The market remains under pressure, with our Cabot Tides and the “Growth Tides” (see more in this issue) negative, and even our longer-term Cabot Trend Lines on the verge of a sell signal. To be fair, we are starting to see some “real” extremes in terms of some sentiment and oversold measures, so we’re hopeful a bounce could get underway soon; we’re not ruling out some nibbling or re-jiggering in the Model Portfolio. But the main trends remain down, so our main advice is to stay mostly on the sideline and keep your watch list updated with potential fresh leaders.

The first news is the renaming of our advisory, from Cabot Marijuana Investor to Cabot Sector Xpress Cannabis Advisor, which is explained in today’s issue.

While the broad market was falling apart over the past week, several of our cannabis stocks held firm above their December lows, telling us that after an 11-month downtrend, the selling pressures are pretty much spent in that sector.



Today’s issue brings a few tweaks to our portfolio, but no big changes, as we are well positioned for the sector’s next uptrend.



Full details in the issue.

The S&P 500 is on the cusp of a correction, down 10%. The technology- laden NASDAQ is already well beyond a correction. Energy is the only S&P 500 sector in positive territory YTD.



The problem is inflation and the Fed raising rates to combat it. There is a realization that inflation can’t be handled seamlessly. That means we could face continued high inflation, or much slower economic growth induced by a hyperactive Fed making up for lost time. Neither scenario is good for stocks.



While the year might be difficult for the overall market, the energy and financial sectors should shine. These sectors actually like inflation and rising interest rates. While portfolio positions in those sectors have been dragged lower by the recent indiscriminate selling, I expect them to regain momentum when this selloff ends.



Two fantastic portfolio positions in energy and finance are highlighted to buy in this issue. They had momentum going into the selloff and should pick up where they left off when the selling abates.

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the February 2022 issue.



The market seems to be ignoring small- cap stocks. We highlight four high-quality small- cap companies with beaten down share prices. And, amidst the rubble of initial public offerings, we found three worthwhile companies whose shares trade below their IPO price. We also briefly comment on the market’s recent sell-down, and provide an update on the performance of our group of recommended stocks, which have held their value so far this year.



Our featured recommendation this month is Polaris (PII), the leading North American manufacturer of powersports equipment including off-road vehicles, snowmobiles, motorcycles and boats. Investors are overly -discounting near-term issues, leaving the shares significantly undervalued.



We note our recent price target increase for Baker Hughes Company (BKR), from 26 to 31.

Don’t expect this volatility to subside this week, as the Federal Reserve, economic data releases and a heavy earnings calendar will have traders on their toes.
This week, in an effort to keep the portfolio diversified, I’m adding a pharmaceutical play, AbbVie (ABBV).

Bubbly Conditions for Nickel
The metals needed for the electric vehicle (EV) battery market are on fire right now, as are other industrial metals like tin and aluminum. Other key metals, including copper and steel, are hanging tough as hopes for revived infrastructure demand in China increase. The main story right now is nickel, which appears to be in the early stages of a speculative bubble. In the portfolio, we just added a new position in our favorite gold-tracking fund.

In the January Issue of Cabot Early Opportunities I highlight five standout growth stocks that should have meaningful upside from current levels. Recognizing that the current risk-off environment has these types of stocks acting erratically (probably an understatement) I’ve focused first and foremost on companies I like rather than getting hung up on their recent share price performance. In terms of buying, we’ll start very, very slow. The three smaller companies I feature go straight to the Watch List as we’ll try to be opportunistic buyers when things feel more secure. Even with the two larger companies we start with half positions.



Enjoy!

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.

U.S. stock markets, as represented by the S&P 500 (SPX) and Dow Jones (DJIA) indexes, continue reaching new highs. But stocks and stock markets don’t go straight up, even during bull runs.

The S&P 600 Index just made another run but called it quits at 990 and has turned south.

Continue to put money to work. The market and individual stocks are acting very well, and while there are some short-term yellow flags out there (complacency, overbought, etc.), the fact that stocks haven’t given up much ground is encouraging.

The market still has an upward bias, albeit less so than the past couple of weeks. Investors are starting to sniff out 2020.

The stock market continues to reach new all-time highs. I’m very comfortable with current market momentum.

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.

On April expiration this recommendation’s calls that we sold for $0.70 expired worthless.

There are several portfolio changes today

Challenging times for this midstream producer, but as the economy improves, the price of oil should recover.

COVID-19 likely sounds the death knell for many companies, like slow-to-adjust retailers. But it also represents a likely accelerant for others, including those exposed to trends such as work from home (WFH), cloud, e-commerce, internet, digital transformation, streaming, etc.

The stay-at-home orders are boosting the shares of this cybersecurity company.

I remain cautious on U.S. stocks in the coming days. I find it disturbing that the stock market barely reacted to the oil price crash, and more importantly, the energy downturn’s broader implications. In contrast to what I consider to be a dire economic forecast, stocks are acting well.

Analysts are forecasting annual growth of more than 20% for the next five years for this internet retailer.

Two portfolio stocks report first quarter results.

Coverage of the shares of this home builder were just initiated at Citigroup with a ‘Buy’ rating.

Sell half your position for a 142% gain.

Yesterday’s steep drop in oil prices will inevitably take stock prices down, and not just for one day. I’m estimating that we’ll see U.S. stock markets trade back down to their March lows in the coming days.

Our second recommendation is a sale of a Bear ETF fund.

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.