There is no sugarcoating it: We are in the midst of a pretty nasty bear market, which unfortunately means we are going to be stopped out of our Cleveland-Cliffs (CLF) position today.

One key tenet of asset allocation is risk management. You’ll find that principle to be much more salient when it comes to investing an entire portfolio, as opposed to simply trading individual stocks.

That’s even more critical during a bout of market volatility, such as what we’re currently experiencing.



Sure, it’s possible and even desirable to diversify in a single-stock account. For example, you can potentially mitigate risk by owning stocks from various sectors, or at least sub-industries within a sector.



That’s exactly why ETFs serve a role as “instant diversifiers.” Because they track a basket of securities, you’ll generally smooth out performance to a larger degree than with a single-stock portfolio.

Rising Rates Pressure Gold

Gold is outperforming the major risk assets this year, but remains pressured in the near term by rising bond rates. For reasons explained in this issue, I don’t expect this dynamic to persist for long, however.



Titanium and steelmaking coal remain the top performers right now, with both minerals supported by shrinking availability and increasing demand. Steel is also strong, meanwhile, while copper remains weak.



For now, I continue to recommend that we maintain a mostly defensive stance.

The market was hit hard again last week, so all trends remain down, and increased caution is still advised.


This week I’m selling two stocks that have weakened since reporting first-quarter results last week, but I’m also upgrading one to buy!


As for the new recommendation, it’s a well-known retailer with a slow but solid growth story whose stock is cheap.


Details inside.

Today was another day of bloodletting, with the major indexes and many former leaders continuing to melt down. Short-term, there’s little doubt things are getting emotional—thus, it’s certainly possible we’re close to a low point, but of course you could have said that a few days ago as well. As always, you shouldn’t fight the tape—with most things cratering, you should be holding much more cash than stocks, though we’re still not opposed to a nibble here or there. When this maelstrom is over, there are going to be some great buying opportunities, but right now, you should remain defensive. Our Market Monitor is down to a level 2.



This week’s list is heavy on commodity names, which did get hit today but in general remain in uptrends. Our Top Pick is a refining name that has recently shown accelerating strength.

The market remains very challenging for high-growth stocks. While I have a list of innovative companies I’m excited to recommend (at some point), for now we’ll continue to diversify our portfolio with more value-oriented names.

This month’s new addition is a little-known supermarket chain I’ve been following for some time. The pitch is very straightforward – rising prices and an insulated business model should help the company post impressive growth in 2022 and 2023. Not to mention we have upside if/as the name spreads among investors that are increasingly looking for just this kind of stock.



Last but not least, the chart looks fantastic.

The market has been up and (mostly) down, but not much has changed with our thoughts: The primary evidence remains terrible, though we continue to see more than a few rays of light from some secondary indicators. For now, we’re remaining defensive (we sold two more half positions this week) and are patiently awaiting the bulls to return.



In tonight’s issue, we write about a couple of commodity-names that we’re watching closely, as well as go over some thoughts on handling big losers (it happens to the best of us) and some of those secondary indicators we’ve mentioned--you can cut the bearishness with a knife, so it’s best to at least stay alert to a positive change in the market’s character.

In the April Issue of Cabot Early Opportunities, we take a look at the earnings calendar for our current portfolio and spread new research around by covering a diverse group of small-cap companies.
We have a newly public (again) pet retailer, a leaner and meaner defense and aerospace company, and a rising star in the fitness studio space. We also upgrade two stocks from our Watch List (and ditch a few others), including a key supplier for the EV market and a rapidly growing IT services company.


Enjoy!

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



One of the enduring features of the stock market is that near-term share prices are driven by momentum and narratives. While this may yield huge money-making stocks on the way up, losses can be devastating on the way down. Fortunately for value investors, downturns driven by negative momentum and unfavorable narratives can create impressively attractive opportunities.



We discuss two groups of stocks that fit this bill: homebuilders and stocks with valuations below 5x EV/EBITDA. Our featured recommendation this month is homebuilder M/I Homes (MHO), which trades at a large discount to its liquidation value despite what may be a reasonably steady industry over the next several years.



We note our recent move of Vistra Energy (VST) from a Buy to a Sell.

We still face headwinds in the market, but action to start the week in Greentech is encouraging. This issue we look at what stocks the “typical” ESG mutual fund and ETF own and examine an undiscovered stock that is showing great strength appealing to health-conscious consumers.

As always, we also suggest three ESG stocks to consider and review our current portfolios.

This week we will add an American energy company engaged in hydrocarbon exploration and pipeline transport, EQT Corp. (EQT).

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the May 2022 issue.

We’re back in the States after an unplanned but superb extended stay in London. It seems that most of the pandemic-driven adrenaline rush in speculative stocks has burned off, leaving a tremendous amount of losses in the wake, while stocks of companies with more enduring business models that trade at prosaic valuations continue to hold their ground or advance.



In the letter, we review earnings reports of several Recommended companies as well as provide updates on all of the others.



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.

Growth stocks remain very strong, and our market timing indicators remain positive, so you should remain mostly bullish. Of course, you should also keep your feet on the ground, as there’s little doubt things are fairly frothy here so some potholes could occur at any time.

The big-picture story out there continues to be the battle between bad news (rising infections, high unemployment, too many crumbling businesses) and good news (progress toward vaccines, therapeutics, etc.; accommodative policies from the Fed; improving fundamentals for some businesses arising from the pandemic). Then there’s all the uncertainty around the upcoming election that further confounds the mind.

After a lightning quick 46% move from the bottom, the rally has stopped. The S&P 500 has sort of been bouncing around sideways since the post-bottom high a month ago.

Stocks produced one of their strongest quarters in living memory, with the S&P 500 returning 20.5% in the period ending June 30. The index has nearly fully regained its previously-lost value, declining only 6% for the first half of the year. Investors frequently ask how the S&P 500 can be down only modestly given the Depression-like broad economic statistics.

As we move into the third quarter, analysts at Goldman Sachs write that their baseline forecast is for the S&P 500 to gain 5% in the second half of the year. In their “vaccine upside” scenario, stocks rise by 14% from here; in the “virus downside” scenario, they drop 30%.

The S&P 500 soared 46% from the March bottom in about 11 weeks, the fastest such rise in history. It couldn’t keep that up forever and it was bound to falter eventually.

The S&P 500 was up 20% in the second quarter. It was the best quarter for the market in decades. That’s what the headlines say. But they are a little misleading. The market hit a recent high on June 8th and has since pulled back a little and moved sideways.

You should remain bullish and flexible. Most of the evidence remains positive, including the trends of the major indexes and action of leading growth stocks.

The big news affecting the market this week is the upward trend in coronavirus cases in some states and the resulting concern that an economic rebound will be curbed sooner than hoped.

While there are growing signs of risk, the market is, as always, difficult to predict in the near term. If it does selloff, that’s okay. Stocks in this portfolio are well positioned to endure further hardship and thrive beyond this crisis. Another down leg in the market will represent an opportunity to better position ourselves ahead of the ultimate recovery.

There have been so many changes in 2020, it pains me to heap another change onto your laps, and yet it is time for me to do so. I’ve implemented the next phase of my longtime career plan by establishing a U.S. equity hedge fund for which I am the portfolio manager.

This auto parts company beat analysts’ estimates by $0.09 last quarter.

This stock just IPO’d last month and will report earnings tomorrow.

This small bank has an enviable track record of profits.

This fund gives you exposure to some market-beating Asian stocks.

In today’s Issue of Cabot Early Opportunities I mistakenly left off two stocks in our portfolio.

Our second idea is some nice profit-taking.

Our first recommendation today is a building product supplier that recently reported quarterly results that beat estimates for both revenues and earnings.

This entertainment Real Estate Investment Trust just increased its dividend by 3 ½ cents, to $1.19 per share annually.

On Friday this recommendation closed at 14.74, which was below the August 15 strike that we had sold last month. Because the stock closed below 15 the calls that we sold for $1.65 expired worthless. This is a good situation.

This global drug company is working on a COVID-19 vaccine, and in recent news, reported that it has obtained the rights to sell lymphoma drug Tyvyt everywhere outside of China.

Tyler is selling a stock from the portfolio.

This preferred stock is backed by a global insurance company.

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.