Issues
Last week the major indices pulled back in a meaningful way. The S&P 500 lost 2.20%, the Dow declined 1.36%, and the Nasdaq pulled back 3.20%.
The benchmark index sank 4.8% in September, marking its worst month since March 2020. It was also the first losing month for the S&P after seven straight months of gains. The outlook didn’t look much brighter Monday as the market saw another bout of losses.
The benchmark index sank 4.8% in September, marking its worst month since March 2020. It was also the first losing month for the S&P after seven straight months of gains. The outlook didn’t look much brighter Monday as the market saw another bout of losses.
Bearish sentiment has risen a bit last month, following the market’s up and down gyrations—mostly due to COVID-19 (although new cases finally seem to be slowing), as well as the continuing drama from Congress, who doesn’t appear to be able to agree on anything!
However, the economy is continuing on a strong bent. Durable goods manufacturing has risen, the unemployment rate remains healthy, and housing is strong. Building permits and housing starts—along with prices—continue to rise. There has been some abatement in the rate of pricing increases, which is a good sign. We are seeing a little more inventory, just not enough to put a big damper on prices as of yet.
It’s a mixed outlook for the markets right now—we’re seeing some major pullbacks in certain big names, but today’s action was very positive. We may continue to see some dips in the next few weeks, but overall, I’m optimistic that the economy is still strong. And as long as earnings continue to outperform, the markets should hold up nicely.
I’m looking forward to the colorful fall, which is already starting here in Tennessee. I wish you a pleasant autumn and hope you will email me with your thoughts and questions. I look forward to hearing from you.
Happy Investing!
However, the economy is continuing on a strong bent. Durable goods manufacturing has risen, the unemployment rate remains healthy, and housing is strong. Building permits and housing starts—along with prices—continue to rise. There has been some abatement in the rate of pricing increases, which is a good sign. We are seeing a little more inventory, just not enough to put a big damper on prices as of yet.
It’s a mixed outlook for the markets right now—we’re seeing some major pullbacks in certain big names, but today’s action was very positive. We may continue to see some dips in the next few weeks, but overall, I’m optimistic that the economy is still strong. And as long as earnings continue to outperform, the markets should hold up nicely.
I’m looking forward to the colorful fall, which is already starting here in Tennessee. I wish you a pleasant autumn and hope you will email me with your thoughts and questions. I look forward to hearing from you.
Happy Investing!
The market weakness has been spreading in recent weeks, and as a result, we have three sell recommendations in today’s issue, as well as three downgrades to Hold.
As for the new recommendation, it’s a major retailer with a stable of familiar names that has transitioned its business very successfully through the pandemic, and it pays a nice dividend!
Details inside.
As for the new recommendation, it’s a major retailer with a stable of familiar names that has transitioned its business very successfully through the pandemic, and it pays a nice dividend!
Details inside.
Current Market OutlookFor many weeks, we’ve been writing that there’s more good than bad in the market, and indeed, while choppy, many names did work their way jadedly higher. But now the shoe is on the other foot: The intermediate-term trend is now down for the major indexes, and we’re starting to see more and more individual stocks follow suit. It’s not a complete disaster, and given the on-again, off-again environment of 2021, we’re not ruling anything out, including a turn back up in the days or weeks ahead. (Even now, we’re fine sticking with your strong, profitable stocks.) But after a couple of rounds of sharp distribution and some breakdowns among leading stocks, we think it’s simplest to say the onus is on the bulls—we need to see at least a few days of constructive action and some upside power in the indexes and individual stocks to conclude the sellers are losing control. We’re leaving our Market Monitor at a level 5 and, until proven otherwise, would play things cautiously with only small new positions, trailing stops and a decent chunk of cash.
This week’s list has an interesting crop of stocks, ranging from commodity to reopening to legitimate growth outfits. Our Top Pick is CF Industries (CF), which is emerging from a multi-month dead period with a lot of power; as with most names in this market, try to buy on weakness.
| Stock Name | Price | ||
|---|---|---|---|
| Affirm Holdings (AFRM) | 108 | ||
| SKIN (SKIN) | 26 | ||
| Caesars Entertainment Corp. (CZR) | 118 | ||
| CF Industries (CF) | 61 | ||
| ConocoPhillips (COP) | 71 | ||
| International Game Technology (IGT) | 28 | ||
| Live Nation Entertainment, Inc. (LYV) | 98 | ||
| Matador Resources Company (MTDR) | 40 | ||
| Palo Alto Networks (PANW) | 470 | ||
| Paycom Software (PAYC) | 495 |
Novonix (NVNXF) shares broke above 5 this week and have more than doubled since early August even as the market is under pressure due to the slowing of federal stimulus, China’s property debt issues, and some increase in interest rates and inflation.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the October 2021 issue.
Most investors, and the general public, seem to regard the transportation industry as somewhat dull. But transportation is a fundamental component of human existence, and companies must constantly strive for relevance, and must now navigate a secular shift in fuel sources. We discuss five transportation companies that are updating their strategic playbooks with hopes of turning around their prospects.
The market has a bias against stocks that trade at low prices, making this a go-to source of contrarian investment ideas. We make our case for five such stocks.
Most investors, and the general public, seem to regard the transportation industry as somewhat dull. But transportation is a fundamental component of human existence, and companies must constantly strive for relevance, and must now navigate a secular shift in fuel sources. We discuss five transportation companies that are updating their strategic playbooks with hopes of turning around their prospects.
The market has a bias against stocks that trade at low prices, making this a go-to source of contrarian investment ideas. We make our case for five such stocks.
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 while the trend toward legalization in the U.S. continues, it’s taken a back seat at the federal level for now, so all the action remains at the state level.
In the portfolio today, we continue to hold patiently, with the portfolio one-third in cash, waiting for a new uptrend—but if you’re eager to buy now (while things look cheap) I do have some suggestions.
Full details in the issue.
Fundamentals in the industry remain terrific, as second quarter results have recently revealed, and while the trend toward legalization in the U.S. continues, it’s taken a back seat at the federal level for now, so all the action remains at the state level.
In the portfolio today, we continue to hold patiently, with the portfolio one-third in cash, waiting for a new uptrend—but if you’re eager to buy now (while things look cheap) I do have some suggestions.
Full details in the issue.
Last week, despite a large market decline on Monday, the major indices took a baby step forward. The S&P 500 gained 0.51%, the Dow rose 0.62%, and the Nasdaq eked out 0.02%.
The advance came despite ongoing uncertainties around Chinese property developer Evergrande and the seemingly hawkish message from the Fed announcement. Now the focus has shifted to Washington, D.C.’s finest and the decision around the debt ceiling and infrastructure. Add a sprinkle of Chinese power concerns and there seems to be just enough worry to keep investors on their toes.
The advance came despite ongoing uncertainties around Chinese property developer Evergrande and the seemingly hawkish message from the Fed announcement. Now the focus has shifted to Washington, D.C.’s finest and the decision around the debt ceiling and infrastructure. Add a sprinkle of Chinese power concerns and there seems to be just enough worry to keep investors on their toes.
The market has recovered remarkably quickly from last Monday’s sharp selloff. Thus, the long bull market remains intact and I continue to recommend that you be heavily invested.
Today’s featured stock is another conservative one, with a good yield, and in an industry that’s truly unloved. And that means its valuation is dirt cheap.
As for the current portfolio, I am selling our biggest loser, DocuSign (DOCU), and downgrading Tesla (TSLA) to Hold.
Details inside.
Today’s featured stock is another conservative one, with a good yield, and in an industry that’s truly unloved. And that means its valuation is dirt cheap.
As for the current portfolio, I am selling our biggest loser, DocuSign (DOCU), and downgrading Tesla (TSLA) to Hold.
Details inside.
Current Market OutlookAfter last Monday’s plunge, the initial rebound was very encouraging, and the fact that the major indexes are still doing their best to hang in there is a plus. But, while many individual stocks are in decent shape, the wild rotation that has been a hallmark of 2021 has returned, with money racing into cyclical areas and out of growth stocks the past couple of days. We’re still sticking with a stock-by-stock approach, and most names, despite their wobbles, remain in fine shape, simply pulling in after big runs; others, however, look worse and should be pared back or sold. To be fair, such action isn’t totally surprising—big breaks like last Monday’s usually have some reverberations, so we wouldn’t say the action is negative as much as it’s a sign we’re still in the tricky, choppy environment that has existed for some time. We’re going to leave the Market Monitor at a level 5 and see how things play out in the days ahead.
The good news is that this week’s list is full of names that have enjoyed outsized accumulation of late. Our Top Pick is Devon Energy (DVN), which looks like a leader of a fresh breakout in energy stocks (and cyclical stocks more broadly). We suggest aiming for dips as these names usually pull in after powerful rallies.
| Stock Name | Price | ||
|---|---|---|---|
| Apache (APA) | 23 | ||
| Biohaven Pharmaceutical Holding (BHVN) | 133 | ||
| Brooks Automation, Inc. (BRKS) | 109 | ||
| Cimarex Energy (XEC) | 88 | ||
| Devon Energy (DVN) | 35 | ||
| DoorDash (DASH) | 217 | ||
| SeaWorld Entertainment Inc. (SEAS) | 58 | ||
| Signet Jewelers (SIG) | 84 | ||
| Snap Inc. (SNAP) | 80 | ||
| SVB Financial Group (SIVB) | 674 |
Updates
This is a great time to be invested in these stocks, clearly. And I hope the trend continues. But I do think we have a missing ingredient before we can feel super confident that these gains will stick. And that ingredient is more participation from a wider group of small-cap stocks. If we get that, we’ll see the S&P 600 Small Cap Index break above 990 and move back toward its 2018 high.
The market’s three-day rally has been solid, but even better than that has been the action of growth stocks, many of which have zoomed to new highs.
After the breakdown of trade negotiations with China and the escalation of tariffs, the market had a few ugly trading days, but now, it looks like we’re back in the saddle again.
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!
Alerts
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.
Analysts expect this wellness company to grow at a rate of 21.3% this year.
This portfolio stock reported last night with revenue that was up 33.3% to $91.7 billion and beat by $3.4 million and adjusted EPS of $0.03 that beat by $0.04.
Crista has rating changes for three portfolio stocks and reports an earnings miss for a fourth.
This airline is a value and growth play. Analysts expect 21.47% annual growth from the company over the next five 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.
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.
Portfolios
Strategy
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 Momentum 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 Momentum Trader features.