Nothing new here. The song remains the same; the market continues to suffer. But, as I stated last week, while most portfolios across the investment universe have taken a turn for the worse, our Quant Trader portfolio continues to demonstrate why it’s a necessity to have exposure to options selling strategies.

Our win ratio stands at 90.9% and our cumulative return stands at over 40%.



We now have one open position for the October expiration cycle, our IWM iron condor, and three new positions due to expire November 18, 2022. Of course, I have no intent of holding on for that long and will gladly take profits early if possible.

From a top-down perspective, there are some rays of light out there--some of this week’s up volume has been very rare, and it comes on the heels of an onslaught of pessimism. That said, none of our indicators have flashed green, and the biggest thing we’re still seeing is selling on strength--this week, Enphase cracked and forced us to sell. We are adding two half-sized positions tonight in stocks from our watch list, but we’re remaining defensive with 78% in cash.


Elsewhere in this issue, we write about our Aggression Index and how it usually leads market bottoms--and how it’s showing interesting action in recent months. We also highlight many stocks that we’d love to own if the market gets going--we have our shopping list ready, but as always, have to see it first before any major buying.

The market has been trying to climb off its knees this week as we’re finally getting some solid evidence that both inflation and the job market are cooling.

In a seemingly odd twist, in the short term what’s bad for the economy is probably good for the stock market. While that doesn’t mean we’re out of the woods just yet, I’m going to up our risk profile slightly with a potential big winner in the battery industry.

This company is currently qualifying batteries for wearable technologies and expects to move into more consumer markets, as well as the EV market, in the coming years. All the details are inside the October Issue.

Enjoy!

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

Following the sharp drop in stocks due to fears of a major policy error, we see an opportunity for subscribers to add to their existing positions in many of our recommended names at very attractive prices.

Is a deep recession likely? Perhaps we are instead experiencing an old-fashioned inventory cycle.

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 month of September was flat-out ugly for the market as the S&P 500 fell 9.3%, its worst monthly drop since March 2020 (Covid). And the numbers were similarly negative this last week as the S&P 500 and Dow lost 3%, and the Nasdaq fell another 2.7%.

The month of September was flat out ugly for the market as the S&P 500 fell 9.3%, its worst monthly drop since March 2020 (Covid). And the numbers were similarly negative this last week as the S&P 500 and Dow lost 3%, and the Nasdaq fell another 2.7%.

This week is a complete dud when it comes to earnings announcements (which is why this report is so short this week), but no worries, earnings start in earnest the following week with the big banks (JPM, C, WFC, MS, etc.) all due to report on October 14. Moreover, this Friday we will be having our first subscriber-exclusive webinar at noon EST. In addition to going over several trades in the aforementioned bank stocks using our iron condor approach, I will also be introducing my step-by-step approach to short strangles with a few potential trades.

The market continues to suffer mightily. And while most portfolios across the investment universe have followed suit, our Quant Trader portfolio continues to display why it’s a necessity to have exposure to options selling strategies.

Our win ratio stands at 90.9% and our cumulative return stands at over 40%.



We still have one open position for the October expiration cycle, our IWM iron condor, and if the Russell 2000 (IWM) can manage to climb higher this week we should have the opportunity to tack on even more gains. Moreover, there are 47 days left in the November expiration cycle, so I intend to open a few positions for some exposure, but I want to maintain a conservative stance.

Stocks were basically neutral in the last week, with some signs of life bubbling up beneath the surface. In fact, most of our stocks had good weeks – and a couple of them were very good. Still, it remains highly volatile out there, and the selling isn’t necessarily over. And that makes it a good time to add another contrarian play. This week, that means adding our first (ever?) fund, which takes advantage of the fast growth happening outside U.S. borders – and it’s severely undervalued. It’s a recent recommendation from Cabot Explorer chief analyst Carl Delfeld.

Details inside.

As volatility picks up in the market, so too do the dramatic headlines, and we’re starting to see that now—but once again, nothing has really changed with the evidence: The trends of the major indexes are still pointed down, and most strength is being rejected, both of which argue for a continued defensive stance. As for rays of light, we’re still seeing a fair amount of names holding up well, as well as some minor positive divergences. All in all, our antennae remain up—we think upside surprises are possible—but our Market Monitor remains at a level 3.


This week’s list has another crop of resilient stocks from a variety of different areas, from medical to energy to restaurants. Our Top Pick is a familiar growth stock that went through the wringer and is now base-building normally despite the market’s grumpiness.

The continuation of the market sell-off led to another slow trading week as I decided it was best to simply sit on our hands.

As I stated in my Quant Trader advisory today, the investor’s fear gauge, otherwise known as the VIX, hit strong overhead resistance last week while simultaneously hitting a short-term overbought state. Typically, this type of situation leads to a reversion to the mean, especially in the few, reliable volatility products like the VIX.



The VIX hit 35 before pulling back the latter part of the week, even as the S&P 500 continued to plummet, another sign that sellers have exhausted themselves over the short-term. Which is why this week is pivotal for not only the VIX, but the market overall.

Energy and technology are no longer driving the market higher. As a result, the S&P 500 is kind of moving sideways.

The big news this week (completely unrelated to our recommendations) is that a family office called Archegos Capital Management has blown up and caused a mini-meltdown in the market.

Market leadership appears to be shifting. It’s interesting to note that utilities have been the top performing market sector over the past month and week.

Stop-losses, or more fully, stop-loss orders, are trading orders that are placed to execute a sale automatically if a stock falls below a specified trigger price. The idea is that these orders can prevent a small loss from becoming a large loss. It can also be used to lock in profits.

The bull market in our turnaround stocks continues to drive several names to prices above our targets.

It continues to be a very tough market, and with our exposure to small- and mid-cap growth stocks our portfolio continues to feel pressure. After some signs of stabilization last week the sellers are back in control this week and many names look destined to retest their March lows, or possibly dip a little lower.

It has been one year since the S&P 500 hit bottom and since the then the blue-chip index has roared back nearly 75%. Just imagine if we would have had a pile of cash and the guts to jump in.

The market looks like it wants to change its stripes and morph into something else. But it’s not there yet.

There’s no doubting the dominance achieved by mega-tech companies like Facebook, Amazon, Netflix, Google and the other members of the “FANGMAN” club (Microsoft, Apple and Nvidia). Over the past decade or two, these have created entirely new industries, grown to unprecedented size and rewarded shareholders with vast profits. And, like all of the technology companies that preceded them, they have reached their peak potential.

Over the past couple of weeks, the market has been flat despite a lot of news flow. There are rumors that the Biden administration may try to push through a tax hike on high earners and separately propose a massive infrastructure bill. Meanwhile, another round of stimulus checks are being mailed out and perhaps that will provide support for stocks. What impact will all this news have on our stocks? It’s hard to say.

The bull market in our turnaround stocks continues to drive several names to prices above our targets.

Remain cautious. The market has thrashed around in recent days, which hasn’t changed the overall outlook—most of the market remains in decent shape, but growth stocks and the Nasdaq are mired in a correction and there’s still a chance we see another leg down. That doesn’t mean we couldn’t on something here or there for the most part we think it’s best to stay close to shore until the sellers finish their work.

The top five holdings of this utility ETF are: NextEra Energy Inc (NEE, 18.28% of assets); Duke Energy Corp (DUK, 7.98%), Southern Co (SO, 7.18%), Dominion Energy Inc (D, 6.86%), and Exelon Corp (EXC, 4.68%). The ETF has a current dividend yield of 3.17%, paid quarterly.

As I’ve explained previously, I’ve become increasingly concerned that the blistering advance of the marijuana sector had progressed so far so fast that it was getting increasingly ripe for a correction. But as long as the stocks were advancing, I was happy to stay fully invested.

Lyft (LYFT) reported Q4 2020 earnings after the close yesterday and the results were better than expected even though the numbers look just terrible (thanks pandemic!). Revenue fell 44% to $570 million (but beat expectations by $9 million) while adjusted EPS was -$0.58, $0.05 less than the year ago quarter. We knew getting into this stock that the numbers would be bad and that we were looking to buy into a recovery before it gained too much momentum. That thesis appears to be playing out.

This infrastructure company is expected to report earnings per share of $0.41 on revenues of $457.6 million, for its fourth quarter.

Nuance (NUAN) reported Q1 fiscal 2021 results yesterday that beat expectations on the top and bottom lines. That said, the numbers don’t look that great due to a large, non-strategic coding government contract that did not renew (management previously disclosed on the Q4 fiscal 2020 conference call) and the ongoing transition to a subscription model.

This home builder just reported a great quarter—beating on the top and bottom lines. The shares have a current annual dividend yield of 2.48%, paid quarterly.

Cerence (CRNC) reported this morning that Q1 revenue was up 22.6% to $95 million (beating by $7.1 million) while adjusted EPS of $0.59 was up 103% (beating by $0.08). There are a lot of initiatives at Cerence and management had a lot to say, but I’ll just mention a few things that jumped out at me.

In the past 30 days, 21 analysts have increased their EPS projections for this data storage company. The shares have a current dividend yield of 3.97%, paid quarterly.

As earnings season gets into gear we have a few updates on positions that have reported this week. Stepping back and looking holistically at our portfolio, which currently has 34 positions, we’re going to view earnings season as an opportunity to prune our portfolio a little. Essentially, we want to use the current market’s strength to our advantage to lock in some profits, exit stories that aren’t super-inspiring at the moment, and focus on the highest potential names.

This steelmaker’s shares were just upgraded to ‘Overweight’ at JP Morgan.

To follow up on today’s issue and new recommendation of Fisker, Inc.

This closeout retailer beat earnings estimates by $0.10 last quarter. The shares have a current annual dividend yield of 2.16%, 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.