The potential for an accelerated timetable for the Fed to raise interest rates and the ongoing Russia-Ukraine situation led to volatility this week. As always, other events and news also moved stocks. In particular, Sea (SE), after bouncing back the previous two weeks, was off sharply on Monday following reports that India has banned its popular mobile hit “Free Fire”. The stock has since recovered half of this pullback to close Wednesday trading at 141.

In the February Issue of Cabot Early Opportunities we take a quick look at the big-picture events influencing the current market then dive into five names that keep jumping onto my radar.
This month we take another spin with two names that served us well in 2021 and add a software company that has the potential to be a massive player in the digital economy. We also take half a stake in a watch list name and refresh that list with an exciting IoT company.


Enjoy!

The $1.2 trillion infrastructure bill money should start flowing this year. This issue we feature two businesses that should benefit from the influx of capital into public spending on top of their already positive growth.

Action in Greentech has us cautiously optimistic that the sector is reversing the bearishness that has gripped tech stocks and renewables for the past few months. In this issue, too, is our ESG Three stocks to consider, a glance at what out Greentech Timer tells us and a full update on our Real Money and Excelsior portfolios.

The big news of last week was inflation data came in well above expectations on Thursday as the consumer price index (CPI) rose 7.5% year over year. This was the largest increase since 1982.
Shortly after, rumors of an emergency rate hike made the rounds on trading desks as the 10-year Treasury yield pierced the 2% mark for the first time in three years. Following this development, rate-sensitive sectors and growth stocks underperformed.

After a three-week rally, stocks hit resistance at logical levels, with the indexes backing off … though they still remain nicely above their January lows. It’s possible we’re starting a re-test phase, with the major indexes and many stocks set to attack their January lows. But, really, we’re less concerned with gaming out the daily action than with sticking to the overall evidence—until proven otherwise, the trends of the major indexes, of growth-oriented funds and of most stocks is pointed down, so we advise remaining generally defensive and patient as we allow more stocks to build bottoms and form legitimate setups.



That doesn’t mean, however, that the wheat isn’t starting to separate from the chaff among individual stocks. This week’s list has a bunch of stocks that have shown some great-volume accumulation during the past two or three weeks, though our Top Pick is a solid long-term setup ahead of earnings.

Note: Due to the Presidents’ Day holiday, when the stock market is closed, your next issue of Cabot Stock of the Week will be published on Tuesday, February 22.
This week’s stock comes from a recent issue of Cabot Top Ten Trader, which is always on top of the market’s strongest stocks—recently has included a lot of energy and financial stocks. This is one of them.



As for the current portfolio, we come into this week holding 16 out of a possible 20 stocks, and …


Details inside.

Welcome to the Inaugural Issue of Cabot Money Club Stock of The Month

Each month, in this advisory, we will be spotlighting a new recommendation from one of our Cabot experts. We will include an interview with the analyst and bring you his or her latest thoughts on the stock we pick as well as a summary of the analyst’s expertise and experience.

We will also include a brief market update, and a longer piece highlighting the macro industry—the pros and the cons—in which our stock pick resides.

And as is usual with our Cabot advisories, we will maintain a portfolio of our stock picks, to give you a one-shot picture of our holdings.

Welcome!

Here is your February Wall Street’s Best Digest, issue 850.

The January markets started off with more volatility than we needed, and some fairly large daily losses. Right now, markets seem oversold, volatility has relaxed, and buying has resumed, although the bulls have not yet recovered all their losses. We continue to be on the side of the bulls, but favor judicious stock-picking right now.


The economy continues to prosper. The markets loved the non-farm payroll numbers last week, coming in at 467,000, compared to the estimate of 150,000. The housing market remains strong, although prices continue to rise. The level of home ownership, at 65.5%, is higher than the historical average of 64%, demand is robust, and inventory is low, so prices will most likely continue to increase in the near-term.



The dip in markets last month has provided our contributors with a lot of stock ideas that have now become buyable at lower levels.

Two weeks ago, we thought the market had likely hit (or would soon) a workable low--and that was right, with the major indexes and (more important to us) a good number of growth stocks perking up. It’s encouraging, but we can’t say we’re bullish yet: The trends of the market and growth funds are still down, and even things that have popped nicely aren’t set up quite yet. All in all, we’re sitting on our hands, but we’re also watchful--another few good days could change things, but at this point the odds still favor more time being needed as a bottom is built.

Interest rates are heading higher.

In normal and efficient markets, a strong economy and steeply rising prices would drive interest rates much higher. But rates have been held down and distorted by the Fed’s hyper-aggressive accommodation.



The Fed dismissed inflation in the early stages as “transitory” and now realizes it missed the boat and inflation is getting out of hand. Behind the curve and embarrassed, the Central Bankers will have to make up for lost time by reversing course, ending its bond buying program and raising the Fed Funds rate.



The main force preventing economic growth and rising prices from pushing interest rates higher is about to be removed, and perhaps quickly. Under the circumstances, it is quite reasonable to expect interest rates to move higher.



In this issue, I highlight an investment in the financial sector. Many companies in the sector benefit from higher rates as they earn higher spreads and profits. This company stands to benefit not only from higher interest rates but a change in consumer behavior as well.

Today, we are making a “jockey bet”. In other words, we are betting primarily on the management team. The management team that we are betting on is responsible for some incredibly value creation in public markets (hint: it’s the same management team as P10 Holdings (PX), a stock that is up over 300% since or original recommendation in 2020).
Other key points:

• Trades at a cheap valuation.
• Paid a special dividend worth over twice its current stock price last year.
• High insider ownership.

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

Weakening Dollar Boosts Base Metals
Industrial metals got another boost last week when the U.S. dollar index suddenly and swiftly reversed a prior rally. Gold barely budged, but a recent development in the stock market suggests the yellow metal could soon get another buying bid. In the white metals, silver slept but palladium is on the rise once again.

In the portfolio, we recently added a new position in our favorite commodity-tracking fund and have initiated four additional new buys in various industrial and precious metal plays.

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.

Remain bullish, while keep your eyes open as some stocks have hit potholes. The market itself is in good shape, though we continue to think some news-driven ups and downs are likely in the near term.

Here we are within weeks of the end of year and the end of a decade. It is approaching the 11th year of the recovery and bull market. The S&P 500 is up 25% in 2019 and very near the all-time high. Where do we go from here?

Two portfolio stocks reported earnings and have rating changes.

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.

Two portfolio stocks reported earnings today.

This portfolio stock was up 18.3% yesterday in anticipation of earnings that were released after the market closed.

This candy company has grown at an annual rate of nearly 20% in the last five years.

Three portfolio stocks reported earnings today, and we’re selling one for a nice profit.

This global beverage company is adjusting sales due to the coronavirus pandemic, but new products and initiatives should keep it growing steadily.

Three portfolio stocks reported earnings today, and one moves to Hold.

Three portfolio stocks recently reported earnings and one moves to Strong Buy.

This gaming company is benefiting from stay-at-home orders.

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.