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

As stock prices tumble under the twin pressures of rising interest rates and the likely arrival of an economic downturn, just about every new stock pick is destined to be a disappointment. How does one select stocks in such an environment? While most fresh ideas will be near-term duds, there is an important purpose to picking new ideas. And, one doesn’t need to buy full positions right away. We screen for low P/E stocks on depressed 2023 earnings, with estimates for those earnings that are increasing. These make good stocks in which to take starter positions.

We also sorted through stocks with high dividend yields and highlight two picks and two pans (with enticing yields yet have serious dividend risks).

Our feature recommendation this month is Dow (DOW). Its shares have been sold by fearful investors, but the company’s low valuation doesn’t recognize the improvements in its financial strength and cost structure since the dark days of early 2020, nor the attractive yet sustainable dividend yield.

As central banks around the globe aggressively raised interest rates, the stock market had its second straight awful week of trading. The S&P 500 fell 4.6%, the Dow lost 4%, and the Nasdaq continued its ugly slide, falling another 5.1%.

Weakening economic indicators in the U.S., along with Covid-related shutdowns in China and economic woes in Europe, have converged to push prices for industrial metals lower. Gold and silver, meanwhile, have been caught up in the equity market downdraft produced by the Fed’s tightening monetary policy.

There are windows of opportunities ahead for both precious metals, however, including a potential recession-related safety bid for gold and an upcoming seasonal factor for silver.



In the trading portfolio, no new positions (save for a U.S. dollar ETF) are recommended for now as the broad metals market is still unsettled.

As central banks around the globe aggressively raised interest rates, the stock market had its second straight awful week of trading. The S&P 500 fell 4.6%, the Dow lost 4%, and the Nasdaq continued its ugly slide, falling another 5.1%.

As central banks around the globe aggressively raised interest rates, the stock market had its second straight awful week of trading. The S&P 500 fell 4.6%, the Dow lost 4%, and the Nasdaq continued its ugly slide, falling another 5.1%.

We were assigned shares of WFC and KO. As a result, per our income cycle guidelines, we will begin the process of selling calls on both stocks shortly after the opening bell Monday.

Moreover, I plan on adding a new short-term position to the mix early next week. This will not be part of our income cycle portfolio; rather, it’s a short-term play to take advantage of the near-term pop in implied volatility that resides across the board.



Stay tuned for an alert or two over the coming days!

We’ve had a good start, with the Quant Trader service outperforming the market by a significant margin. Risk management has been a huge part of our success, mostly by locking in profits when we can lock in 50% to 75% of the original premium sold.

As a result, I decided on Friday (per the trade alert) to set a hard stop-loss for our IWM iron condor at $2.00. This will allow us to take all risk off the table and maintain overall profits in the portfolio, which speaks to the power of our approach as it has been a challenging environment for most investment strategies. Hopefully, the oversold state of IWM will lead to a push higher, giving us the ability to take a potential profit, but if not, we want to be fully prepared by taking off our trade, maintaining overall profits and patiently waiting for more opportunities to arise.

There’s not much to say when it comes to the market—the downturn that started in late August continues, with the major indexes back down to their May/June lows, keeping the intermediate- and longer-term trends pointed down. Moreover, after last week’s Fed meeting, the sellers finally came around for many resilient names, causing a bunch to crack support. Today, we’re staying cautious and continuing to hold plenty of cash, but we’re keeping an open mind as we see how this retest phase plays out. Our Market Monitor is down to a level 3.



This week’s list is mostly names that have taken on water (like everything else) but are still acting “normally.” Our Top Pick is a name that’s acting very unusually good, and it has a good story and excellent growth, too.

This week offers a few potential trades in Micron (MU) and Nike (NKE). The following week offers us next to nothing in the way of trades, but no worries, because on October 14 earnings season begins in earnest with the big banks (JPM, C, WFC, MS, etc.) due to report.

I will be introducing short strangles when we enter earnings season and will be covering the strategy during our first webinar of this upcoming earnings report. Regardless, if you wish to use the strategy it will be a wonderful introduction to an approach that many professionals use as their bread and butter strategy. I recently received an email from an old subscriber who has been using the strategy since he learned my approach. My goal was to wait one more earnings season to introduce short strangles, but I have reconsidered after his email and will be utilizing the strategy, in addition to our already established iron condors approach, during this upcoming earnings season.

It’s ugly out there, as virtually everything has been caught up in the merciless selling the last couple weeks. As a result, we are parting ways with three more stocks this week before their losses become even bigger. But we’re not completely battening down the hatches: Today’s addition to the Stock of the Week portfolio is a small-cap growth stock courtesy of Cabot Early Opportunities Chief Analyst Tyler Laundon. It’s not a household name, but it’s growing fast by taking full advantage of the return to relative normalcy in a post-Covid world.

Details inside.

There’s been a lot of bad news in the past couple of weeks, but nothing has changed with the market--it’s still trending down, and the broad market remains on the outs, and today, we started to see the first signs that even the many resilient stocks are coming under the gun. Big picture, we’re continuing to advise a cautious stance with much more cash than stocks and patience as we wait for the bulls to re-take control.


And we do think they can re-take control, possibly sooner than most think: There’s so much negativity and bearishness out there that any spark could ignite a big rally, if not a sustained uptrend. But as always, we have to see it first to act on it, so we’re continuing to stay close to shore--we’re selling one name tonight and placing the rest on Hold.


We spend most of tonight’s issue discussing the overwhelming negativity out there, which is setting the stage for the next advance, as well as diving into a handful of new names to watch, including one cheap cookie-cutter story that looks ready to go if the market can stabilize.

Last Tuesday’s hot inflation report, along with Thursday evening’s earnings warning from FedEx, led to a terrible week for stocks, which keeps the negative top-down evidence in place: Both the intermediate- and longer-term trends of the market, as well as most stocks and sectors, remains pointed south. On the positive side, we still see many stocks doing a solid job of holding their own, and sentiment is firmly on the bearish side of the fence, and both of those represent dry tinder—if something goes right in the world (what a concept!), we think there’s a chance of a really solid rally. But bear markets are all about patience; we’ll leave our Market Monitor at a level 4.


This week’s list has another batch of resilient stocks, and our Top Pick has been bottoming out for months, and a decisive push higher should be buyable.

Intel’s recently publicized struggles with its own chip production highlight the trajectory of this story. The company has been unable to successfully transition to leading-edge manufacturing technologies, and is seriously considering outsourcing to companies like Taiwan Semiconductor. Intel has long been the industry’s torch-bearer in chip self-reliance – with a strong aversion to using third party producers – so its change in mindset is a watershed event.

As I mentioned last week, the stock market is off to a great start with the S&P 500 at an all-time high. However, it’s important to remember that usually the market is choppy in February and March in the first year of a new party in the White House as shown below.

This week we had two companies reporting earnings, one reports next week, and the earnings deluge starts the following week with at least seven companies reporting.

The big news this week was, of course, the swearing in of President Biden and all the associated stories about the transition. Fun fact – portfolio holding Everbridge (EVBG) supplied its Mass Notification system to help keep Washington, D.C. area residents and visitors safe and tuned in during, and leading up to, the Presidential Inauguration.

Not much has changed with the market’s picture—most stocks (especially cyclical stocks) are very strong, and we’re happy that the Model Portfolio is off to a good start this year after a great 2020. However, things are also quite frothy, few stocks are at attractive entry points and there remains a bunch of crosscurrents (day-to-day rotation, etc.) that’s making timing trickier.

The market is off to a good start this year and anticipating wonderful things for 2021.

As value investors in a remarkably robust (exuberant) stock market, full valuation impels us to want to sell a stock. Such is the case with General Motors. On most conventional metrics, the stock is fairly priced. Through the courtesy of several friends, we’ve seen some of the math that Wall Street analysts use to justify prices well over $100/share and find them laughable, at best. As GM shares burst again through our price target, we were on the razor’s edge of selling.

The broader stock market continues to perform well. In fact, the S&P 500 has gained 12% since the election. This is the most ever (starting date 1950), according to Ryan Detrick of LPL Financial.

The positions remaining in the portfolio will benefit if the market continues to move higher.

This week we had two companies reporting earnings, one reports next week, and the earnings deluge starts the following week with at least seven companies reporting.

As we near the end of the second week of 2021 and approach inauguration day, the market is barreling full steam ahead, seemingly unaware of the dung piles that are consistently thrown in its path.

The phrase you hear more than ever from market prognosticators these days is that they are “cautiously optimistic” about the state of the stock market. In some ways this is pretty useless advice, but in another it hits the nail on the head. The market clearly wants to continue to rise; the world is awash in liquidity, and the Fed seems determined to keep interest rates low for some time. In addition, momentum tech stocks seem unstoppable.

This biopharma is forecasted to grow at an annual rate of 98% over the next five years.

While not yet profitable, this software company saw its revenues jump 38% last quarter, and its loss of $0.12 was much better than the Street’s estimate of -$0.21.

Selling Industrial & Technology

Selling Industrial & Technology

This communications company posted EPS of $0.27 last quarter, handily beating Wall Street’s estimates of $0.13.

Sell BGS February 19 $27.50 call at $2.40 or better

Icahn Capital just bought more of this technology company, bringing its stake to 14.5% of the outstanding shares.

This closed-end fund has a current annual dividend yield of 6.77%, paid quarterly.

The bull market is alive and well, and marijuana stocks remain among the leaders, as buyers continue to flood into this hot sector in the midst of a growing trend toward legalization.

This infrastructure company beat analysts’ EPS estimates by $0.03 last quarter, and just inked a $25 million deal to renovate a building at the Air Force Academy.

This oil company hammered Wall Street’s estimates ($0.38) last quarter. Its current annual dividend yield of 7.56%, paid monthly.

This ride-sharing and food delivery company just completed the acquisition of Postmates, Inc., making it the second in market share next to DoorDash.

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.