The chop factor remains in force in the market, with yet another round of rotation this week out of growth and into the broad market. Even so, we see more good than bad out there, with an increasing number of growth stocks having popped out of multi-month ranges and recent dips mostly looking manageable. We added another new name last week, and we could add more depending on how this rotation plays out, but tonight we’ll stand pat with our stocks and 30% in cash.

In tonight’s issue, we write about one sector that’s showing some signs of perking up, some encouraging sentiment readings and go over all of our stocks and many others we’re keeping a close eye on.

Before we get into this recommendation, I just wanted to highlight our upcoming annual conference.

9th Annual Smarter Investing, Greater Profits Online Conference



It will take place from August 17-19 and you will hear from many experts (including me!) about opportunities in the market.



Today, we are recommending an energy name with strong momentum and downside protection.



Some additional details:



It’s levered to natural gas which has recovered sharply in 2021.

• Strong earnings growth and free cash flow generation.
• Downside protection (no debt and significant cash on its balances sheet).
• Insider ownership (management and board own 25% of shares outstanding) and recent insider buying.

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

We’re in the middle of the summer market malaise. These markets tend to do whatever they were doing when investors went on vacation and stopped paying attention. The rubber usually hits the road when investors sober up and take a fresh look at things after Labor Day.

Sure, the market is historically cranky in September. Current fears about the Delta variant and inflation could gain more traction. The market could even sell off a bit. But I believe the current fears are overblown. Cyclical stocks and others that have been held back by recent concerns should shine again in the booming economy this fall.



In this issue, I highlight a stock with a strongly growing business that should thrive over the next several quarters as well as on the other side of the pandemic recovery. Meanwhile, it sells at a cheap valuation while the market is distracted by other things.

The bulls continued their winning ways last week, but the advance wasn’t without some jostling. Late in the week several leading growth stocks pulled back, but those declines weren’t enough to keep the bulls from another weekly victory.

The S&P 500 gained 0.93%, the Dow advanced 0.78% and the Nasdaq rose 1.11%.



To put this market run into perspective, the current rally has lasted 189 days, basically nine months, without a 5% pullback. Additionally, there have been 43 days of a recorded new high.



So, my stance hasn’t changed too much. I continue to take a cautious but optimistic approach.

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 in the semiconductor industry, which as we all know, is enjoying great demand in a supply-constrained world.



As for the current portfolio, most of our stocks look good, but Progyny (PGNY) is a sell, simply because it is our biggest loser.



Details inside.



Lastly, 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.

Current Market Outlook


We continue to see more good than bad in the market as an increasing number of growth stocks move into new high ground, many other growth stocks set up nicely and even some cyclical names are getting into the act, rounding out nice launching pads. Still, there’s no question the chop factor is still real, as the vast majority of names that pop higher generally attract sellers for at least a couple of days, with more than a few sinking right back to where they started. Overall, we are encouraged by the rising level of leadership, so we’re nudging our Market Monitor up to a level 7, but the game plan remains generally the same—we favor starting small and/or buying on dips or consolidations, while focusing on stocks showing outsized accumulation.

This week’s list is another chock-full of recent earnings winners and other names showing excellent action. Our Top Pick is Alnylam Pharmaceuticals (ALNY), which has lifted off nicely and has a great story.

Stock Name	Price	Buy Range	Loss Limit
Albemarle Corporation (ALB)	231	218-227	195-199
Alnylam Pharmaceuticals (ALNY)	200	195-202	174-177
Datadog (DDOG)	130	124-128	110-112
Goldman Sachs Group, Inc. (GS)	400	394-404	375-380
Lending Club (LC)	26	25-27	21-22
Lightspeed POS Inc. (LSPD)	93	90-93.5	81-83
ON Semiconductor (ON)	45	44-46	40-41
Paycom Software (PAYC)	469	448-462	405-414
Under Armour, Inc. (UAA)	25	24-25	21.5-22
ZoomInfo (ZI)	61	59-62	52.5-54.5

Explorer stocks had an unusually quiet week as the Delta variant and weaker-than-expected job growth gave markets something to worry about. Meanwhile, the economy moves ahead. In particular, the pace of U.S. electric vehicle sales doubled in the first half of 2021 as we try to catch up to other parts of the world. Today’s recommendation is an indirect but powerful way to play this accelerating trend.

Please 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.

Among all the small-cap stocks I’ve studied in recent weeks one keeps jumping out at me. In fact, I’ve been eying it since March. It’s time to act.

This stock is different in virtually every respect from our typical stock. It’s not high tech and growth isn’t off the charts. That’s because it’s a value stock.



I think once you read my report you’ll “get it.” And in a year or so I believe this stock will be trading 50% to 100% higher than it is now, meaning it could offer the same upside potential as growthier names.



Enjoy!

Building Up
The $1 trillion infrastructure bill is now in the Senate’s hands, meaning Greentech faces a pivot point. Passage of the bill is a potential catalyst to get our sector out of its recent range-bound activity and back on bullish footing. Failure of the bill probably gives bears new life in the near term—investors pretty quickly get used to the idea of more money coming and, like the “taper tantrums” of the past decade, tend to express displeasure through their trading desks.

We’ve said before Greentech doesn’t need direct government support to succeed—renewable energy continued to take market share in recent years even under previously unsupportive federal leadership. This issue, we’re adding two stocks to our portfolio that show excellent strength due to macro trends and at least one of which will help catch any infrastructure bill momentum as well. We also make some shifts in our existing portfolio and watchlist as we adjust to market reactions to earnings.



A good opportunity to step out of the daily volatility of the market and get some perspective on the longer term would be to attend the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. My fellow analysts and I will present our look ahead and some of our best picks for the next year.



Contact me anytime with questions or comments at brendan@cabot.net. Thank you for joining me on the path to climate profits.

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

Earnings season is in full gear, and we review the several companies that have reported as well as provide some expectations for those yet to report. General Motors (GM) releases its earnings on Wednesday, August 4, after our publishing deadline – this is a highly anticipated report.



Perhaps the biggest difference between value investing and growth and momentum investing is what to do when a stock price falls. Many investors using growth and momentum strategies have a discipline of selling if a stock price falls 15-20%. This may make excellent sense for these strategies but is the exact opposite of what one using a value strategy should do. With value strategies, one generally should buy when their stocks go down in price. We touch upon this more in today’s note.



I’d like to invite you to our 9th Annual Cabot Investor Conference, held online again this year, on August 17-19, that’s Tuesday – Thursday. You can see presentations by all of our analysts, which will include updates on 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 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.

Small-cap discretionary, energy, financials, industrials, technology and materials are all moving higher. That’s a healthy mix, and it’s helped push the S&P 600 Small Cap Index back up near overhead resistance.

As we enter the second quarter, emerging markets are on solid footing in a constructive uptrend as EEM remains just above both 50-day and 25-day moving averages. In light of this we are positive and increasing our allocation.

The tide is changing. The recent perception was that of sputtering economic growth in a market that was panicking about the possibility of a near-term recession. Many of our defensive positions have gone gangbusters in the past turbulent year but I’ll be watching the situation closely but for now I will bow to strong momentum.

You may have noticed that the price of West Texas crude oil is up about 48% since it bottomed in late December.

The overall market is still in fine shape, but there have been a growing number of yellow flags, including among growth stocks, which came under fire today. As a result, we are selling one position from the portfolio and downgrading another to Hold.

The S&P 500 was up 13% for the quarter, making it the best first quarter since 1998 and the best overall quarter since 2009. It’s impossible to predict short-term gyrations in the market, at this point, it looks like a slow slog higher for the market for the rest of the year. It is an ideal environment for dividend stocks and only once change to the portfolio as we are selling one position.

The market has been jumping around lately as it digests the Fed’s announcement last week that it expects to hold interest rates steady until 2020 (and just one hike in that year) and would stop shrinking its balance sheet later in 2019.

The MSCI Emerging Market index (EEM) is up 9% so far in 2019 but has basically hit the pause button in March.

The March flooding in Nebraska and neighboring Midwest and Great Plains states is devastating to farmers, crops and livestock. Consumers can expect prolonged food price inflation that reaches around the globe.

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

The top three sectors in this ETF are: Consumer Defensive (28.43% of assets), Communication Services (21.24%), and Financial Services (14.83%).

Waste removal is not glamorous, but it is profitable.

The market has gotten a little jumpy given the potential impacts of a broader coronavirus outbreak and the trickle of earnings-related announcements, which have the grounding effect of telling us what’s actually going on inside companies these days.

Two portfolio stocks report earnings beats.

This new ETF provides a juicy dividend yield 4.09%, of paid quarterly and it adds to returns by employing a covered call strategy.

Seven analysts have just increased their EPS analysts for this mining stock.

It’s still a bull market, but our Cabot Tides are close to the fence and the odds are that the recent burst in selling pressures probably won’t go away overnight.

To follow up on last Thursday’s issue that highlighted the worsening China virus, I believe it is appropriate for us to hedge China risk and volatility with an inverse China exchange-traded fund (ETF).

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.