The traditional last week of summer on Wall Street went out with a whimper, as the market fell for a third straight week. The numbers weren’t pretty for the bulls as the S&P 500 fell 3.3%, the Dow declined 3%, and the Nasdaq fell another 4.2%.

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

We’re not in the predictions business, so we have little use for predictions or forecasts. Our commentary includes perspectives from Warren Buffett and Yogi Berra.



This past month we covered a complicated earnings season and added two new stocks (State Street Corporation and Gates Industrial Corporation) while selling our position in The Coca-Cola Company.



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.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

The traditional last week of summer on Wall Street went out with a whimper, as the market fell for a third straight week. The numbers weren’t pretty for the bulls as the S&P 500 fell 3.3%, the Dow declined 3%, and the Nasdaq fell another 4.2%.

The traditional last week of summer on Wall Street went out with a whimper, as the market fell for a third straight week. The numbers weren’t pretty for the bulls as the S&P 500 fell 3.3%, the Dow declined 3%, and the Nasdaq fell another 4.2%.

We’re still thinking there’s a decent chance that the market’s action since May and June is part of a big bottoming process, but it’s also pretty clear that, even if that’s true, the market has more work to do—the selling of the past three weeks has erased many of the positive top-down signals from the prior month or two, with the intermediate-term trend of the major indexes pointed down, the broad market unhealthy and growth stocks in general again underperforming. We’re still aiming to hold onto resilient names, but having plenty of cash is also a must, as is staying flexible.


This week’s list has a bunch of good charts, reflecting the fact that many nooks and crannies of the market are still looking somewhat solid. Our Top Pick is a leader in a commodity niche that has a good launching pad and has come under strong accumulation.

The selling continued on Wall Street this past week, which has us trimming two more positions in the Stock of the Week portfolio. But most of our stocks are holding up well, and two in particular – Centrus Energy (LEU) and Ulta Beauty (ULTA) – are thriving. Today, we add a stock that not only insulates us a bit from all the selling, but also broadens our international exposure. It’s a value play, courtesy of Bruce Kaser, that’s also growing – up 24% this year!

Details inside.

I’m going to push back my hedge trade for next week as I plan on buying back most of our current positions and immediately selling more premium. Once I have a better idea of the premium we are able to bring in by selling more premium, most likely for the October expiration cycle, I will send out an alert with my hedge-based trade followed by a detailed explanation of how the trade will work going forward.

We are two weeks into the earnings season doldrums and the opportunities are, at least for now, non-existent. But as I state almost every week, while the offseason earnings trades oftentimes lack all the necessities for an actual trade, it’s still worth looking at potential trades as we patiently wait for another earnings season, if only for educational purposes.

Since our last issue the market has pulled back sharply. No worries, as our portfolio was leaning bearish so the pullback gave us the opportunity to take off two of our bear call spreads. We took off both our SPY and DIA bear call spreads for returns of 14.42% and 15.47%, respectively.
Now we are left with our iron condor in IWM which I hope to take off for a small profit over the next week or so. But I also want to ramp up our positions again with implied volatility once again popping off near-term lows and now hovering above 25.

This was a tough week and major indexes slid between 4% and 5% in August, their worst monthly performances since June. Nuclear energy play Centrus Energy (LEU) was a standout Explorer stock, up 56% over the last month. Today, we go to Canada for an interesting and speculative maritime robotics play.

The market has been iffy since Fed Chair Jerome Powell’s “prepare for pain” speech at Jackson Hole last Friday.

With interest rates up and (most) stocks down since I’m going with a high-quality name this month.



This healthcare specialist just posted 44% growth in Q2 and has grown its covered lives by 80% over the last 12 months. It’s profitable, and with a bucket of new contracts in the first half of 2022 the business looks set up for a terrific 2023.



Enjoy!

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the September 2022 issue.



One of our more productive methods for finding attractive turnaround stocks is to see what other like-minded investors are holding. We culled the list of hundreds of positions held by our evolving list of 50 or so preferred managers, as reported in the quarterly 13F filings, and discuss three of the most promising.



We also combed through the roster of stocks trading at low prices – another great source for turnaround stock ideas – and review four that have particular appeal.



Our feature recommendation this month is Warner Brothers Discovery (WBD). While most investors view this company as a “play” on streaming, we view it as an undervalued turnaround of the poorly managed WarnerMedia assets that it recently acquired from AT&T.

We note our recent ratings change of Lamb Weston Holdings (LW) from Buy to Sell.

Although the S&P 500 index has gone sideways in recent weeks, there is a lot going on under the hood.

Each day brings something new. Some days every stock falls, other days they all surge, and some days, like Monday, undervalued stocks in the industrial, consumer and financial sectors jump (the Dow Jones Industrial Average gained 1%) while the Nasdaq slipped 2.4% - an enormous and historically unusual 3.4 percentage point gap, particularly as the indices went in opposite directions. Since February 12th, the Dow Jones Industrial Average has lifted by 1.1% while the Nasdaq has plunged by 10.5%, entering what the media call a correction.

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

The sellers ran wild today, with the Dow losing 346 points, the Nasdaq falling 274 points (2.1%) and the average growth stock we own or watch down nearly 5%. From late January through late February, we began to see a change in character, with a string of wild up-down-up-down action in leading stocks—coming after a big run, that’s a sign the bears have begun to put up a fight. And now, at least when it comes to growth stocks, we’re seeing the result, with a ton of stocks cracking their intermediate-term uptrends and many coming unglued.

The market has gotten a little choppy and interest rates are to blame. At least, that’s what they say. The market indexes fell last week and have been all over the place so far this week.

Vaccines are being rolled out, and the economic recovery will be strong in 2021. Stocks that will benefit from the economic recover should have strong tailwinds. While our entire portfolio should benefit from an improving economy, two stand out to me.

After a rough week, the market is right back in business. Just when stocks appeared on the cusp of a deeper selloff, the S&P 500 started off this week with the best session since June.

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

The big picture for the market is that the uptrend is intact but under the surface we’re continuing to see pockets of turbulence. While the S&P 500 is just 2% off its high from last week and the S&P 600 Small Cap Index hit a fresh all-time high yesterday, the Nasdaq is 6% off its high and trading right on its 50-day line.

You may have seen that a relatively new Explorer idea, Fisker (FSR), was up 38% yesterday. It turns out that my analogy of comparing the company to Apple’s relationship to Foxconn was truer than even I could imagine. The news yesterday was that Foxconn will be making a future Fisker model electric vehicle, and even better, it may be doing so in my home state of Wisconsin.

The stock market is clearly accelerating the “reopening” trade. Small cap and cyclical stocks as well as commodity prices are surging, interest rates continue to tick up (the 10-year Treasury yield is now 1.38%, up from 0.92% at year-end), and novel financial vehicles like SPACs, Bitcoin and Reddit are attracting a stunning amount of attention. With the government plying the market with endless quantities of free money (drinks?), investors are giddy and going “all in.” The pot is now huge.

Judging by some headlines and my Twitter feed, you would think the markets are in meltdown mode. But I just checked and the S&P 500 is only 1.9% down from its all-time high. And the Russell Micro-Cap Index is down 4.0% from its all-time high. It’s important to remember that it would be totally normal if the market did continue to pull back, judging by previous bull markets.

The expiration of our February covered calls is today, and we have two positions (KSS and SNAP) that are deep-in-the-money and will almost certainly be called away for maximum gains (great scenario) and another (AA) that is just in-the-money and likely to be called, but it will come down to the close (good scenario).

Our first recommendation is a security tech company that is expected to grow earnings by 152.4% this year. Our second is some nice partial profit-taking of a previous idea.

This food company just announced its new Accelerate growth strategy, which will focus on five categories that, together, account for 45% of its revenues: cereal, pet food, ice cream, snack bars and Mexican food. The shares have a current annual yield of 3.57%, paid quarterly.

We are raising our price target on ViacomCBS (VIAC) from 54 to 65 and moving to HOLD.

Coverage of the shares of this electric vehicle maker were just initiated at Morgan Stanley with an ‘Overweight’ rating.

Earnings for this navigation/information company are expected on February 17, with estimates of $1.39 EPS on revenues of $1.18 billion. The shares have a current dividend yield of 1.93%, paid quarterly.

This bank is joining the digital asset (think Bitcoin) business rapidly, boosting its attractiveness to investors.

** Because of President’s Day, our offices will be closed next Monday, February 15 — so your next Cabot Profit Booster issue will be published Wednesday, February 17.

Datadog (DDOG) reported Q4 results yesterday afternoon that surpassed expectations but were light in terms of 2021 EPS guidance. Revenue was up 56% to $178 million (beating by $14 million) while adjusted EPS of $0.06 beat by $0.04. Revenue guidance for 2021 of $825 million to $835 million is above consensus of $803 million but adjusted EPS guidance of $0.10 to $0.14 was below consensus of $0.19.

Since reporting earnings earlier this week shares of Avalara (AVLR) have retreated modestly, despite a solid quarter. As I’ve flipped through dozens of charts over the last two days I’ve been struck by the diverging performance of earnings winners.

As marijuana legalization spreads, this grower should reap the benefits.

Zedge (ZDGE) has appreciated a lot faster than I had anticipated. It is up over 100% since we profiled the name last month and is trading above my fair value estimate of $9.80.

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.