Fears and evidence of rising inflation hammered Wall Street this week so today we are selling two lagging positions and adding a blue-chip inflation hedge. The Fed may begin pulling back on monetary stimulus and increasing interest rates. It is possible that all of this is being overdone and that inflation will be only transitory, in which case market bulls will swoop in to buy stocks at some point. We need to stay in the middle. Avoid panic selling and buy conservative quality.

Today, we are recommending a classic re-opening play.

Our latest recommendation operates golf courses as well as “entertainment” golf venues (high tech driving ranges). Traditional golf is booming and “entertainment” golf will boom in 2021 as vaccine penetration continues to increase and life returns to normal.



Some additional details:

• The company will roll out its new concept (modern adult mini golf) and expects strong revenue growth.
• Insider ownership is high, and there has been recent insider buying.
• Downside is limited given asset value of golf operations business and existing entertainment venues.
• My price target implies 100% upside, but in my bull case scenario, we could see ~250% upside.

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

While stocks may well trend higher over the rest of the year, it is unlikely the recent remarkable pace higher can last. The easy money and sky-high returns of the earlier recovery may be over. But the party for income investors is still going strong.

You can find yields of 6% or 7% and even higher on stocks with good momentum and a positive outlook over the remainder of the year. These kinds of yields haven’t been around since 2010, when stocks were still depressed from the financial crisis. Those yields didn’t last. And neither will these.



In this issue I highlight a phenomenal stock. It sells at a cheap valuation, has great momentum and a sky-high 7% yield that is not only safe and secure, but the payout is likely to grow at a high rate going forward.

The Cabot Profit Booster portfolio continues to be in the right stocks, even as sector rotation intensifies and countless stocks have come under intense selling pressure. This is a great situation, and sparked a great question from a CPB subscriber:

The market’s main trend remains up and thus I continue to recommend that you be heavily invested in stocks that can help you meet your investing goals, all while remaining diversified to reduce risk.

However, it’s become increasingly difficult to hold on to growth stocks. Last week I dealt with that by recommending a low-risk income stock with decent growth potential, and this week I’m recommending a very cyclical stock in an industry that was recently deeply out of favor.



As for our current holdings, this week there are two sells and three downgrades to Hold.



Details inside.

Current Market Outlook


While there are still a handful of growth stocks in decent shape, the spate of setups we saw during the past few weeks has been replaced by a ton of breakdowns, including many big winners from last year slicing below longer-term support. Meanwhile, the broad market is OK, while some areas (commodity stocks, financials and many turnaround situations) are accelerating higher. For the here and now, sticking with what’s working (and avoiding what’s cracked) is key, but also keep in mind that such divergences can lead to wild action and reversals. Thus, some buying here or there is fine, but pick your spots (and stocks) carefully, take partial profits on the way up and don’t get too aggressive.

This week’s list is chock-full of names that are thriving in this environment, including a few that are getting going after multi-month rests. Our Top Pick is Wesco (WCC), a dominant electronic products distributor, which just gapped out of a base on earnings last week.

Stock Name	Price	Buy Range	Loss Limit
Celanese (CE)	167	162-166	149-152
Cleveland-Cliffs (CLF)	21	19.5-21	16.5-17.5
Devon Energy (DVN)	26	25-26.5	21.5-22.5
Fortune Brands Home & Security (FBHS)	112	107-110	97-99
Franklin Resources, Inc. (BEN)	35	33-34.5	29.5-30.5
Funko, Inc. (FNKO)	23	22-23.5	19-20
Revolve Group (RVLV)	48	52-54	45-47
Schlumberger (SLB)	32	29.5-31	26.5-27.5
Under Armour, Inc. (UAA)	23	22.5-24	20.5-21
WESCO International (WCC)	108	105-108.5	94-96

This month we are changing things up a little and featuring a small company I suspect you’ve never heard of. It’s an up-and-coming Canadian media production and distribution company.

The company’s content has increasingly shown up on Netflix, AppleTV+, HBO Max, Amazon and Peacock. Much of the programming is for kids and families, which is where the growth and more significant deal flow is. But the company has also had many years of success in reality TV.



It is a speculative investment and trading liquidity is thin, so treat it appropriately and space out share purchases. Part of the strategy here is that we’re following a micro-cap fund that I respect into this trade, and their successful track record, philosophy and long-term holding strategy lends credibility beyond the increasingly visible presence of the company’s programming.

Growth stocks had worked to set themselves up nicely in recent weeks, but all of that has fallen by the wayside, with names getting obliterated this week before and after earnings.

Despite an already-cautious stance, we’ve sold three more stocks this week, though we are nibbling on one new name in tonight’s issue. Even so, we’re content to remain defensive until the bloodletting stops.



In tonight’s issue, we write about one of the factors that thankfully kept us cautious of late, as well as dive into the energy sector, where the bullish thesis is playing out

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

The stock market, so far in May, hasn’t continued the robust momentum of the first four months. Treasury Secretary Yellen’s comment about the possible need to boost interest rates to ward off inflation seems to be the catalyst. The market and the broad economy will likely respond differently if rates increase. We briefly outline on our asset allocation philosophy, which helps guide us when the market is edgy, in our economic comments.



Earning and proxy voting are in full swing. We’re updating the earnings as they come in.



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.

While some sectors of the market look tired (growth), other sectors and stocks (retail, materials, financials, energy) continue to make new highs and/or come alive. Fortunately, the Cabot Profit Booster portfolio has avoided the hyper-growth stocks that are under pressure, and is positioned in stocks that are in the strongest sectors.

The weakness that was troubling the market before last Wednesday’s unanticipated holiday worsened when markets opened again Thursday, and the major indexes are back at their correction lows. I was optimistic when the market strengthened two weeks ago, for now it’s time to stay defensive. That means selling half of one our holdings. But on a positive note, some sectors are still working well, and I’m moving both our REITs back to Buy.

U.S. stock markets continue to suffer, revisiting lows from October and November. We could see modest improvement through year end, but I don’t expect a strong stock market rebound until at least January.

Trade war uncertainties have nipped our young buy signal in the bud, but the situation is highly fluid, so we’ll be making portfolio choices on a stock-by-stock basis.

With our mix of conservative, growth-oriented and high-yield investments, our portfolio continues to do well. Most of our non-Safe Income stocks are still on Hold, so it’s time to start thinking about becoming more aggressive, if the market becomes more constructive. But we don’t want to get ahead of the market, so no rating changes for now.

We have three changes in the portfolio this week.

Remain defensive, but stay tuned as we could get a Cabot Tides buy signal as early as tomorrow if the market cooperates. Tonight, we’ll stand pat with our huge (90%-plus) cash position, but we’ll send out a bulletin if we get a green light.

Following the second 10% U.S. stock market correction of 2018, stocks are trying to get their footing. We’re witnessing some large daily price swings, especially among energy stocks, which are being buffeted by falling oil prices.

I think we can all use a break from this market, and there’s no new fundamental news related to any of our positions. So today I’m just going speak for a few minutes on the state of the market and small caps.

Emerging market stocks, as tracked by the MSCI Emerging Market ETF (EEM) aren’t making much progress. But, and this is important, they aren’t losing much ground either.

The stock market slump that started last week has intensified in recent days, bringing the major indexes back to their October lows. I do have one rating change today, selling one third of a position, but the rest of the portfolio is in good shape given the housekeeping we did during last month’s selloff.

The S&P 500 index continues to bounce near recent lows, as it slowly works its way through its second 10% U.S. stock market correction of 2018

The major market indexes have been retracing their steps back to their late-October lows. With the trend down, it should come as no surprise that most of our stocks lost ground over the last five trading days, too.

https://cabotwealth.com/analyst/mike-cintolo/

This bank is growing at triple-digit rates and its shares look undervalued.

This space-age company is growing at double-digit rates, readying for its first flights next year.

Marijuana stocks remain under pressure, as year-end tax selling pressures continue, but the marijuana industry is booming, as evidenced not only by recent quarterly reports but also by the growth of MJBizCon, the industry’s leading conference.

Crista has updates on four portfolio stocks.

It’s time for a seasonal trade into copper. Here are two options.

Crista has updates on three portfolio stocks.

This preferred stock is issued by a shopping center REIT.

One of our stocks is down sharply today on big volume following a report by short-sellers Grizzly Reports that accuses the company and insiders of numerous improprieties, ranging from political cronyism and corruption to overvaluation of assets to misrepresentation of financial relationships.

Six analysts rate this software company’s shares a ‘buy’, with an average target price of $99.

Coverage of the shares of this BDC was recently initiated at Deutsche Bank with a ‘Buy’ rating.

One of the portfolio stocks reports good fourth-quarter results.

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.