Current Market Outlook


Looking at just the major indexes, things couldn’t be better right now. The S&P 500 and Nasdaq are both at all-time highs, while growth stocks look good for the most part. But a peek below the surface reveals that some crosscurrents still abound. There’s still an above-normal amount of Nasdaq stocks making new 52-week lows, while new highs aren’t as expansive as they could be—especially given the strength of the leading mega-cap names. Meanwhile, only around half of S&P stocks are above the 50-day line, and the advance-decline line could be stronger. That said, we’re still seeing lots of nice setups in growth stocks, and while we likely haven’t seen the end of earnings-related volatility, the latest earnings season has been mostly kind to growth stocks. We’re moving our Market Monitor to a level 6 but are keeping our eyes open for what comes next.

This week’s list includes a nice mix of sectors, including a few that have had spectacular earnings reactions. Our Top Pick is Trane Technologies (TT), an HVAC company benefiting from the return-to-office trend.

Stock Name	Price	Buy Range	Loss Limit
Arvinas, Inc. (ARVN)	95	92-96	84-85
ASML Holding (ASML)	754	730-748	685-700
AutoNation (AN)	116	114-116.5	104.5-107
BioNTech (BNTX)	286	275-286	250-257
Dropbox (DBX)	31	30-31	29-29.5
HCA Healthcare (HCA)	246	240-246	220-225
Morgan Stanley (MS)	97	94-97	88-90
PTC Inc. (PTC)	151	148-152	137-140
Snap Inc. (SNAP)	76	75-77	68-69
Trane Technologies plc (TT)	200	196-201	185-188

While concerns over the Covid Delta variants are escalating, the market has steadied as the week progressed as 85% of S&P 500 companies have exceeded analysts’ Q2 earnings expectations, according to FactSet. Still, investors remain moderately cautious and relatively risk averse. Today’s new recommendation is an overlooked stellar fund run by none other than value investor Bill Ackman.

In the July Issue of Cabot Early Opportunities we briefly consider some of the factors making right now a particularly difficult time to make investing decisions, even though markets are near record highs.

To help make life a little easier we once again seek comfort in diversification. This Issue features dissimilar stocks that are bound by a common denominator; each company is either in an early stage of its life cycle, or early in a phase of growth/business model transition that should drive market-beating returns over the coming quarters.



Enjoy

The Scale of the Problem
How big is the energy transition the world needs to undergo? The decline of carbon dioxide emissions last year (a drop of 6.3%) was the sharpest decline since WWII. The world needs 30 more years of that magnitude in a row to constrain global warming to “just” 2 degrees Celsius.

The European Union wants to do its part. It announced a stricter carbon program, aiming to slash emissions by 55% by the end of the decade and to more than double E.U. renewable use, with the expectation it may do away with carbon altogether after 2030. It also plans a carbon-adjusted border tax for goods, based on home country emissions. Domestically, we’re still waiting for an infrastructure bill, but are heartened by the creation of a federal platform for instant solar permits. The Solar Automated Permit Processing program integrates local and federal databases to streamline approvals of rooftop solar projects, which can eliminate a large pain point of time and money. Can these programs keep the growth going? Renewable energy use globally rose 14% in 2020. It needs much more of the same.



The more immediate problem for us is the market, which is suffering from delta variant worries. Yet a choppy market (we’re not in a bear market, yet) sows the seeds of the next rally. This issue we look at three stocks – Ameresco (AMRC), Chipotle Mexican Grill (CMG) and General Motors (GM). They each have a combination that makes future leaders – real sales, profits and a clear growth trajectory.



You’ll see for this issue of SX Greentech Advisor that we’ve tweaked our format to make information more accessible – shorter stock write-ups with bite-sized sections and more charts. It’s part of our aim to be nimbler. Please let me know if you have any feedback on the format, or any other questions or comments, at brendan@cabot.net. There is still time too to join me and my fellow Cabot Wealth analysts for our 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19, where we will present our look ahead and some of our best picks for the next year.

After a volatile week, the major market indices all closed out with losses. The S&P 500 fell 0.97%, the Dow lost 0.52%, and the Nasdaq declined by 1.87%. And the bearish sentiment continued on Monday as the S&P 500 lost another 1.6%. Which leads to a question I’ve been receiving from a few Profit Booster subscribers: “Will you keep recommending trades if the market gets ugly?” The answer is yes. In times of rocky market action, I will continue to make trades for two reasons:

The bull market remains alive and well, with major indexes hitting new highs in the last week. However, growth stocks in particular have been hit hard recently—finally spilling into the broad market in the last few trading days—and that requires some selling, so today we’re purging four of our weakest performers from the portfolio. As for new buying, today’s recommended stock is growing by consolidating a fragmented mature industry. It just came public this year, so it’s a name few investors are aware of. The stock was originally recommended by Tyler Laundon in Cabot Early Opportunities.

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 lineup of experts ready to share their best picks.

Current Market Outlook


The evidence has been steadily improving, but July has changed that—first came a lot of narrowing (most stocks below their 50-day lines even though the big-cap indexes were near new highs) along with a lack of breakouts, then came last week’s selling pressure (that saw many growth stocks show real slippage), and today we saw the sellers really start to hit things left and right. On the positive side of things, many growth titles were resilient today, and we still see a good number of setups out there; given that there are renewed fears of the virus, it’s possible many growth titles could do well even if the market has a rough go of it. But right now, the onus is on the bulls as the market’s intermediate-term trend has turned down and most stocks look iffy. We’re moving our Market Monitor to a level 5 but are keeping our eyes open for what comes next.

This week’s list is a mix of names, though some of the growth titles look like decent risk-reward situations on this dip. One of them is Marvell Technology (MRVL), a leading chip maker that’s pulling back normally after a persistent move to new highs.

Stock Name	Price	Buy Range	Loss Limit
Autodesk (ADSK)	287	284-290	270-274
Avantor (AVTR)	36	35-36.5	32-33
Bruker (BRKR)	78	76-78	70-71
Burlington Stores (BURL)	311	307-313	290-295
Chipotle Mexican Grill (CMG)	1551	1520-1560	1400-1425
CrowdStrike (CRWD)	250	247-253	223-226
Dexcom (DXCM)	435	425-438	390-395
Horizon Therapeutics (HZNP)	92	90-93	84-85.5
Marvell Technology Group (MRVL)	55	53.5-55.5	48.5-49.5
Revolve Group (RVLV)	64	62.5-65	56-57.5

Growth stocks had been improving some, but the sellers never quite disappeared, and now they’re back with a vengeance—many growth-oriented measures are down 6% to 10% this month alone, and even the broad market is going along for the ride.

Thankfully, we never got heavily invested given the indecisiveness, and now we’re throwing up some safety nets—we sold one stock yesterday (giving us more than half in cash) and put two others on hold.



Despite the selling, we’re not throwing in the towel—we see a ton of decent setups still, so if earnings season goes well, there could be some liftoffs. But for now we’re remaining cautious until things change for the better.

I’m as “political” as they come, but I don’t make investing decisions based on politics. I make my decisions based on corporate successes (which show up via profit and revenue growth), economic facts (definitely not economic speculation) and stock market trends.

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 energy stock reported a fourth-quarter earnings and revenue beat.

There are top five holdings of this growth fund.

This high-yield preferred stock is issued by a company that is making money off of storing and crunching Big Data.

While almost all of our Covered Call trades are working well, this stock fell through our stop yesterday afternoon.

This bio-pharma company is seeing fantastic results with its Alzheimer’s studies.

Most of our stocks have been heading north but two have diverged from the pack and are headed south.

This retailer presented at the January 13 ICR Conference 2020 and moves from Buy to Strong Buy.

This small regional bank looks undervalued, and has an annual current yield of 3.75%, paid quarterly.

This portfolio stock has gone vertical today after the company announced that management sees Q4 revenue near $69 million (+44%) versus expectations of $59 million and billings near $100 million versus previous guidance of $82 million to $88 million.

Trading at a P/E of just above 9, this annuity company looks like a good value play.

A portfolio stock is volatile in wake of preliminary Q4 earnings report.

The shares of this advertising company were recently upgraded at Needham to ‘Buy.’

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.