With the market falling like a stone today, it’s tempting to conclude that a bottom is near. But the fact is that identifying bottoms is very difficult to do in real time, so the prudent course is to reduce risk, which we do this week by selling three more stocks.



As for the new recommendation, energy stocks have been a pocket of strength, so energy it is!

When it comes to the market’s action, there’s not much to say—the crash-like action seen in growth stocks since the start of the year has spread out to most every nook and cranny of the market. To be fair, near term, we are starting to see some extremes, plus we’re still seeing a fair number (not a lot) of stocks hanging in there—taking on water for sure, but not definitively cracking. Overall, we continue to advise a cautious/defensive stance; capital preservation is the first goal these days. That said, given how stretched everything is to the downside, we think it’s OK to give things a little more wiggle room on the downside if you already have lots of cash. Our Market Monitor will remain at a level 4.



This week’s list is mostly a mix of energy and defensive-oriented stocks. Our Top Pick is a big energy services outfit that should see growth accelerate going ahead.

The technology-oriented Nasdaq Composite closed yesterday 10.7% below its all-time closing high, set in November. Some technology- related stocks are facing headwinds for multiple reasons. Many trade at high valuations. Most do not offer dividends to buffer the impact of higher interest rates. Some companies are showing great revenue growth but no profits. We are adjusting by selling two positions and adding an international story with enormous promise.

This issue we take an elemental approach, in a sense, featuring two businesses at the beginning and the end of product cycles. One is a start-up that promises to soon be one of the world’s largest producers of an essential EV component. The other finds a use for mothballed power plant waste to save carbon emissions elsewhere. It just got a boon from a new EPA announcement.

As always, too, our ESG Three, Greentech Timer and an update on our Real Money and Excelsior portfolios are included.

As a result, this week I’m adding a diversified natural resources company based in Vancouver, British Columbia, Teck Resources (TECK), though because of the recent market weakness, I’m structuring our trade defensively.

Last week was an awful one for growth stocks, many of which had already been sitting well off their highs and then were taken apart as the calendar flipped, with 15% to 20% declines seen in some former leaders last week alone. To be fair, some areas actually acted decently—in our screens this week, it wasn’t hard to find good-looking commodity, semiconductor, financial and industrial stocks—and there are names that may be near good entry points. The trick, though, is that the selling appears to be broadening out: Today saw declines across the board (led again by growth stocks), with even resilient areas getting hit. We never catch falling knives, but in the near term, a bounce wouldn’t shock us, as the selling has beenpunishing and has become very obvious. Still, that’s like picking up nickels in front of a bulldozer—a nibble here or there is fine, but there’s not much to like from an intermediate-term perspective, so caution remains the best stance.

This week’s list contains a bunch of commodity and more reliable performers, a sign that big investors continue to favor steadiness and defense rather than aggressive situations. Our Top Pick is a steady performer with a low valuation and a great cash flow outlook.

Last Monday’s dramatic selloff and reversal smelled like a short-term low, but the sellers had other ideas—the bounce from that low lasted just a couple of days before the bears were back at it, with today’s decline further unraveling growth stocks. All in all, we remain in the same cautious stance as we have been for a while: Given the extreme selling in growth and choppiness in many other areas, we think holding a good chunk of cash is paramount; we’re not opposed to a little buying here and there in resilient areas, but we don’t advise playing heavily until the bulls step up to the plate. Our Market Monitor now stands at a level 4.



This week’s list is mostly cyclical and commodity names, all of which are acting or are set up well. Our Top Pick is a Canadian copper and coal play that just lifted from a multi-month rest on big volume.

With the market down big today, it’s possible that the growth stock correction has done enough damage—but until we see real strength, it’s better to adjust to the trend—and that means going with a value stock today—an old technology name that you’ll recognize. As for our current holdings, there is only one change, a downgrade of one stock, Broadcom (AVGO), to hold.

While some major indexes are hanging in there and many cyclical areas look pretty good, growth stocks have suffered another sharp leg down, with many with crash-type declines last week. With that said, there are some rays of light, including a minor new lows divergence, continued buying bursts that usually portend solid long-term results and the fact that some cyclical areas are trying to get going from big consolidations. Monday’s panic selling might be a workable low, but still, we need to see more before putting much money back to work.

Happy New Year! While COVID continued to wreak havoc in our personal and work lives in 2021, we cannot complain about the markets!

Last year, the Dow Jones Industrial Average rose 18.7%; the S&P 500 climbed 26.9%; and the Nasdaq rose 21.4%. Not bad for an economy that continued to recover from the early stages of the coronavirus.



And the economy continues to strengthen, supported by improvements in manufacturing, housing, and unemployment. The unemployment rate for December dropped to 3.2%, the lowest it has been since February 2020.



We are still living with COVID, and as I wrote in the latest Cabot Money Club magazine, inflation is a concern going forward. Just this past week, long-term mortgage rates rose to 3.4%. While any rise in those rates can cause homeowners some grief, the truth is that is still a pretty low mortgage rate. Consequently, I don’t think a steady rise will the derail housing market.



Keep reading to find out more.

The pandemic induced profound changes in the short term and will permanently alter things to at least some degree for a long time. Such change can create great investments.





One industry that is benefitting from the altered world is shipping. Seaborne shipping stocks have had their best year in well over a decade. Shipping rates have soared amidst the rapid recovery and pent-up consumer demand as well as supply chain disruptions that have limited the number of ships available.





These changes should be long lasting for one industry subsector, container shipping. The torrid rise of e-commerce and technological efficiency should permanently increase demand for container shipping at a time when supply is limited and will remain so for a while.





In this issue I highlight a container shipping company that is growing earnings at better than a 100% annual clip, sells at a still cheap valuation, and currently yield 6.7% with a dividend that should continue to rise in the years ahead. The stock could have a lot further to rise in the year ahead.

Today, we are recommending a special situation. The stock is a closed-end fund that is in the process of transitioning to a real estate investment trust (REIT). Once the transition is complete, the universe of investors that can buy the stock will double, driving indiscriminate buying pressure. Other key points:

• Trades at a 40% discount to NAV.
• High insider ownership (CEO owns 14% of company).
• Relentless insider buying.

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

Fourth quarter 2019 earnings season began yesterday with a few large banks reporting very strong results.

The market is off to a superb start to 2020 with many growth sectors finding their groove and ripping higher. The S&P 600 Small Cap Index continues to trade above the all-important (my opinion) 1,000 level and we’re seeing participation from a wider breadth of sectors than in the past.

Remain bullish, but keep your wits about you. The market remains very strong, and we’re glad to see many of our stocks that consolidated during December come to life in recent days.

Here we are at the beginning of a new year and a new decade. A pivotal calendar turn like this is a great time to stop, get off the train, look around and see where we are, and where we might be going.

For the most part, global stock markets performed strongly in 2019. But if you dig a bit deeper, you will see sizable and interesting gaps between countries.

There was very little news or new analyst research on our portfolio stocks last week. I expect a surge in new information by mid-January as businesspeople and Wall Street analysts get back to work after the holidays.

Remain bullish. The bull market rolls on, and while there are legitimate shorter-term yellow flags (a good reason to be choosy on the buy side), the big-picture outlook is solid. We have no changes in the Model Portfolio today.

I previously gave you a heads up that new low-sulfur diesel regulations (IMO 2020) and a serious hog disease in China (African Swine Fever) are quite likely to increase inflation numbers in 2020 and beyond. Are you ready for the next sweeping industrywide change that will be hitting the credit markets?

The S&P 600 Small Cap Index, which hadn’t broken above 1,000 for most of 2019, is now comfortably above that level and appears to be heading higher.

We are so accustomed to looking at stocks and markets day by day that we sometimes miss the big trends as well as opportunities.

Two stocks depart from the Special Situation Portfolio and the Growth Portfolio today, respectively, while another joins the Growth & Income Portfolio.

The upward trajectory for growth stocks that was smooth sailing in November has turned far bumpier in December.

Analysts expect this optoelectronics manufacturer to post 87.2% growth this year.

This food distributor beat analysts’ EPS forecasts by a penny last quarter.

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.

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.