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

While the stock market continues to set new record highs, oil and gas exploration and production (E&P) companies have been left behind. Yet, at current commodity prices, which we believe are sustainable, several companies have shares that trade at surprisingly high free cash flow yields, some as high as 24%. We make our case for five stocks.



Related to this, our featured recommendation is Marathon Oil Company (MRO), a mid-cap oil-focused E&P company. Its strong fundamentals, including a high-quality asset base, strong free cash flow and a solid balance sheet, make it particularly attractive.



We highlight three former Cabot Turnaround Letter winners whose shares have retreated since our exit. These now look interesting once again.
In this issue we also discuss three one-off contrarian ideas that have considerable appeal.



During the month, we had a few ratings changes: we moved Berkshire Hathaway (BRK/B) to a Hold, and moved Albertsons (ACI) and Oaktree Specialty Lending (OCSL) from Buy to Sell.



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.

Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the September 2021 issue.

This past week was vacation week – a valuable respite from the stresses of investing and other features of daily life. We now return to the investing desk, ready for what could be a very interesting remaining four months of the stock market year.



There hasn’t been much recent news on our names, so we provide a bit more color on some of the issues surrounding Arcos Dorados (ARCO) and some other names. We would like to see a market pullback to bring shares of otherwise attractive companies back to attractive valuations. However, even in the current market, we are starting to find appealing stocks again and will bring them to you.



Please feel free to send me your questions and comments. This newsletter is written for you and the best way to get more out of the 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.



Thanks!

Up, up and away! The S&P 500 rose 1.52%, the Dow advanced 0.96%, and the Nasdaq climbed 2.82% last week, aided by Federal Reserve Chairman Jerome Powell’s dovish commentary.

There is no doubt this year’s rally has been one of the most impressive rallies market participants have ever seen. More than 50 new closing highs and over 200 trading sessions without a 5% pullback defines the power and consistency of this rally. And as we have all witnessed, the slightest pullback seems to act as a frenzied feeding ground for buyers.

The bull market remains intact, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is a speculative suggestion—a small company with great potential to grow as the market for electric vehicle charging booms.



As for the current portfolio, most of our stocks look good, and many are hitting new highs, so I’m downgrading three to hold because they are ripe for correction.



Lastly, a reminder that because of the Labor Day holiday, next week’s issue will be published on Tuesday, September 7.



Details inside.

Current Market Outlook


Last week was definitely a good one for the bulls, with the indexes acting well but also many individual growth stocks scoring some great gains (and most of those came after tests of support earlier this month). Interestingly, the strength didn’t come at the expense of the rest of the market, either, which is a pleasant change from the rotational wars of late. If this strength can be sustained, it’ll be time to get more aggressive, but to us, the market still has some proving to do, especially with the chop factor, which continues to lead to some dramatic pullbacks in stocks that have recently pushed higher. All in all, we’re encouraged by what we see, including an increasing number of setups and breakouts—we’re OK putting money to work, but buying dips and starting small continue to mostly be your best bet, along with banging out partial profits on the way up.

This week’s list has a bunch of solid actors, including some that are putting the finishing touches on multi-month launching pads. But for our Top Pick, we’re going with an earnings winner—Palo Alto Networks (PANW) is part of the strong cybersecurity group and just leapt out of its own long rest. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
Alkermes (ALKS)	31	29-30.5	25.5-26.5
Continental Resources (CLR)	38	37-38.5	32.5-33.5
Horizon Therapeutics (HZNP)	109	106-110	96-98
Inspire Medical Systems (INSP)	222	217-225	194-198
Kulicke and Soffa Industries (KLIC)	70	65-68	57-59
MRVI (MRVI)	60	55-58	47-49
MercadoLibre, Inc. (MELI)	1879	1800-1900	1620-1670
NVIDIA Corporation (NVDA)	227	219-227	197-201
Palo Alto Networks (PANW)	459	440-455	395-405
Sonos (SONO)	39	38-40	34-35

Growth stocks went through the wringer for a bit but have again found support and bounced back in recent days. We’ll certainly take it, and we like the way most of our stocks are acting, but it’s too soon to conclude growth stocks have completely escaped the chop that we’ve seen in recent months.

Thus, we’re still going slow, but we are putting a little money to work tonight, filling out our position in one of our holdings.



Elsewhere in tonight’s issue, we write about some of the mixed evidence out there, including divergences (negative) and the recent plunge in rates (a type of blastoff indicator), as well as review all of our stocks and updated watch list.

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, as second quarter results have recently revealed, and the 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 the one small change is that I’ll downgrade Columbia Care (CCHWF), our biggest loser, to Hold.



Full details in the issue.

The S&P 500 and the Nasdaq just made new all-time highs. Strong earnings and a booming economy are outweighing concerns about the delta variant, the Chinese slowdown, inflation and a Fed tapering of bond purchases.

It’s difficult to say what narrative will be dominant after the summer. The cyclical slump could gain traction or turn around. Much will depend on the headlines, which are unpredictable. While I like the way the current portfolio is positioned, it needs more stocks with momentum that generate high call premiums.



In this issue I highlight for purchase one of the very best financial stocks on the market. Prospects are dazzling over the rest of this year. But the stock is also moving right now. It should offer a quick opportunity to ring the income register with a covered call.

The recent August expiration cycle was our second disappointing month in a row. And while 18 wildly successful months of trading out of 20 is a truly spectacular track record, when trades go wrong there is little doubt it’s painful in the moment. However, trading/investing isn’t about being a prisoner of the moment. It’s about building wealth over time, which the Cabot Profit Booster has been very successful at since its inception in early 2020.

The bull market remains intact, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.

Today’s featured stock is a solid grower whose products help millions of people with diabetes manage their condition in increasingly efficient ways.



As for the current portfolio, most of our stocks look good, and some are hitting new highs, but one has to go and the victim this time is Driven Brands (DRVN).



Details inside.

After rising 25% from its December low to its May high, the S&P 500 index is finally taking a breather. I don’t expect a shocking price drop like we saw in December. Rather, I anticipate the S&P 500 receding to 2,750, which would be down 200 points from the recent high, or even 2,650. Pullbacks aren’t any fun, but they are normal, and they provide opportunities for investors to buy stocks while they’re on sale.

Everybody’s focus is on the high-stakes chess game the U.S. and China are playing with respect to trade, and the upcoming Uber IPO. But behind the scenes there’s a nice little rally going on in a certain group of small-cap stocks!

With markets expecting a deal right around the corner, the Trump administration signaled its frustration by threatening to raise tariffs on roughly $200 billion of Chinese imports to 25%, from 10%, last Friday.

Things were going so well in the market. Last week I gushed about the strong 3.2% first quarter GDP report. Then an outside event had to come in and spoil the party, at least for now.

Headed into the event our position is in fantastic shape as the stock is trading marginally above our short strike price.

Crista has two rating changes today and reports on another with a good 2020 outlook.

Earnings and occupancy are up for this REIT. The shares have a current annual dividend of 5.87%, paid quarterly.

We’re putting a little cash back to work tonight, buying a half-sized position in this application performance management stock, which will leave us with around 23% on the sideline.

This software company is expected to grow more than 43% next year.

The market was met with some selling as investors returned from a long weekend, with sentiment souring after Apple said they’re unlikely to meet Q1 guidance due to supply and demand issues from China due to the effects of the coronavirus.

In the past 30 days, 33 analysts have boosted their EPS estimate for this giant tech company.

Sell the remaining half of this portfolio stock.

Marijuana stocks have been building a meaningful bottom since November—and there are good and bad aspects to that.

The bullish stock market is boosting growth at this diversified financial company.

Tyler updates us on four Cabot Early Opportunity Stocks.

Shares fell after an earnings disappointment, making this turnaround company even more undervalued. The shares have a current dividend yield of 4.85%, paid quarterly.

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.