After a negative start to the week last Monday, the market surged higher on Wednesday, following what many traders view as a “less hawkish” speech by Federal Reserve Chairman Jerome Powell.

Not much has officially changed with the market since our last issue, with the Cabot Tides positive, but the other indicators still down and with most growth stocks still having trouble making any real progress. That said, we are seeing a gradual improvement in the evidence, with other indicators closing in on green lights and, even among individual stocks, some better, more proper action.

Overall, we remain defensive, but we are making a couple of small moves tonight, adding two half-sized positions, including one in a stock we already own.

In tonight’s issue, we go over all our stocks, highlight some new names and even talk about one non-growth sector that intrigues us. Ideally, the market is ready for a real rally, and if so, we’ll be aiming to put our remaining 70% cash position to work. But for now, going slow remains your best course.

Centrus Energy (LEU) shares were largely unchanged as the company is well positioned to benefit from growth in next-generation nuclear technology, helping provide reliable and carbon-free electricity. This is still a buy for aggressive investors.

This month we’re going with a little-known consulting company that’s growing revenue and EPS in the double digits as it helps organizations adapt to the changing times.

It is growing especially quickly in areas like digital transformation, which is challenging for lumbering organizations in the healthcare and education segments where the firm generates the bulk of its revenue.

With a fresh revenue and profit growth strategy and a plan to return more money to shareholders, this little company’s stock looks great.

Enjoy!

The high-growth cannabis sector continues to be full of rapidly evolving developments that could move our stocks significantly at any moment.

Beyond the potentially transformative changes in the works on legalization, almost all our companies just reported solid third-quarter revenue growth.

That means this issue of the Cabot SX Cannabis Advisor focuses heavily on corporate trends and developments in the company update section, below. The updates are longer than usual, covering the key news events and developments at our companies revealed in quarterly results and other news flow.

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

While investment losses are everywhere this year, we highlight two ways to harvest these losses and discuss seven stocks that have strong appeal as year-end bounce trades.

We also highlight four attractive stocks held by highly-regarded long-term value investment funds that we found in our analysis of the recent 13F regulatory filings.

Our feature recommendation this month is theme park operator Six Flags Entertainment (SIX). This company is aggressively working to improve its profit structure under a completely new leadership team but the turnaround is taking longer than investors would prefer, leaving its shares overly depressed. For patient long-term investors, the shares offer an attractive, asymmetric potential return.

With one month left to go in this miserable year, the stock market picture is the brightest it’s been in some time. The S&P 500 is up 11% since its mid-October bottom, volatility is way down, and December is traditionally (though not always) one of the better months on the calendar for investors. The next Fed meeting or inflation data point could throw cold water on all that, but for now the water is at least lukewarm, which means it’s time to take a chance and dive in head-first with a new small-cap financial recommendation courtesy of Cabot Early Opportunities Chief Analyst Tyler Laundon.

Details inside.

Not much has changed in the past week. We currently have two open positions: a bear call spread in SPY and an IWM iron condor. Both are due to expire December 16, 2022, and both are currently in a profitable state. My hope is that we can take both of our trades off this week for nice profits.

I also plan on adding another bear call spread to the mix this week, this time for the January expiration cycle. And if we see a decent pullback this week, I’ll follow that trade with a bull put spread in January.

We locked in a return of 3.9% in GDX and 3.8% in KO last week and, if all goes as planned, look to lock in even more in PFE this week. Moreover, I plan on continuing to wheel both GDX and KO, so expect to see trade alerts for both stocks as I intend on selling a few puts.

Lastly, if the market cooperates and pulls back a bit from its current short-term overbought state, I intend on adding a few short-term trades to the mix, mostly by selling puts, but we could see an appearance of a jade lizard. Stay tuned!

We are officially entering the earnings doldrums, but that certainly doesn’t mean that opportunities won’t present themselves. For instance, this week Marvell (MRVL) announces earnings and offers a decent opportunity for an iron condor and potentially a candidate for a short strangle.

I’ve gone over an iron condor example in the “Weekly Trade Ideas” section below and will send out a short strangle idea as we get closer to the earnings announcement Friday. As always, I’ll let everyone know (in a separate alert) whether or not I will be making the trade.

The holiday-shortened week was fairly positive as the S&P 500 rose 1.6%, the Dow added another 1.9%, and the Nasdaq gained 0.75%.

The holiday-shortened week was fairly positive as the S&P 500 rose 1.6%, the Dow added another 1.9%, and the Nasdaq gained 0.75%

My favorite market strategist, Ryan Detrick, is always good for some interesting factoids. According to Ryan, when the S&P 500 is up >10% through the first 100 days of the year, it increases 8.6% on average during the remaining portion of the year.

The market continues to forge nowhere. The S&P 500 is still below the May 7th high, but it’s only less than 1% below the high. It stopped going up. But it isn’t going down.

More than any single factor, broad-based fear is keeping gold prices elevated (with silver benefiting by extension). As we talked about in the previous report, gold’s “fear factor” has returned with a vengeance as inflation concerns—combined with other economic worries and geopolitical unrest—have converged to give gold a strong supporting bid as we head closer to summer.

The market was mixed today with cyclical stocks outperforming—at day’s end, the Dow was up 139 points while the Nasdaq was down 2 points.

Well, it’s about time some buyers showed up. While we can’t yet characterize the move in higher growth small- and mid-cap stocks as a rally per se, it’s not premature to say that sentiment has turned up when it comes to these types of stocks.

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.

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.

Growth stocks continue to bleed today, with many down 4% to 10% even as money rotates into cyclical areas. Our trend-following indicators are still positive, so we’re not selling wholesale, but as growth investors, we are turning cautious—we came into this week with 41% in cash.

Arena Pharmaceuticals (ARNA) yesterday announced that olorinab failed to meet the primary endpoint in the Phase 2 CAPTIVATE study in IBS abdominal pain. This is disappointing but not remotely the reason to own (or sell) the stock. IBS is a difficult to treat condition and when we got into Arena the programs with olorinab didn’t even exist.

This insurance company just walloped earnings estimates, posting 4Q EPS of $2.55, compared to earnings forecasts of $1.32. The shares have a current dividend yield of 4.43%, paid quarterly.

Last night, Medexus Pharma (MEDXF) reported excellent results. Revenue increased 70% y/y to $31.5MM in the quarter. While that top-line number benefitted from ~$3MM of sales that slipped from last quarter to this quarter, it was nonetheless a very positive report. Adjusted EBITDA increased to $5.1MM from a mere $700,000 a year ago.

C3.ai (AI) reported Q4 results yesterday – its first as a public company – that came in ahead of expectations but didn’t offer enough about future growth to support the stock’s valuation. Revenue in the quarter was up 19% to $49.1 million while subscription revenue jumped 23% to $42.7 million. Billings were lower than expected (down 10% versus up 14% growth) due to invoice timing which could be shrugged off if not for this being a newly-public company with high expectations.

The stock of this oil company is seeing renewed momentum. The shares have a current annual dividend yield of 6.24%, 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 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.