While the direction of the market is highly unpredictable in the short term, it’s a safe bet that this economy will continue to recover after the covid recession. It is also highly likely that interest rates will continue to rise.

Interest rates tend to move higher as the economy emerges from recession and gains traction. It’s already happening. The benchmark 10-year Treasury bond yield has already risen sharply this year. Yet, rates are still well below pre-pandemic levels, and the economy is about to ignite. There will also be trillions in stimulus dollars causing inflationary pressures and upward pressure on rates.



Certain dividend stocks and income paying securities endure despite rising rates. And certain special securities can actually thrive. In this issue, I highlight an investment that loves rising rates. In fact, profits increase directly as a result. The stock pays a stratospheric 8.4% yield and pays dividends every month.



In this issue, I highlight an investment that loves rising rates. In fact, profits increase directly as a result. The stock pays a stratospheric 8.4% yield and pays dividends every month.

This Friday is the expiration of our six April Covered Call positions. I would categorize these six positions as a good, but somewhat mixed bag, as only one trade looks like it will expire for its full profit potential (ANF), while four (TRIP, SUM, AMKR, AZEK) are in good shape but may need attention in the week to come, and one (ZI) which is mostly trading at a breakeven. As is always the case, I will update on where we stand with these expiring positions Thursday afternoon or Friday morning.

While there are still symptoms of a broad unfolding market top, and the market as a whole is soft today, the main trend is still clearly up and thus I continue to recommend you be substantially invested.

In fact, in our recommended portfolio all our stocks look fine; there are no recommended changes today.



As for today’s recommendation, it’s a technology company that’s a household name, but still small enough to grow very fast.



Details inside.

Current Market Outlook


It certainly hasn’t been a buying panic, but last week was another step in the right direction, with growth stocks avoiding selling pressure even as they approach (or in some cases, sneak out to) new highs—a marked change in character from the prior few weeks. There’s still some iffy pieces of evidence out there, including sentiment (complacent), volume (extremely light) and even some of the broad market (materials and energy stocks are beginning to lose some steam), but overall it appears that the sellers have run out of ammunition for the time being. If the buyers can really show up, we could see some solid breakouts going ahead. For now, we’re leaving our Market Monitor at a level 6, but another good week may change that.

This week’s list has a bunch of good-looking charts, most of which have a solid growth story. Our Top Pick is United Therapeutics (UTHR), which recently staged a big-volume breakout on news.

Stock Name	Price	Buy Range	Loss Limit
Acuity Brands (AYI)	173	162-167	145-148
ASML Holding (ASML)	630	605-620	550-560
Boot Barn (BOOT)	67	64-67	58-60
Boston Beer Company (SAM)	1,261	1,200-1,30	1,090-1,110
The Goodyear Tire & Rubber Company (GT)	18	17-18	14.5-15
Pinterest (PINS)	84	80-84	71-73
Sally Beauty (SBH)	21	19.5-20.5	17-17.5
SiteOne Landscape Supply (SITE)	182	174-178	160-162
United Therapeutics (UTHR)	199	192-202	172-177
Yeti Holdings (YETI)	84	81-85	72-74

The evidence has clearly improved during the past week or two, and that’s a good thing; we’re putting another couple of toes back into the water tonight, adding two half-sized positions in what we think can be leaders of the next uptrend. That said, we’re content to go slow for now, mostly because, while selling pressures have eased, buying power really hasn’t shown up yet, and until it does, there’s a chance the bears could reappear.

Still, overall, we’re increasingly optimistic, so we think putting a little money to work and then listening to the market’s clues makes sense. Get all the latest inside tonight’s issue.

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

As value investors, we look for companies that are selling at a discount to their underlying value. But how do we measure that value? In this issue, we briefly describe and discuss the EV/EBITDA metric, which is our preferred valuation tool.



While our stocks generally did well this past week, there wasn’t much news. With earnings season starting next week, most companies are remaining fairly quiet.



One change we made was to reduce our rating on Tyson (TSN) from a Buy to a Hold. The shares have about 8% upside to our recently raised price target. From here, we’d like to learn more about its earnings power, which hopefully will be provided in its fiscal second quarter report, before deciding to either raise or sell.



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!

While the headlines read “S&P 500 at All-Time Highs,” it’s not all smooth sailing in the market as countless stocks are still suffering from the Nasdaq rout that started a month ago.

Current Market Outlook


For the first time in a few weeks, we’re seeing some signs of spring when it comes to the Nasdaq and growth stocks, as many found support near or above their early-March lows and have begun to perk up, including some that have rallied back above their 50-day lines. (The Nasdaq itself has done this, too, which is obviously encouraging.) Moreover, we’re seeing many more six- to 10-week structures out there, which are far more palatable than the jagged three-week bases seen a while back. That said, we’re not out of the woods—the major indexes remain divergent (not the healthiest situation) and very few growth names are hitting new highs. For the first time in a while, we do think the market has a chance to kick into gear, but we have to see it to believe it; we’re nudging our Market Monitor up to a level 6, but still think the general game plan (small positions, buying cyclical names on weakness) makes sense for now.

This week’s list is a nice mix of growth and cyclicals, many of which look like either potential breakouts or early-stage pullbacks. Our Top Pick is Amkor Technology (AMKR), which might need a little more seasoning but has held up great during the correction and is now pushing ahead.

Stock Name	Price	Buy Range	Loss Limit
10X Genomics (TXG)	191	182-187	164-168
Align Technology (ALGN)	548	538-560	490-500
Amkor Technology (AMKR)	26	24.5-26.5	21-22
Cleveland-Cliffs (CLF)	19	17.5-19	16-16.5
The Gap, Inc. (GPS)	30	28.5-30.5	25.5-26.5
Lam Research (LRCX)	661	620-645	565-580
Lennar (LEN)	105	98.5-102.5	90-92
Micron Technology, Inc. (MU)	94	91.5-94.5	83-85
Scotts Miracle-Gro (SMG)	253	237-247	220-226
ShockWave Medical, Inc. (SWAV)	133	125-130	110-114

The market as a whole is looking healthier, though there are still symptoms of a broad unfolding market top. But our stocks look healthy and all have the potential to move higher from here, so the only change in our portfolio today is the downgrade of DKNG to Hold.

As for today’s recommendation, it’s a company with a great growth story (in the insurance industry) that just came public last May.



Details inside.

A few days ago, I reviewed the price charts on the 59 stocks in my “Waiting in the Wings” list – a list of undervalued growth stocks that I might add to these portfolios at some point. What really struck me was that less than 15% of them have attractive price charts right now.

The undercurrents we felt in the market last week bubbled to the surface this week as value-oriented sectors opened a modest performance gap as compared to growth-oriented sectors.

Remain bullish, but keep your antennae up. We’ve seen repeated bouts of selling in leading growth stock so far this month, but a few yellow flags have appeared. We’re holding our 16% cash position and placing two positions on Hold tonight.

The market has calmed down a bit as the Nasdaq is virtually unchanged in the last week and the Dow, meanwhile, made some decent strides, gaining 1% to reach a new six-month high. Several of our stocks have taken encouraging steps forward since last Wednesday and I have no rating changes today.

In reviewing the charts of the major U.S. stock market indexes, I noticed that the Dow, the S&P 500 and the NASDAQ each look as if somebody is slogging uphill in deep thick mud. That’s a bit like a “two steps forward one step back” pattern.

Small caps made no net new progress over the past week but we definitely saw some movement under the surface. This week we’re pulling back just a little given some softening in momentum stocks. A few positions were moved to hold, but for now we’re not cutting anything from the portfolio.

The yellow flag is still out from the Cabot Emerging Markets Timer, but there has been a little bump of interest from buyers. There are no changes in today’s update.

The Nasdaq has sold off last week but thankfully the selling was limited to growth stocks and like the Dow, our portfolio has been largely unscathed. There’s no reason to panic and we’ll watch for any more signals of a longer or larger correction. Two rating changes today with one position going back on Buy and another moving to hold.

I’ve mentioned a few times this year that I expect the shortage of truck drivers in the U.S. to be the lynchpin in the current economic cycle’s eventual inflation surge. Now that Wal-Mart (WMT) is publicly discussing their driver shortage, let’s review this theory.

Remain mostly bullish as our trend-following indicators are still positive and most leading stocks are in solid uptrends. We have no changes in the Model Portfolio tonight as we are keeping some cash (17%) on the sidelines.

The stock market has started September with a small pullback but the big picture is still bullish. If you’re underinvested, it’s time to come off the sidelines. Most of the stocks in our portfolio are healthy, and I’m putting one of our holdings back on Buy today.

Despite a modest dip yesterday the market generally looks healthy, with the S&P 500 finally breaking out to a new high this week, the NASDAQ trading above 8,000, and the S&P 600 Small Cap Index continuing to trade right up at all-time highs. This index is up 17% year-to-date and more than 30% over the last 12 months!

The shares of this semiconductor stock were just upgraded by Mizuho to ‘Buy’.

This industrial company is expected to grow by 12.9% this year.

Yesterday, the House Judiciary Committee approved the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act), which has Democratic Presidential candidate and former prosecutor Kamala Harris as one of its sponsors.

Three analysts have recently increased their EPS estimates for this Mexican media company, and are forecasting growth of 33.3% for the company next year.

This space technology company has had its ups and downs but recent moves to deleverage are stoking investors’ interest.

This BDC is a recent IPO and has a current dividend yield of 6.81%, paid quarterly.

This gold company beat analysts’ EPS estimates by $0.04 last quarter and raised its quarterly dividend by 25%, to $0.05 per share.

A leading provider of financial advice joins the Special Situation Stock Portfolio as a Strong Buy.

This regional bank is expected to grow by 22.6% this year.

I’m making four changes to the portfolio today.

Coverage of the shares of this pharma was just initiated by SunTrust Robinson Humphrey, with a ‘Buy’ rating.

One portfolio stock reports good earnings and another moves to Hold.

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.