall-off is more a return to normal following a period of vast excesses.

Tomorrow afternoon traders will get another look at how the Federal Reserve perceives the inflation situation, as well as its plans to manage interest rate hikes going forward. Below are the expectations in the options market, the bond market, and from a couple Wall Street firms.

Tomorrow afternoon traders will get another look at how the Federal Reserve perceives the inflation situation, as well as its plans to manage interest rate hikes going forward. Below are the expectations in the options market, the bond market, and from a couple Wall Street firms.

Ahead of the “big” Federal Reserve announcement on Wednesday, the market surged higher last week. The S&P 500 gained 4%, the Dow rose 5.7%, and the Nasdaq rallied 2%.

Since earnings season began, we’ve been fortunate enough to lock in all three of our earnings trades for winners. Our cumulative totals sit at 17.3% for an average one-day return of 5.8%.

Our latest winner came on Wednesday as we placed a trade in Mastercard (MA). We locked in a profit shortly after the opening bell the following day for a one-day return of 5.3%, mostly due to the volatility crush that occurs immediately following an earnings announcement when most of the near-term, built-in uncertainty in the stock has passed.

We currently have two positions open, both of which have a probability of success higher than 84%.


With December expiration quickly approaching (45 days) I plan on adding several new positions this week. We want to have, at the minimum, one bullish, bearish and neutral trade for each expiration cycle and December is no different.

This week I intend on adding several new positions to the mix. My hope is to add two new positions to the “Wheel” portfolio and two short-term, one-off trades.


Also, with PFE closing in the money, or above our 47 calls at expiration, we will need to sell some puts early in the week to start a new phase of the wheeling process. Our shares were called away at $47. We’ve managed to lock in $3.62, or 7.24% worth of premium since introducing PFE to the portfolio. Our breakeven currently stands at 46.38.

Happy Halloween! True to the occasion, the final day of October is cause for investor celebration this year – all three major indexes were up sharply this month (one more sharply than the other two). Yet, with the Fed set to talk interest rates again this week and midterms and more inflation data on tap for next week, things also still feel a bit spooky out there. So, to fortify our portfolio against any further impending doom, today I’m adding a household name that has a proven track record, pays a hefty dividend, and has been overly punished by all the selling over the past year. In fact, value expert Bruce Kaser just added it to his Cabot Undervalued Stocks Advisor portfolio.

Enjoy!

Ford (F) reported a down third quarter, but Explorer stocks had a good week with all positions in the black. MP Materials (MP) and Oracle (ORCL) were up 11%, and SQM rose 8%.

The headline of today’s GDP report will likely be more upbeat than the two previous negative growth numbers, instead showing that third-quarter GDP grew at about a 2% annualized pace.

But beneath these numbers, investor sentiment, economic trends, and geopolitical risks are not all that encouraging.

How should investors take all this in and execute a strategy to exploit the situation?

This week earnings season really gets in gear … buckle up, and be prepared to jump into some earnings season winners if the market can continue to show signs of strength.

Today’s note includes ratings changes, the podcast and the Catalyst Report. We publish the Catalyst Report on the Friday after each monthly issue of the Cabot Turnaround Letter.

The market is in nowheresville. The S&P 500 is at the same level it was in early April. But the index isn’t really down. It’s only 1% below the all-time high. It’s not that the market is going down. It just stopped going up.

We’ve written about inflation in the past two letters and promise that we’ll stop with this letter, unless some major news on this front emerges. Yet, what keeps us on the topic is commentary from brokerage firms and media outlets saying that the market is fully discounting the arrival of inflation. If inflation is here to stay, at perhaps a rate greater than, say, 3-4%, then the market is not discounting its arrival.

In the stock market (and in life), incentives matter. Charlie Munger summed it up well when he said, “Show me the incentive and I will show you the outcome. I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it.” This is the reason why I’m so focused on insider ownership when evaluating micro-caps.

Today’s note includes earnings updates, ratings changes and the podcast.

While still very choppy, this past week has been much better than the two weeks prior as the selloff in growth stocks has cooled and more investors have begun to think longer term. While the risk of inflation is still an overhang on high-multiple stocks, the passage of time allows global supply chains to re-adjust and for people/companies/policy setters to get a better handle on what the legitimate inflation risk is.

Markets are a bit jittery despite strong earnings and expected strength as America opens up its post-pandemic economy. China is already at a 5% growth path while India, Japan, and other important economies struggle to get the pandemic under control.

The market’s relentless march ever higher is being interrupted. What’s going on?

Investors have started to see a cloud or two in an otherwise sunny stock market sky. We don’t focus much on short-term market moves, but we have noticed that the weather is shifting, at least slightly.

During his 30+ year career, my dad was a professional investor in Boston, Massachusetts. He worked for several firms, but always specialized in managing value portfolios worth hundreds of millions of dollars for institutional clients. I am lucky that he’s a great teacher and enjoyed passing along his investing wisdom over the years.

The market is still in an uptrend and not far from the highs. But things are changing.

Yesterday’s big rally in the Nasdaq was enough to reignite bullish spirits but it was not a clear signal that it is time back up the truck on growth stocks just yet. While I side with those who say the pullback has opened up opportunities for fresh buying in many beaten down names, I think the chances of a snapback rally in many of the highest multiple growth stocks, then a follow through to new highs within a few weeks, is unlikely.

The Dow hit a new high today, but marijuana stocks didn’t; their correction, which was richly deserved, is now one month old. And the fact is this correction is likely to run further, mainly because the broad market still needs a correction.

Trading at a P/E ratio of 9.99, this insurance stock looks undervalued. Its shares have a current dividend yield of 3.10%, paid annually.

This construction materials company beat earnings estimates by $0.20 last quarter.

This Brazilian medical education company is forecasted to grow earnings at a rate of 42.3% next year.

Suffice to say the last two weeks have been very tough. On the one hand, yes, of course some sort of correction or pullback has been expected given the huge progress the market – and growth stocks, small caps and IPOs in particular – have made over the last 12 months. But expecting something to come eventually and actually experiencing it are two entirely different things.

Growth stocks remain under the gun, and while we’re already relatively defensive in the Model Portfolio, we’re going to do a little more trimming now

Suffice to say the last two weeks have been very tough. On the one hand, yes, of course some sort of correction or pullback has been expected given the huge progress the market – and growth stocks, small caps and IPOs in particular – have made over the last 12 months. But expecting something to come eventually and actually experiencing it are two entirely different things.

This fintech company earned $2.74 per share last quarter, handily beating analysts’ estimates of $2.74.

With the market continuing to weaken we’ll move incrementally more into defensive mode until the smoke begins to clear and we can better distinguish the stocks that will emerge as the next leaders. While there is a lot we could say about just about any stock in our portfolio, right now we’ll focus just on what actions to take.

The resurgence of the semiconductor industry is happening right now. And this company is expected to grow earnings by 17.4% this year.

I’m tempted—I really am—to take some of our 46% cash position and move it back into marijuana stocks. Since the sector peaked three weeks ago, most of the stocks have had a decent pullback and now the best are moving up again, heading toward those old highs.

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.