Issues
Last week brought some renewed chop and crosscurrents, with broader indexes finding some sellers and a few stocks hitting potholes before or after earnings. Moreover, we’re seeing indications that complacency has made a quick comeback, and with many good-looking stocks set to report earnings over the next two weeks, some near-term selling wouldn’t surprise us. Even so, all of this looks normal in the context of where the market has come from: The prior three weeks were excellent, the intermediate-term trend is pointed up and the vast majority of stocks are acting well. Could we see another change in character, with the market falling back into its spin-cycle ways of 2021? It’s always possible, but we go with the weight of the evidence, which today remains mostly positive. We’ll leave our Market Monitor at a level 7 today.
This week’s list is another well-rounded one, with some recent earnings winners and stocks from a variety of industries. Our Top Pick is Enphase Energy (ENPH), which appears to be getting going from a deep base after earnings. We prefer entering on a bit of weakness if possible.
| Stock Name | Price | ||
|---|---|---|---|
| Albemarle Corporation (ALB) | 256 | ||
| Bonanza Creek Energy (BCEI) | 56 | ||
| Coinbase (COIN) | 331 | ||
| Dexcom (DXCM) | 627 | ||
| Enphase Energy (ENPH) | 240 | ||
| J.B. Hunt (JBHT) | 196 | ||
| Medpace (MEDP) | 226 | ||
| Marvell Technology Group (MRVL) | 69 | ||
| SLAB (SLAB) | 193 | ||
| WOLF (WOLF) | 131 |
Facing the usual uncertainty and mixed earnings reports, stocks were a bit choppy this week, prompting the Explorer to exit two positions (details inside). Conversely, Novonix (NVNXF) is up over 100% since August and Cloudflare (NET) continues its strong upward trend. This week we highlight the supply-chain chaos and recommend a new company that’s helping its clients untangle and profit from the disruption.
You can still find sky-high yields.
Despite the recovery in the overall market, there are still lingering pockets of high yields. It reminds me of the years following the financial crisis. You could still find good stocks that paid a sky-high income relatively easily. But the situation didn’t last. Those high yields on quality stocks evaporated as investors realized the opportunity.
Some of the current high yields probably won’t last long either.
At the same time, it’s a great time for cyclical stocks. The economy is still booming. Plus, we are likely at the point in the economic cycle where such stocks tend to do best. We are likely still in the early stages of a bull market and recovery.
In this issue, I found a stock that benefits from both opportunities. It has a stratospheric 11.5% yield that likely won’t last. At the same time, the yield should be safe and growing as the company is highly cyclical.
Despite the recovery in the overall market, there are still lingering pockets of high yields. It reminds me of the years following the financial crisis. You could still find good stocks that paid a sky-high income relatively easily. But the situation didn’t last. Those high yields on quality stocks evaporated as investors realized the opportunity.
Some of the current high yields probably won’t last long either.
At the same time, it’s a great time for cyclical stocks. The economy is still booming. Plus, we are likely at the point in the economic cycle where such stocks tend to do best. We are likely still in the early stages of a bull market and recovery.
In this issue, I found a stock that benefits from both opportunities. It has a stratospheric 11.5% yield that likely won’t last. At the same time, the yield should be safe and growing as the company is highly cyclical.
The marijuana sector peaked in February, corrected strong for a couple of months, and since then has been sinking slowly lower, shaking out weak hands as it prepares for its next upmove.
Fundamentals in the industry remain terrific, as I am confident third-quarter results will soon reveal, and while the trend toward legalization in the U.S. continues, it’s taken a back seat at the federal level for now, so all the action remains at the state level.
In the portfolio today, we continue to hold patiently, with the portfolio more than one-third in cash, waiting for a new uptrend—but if you’re eager to buy now (while things look cheap) I do have some suggestions.
Full details in the issue.
Fundamentals in the industry remain terrific, as I am confident third-quarter results will soon reveal, and while the trend toward legalization in the U.S. continues, it’s taken a back seat at the federal level for now, so all the action remains at the state level.
In the portfolio today, we continue to hold patiently, with the portfolio more than one-third in cash, waiting for a new uptrend—but if you’re eager to buy now (while things look cheap) I do have some suggestions.
Full details in the issue.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November 2021 issue.
Consumer staples stocks were pandemic beneficiaries, but now that the worst has passed, many of these stocks have been sold off fairly hard, even as the stock market continues to reach record highs. While investor concerns regarding negative year-over-year sales, tighter margins due to inflation, and the degree to which companies can raise prices have merit, we make our case for four stocks that have been discarded and now look like bargains.
Bank stocks have been strong performers following the pandemic stock market trough, including those we highlighted in late April 2020. Yet, not all have fully participated. We found four that have good fundamentals yet trade at price/earnings multiples below 10x, considerably lower than the peer average of 14.5x.
Consumer staples stocks were pandemic beneficiaries, but now that the worst has passed, many of these stocks have been sold off fairly hard, even as the stock market continues to reach record highs. While investor concerns regarding negative year-over-year sales, tighter margins due to inflation, and the degree to which companies can raise prices have merit, we make our case for four stocks that have been discarded and now look like bargains.
Bank stocks have been strong performers following the pandemic stock market trough, including those we highlighted in late April 2020. Yet, not all have fully participated. We found four that have good fundamentals yet trade at price/earnings multiples below 10x, considerably lower than the peer average of 14.5x.
Silver Resumes Leadership Position over Gold
After a seemingly interminable decline this summer, silver prices are once again showing strength. And of greater significance, they’ve finally resumed a relative strength position over gold.
As emphasized here, silver leadership is typically a prerequisite for a strengthening gold market. That said, silver’s latest rally is welcome news for our speculative long position in our favorite gold-tracking ETF.
In the industrial metals, aluminum is still strong while copper has lately been the subject of a massive short-covering event. Lithium, meanwhile, is also in a solid position while the uranium market has been resurgent—thanks in part to the Reddit crowd.
After a seemingly interminable decline this summer, silver prices are once again showing strength. And of greater significance, they’ve finally resumed a relative strength position over gold.
As emphasized here, silver leadership is typically a prerequisite for a strengthening gold market. That said, silver’s latest rally is welcome news for our speculative long position in our favorite gold-tracking ETF.
In the industrial metals, aluminum is still strong while copper has lately been the subject of a massive short-covering event. Lithium, meanwhile, is also in a solid position while the uranium market has been resurgent—thanks in part to the Reddit crowd.
Fueled by better-than-expected earnings last week the S&P 500 rose 1.6%, the Dow climbed 1.1%, and the Nasdaq added 1.3%.
Despite the strong week, on Friday traders’ enthusiasm for the recent rally faded a bit after Fed Chairman Jerome Powell’s commented that the central bank was “on track” to begin reducing its purchases of assets.
However, Monday the bulls stepped right back in and once again “bought the dip.”
This week brings earnings announcements from key mega-cap tech names Amazon (AMZN), Facebook (FB), Alphabet (GOOG), and Apple (AAPL). There is also a bevy of blue chips reporting including United Parcel Service (UPS), Visa (V), McDonald’s (MCD), Coca-Cola (KO), Boeing (BA), Merck (MRK), Caterpillar (CAT) and numerous others. Brace yourself, it’s going to be exciting!
Energy has taken off lately and I want to add exposure to the sector. However, I still want to maintain a somewhat conservative stance, especially as this week’s pick will report earnings next week. As a result, I will be selling in-the-money calls on hydrocarbon explorer Marathon Oil (MRO).
Despite the strong week, on Friday traders’ enthusiasm for the recent rally faded a bit after Fed Chairman Jerome Powell’s commented that the central bank was “on track” to begin reducing its purchases of assets.
However, Monday the bulls stepped right back in and once again “bought the dip.”
This week brings earnings announcements from key mega-cap tech names Amazon (AMZN), Facebook (FB), Alphabet (GOOG), and Apple (AAPL). There is also a bevy of blue chips reporting including United Parcel Service (UPS), Visa (V), McDonald’s (MCD), Coca-Cola (KO), Boeing (BA), Merck (MRK), Caterpillar (CAT) and numerous others. Brace yourself, it’s going to be exciting!
Energy has taken off lately and I want to add exposure to the sector. However, I still want to maintain a somewhat conservative stance, especially as this week’s pick will report earnings next week. As a result, I will be selling in-the-money calls on hydrocarbon explorer Marathon Oil (MRO).
With two strong weeks of action behind us, the short-term trend of markets is once again positive, and thus I am happy to once again recommend that you be heavily invested in a diversified group of stocks that meet your investing needs.
Today’s recommendation is a repeat; we sold the stock in March for a nice 30% profit, and now we’re going to try again.
As for selling, there is one recommendation, a short-term sell of ConocoPhillips (COP), which has been unusually strong. But if you want, and it suits your style, you can hold.
Details inside.
Today’s recommendation is a repeat; we sold the stock in March for a nice 30% profit, and now we’re going to try again.
As for selling, there is one recommendation, a short-term sell of ConocoPhillips (COP), which has been unusually strong. But if you want, and it suits your style, you can hold.
Details inside.
The past three weeks have gone about as well as anyone could have hoped (assuming you’re a bull), with three main positive things. First and foremost, the major indexes have rallied enough to quickly flip the intermediate-term trend back up. Second, the upmove has been both broad (most stocks and sectors have rallied, with the rotation of 2021 taking a back seat for now) and coming during a spate of worrisome news (hyperinflation!). And third has been the action of leading stocks (especially growth stocks), many of which have been lighting up the sky. It’s not all peaches and cream, with earnings season set to really pick up steam, and that can always change a stock’s positioning. Thus, you shouldn’t throw caution to the wind, but you also shouldn’t ignore the shift in the evidence—we’ll keep our Market Monitor at a level 7 today but could hike it if we start seeing some bullish earnings gaps.
This week’s list has something for everyone, from small growth stocks to good-sized commodity plays that are seeing earnings boom. But we’re going with an oldie-but-goodie for our Top Pick: Netflix (NFLX), which isn’t the young buck it once was, but business is doing great and the stock is picking up steam after breaking out from a year-long base.
| Stock Name | Price | |
|---|---|---|
| Arch Coal (ARCH) | 97 | |
| Ford Motor Co. (F) | 16 | |
| KKR & Co. Inc. (KKR) | 75 | |
| Marathon Oil (MRO) | 17 | |
| monday.com Ltd. (MNDY) | 383 | |
| MongoDB (MDB) | 519 | |
| Netflix, Inc. (NFLX) | 672 | |
| SiteOne Landscape Supply (SITE) | 228 | |
| Tandem Diabetes (TNDM) | 129 | |
| United Rentals, Inc. (URI) | 366 |
Updates
We’ve been fairly lucky this earnings season in that every single one of our portfolio companies that reported earnings managed to meet or beat the market’s expectations. Of course, that doesn’t mean share prices will rise. Oh heavens no! Short-term movements in stock prices can easily resemble a roulette game. Nevertheless, we buy high quality companies and we give their stocks a chance to enhance our net worth.
There has been no big picture change in the market over the last week. As expected, everyone is following earnings reports and trying to make broad assumptions based on what individual companies are reporting.
The Financial Times this week reported that Beijing is preparing plans to remove Hong Kong’s chief executive, Carrie Lam, whose term is not up until 2022, as anti-government protests in the city intensified.
Alerts
This health-care data stock reported after the close yesterday with results that beat lowered expectations.
Crista updates us on two stocks, one in the portfolio and one that she has recommended in the past year.
Long-term care facilities have taken a hit due to coronavirus, but this Canadian company looks like it’s going to be fine.
This Cabot Micro-Cap Insider recommendation moves to Hold.
This preferred stock is backed by a Silicon Valley bank that provides services to companies in the technology corridor.
For the last month stocks have been going gangbusters and this week things have been as hot as any time in recent memory.
Five portfolio stocks reported earnings and one moves to Strong Buy.
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.