Investors remain in a buying mood, as last week’s lower-than-expected Consumer Price Index (CPI) number added fuel to the recent rally. With inflation still high and a recession likely upon us, another correction may be in the offing. But for now, it’s time to buy. This week, we add a dirt-cheap mid-cap stock from new Stock of the Week contributor Clif Droke, Chief Analyst of our Cabot SX Gold & Metals Advisor. It’s from an industry that never goes out of fashion and is gaining steam from the shifting automotive landscape.

Details inside.

It’s not perfect, but the market has been putting one foot in front of the other in recent weeks, with more stocks acting well, more breakouts and the indexes refusing to pull in much. As always, we’re really just taking our cues from the trend of the market (intermediate-term trend up; long-term trend still down but getting close to flipping) and the action of leading stocks (better and better, but still not a bunch of new highs). We’re nudging our Market Monitor up to a level 6, though we’d still favor going slow overall and, ideally, entering on weakness.


This week’s list is another solid batch of stocks with excellent charts, including many that have really stormed ahead on big volume. Our Top Pick looked like it was done for a couple of months ago, but has stormed back to new highs thanks in part to a great post-earnings reaction.

What a difference an expiration cycle makes!

The close of the June expiration cycle, back on the 17th, marked the low set in 2022. The SPDR S&P 500 ETF (SPY) hit an intraday low of 362.17 before rallying to close the June expiration cycle at 365.86.



Who knew that was just the beginning of what would become a historic short-term rally? Since then, the market has rallied an astounding 16.7%.

The ongoing market rally has made it incredibly easy for all of our positions. We are seeing nice profits in almost every position, with PFE being the exception as it’s slightly below its break-even.

We will need to roll the remainder of our August positions (BITO, GDX) into September next week and if we do see a short-term pullback, I plan on adding a few more positions to the mix. If GDX and BITO manage to keep climbing and close above their short call strikes we could be in for some nice 20%+ winners. If not, no worries, we will continue to sell calls and lock in profits along the way.

Next week offers up several wonderful opportunities. Home Depot (HD), Walmart (WMT), Lowe’s (LOW), Target (TGT) and Cisco Systems (CSCO) are all due to announce and my guess is that we will take at least two if not three of those trades. In fact, there is a good chance that we will have two trades on Monday as HD and WMT are due to announce before the opening bell.

This past week we had another trade that exceeded the expected move. We placed an iron condor around Disney’s (DIS) expected move, yet once again, our short call strike was tested. We ended up getting out of the trade for a small loss, but had we held on just an hour or two longer we would have had a nice profit as DIS pushed below our short 121 call strike and into profitable territory.

Stocks continued to rally this week in what has been one hell of a move for the market. SPY is up almost 12% in just 27 days. Annualized, that’s more than a 150% return for the world’s largest stock market index. Realistic? Nah, but it certainly shows just how sharp this rally has been over the past month.

A few weeks ago, almost every index pushed into a short-term overbought state due to the rally. And over the two weeks that followed almost every market and sector index continued that push into an extreme overbought state. Obviously, this didn’t bode well for our SPY iron condor, but hey, we know we are going to take a loss from time to time and in most cases, they are far less. But it’s the transition periods from low to high volatility and vice versa where most options strategies struggle.

The market looks pretty good these days. I’m not saying we are completely out of the woods, but the indicators are promising. The Dow Jones Industrial Average has risen about 1,500 points since last issue. And while Energy (up 36.8%) and Utilities (up 3.7%) are the only two sectors ahead for the year, we’re seeing positive moves in several other areas.

On the good news side, expectations for inflation seem to be tempering. We’ll know more tomorrow, but right now economists are calling for a decline in the inflation rate from 9.1% in July to 8.7%. And in better tidings, the three-year inflation rate is now forecast at 3.2%, down from 3.6%.

The market’s evidence continues to slowly, steadily improve--it’s not 1999 out there, but there also aren’t any obvious yellow or red flags, either. Given the trickiness of individual stocks, we’re still thinking going slow makes sense, but we’re aiming to extend our line as stocks present opportunities, while punting on names that are breaking down. In the Model Portfolio tonight, we have some changes, but on balance we’re pushing more toward the bullish position.



We also talk about playing so-called off-the-bottom stocks (and have one old friend we’re keeping an eye on from that group), as well as reviewing some names we’re watching and presenting one sign that says most investors are still worried about the market (usually a good sign).

We are likely in a recession. Meanwhile, inflation continues to rage on. That means stocks will have to navigate an environment of both recession and inflation, at least for the rest of the year.
That’s tricky because few companies perform well with both. Commodity-based companies thrive in inflation but struggle in recession. Many defensive companies that shine in recession don’t like inflation.


In this month’s issue, I highlight a stock in one of the rare sectors that can successfully navigate both recession and rising prices at the same time – midstream energy. Strong operational performance, a low valuation, and a high and safe yield are perfect for the current situation.

Today, I’m recommending a liquidating real estate trust with significant upside.
Key points:

• •Its assets are conservatively worth 50% more than its current market cap (it has no debt).•It pays a 10% dividend yield.•Ongoing asset sales will create even more income and the trust will be completely liquidated within 5 years.

All the details are inside this month’s Issue. Enjoy!

This week, in an attempt to keep the portfolio as diversified as possible, we are adding a stock/company that operates primary care facilities.

Gold and silver prices have perked up since our last regular issue, thanks in part to a substantial reduction in short positions among commercial hedgers. Other segments of the market are improving as well, including platinum and palladium.

Elsewhere, titanium has fallen from grace—in part due to a TikTok rumor mill video. Other industrial metals, meanwhile, are coming off major lows but have recovery potential.



In the trading portfolio, I’m putting our favorite silver-tracking ETF back on a buy, while adding another steel-related position.

I started my career as an equity research associate at Eaton Vance, a $100BN+ asset manager. It was a great place to start out because the equity research department was small relative to its assets under management. As a result, even as an entry level research associate, I had the opportunity to interview senior management teams.

It was a quiet week, with no companies reporting earnings (no earnings reports scheduled for the rest of the year, in fact) and no changes in ratings. We had three price target increases, for Trinity Industries (TRN), Adient (ADNT) and DuPont (DD), noted below.

The market continues to grind higher and the small cap index, which we haven’t talked about in forever, is finally opening up some white space above its pre-pandemic high. In fact, the S&P 600 Small Cap Index is, at this very moment, trading at an all-time high.

Some of you might have been a bit alarmed at the message attached to last week’s issue that the next issue will be out January 7, 2021. But today we have an update and rest assured, I’ll be following the Explorer portfolio next week and will send an alert if anything unusual happens. I will also have another update and some portfolio changes the following week.

The market has leveled off a bit since the fabulous November rise. That’s okay. The market can’t go up that fast for long. It needed a breather and this is healthy. And the basic story still hasn’t changed.

With Christmas just a little over a week away, the market tends to go into a holding pattern. It’s a lot like the last weeks of the summer. Investors tend to focus on other things while the market continues in the same fashion as it did right before people stopped paying attention.

It’s been said that the four most dangerous words in investing are “this time, it’s different.” The stock market’s behavior is clearly pointing to things being different this time.

As we approach Christmas, its important to remember that performance of the stock market tends to be quite strong around holidays.

It was a quiet week, with no companies reported earnings (no earnings reports scheduled for the rest of the year) and no changes in ratings or price targets.

Stick with the game plan of putting some money to work as opportunities arise. While the near-term path is a bit of a tossup, the major evidence remains bullish, and we’re seeing more and more leaders get moving in recent weeks.

As we move into the final weeks of 2020, I’m inclined to become a little more cautious with our buy ratings because, well, stocks have been en fuego! On that note, several stocks move from buy to hold today.

After having eclipsed the September high in mid November, the S&P 500 is continuing to make a series of new all time highs.

This healthcare technology company is expected to grow by 28.7% next year.

Sometime between today and Friday, the U.S. House of Representatives will vote on the Marijuana Opportunity, Reinvestment and Expungement Act, otherwise known as the MORE Act.

Several of our stocks have reached/exceeded our price targets, so we are making changes to several of our ratings:

A new CEO has given new life to this gold producer. In its latest quarter, it posted EPS of $0.41 versus the forecast of $0.32.

Late last week, P10 Holdings (PIOE) announced another transformative acquisition.

This company is making waves with a fast turnaround COVID-19 test; its shares were added to the S&P SmallCap 600 in September, increasing investor attention.

Eight analysts have raised their earnings projections for this bank.

This Latin American e-commerce company beat analysts’ estimates by $0.11 last quarter.

A wave of quarterly reports in recent days means most of our companies have reported.

Tyler updates us on one more stock that reported earnings recently.

This marijuana property REIT just reported a stellar quarter.

Our second recommendation is the sale of a previous pick.

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.