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.

The bears sure enjoyed a rare day in the sun on Monday. The Dow had its worst day of the year, down more than 3%. Pessimists haven’t loved life like that since March of 2020.

Last week, we wrote about how the damp Boston-area weather matched the soggy stock market. Pressing our literary luck today, the market is following another New England weather meme: “if you don’t like the weather, wait a few minutes.”

Pullbacks in the market are never fun. It’s way more fun when we are all making money together and stocks are going up. But it’s important to keep the recent market action in perspective. LPL Strategist Ryan Detrick recently shared a couple charts that helped put the recent volatility in perspective.

The market hasn’t seen ugliness on this scale since October. Indexes had been somewhat flat and bouncing around near the highs as investors weighed the booming economy against inflation fears, a falling 10-year rate and growth concerns after the pandemic recovery.

As we discussed last week, the latest surge in U.S. Covid cases is increasingly likely to be the “fear catalyst” that gold desperately needs to attract the attention of safety-conscious investors. August gold was up $5 an ounce last week which, while not much, adds to the metal’s gains in the last couple of weeks and is another step in the right direction (especially in the wake of last month’s sharp decline). And importantly from a technical perspective, gold managed to close the latest week above its key 25-day moving average for the first time in over a month.

Today’s note includes an update on Wells Fargo’s (WFC) earnings. There were no ratings changes.

The big picture this week is much the same as last week. In fact, the S&P 600 Small Cap Index closed today just a fraction off where it closed last Thursday. The same applies to the Nasdaq, while the S&P 500 is up modestly.

After last weekend’s successful space flight of Sir Richard Branson, one would have expected Virgin Galactic (SPCE) stock to soar on Monday. Instead, it lost altitude. Sure, the announcement of a $500 million secondary offering leading to dilution was not welcome news, but part of the reason the stock fell is that investors asked, “what next?” and sold some shares. What comes next is indeed the right question since markets always look forward.

It’s another week of more of the same. The three major indexes are very near the all-time highs, but still not really going anywhere.

In the Boston area, we’ve had nearly 8 inches of rain so far this month. This 0.7 inches-per-day average compares to the 0.6 inches-per-day average for a monsoon rainforest, the type found in the tropics along the equator. Sounds a lot like the dampened mood of the stock market. Compared to the crisp 19% return for the average stock in the first half of the year, the 1% return so far this month seems soggy. Part of the reason is that there are too many mixed macro signals – rising inflation but falling bond yields, murkiness over whether the Biden administration’s large spending proposals will be passed, surging Covid cases despite what appeared to be the end of the pandemic, incredibly strong economic and profit growth which may be rolling over. Investors also are stuck in the mud of pre-earnings season, wondering whether high expectations will be exceeded or merely matched and worried that companies missing their estimates will be harshly punished.

Today’s note includes a brief update on a preliminary earnings summary, a price target increase and the podcast.

The major indexes got hit today, though damage among growth stocks wasn’t too bad. At day’s end, the Dow was off 260 points while the Nasdaq slid 105 points.

Six analysts have boosted the EPS estimates for this financial research company in the past 30 days.

Nine weeks ago, as the marijuana sector was completing what looked like a climax top, I took the risky step of taking partial profits in ten of our stocks, moving to a 45% cash position.

In the last 30 days, four analysts have raised their EPS estimates for this bank. The shares have a current annual dividend yield of 3.25%, paid quarterly.

The top five holdings in this healthcare fund are: Pacific Biosciences of California Inc (PACB, 7.19% of assets), Danaher Corp (DHR, 4.72%), TG Therapeutics Inc (TGTX, 4.58%(, Fulgent Genetics Inc (FLGT, 4.10%), and Repligen Corp (RGEN, 3.89%).

Activist board members and a recession-proof business may push this company to a nice turnaround.

A quick look through the major marijuana stocks leads to an unsurprising conclusion: the sector remains in a correction.

The stock of this semiconductor company was recently upgraded by Cowen & Co. to ‘Outperform.’

Our first recommendation is a cannabis company that just received a big investment from British American Tobacco. We are also taking profits in a previous idea.

This gold company’s fourth quarter earnings soared by 133%. Its current annual dividend yield is 3.51%, paid quarterly.

This alternative asset manager is forecasted to grow at an annual rate of 18.15% over the next five years.

Porch (PRCH) reported its first quarter as a public company this week. The numbers are a little messy due to divestments and acquisitions over the last year, but the bottom line is that the quarter was good and the company is well-positioned for the year ahead. Making all the necessary adjustments, revenue in Q4 was up 34% to $19.5 million and up 28% to $73.2 million for the full year 2020.

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.