Issues
Inflation is back. And it might be for real this time.
Inflation has taken off since the end of the lockdowns this past spring. In September, the inflation rate rose to 5.4%, the highest monthly reading in 30 years. Inflation over the last twelve months is also the highest such measure in 30 years.
This inflation may prove to be a temporary side effect of the pandemic recovery that will fade away over the next year. But maybe not. Once that inflation genie gets out of the bottle it can be hard to put back. There are powerfull reasons why it could be worse than most expect.
Inflation has taken off since the end of the lockdowns this past spring. In September, the inflation rate rose to 5.4%, the highest monthly reading in 30 years. Inflation over the last twelve months is also the highest such measure in 30 years.
This inflation may prove to be a temporary side effect of the pandemic recovery that will fade away over the next year. But maybe not. Once that inflation genie gets out of the bottle it can be hard to put back. There are powerfull reasons why it could be worse than most expect.
Gold Shows Signs of Life
Gold prices perked up late last week in the wake of some bullish interest rate developments. While silver and other white metals didn’t confirm the strength, there are reasons for believing that the safety-related move into gold will persist. Lithium, meanwhile, remains the undisputed leader in the broad metals sector as electric vehicle (EV) battery demand continues to accelerate. Rising EV sales from some major auto companies have only served to fuel the lithium bull market.
Gold prices perked up late last week in the wake of some bullish interest rate developments. While silver and other white metals didn’t confirm the strength, there are reasons for believing that the safety-related move into gold will persist. Lithium, meanwhile, remains the undisputed leader in the broad metals sector as electric vehicle (EV) battery demand continues to accelerate. Rising EV sales from some major auto companies have only served to fuel the lithium bull market.
This week I’m continuing to diversify my overall portfolio exposure by adding American subscription-based software company ZoomInfo (ZI).
With the often-tricky September-October period behind us, and all trends positive, I’m happy to continue recommending that you be heavily invested in a diversified group of stocks that meet your investing needs.
Today’s recommendation is not a familiar name—it serves global businesses, not individuals—but it’s part of the solution to one of the globe’s biggest problems these days.
As for selling, something’s got to go, and it’s not an easy choice; most of our stocks look great. But rules are rules, so we’ll say farewell to long-time friend (and solid winner), NextEra Energy (NEE).
Details inside.
Today’s recommendation is not a familiar name—it serves global businesses, not individuals—but it’s part of the solution to one of the globe’s biggest problems these days.
As for selling, something’s got to go, and it’s not an easy choice; most of our stocks look great. But rules are rules, so we’ll say farewell to long-time friend (and solid winner), NextEra Energy (NEE).
Details inside.
There have been a few times this year when the onus was on the bulls to snap the market out of a downturn, correction or choppy period—and, happily, in most cases they did. Now the shoe is on the other foot: Yes, there are some worries out there, with a lot of stuff extended to the upside and some signs of complacency, but the vast majority of rubber-meets-the-road evidence remains positive, with the major indexes in strong uptrends, a ton of fresh breakouts (including many from names that built launching pads for five to eight months) and little in the way of pullbacks. As we’ve been writing, you shouldn’t get crazy and lose all risk discipline or start buying fly-by-night operations, but overall, there’s no question the evidence tells us to remain bullish. We’ll nudge up our Market Monitor to a level 8 today.
This week’s list features a ton of names that have recently lifted off on earnings, and from a variety of industries, too. Our Top Pick is Arista Networks (ANET), which is a high-priced stock but showed extreme power and a change in character after a great quarterly report and multi-quarter outlook last week.
| Stock Name | Price | ||
|---|---|---|---|
| ABNB (ABNB) | 200 | ||
| Arista Networks (ANET) | 526 | ||
| Canada Goose Holdings (GOOS) | 49 | ||
| CFLT (CFLT) | 88 | ||
| Devon Energy (DVN) | 44 | ||
| EOG Resources, Inc. (EOG) | 97 | ||
| KLA Corp. (KLAC) | 413 | ||
| ON Semiconductor (ON) | 59 | ||
| Planet Fitness (PLNT) | 96 | ||
| ZoomInfo (ZI) | 74 |
Recently, we’ve been adding very aggressive, high-growth names. These potential moonshots are a lot of fun to research and buy, but we need to maintain balance in our portfolio.
This month we’re going with more of a Steady Eddie-type, a small-cap company with a measured growth profile that features sustainable top line growth, significant EPS, and enough cash flow to fund both dividend payments and share repurchases.
I think in a few years we’ll look back and say it was one of the better investment decisions we made in 2021.
Enjoy!
This month we’re going with more of a Steady Eddie-type, a small-cap company with a measured growth profile that features sustainable top line growth, significant EPS, and enough cash flow to fund both dividend payments and share repurchases.
I think in a few years we’ll look back and say it was one of the better investment decisions we made in 2021.
Enjoy!
The market has had some wobbles after a strong three-week run, and finding good buy points and keeping an eye on earnings reports remains vital. But overall, most of the evidence remains bullish, so we do, too. Most of the stocks we own are acting well, though we’re still wading through earnings season and will react if need be. In the meantime, we’re still aiming to add exposure, and are buying a half-sized position in an old friend tomorrow.
Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the November 2021 issue.
Rivian Automotive’s (RIVN) initial public offering, which arrives next week at a likely $60 billion valuation, has us thinking more deeply about General Motors (GM). Investors are assigning little value to its EV and other advanced technologies, which strikes us as incompatible with the valuations of Tesla, Rivian and other EV start-ups. But, perhaps this is right, due to the enormous capital spending that GM has committed to. These vast cash outflows may eliminate the present value of the EVs. We share some of our thinking on this.
Rivian Automotive’s (RIVN) initial public offering, which arrives next week at a likely $60 billion valuation, has us thinking more deeply about General Motors (GM). Investors are assigning little value to its EV and other advanced technologies, which strikes us as incompatible with the valuations of Tesla, Rivian and other EV start-ups. But, perhaps this is right, due to the enormous capital spending that GM has committed to. These vast cash outflows may eliminate the present value of the EVs. We share some of our thinking on this.
Greentech is looking more bullish than it has in six months as enthusiasm gathers around EVs, solar and governments’ suggestions at the current United Nations Climate Conference to combat global warming.
This issue we look at an American company that has repositioned itself to be one of the primary providers of the next generation of semiconductors. EV makers, renewable energy providers and the aerospace industry in particular are eager to get their hands on this company’s chips and related products. It’s a growth story around electrification and decarbonization.
Given the bullish state of the sector, we also start building our Watch List once more, with three suggestions of securities some of us are already familiar with.
This issue we look at an American company that has repositioned itself to be one of the primary providers of the next generation of semiconductors. EV makers, renewable energy providers and the aerospace industry in particular are eager to get their hands on this company’s chips and related products. It’s a growth story around electrification and decarbonization.
Given the bullish state of the sector, we also start building our Watch List once more, with three suggestions of securities some of us are already familiar with.
Overall, the markets and investor sentiment are back to a bullish stance, although with caution. The Dow Jones Industrial index has been mostly positive for the past month.
Unemployment continues to improve; housing prices—according to the latest Case-Shiller index—are stabilizing. We are seeing proof of that here in Tennessee. Several appraisers have told me that they are not going to let prices get out of hand—rising faster than true value—so that we don’t revisit the housing crisis of the last recession from 2007-2009. That’s a relief!
And, importantly, consumer confidence remains positive, rising from 109.8 to 113.8 in the last week.
Unemployment continues to improve; housing prices—according to the latest Case-Shiller index—are stabilizing. We are seeing proof of that here in Tennessee. Several appraisers have told me that they are not going to let prices get out of hand—rising faster than true value—so that we don’t revisit the housing crisis of the last recession from 2007-2009. That’s a relief!
And, importantly, consumer confidence remains positive, rising from 109.8 to 113.8 in the last week.
After a nearly 5% drop in September, investors once again stepped in, bought the dip, and have managed to push the market higher for a fourth straight week.
Stocks added to recent gains this past week, driving the Dow and S&P 500 to fresh highs. The S&P 500 rose 1.3%, the Dow climbed 0.4%, and the Nasdaq added 2.7%. And the bullish ways continued Monday as all of the major indexes piled on to recent gains.
Year-to-date the S&P 500, Dow and Nasdaq are up 22.6%, 17.0% and 20.3%, respectively.
And to put things into an even greater perspective the last three years have seen the S&P 500 up 29% in 2019, 16% in 2020 and over 22% in 2021.
The talking heads would have you believe a variety of different reasons for the prolonged rally, but ultimately it comes down to simple supply and demand. Over the past 18 months daily net inflows are triple what they were prior to the pandemic.
And right now, the firepower used to buy the dips, including FOMO (“fear of missing out”) and/or TINA (“there is no alternative”) seem to be enough ammunition to keep pushing the market higher.
Stocks added to recent gains this past week, driving the Dow and S&P 500 to fresh highs. The S&P 500 rose 1.3%, the Dow climbed 0.4%, and the Nasdaq added 2.7%. And the bullish ways continued Monday as all of the major indexes piled on to recent gains.
Year-to-date the S&P 500, Dow and Nasdaq are up 22.6%, 17.0% and 20.3%, respectively.
And to put things into an even greater perspective the last three years have seen the S&P 500 up 29% in 2019, 16% in 2020 and over 22% in 2021.
The talking heads would have you believe a variety of different reasons for the prolonged rally, but ultimately it comes down to simple supply and demand. Over the past 18 months daily net inflows are triple what they were prior to the pandemic.
And right now, the firepower used to buy the dips, including FOMO (“fear of missing out”) and/or TINA (“there is no alternative”) seem to be enough ammunition to keep pushing the market higher.
With three strong weeks of action behind us, all market trends are now positive—plus we’ve come through the often-tricky September-October period with minimal losses—so I once again recommend that you be heavily invested in a diversified group of stocks that meet your investing needs.
Today’s recommendation is a consumer name you know well, a medical juggernaut that’s cheap and pays a good dividend.
As for selling, I’m doing none today. The portfolio is full, with most stocks going the right direction.
Details inside.
Today’s recommendation is a consumer name you know well, a medical juggernaut that’s cheap and pays a good dividend.
As for selling, I’m doing none today. The portfolio is full, with most stocks going the right direction.
Details inside.
Updates
I wasn’t expecting that of the seven companies we had reporting Monday through Thursday this week that the average gain would be nearly 9% though. What an intense week. As you’ve no doubt noticed, our portfolio has done well this week.
Our emerging markets timer strengthened this week as the EEM climbed over 44 today, just short of its high for the year.
The economy is still solid and the trade war thaw is taking away a big headline risk for the market.
Put a little money to work. There are still issues with many growth stocks and plenty of crosscurrents, but the overall market is looking good and we have seen some earnings-induced breakouts.
Alerts
The S&P 500 and Dow Jones stock indexes appear to have tentatively begun rising above a trading range that lasted for six weeks.
Hospitality may be down but not out, and this preferred stock will reap the benefits as the market recovers.
Long-term, the odds are very good that this recommendation will move higher, so there is an argument for holding patiently. But we will sell.
This steel and aluminum company beat analysts’ EPS estimates by $0.35 last quarter.
The shares of this frozen potato provider have recovered somewhat since the pandemic started, but are still trading at a low valuation.
While the broad market enjoyed a powerful upmove yesterday, the marijuana sector was even stronger, with the Marijuana Index surging 15%.
This gaming company beat analysts’ estimates by $0.02 last quarter.
Analysts expect this HVAC company to grow at a 15% annual rate over the next five years.
This pharma giant beat analysts’ EPS estimates by $0.07 last quarter.
Tomorrow is the expiration of May options, and it’s been a spectacular month for our covered call strategy.
This agricultural equipment company is forecasted to grow 35% next year.
As coronavirus matters continue to dominate the headlines and the world works toward slowly reopening, the action of marijuana stocks continues to impress—and with good reason.
Portfolios
Strategy
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.