It’s not 1999 out there, and the environment remains tricky and narrow. But there’s also improvement being seen among growth stocks, with more and more stocks showing persistency and power. We’re still going slow, but we added two new half positions last week; we’d like to increase our exposure soon, but tonight will sit tight.

In tonight’s issue, we talk in depth about some of the improved evidence we’re seeing, write about all of our stocks and highlight a few tempting titles (including a new cloud software name that’s on our watch list—see Other Stocks of Interest).

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the July 2021 issue.

This month we look into major pharmaceutical stocks, which are selling at their widest discount to the market in decades. We discuss some reasons behind the market’s pessimism and why, for value investors with patience, the shares of five companies offer considerable appeal.



We also include our mid-year stock market update and mid-year bankruptcy review. Stocks have been remarkably strong so far this year and appear poised for more gains, yet we encourage value investors to remain selective and patient amidst the exuberance while keeping the long-term horizon in view.



Easy financial market conditions have helped shrink the number and size of bankruptcies to a fraction of their long-term average. We discuss this phenomenon and why investors in distressed securities should wait for conditions to become favorable again.



Our feature Buy recommendation, Organon & Company (OGN), is a recent spin-off from Merck. Investors have discarded the shares due to revenue concerns, but the bargain valuation and our more optimistic outlook make the shares appealing.



It was a busy month in the portfolio. We raised our price targets on Signet Jewelers (SIG), Molson Coors Beverage Company (TAP) and General Motors (GM), and moved four stocks to Sell: Biogen (BIIB), BorgWarner (BWA), The Mosaic Company (MOS) and Jeld-Wen Holdings (JELD).



Please join us for the our 9th Annual Smarter Investing, Greater Profits Online Conference, held on Tuesday, August 17 through Thursday, August 19. You can see presentations by all of our analysts, which will include updates in their areas of expertise and discussions of their best picks.



Please feel free to send me your questions and comments. This newsletter is written for you. A great way to get more out of your letter is to let me know what you are looking for.



I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.

The marijuana sector peaked in February, bottomed from late March to mid-April, and since then has been building a base, preparing for a resumption of the big advance.

Fundamentals in the industry remain terrific, and the messy but real trend toward legalization in the U.S. continues, so it’s only a matter of time before these stocks enjoy their next upwave.



In the portfolio today there are no changes.



Full details in the issue.

The market bounced back last week in a significant way. For the week the S&P 500 added 2.57%, the Dow gained 3.37%, and the Nasdaq advanced by 2.23%.

Current Market Outlook


Just over a week ago, it looked like the market’s intermediate-term trend was going up in smoke as cyclicals cracked and growth stocks remained hit or miss. But, frankly, last week’s action was one of the more impressive few days we’ve seen in a while—most indexes roared back, we saw more stocks (growth and otherwise) pop on excellent volume and even some hard-hit areas rebounded nicely. To be clear, we don’t think the market is out of the woods; many cyclical names still look iffy, and it’s not like there are dozens of great-looking breakouts to sink your teeth into (yet). Thus, we still think picking your spots is important, but it’s also true that we’re seeing more good-looking patterns than we have in a while. We’re nudging up our Market Monitor to a level 7.

This week’s list features many of the names that have seen some persistency and power of late. Our Top Pick is Dynatrace (DT), which appears to be emerging from a big-picture, year-long consolidation.

Stock Name	Price	Buy Range	Loss Limit
Alnylam Pharmaceuticals (ALNY)	166	162.5-167.5	149-152
American Eagle (AEO)	37	35.5-37.5	32-33
CommScope (COMM)	21	20.5-21.5	18.5-19
Deckers Outdoor Corp. (DECK)	382	370-385	340-345
Dynatrace (DT)	60	57-59	51.5-52.5
Natera (NTRA)	117	113-116	102-104
Nutanix (NTNX)	39	37-38.5	32.5-33.5
Shopify (SHOP)	1495	1450-1500	1310-1340
Upwork (UPWK)	57	53.5-56	47-48.5
Vista Outdoor Inc. (VSTO)	45	42-44	37.5-38.5

Note: Because of the Independence Day holiday, next week’s issue of Cabot Stock of the Week will be published on Tuesday July 6.

The bull market rolls on, and our portfolio continues to deliver, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.



Today’s featured stock is a young and small medical stock that few investors have heard of, but it’s growing fast and the stock is going the right way!



As for the current portfolio, we’re parting company with super-safe Realty Income (O), mainly because something’s got to go.



Details inside.



Also, I hope you’ll join me for the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. We have an incredible line-up of experts ready to share their best picks.

The S&P 500 has now gained 90% since its closing low in March 2020. This alone has made investors a bit cautious but all indications are that we are still in a bull market. Explorer recommendations did well this past week and today we go back to China for a new idea that many of you will know.

Despite last week’s overreaction to the Fed, the market will likely continue sideways for a while for two reasons. One, the market indexes had to take a breather after a massive 90% move higher from the pandemic lows. Two, investors look ahead and can’t decide what will drive the market six months from now after the economy slows and comparisons get tough.

In a sideways market, income is at a premium. Income is the only game in town when stock prices aren’t rising. Dividends roll in regardless of near-term market gyrations. Covered calls greatly enhance that income.



In times like this, a portfolio geared towards high income can provide strong returns while the overall market languishes. In this issue, I highlight two new covered call opportunities that will enable you to ring the register while the market wallows.

Monday, shortly after the market open, we exited the stock components of three of our June covered call positions (FNKO, IGT, RRC). With these sales, here are our profits for all four June positions:

Current Market Outlook


There are definitely some positives among the action out there—growth stocks, for instance, have continued their rally, with many “old” winners finally showing some power in both volume and price (including some names that have poked out to new highs). That said, the overall action in the market remains hectic: Cyclical stocks have cascaded for the most part while growth has ramped, with most major indexes we track now below key support. Moreover, on a daily basis rotation remains intense (like today), with stocks and sectors getting whipped around depending on what’s in favor on a given day. Again, it’s not bearish per se, but the environment is like Jell-O wobbling on a plate, making it tough to pinpoint entries and hold onto stuff. We’re OK with some buying, but until more investors row in the same direction, you should keep it smaller than normal and generally aim for dips.

This week’s list looks like 2020 all over again, with lots of technology and growth earnings spots. Our Top Pick is HubSpot (HUBS), which showed top-notch relative strength during the growth stock correction and has now started to power ahead.

Stock Name	Price	Buy Range	Loss Limit
10X Genomics (TXG)	198	189-198	172-175
Arrowhead Pharmaceuticals (ARWR)	90	86-90	74-76
Atlassian (TEAM)	267	256-263	235-239
Bill.com Holdings (BILL)	181	176-182	155-159
Biogen (BIIB)	381	370-385	325-335
Bonanza Creek Energy (BCEI)	48	45.5-47.5	40.5-41.5
HubSpot (HUBS)	575	560-580	505-515
Scientific Games (SGMS)	76	71-74	62-64
Sprout Social (SPT)	90	85-88	74-76
Zscaler (ZS)	216	207-214	186-190

The S&P 600 Small Cap Index has pulled back a bit more after trading up near the high end of my expected trading range last week. We’ll continue to watch this range (900 to 1,000) as I expect the index to bounce around within it for several weeks, if not months.

Remain bullish, but take things on a stock-by-stock basis. The market has begun to pull back after a great couple of months, and stocks could easily correct and consolidate further.

We’re in an environment that is ideal for dividend stocks. And the relative performance of these stocks going forward will likely be the best in many years. Enjoy this update, because you’re in the right place at the right time. No rating changes today.

Our Emerging Markets Signal is still positive as the MSCI Emerging Market index (EEM) basket—containing 800 stocks worth $1.9 trillion—pulled back only slightly.

I haven’t added any new stocks for a while because we’ve already got 30 stocks in the portfolios. Our current stocks have mostly been rising: the good, the bad and the ugly. However, I always have a good list of stocks that are waiting in the wings, so I really should rotate into some of them.

Small caps continue to move higher so keep leaning bullish, but be mindful that we’re near a resistance area and that it’s equally likely we will see some softness as it is that we will see more strength.

The market remains in good shape, though near-term, pullbacks and potholes are possible given the big run and the fact that we’re finally seeing a few leaders hit resistance. Long story short, we think the market will go higher over time, though we’re wading through a bunch of earnings reports on our stocks in the next couple of weeks. We’ll stand pat tonight with our cash position of 24%.

Don’t ever forget about the dividends. A couple months ago we were spiraling into a recession and bear market. Now, things look good. There’s a reason that dividends have accounted for 44% of market returns over the last hundred years.

This marijuana company is expected to grow by 169% next year.

Three portfolio stocks report earnings.

Marijuana stocks remain under pressure (with a few exceptions), as firms struggle for growth and profitability.

Earnings forecasts are moving up for this bank, with 14 analysts increasing their estimates in the past 30 days.

This portfolio stock recently reported first quarter fiscal 2020 results, and while the stock has been a little volatile since reporting, the punchline is that all appears on track.

Crista updates us on three portfolio stocks.

This stock is the first of Cabot Profit Booster’s stocks to report earnings today after the close. Because of the earnings risk I wanted to update you on where we stand with the position, as well as the downside and upside potential the options market is pricing in for this event.

A merger and a spin-off for this drug company looks attractive.

This media company just raised its dividend by 2%, giving it an 8% annual yield, paid monthly.

In the past month, five analysts have increased their 2020 forecasts for this contract research organization.

This mega drug company is forecasted to grow at an annual rate of 14% over the next five years.

Crista updates us on some Earnings and has two rating changes

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.