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.

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.

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.

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.

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.

All three major U.S. indexes were up around 2% yesterday as the Bank of England stepped in to stabilize the pound, but the recovery looks fragile as sentiment remains mixed at best in the short term. Explorer stocks drifted lower this past week and we remain defensive looking for asymmetric plays where the upside potential exceeds downside risk.

Markets go up and down. Economies boom and bust. Investors get scared and they get greedy. But one of the few constants in an ever-changing investment landscape is the need for income. And investor demand for income is growing as the fastest growing segment of the population is 65 and older and retired.

The demand for the very best income stocks should remain strong. Also, during sideways and down markets, dividends account for most of the total market return. In problematic decades, dividends have almost completely offset market price declines.

It’s true that dividend stocks can still fall in a down market. But the long-term trend for the market is higher. History clearly shows that bear markets are the best time to get in cheap ahead of the next bull market. Meanwhile, dividends provide an income and less volatility while you wait.

Sentiment remains extremely negative towards the cannabis sector and the overall stock market.

You can look at this situation and get depressed. Or you can see it as an opportunity to buy cheaper shares for the long term. Being a contrarian, I prefer to do the latter. I think both cannabis stocks and the broad market are buyable right now. And that’s why I am adding two new positions to the Sector Xpress Cannabis Advisor portfolio today, and rate all our existing stocks “Buys.”

While the market continues to move forward, The “Buffett Indicator,” which takes the broadest Wilshire 5000 Index and divides it by the annual U.S. GDP, is now at a record high. In doing the math, the Buffett Indicator stands at about 194%. This figure is well above the 159% seen just before the dot-com bubble.

This market looks like it never wants to stop going higher. The S&P 500 just made yet another in a long series of new all-time highs.

Last week, we outlined four ingredients of a market bubble that were usefully outlined in a recently published book1”and briefly described how it clearly appears that our stock market is in a bubble. These ingredients include easy trading of assets, cheap and easy money, rising speculative fervor and an appealing narrative.

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

The quick rebound in the major indexes and many growth stocks this week has been very encouraging—it doesn’t completely clear the air from some of the abnormal action last week, but it’s definitely a plus. We remain mostly bullish, though we continue to pick entries carefully, especially with so many stocks reporting earnings in the next couple of weeks.

The fourth quarter earnings season is well under way and the results have been somewhat spectacular so far, and much better than expected.

What a wild week! Even though I’m not long or short GameStop (GME), it was hard to take my eyes off its stock over the past week. There are a lot of different takes on what it all means. Some believe it’s a sign of reckless behavior and a signal that the market must be near a top.

Today is a big up day in the market after the worst week since October.

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

For some time I’ve felt that we should be bumping up the upper end of our market cap range since the market’s evolution, and rising share prices, has made for somewhat slim pickings for high growth names in the under $3 billion market cap range. That is the rough upper end that I’ve been holding to for many years.

This week a number of Explorer stock retraced last week’s gains, with a major exception being the explosive 45% surge in Virgin Galactic (SPCE) on top of its previous week’s 25% surge. It appears that key test flights are forthcoming as well as more space mania and space ETFs.

The market is down today with the Dow falling 400 points so far. It might get uglier before the day is over.

This biotech is on the list of the top 10 IPO performers for 2020. It is expected to grow by more than 34% next year.

This pharmacy/clinic chain continues to struggle, but the shares are undervalued and pay a current annual dividend yield of 4.72%, paid quarterly.

Six hedge funds have recently purchased shares of this biotech.

This Real Estate Investment Trust is forecasted to grow its earnings at an annual rate of 17.47% over the next five years. The shares have a current dividend yield of 3.47%, paid quarterly.

Marijuana stocks as a whole remain very strong as we head into the holiday season, where trading is expected to be lighter and news announcements few. Today I have no recommended changes in our portfolio, though I do have a few updates, as well as a little advice on buying and selling.

This gold miner is expected to grow at an annual rate of 43.05% over the next five years.

This social media company beat EPS estimates by $0.10 last quarter. It is forecasted to grow by l52.3% annually, over the next five years.

Undervalued, and ready to begin distributing dividends, this Spanish bank looks like a good bargain.

The expiration of our December covered calls is today, and I’m happy to report that four positions (GM, PINS, YETI, CGC) are closing for max profits

We’re starting off our 2021 Top Picks with this marijuana REIT that just raised its quarterly dividend to $1.24 per share.

The electric car boom is pushing this stock up, and the company is expected to post EPS growth of 25% annually over the next five years.

Marijuana stocks as a whole pulled back normally over the past week, but the correction may have ended yesterday, with most of the leaders still well above their 50-day moving averages—and the best have continued to hit new highs. Bottom line, the trend remains up and thus I’m keeping our portfolio fully invested.

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.