Issues
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 |
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.
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!
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.
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.
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.
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.
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.
Updates
Be cautious. The selling pressure has spread to the rest of the market, with the recent decline cracking a bunch of stocks and causing our Cabot Tides to turn negative.
October is a historically ominous month for stocks. After all, it is the month of the 1929 stock market crash and the 1987 crash. After a rough May and August we step into the mother of all jinxed months with a terrible start.
I’m going to go off on a little tangent this week to share something with you that I think will help put this market, and the action in our stocks, into context.
Our portfolio advanced this week led by India’s ICICI (IBN), which was up 19% on the back of a tax cut and prospects for higher growth.
The S&P 500 index continues to act well, rising to new highs in July, conducting a very orderly pullback in August, and rebounding in September. To my eyes, the price chart still looks strong.
For the first time in a while we’ve had a relatively calm week. On average, our portfolio is unchanged from last Thursday’s close.
Stocks rallied early in the day but then skidded after that, closing not that far from where they started. The environment remains mixed, with the market looking fine but growth stocks a bit sluggish.
It’s one of those special days in the market where the Fed will make a highly anticipated decision on interest rates. It is widely expected that the Central Bank will cut the Fed Funds rate by 0.25%.
Oil prices are volatile now that about half of Saudi Arabia’s oil production is temporarily curtailed. Rising oil prices can help oil and chemical stocks, and hurt airline stocks.
Looking at the broad market, it seemed like a calm week. Even a good week! The S&P 500 moved up near all-time highs and even the languishing S&P 600 Small Cap Index broke out of its funk and shot up near 2019 highs for the first time since early May.
It was a pretty quiet week with most of our stocks up in the 3% -5% range. There are no changes to the portfolio.
Alerts
With the market surging today, 20 positions under coverage and five more coming tomorrow, we’re going to take advantage of the opportunity to trim a few positions.
The top five holdings of this fund are: Microsoft Corp (MSFT, 11.92%), Apple Inc (AAPL, 11.19%), Amazon.com Inc (AMZN, 9.58%), Facebook Inc A (FB, 3.98%), and Alphabet Inc A (GOOGL, 3.96%).
Shares of this stock are bucking the downtrend early on Monday after management announced late last week that it would take steps to cut an additional $30 million in costs by reducing the workforce by roughly 90 employees across sales, marketing, general/administrative and R&D departments.
Like many countries, Singapore is struggling with the impact of the coronavirus. But given that it is a city-state of 6 million people with a well-organized, effective government, it is well positioned to cope with all of this better than most.
William Blair recently initiated coverage on this government contractor, with an ‘Outperform’ rating.
This preferred issue has a nice yield and is backed by a large North American insurance carrier.
The shares of this video game maker were just initiated at Wells Fargo with an ‘Overweight’ rating.
The shares of this chipmaker were recently upgraded by B o A Securities, to ‘Buy’.
This accounting solutions company is forecasted to grow at an annual rate of 50% over the next five years.
As I mentioned in yesterday’s issue, we got some bad news on this portfolio stock before the market opened regarding an internal investigation of fraud by the company’s COO and several other employees who apparently significantly overstated sales in 2019.
The majority of this insurance company’s analysts rate its shares a ‘Buy.’
The shares of this China stock fell sharply today after the company announced that it had suspended the CFO and several employees reporting to him for misconduct related to “fabricated transactions.”
Portfolios
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.