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).

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!

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.

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.

Last week was another constructive one in our book, with the market shrugging off some “bad” news and with a few more names beginning to pop above resistance and react well to earnings. Having rallied nicely off the lows, a pullback or consolidation would be relatively normal at this point, the nature of which should be telling--and, of course, if the market simply ignores its short-term “overbought” condition, that would be very encouraging. As for the here and now, the evidence says we’re seeing more good vibes, but there’s still work to be done. We’ll leave our Market Monitor at a level 5 for now.


This week’s list is full of stocks that have shown great power on earnings, which is always good to see. Our Top Pick is helping to lead what looks to be a turnaround in the HCM group.

Lots of moving parts in this week’s update. We add one stock (as always), sell another, and have several ratings changes – a reflection of a mixed second-quarter earnings season, and on the cusp of the latest inflation data, to be released this Wednesday. Most of our stocks are acting well, however. And the market continues to inch forward, especially growth stocks, which is why our latest addition is a mid-cap (Internet of Things) IoT company courtesy of Cabot Early Opportunities Chief Analyst Tyler Laundon.

Details inside.

It was a fairly quiet week as the market continued to push higher and now seems to be hitting some strong overhead resistance.

We did add a bear call spread to the portfolio due to the ongoing overbought nature of this market and so far, so good. But we are early in the trade, so not much to discuss at the moment.



Our SPY iron condor, due to expire in two weeks, is the current focus. SPY finally pushed through our short call strike of 412 and the major market ETF now stands slightly above our breakeven of 412.70. The historic one-month rally in July has led to an ongoing overbought reading in SPY for what is now almost three weeks.

The upcoming week of earnings is a fairly slow one, with only a few real choices on the docket. Disney (DIS) is definitely the highlight of the week and the one I will be focusing on.

However, the following week we see lots of the big boys due to report, including Walmart (WMT), Home Depot (HD), Lowe’s (LOW), Target (TGT), Cisco Systems (CSCO) and several others.

A day like yesterday can make investors feel like there’s little reason to hang around in this market.

Be cautious. Growth stocks have been under pressure since early/mid-October, and our Cabot Tides buy signal has fallen by the wayside.

The anticipated market tumult has arrived. The S&P 500 is down over 5% in less than a week. It’s also down over 8% from the high. The high market combined with the mounting risks is finally spooking investors.

While the market action has been somewhat exciting this week (though in the wrong direction), it was fairly dull for Cabot Undervalued Stocks Advisor recommended stocks in terms of news. This news drought will fade as five companies report later this week, with six more the following week.

What does this have to do with investing? I think Fraser’s approach can translate quite well to the way we invest.

Earnings season is in full gear this week, with six companies reporting.

Anyway, the market doesn’t seem to be fazed by all the incredible things going on in the world these days. Stepping back, that makes some sense.

Stocks trading on U.S. markets faced some resistance as hopes for some sort of stimulus bill fade and as mixed earnings report begin rolling in. A key question is whether the pandemic boom stocks will have the revenue and earnings growth to support their sharp advances.

I expect a strong bull market on the other side of the election and pandemic, but things could be dicey in the near term.

The market is still solid. The bad news and uncertainty hasn’t dragged it down in any significant way. Investors still see the prize of a rapidly recovering economy and the pandemic fading. While I see very good days ahead for the post election and post pandemic market, there may be some rough seas ahead in the near term.

Many great investors including Peter Lynch and Warren Buffett recommend ignoring macro and politics and focusing on bottom up company analysis. They argue that anything else is a waste of time. Focus on things that are more predictable.

With low interest rates and easy borrowing terms, and some supportive jaw-boning and incremental buying by the Federal Reserve, new corporate debt issuance in the United States is reaching record highs.

Market gyrations have discounted this cloud-monitoring stock to an even better buyable level.

The fund has an annual current dividend yield of 3.52%, paid quarterly.

We are raising Duluth Holdings (DLTH) price target to 17.50 from 15.

In the past 30 days, 15 analysts have increased their EPS estimates for this Canadian bank.

Wall Street expects this P&C insurance carrier to grow at a rate of 20.4% next year.

Just a brief update today, mainly to discuss this morning’s sharp drop in the stock that we added to the portfolio last week.

In the past 30 days, four analysts have boosted their EPS estimates for this insurance company.

This contract research company beat earnings estimates by $0.32 last quarter.

he overall evidence remains mostly positive, though after a heady rebound, the indexes and many growth stocks are correcting and consolidating.

On Friday three of our stocks closed above our short strike price for full profits.

This Consumer Defensive company beat analysts’ EPS estimates by $0.13 last quarter.

Acme United Corporation (ACU)
From SmallCap Informer

For more than 150 years, Acme United Corporation has supplied innovative cutting, measuring, first aid, and sharpening products to the school, home, office, arts and crafts, hardware,
sporting goods, fishing tools, and industrial markets. Its top brands include First Aid
Only, PhysiciansCare, Pac-Kit, Spill Magic, Westcott, Clauss, Camillus, Cuda, and DMT.

The company’s diversified end markets provide exposure to both hobbyists and industrial facilities. Growing concerns about industrial health safety is driving interest in many of Acme
United’s products. Its safety solutions include component kits that are often required by industrial safety regulations and can be restocked using its SafetyHub app. The kits focus on different needs, such as first aid, eye washes, or medications, and the app can deliver push messages about refills and maintain an OSHA compliance log.

The company is diversified globally, with operations in the U.S., Canada, Europe, and Asia.

Management sees several drivers for Acme United’s growth. New first aid programs being put into place at large industrial, food service, and other distributors should drive growth, along with an expanding refill business. The company’s widening product line should increase cross-selling
opportunities, as well.

Acquisitions are part of the company’s growth strategy, enabled by a strong balance sheet and good cash flow. In January 2020, Acme United acquired First Aid Central, a Canadian supplier of first aid kits, refills, and safety products for a broad range of customers. This acquisition expanded the company’s distribution capabilities, product offerings, and online presence.

The COVID-19 pandemic caused an uptick in Acme United’s sales a wide array of products including fishing tools, hunting knives, craft scissors, sharpening tools, first aid, and safety products. Increasing awareness of the need for safe workplaces should benefit the company as the nation returns to work.

In the second quarter ended June 30, 2020, sales grew 9.5% and EPS grew 19.5% over Q2 2019. In the first half of 2020, EPS reached $1.28, up 27% over 2019 first half performance and closing in already on the 2019 full FY EPS of $1.60. Analysts expect EPS to reach $1.92 for the full year, a healthy increase over 2019.

We project future annual average growth of EPS and sales to be around 10% a year, plus dividends. Acme has increased dividends every year in the last decade.

Acme United’s stock is currently selling a P/E ratio of 12.0, just below our revised
average P/E ratio of 12.4. We think the stock can sell for a P/E ratio of 15.7, which would
take the price as high as $47.
This Consumer Defensive company beat analysts’ EPS estimates by $0.13 last quarter.

We are raising our price target on shares of Jeld-Wen (JELD) to 28 from 25.

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.