Aside from Sea (SE), which zoomed from 80 to 88 this past week, Explorer stocks were largely flat, which to some these days is a good week. This week we look at the history of market pullbacks and some encouraging analysis on bounce-backs and trade before getting to a new recommendation from Shanghai.

It’s a raging bear market in technology.
But technology has been by far the best performing sector for well over a decade for good reasons. We are in fact in a technological revolution. Technological advances are accelerating. It feeds on itself and is transforming the world. Technology is where there is massive growth and excitement for the future.


Sure, the market might get cranky in the near term. Inflation and higher rates might be all the rage right now. But technology isn’t going away. It’s likely to grow even bigger in the future. The time to buy such stocks is when they are cheap and out of favor.


In this issue, I highlight three existing portfolio positions in the technology sector ready for purchase. All of these stocks sell at compelling valuations with strong growth likely ahead. They are victims of indiscriminate selling in the sector. At some point, hopefully sooner, investors will realize the value that has been created by this year’s market turmoil.

Today, I’m recommending a company that has grown revenue at a 30% CAGR and EBITDA an 80% CAGR over the past 10 years. Despite this impressive growth, the company trades at just 5.3x EBITDA.
Other key points:

•Top 3 player in the U.S. paper shredding industry.•Massive opportunity for organic and acquired growth.•High insider ownership (over 30% of the company).

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

As has been the case for much of 2022, last week there were exciting rallies and nasty sell-offs. And while the S&P 500 fell 1.13%, the Dow lost 0.94%, and the Nasdaq declined 1%, big picture the market handled an avalanche of bad news last week very well. Maybe, just maybe, the market is in the digesting bad news stage.

While the market officially remains in a downtrend, various indicators in recent weeks, combined with terrible news and sentiment, tell us the market bottom may have passed. But until we see real strength, continued caution is advised.
Today’s recommendation may be too aggressive for some readers (it’s a semiconductor company, and we all know they can be volatile) but it has a good story and chart and I think it’s worth the risk.


As for the portfolio, there are no sales, just one downgrade to Hold.


Details in the issue.

The market’s evidence continues to take steps in the right direction and, by our measures, the intermediate-term trend is now on the fence—a couple of decent days from here could produce a green light. Of course, even if we do turn up, it doesn’t mean it’ll suddenly be 1999 again, but we’re not taking anything away from the action: The market has put together a few positive steps in a row, now let’s see if it can continue in the days ahead.



This week’s list again picks up on a few names that are already testing key resistance even as the indexes are just a couple of weeks off their lows. Our Top Pick is a nuts and bolts type of firm that’s seeing a huge upmove in earnings and sports a dirt cheap valuation.

As I stated in my last update, I will be adding several more trades to our short list of open positions next week. My goal is to have a rotation of five to ten positions in both the Income Trades Portfolio and Income Wheel Portfolio.

On Wednesday we placed our first trade, a bear call spread in SPY at the 440/445 call strikes. My goal is to place at least two more trades, if not more, next week as we begin to build out the portfolio to hopefully five to eight positions. Of course, we’re not going to force trades. As always, we will patiently wait until a trade makes sense. That being said, with implied volatility remaining high across the board, we shouldn’t have any issues finding some underlying stocks and ETFs to wrap a few high-probability strategies around.

Earnings season is finally behind us. But there are always a few interesting opportunities to be found in between earnings cycles. Plus, the downtime between cycles gives us some time to reflect on the prior earnings season and, more importantly, prepare for what is ahead.

There are a few interesting opportunities that garner a look in the week ahead, which we will discuss below. But there is no doubt that opportunities are slim as we sit in the doldrums between earnings cycles. When earnings season is in full swing we will often see 20 to 30 trade ideas per week.

The market’s evidence has clearly improved during the past couple of weeks, so much so that our Cabot (and Growth) Tides are now on the fence, while our old Two-Second Indicator is starting to pick up on a bullish change in character for the broad market. That said, it’s close, but we haven’t seen anything definitive yet--tonight, we have no changes, but if we see some green lights, we’ll be on the horn with two or three new additions most likely.



In the meantime, we continue to hone our watch list and put together our game plan should the evidence continue to improve; we’re not going to go whole hog right away, but after six months of punishing action, we’re remaining flexible and write about a few potential fresh leaders in tonight’s issue.

The market continues to be messy, but we’re going to take a partial swing at a profitable software company playing in a big, growth market – cloud services.

This company is like a smaller version of Amazon Web Services and Microsoft Azure. But without all the other parts of those much, much larger companies.



We may be a bit early. But we’ll manage that risk by taking a half position in a company that’s likely to grow above 30% for years and is very profitable.


Enjoy!

As investors are broadly satisfied with the current outlook, it seems that we have arrived at the end of the beginning of the post-pandemic era. However, there remains immense uncertainly about how the middle-game will play out.



This week, we took advantage of the strong performance of some of our stocks to reduce our ratings. And, as not every stock works right out of the gates, we are moving Big Lots (BIG) from Buy to Hold as we want to rethink our outlook and valuation given its dismal recent earnings report.

Starting next Monday, August 31, before the market opens, the Dow Jones Industrial Average will have a new look.

This week, the main updates are from a stock that reported earnings and another portfolio stock that announced that it has sold its midstream business and will liquidate the company.

As far as the last week goes our stocks are up an average of 3%.

2020 has surely been one for the record books—the sharpest selloff in history from a record high to a bear market and then the sharpest rebound in history from a bear market to a new record high.

It has been an amazing market. The S&P 500 just made a new all time high. It has rallied a staggering 55% since the lows in less than five months. The market is forward looking and anticipates a rapidly growing economy, a friendly Fed and record low interest rates and a vaccine in the months ahead.

After a brief decline in early June, the market has resumed the uptrend that began on March 24th. It has been a spectacular 55% rally in less than five months.

Second quarter earnings season is winding down. It was quite a quarter! We’re impressed that so many companies have aggressively reduced their operating costs in the recently completed quarter.

Many of our micro-cap stocks reported excellent quarters.

This week is off to a good start for growth stocks—many of the names that have been acting wobbly during the past couple of weeks bounced decently yesterday and today.

With most of our companies having now reported we are turning our attention back to the longer-term future. For the most part, earnings from our companies were good and we’ve only made a few incremental ratings changes here and there.

Markets are showing great resiliency as the S&P 500 nears a record and stocks have risen all but one day in August. Optimism about an eventual stimulus bill and the prospect of declining Covid-19 cases and a vaccine are still supporting the economy and markets.

This software company is forecasted to grow at a rate of 13.8% next year.

This biotech is seeing great results from its studies of SER-287 for ulcerative colitis, a condition that affects more than 750,000 North Americans.

There are five top holdings in this closed-end fund.

With 32 stocks in our portfolio and a market that’s going through all manner of gyrations right now, it’s time to part ways with a few of our underperforming positions.

This medical equipment company walloped earnings estimates last quarter, posting EPS of $0.75 vs. the $0.38 that Wall Street had expected.

The market’s continued weakness has tipped our Cabot Tides to the negative side of the fence for the first time since April.

Back on August 13, when the broad market was strong and marijuana stocks were even stronger, I took partial profits in our four strongest stocks (which were also our four largest positions) because they looked very extended to the upside.

This consumer electronics company is forecasted to grow at an annual rate of 15% over the next five years.

When we got into this stock we fully expected a lot of twists and turns. We didn’t expect the current drama.

This financial company is expected to grow by 11.9% in the next year.

On Friday, the September 78 call that we sold expired worthless.

In the past 30 days, 40 analysts have raised their price targets for this big-box retailer.

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.