Current Market Outlook


Up is good, so last week’s rebound in growth and continued push higher in the broad market was encouraging. That said, nothing much has changed with the overall evidence—many areas of the market look just fine, with a few indexes actually hitting all-time highs, but growth stocks are still (mostly) in a corrective mode, with a bunch of names having rallied only into resistance. Really, we think the action of the next week or two will tell the tale—resilience and upside from here would suggest the huge pullback earlier this month was more of a shakeout, but renewed selling pressure would hint toward another leg down. Right now, we’re playing things halfway—we’re OK with some buying, especially in stronger names that pull back some, but we’re not pushing the envelope and need to see more from growth before concluding the storm has passed. We’re leaving our Market Monitor at a level 5 today.

This week’s list is very much a mixed bag, with cyclicals, retail, growth and turnarounds all making the cut. Our Top Pick is Thor Industries (THO), which looks like the leader of a fresh move for that group. You could nibble here or (preferably) on dips.

Stock Name	Price	Buy Range	Loss Limit
Big Lots (BIG)	71	66-69	59-61
Devon Energy (DVN)	25	22-23.5	19-20
Dropbox (DBX)	28	26.5-28	24-25
Dycom Industries (DY)	100	95-98	85-87
Groupon Inc. (GRPN)	60	57-60	48-50
Inari Medical (NARI)	114	110.5-115.5	98-101
Macy’s, Inc. (M)	21	18-19.5	15.5-16.5
Owens & Minor (OMI)	37	33.5-35.5	30-31
Summit Materials (SUM)	30	28-30	25-26
Thor Industries (THO)	147	140-147	125-128

The overall market remains in good shape, with many indexes actually stretching to new highs this week. But growth stocks are another ball of wax, with many leaders having decisively cracked their uptrends and the Nasdaq itself stuck in no-man’s land even after this week’s bounce.

We’re open to anything, and in fact we’re putting a small piece of cash back to work tonight (buying a half-sized position in a high-potential stock), but we’re mostly going slow and waiting for growth stocks to set up properly. Our cash position will be right around 50%.

Cyclical or open-up stocks are on fire, and for good reason.

The U.S. economy has far exceeded expectations at every phase of the recovery so far. The vaccines promise to end the remaining lockdowns and restrictions. With the shackles removed, the economy will kick into high gear. Even several normally dour economists are predicting the highest GDP growth in decades this year.



In anticipation, cyclical financial stocks are on fire. The Financial Sector SPDR Fund (XLF) is up 45% just since the vaccine announcement in early November. Yet, many financial stocks are still undervalued ahead of what should be an ideal environment for the sector.



In addition to the bright near-term prospects for financial stocks in general, there is also an incredible growth trend in a particular niche area, alternative investments. These include investments outside of the stock and bond markets. Individuals and institutions desperate to diversify are piling in. And massive growth in this arena is accelerating.



In this issue, I highlight a company I believe to be the very best player in alternative investments. Stock performance has far exceeded its peers and there is every reason to believe the outperformance will continue going forward.

Today, we are recommending a biotech company.

The company is trading well below an offer to take it private and has numerous other catalysts on the horizon.



This company’s characteristics include:

• Insiders own over 40% of the company.
• A proxy fight - A hedge fund is lobbying to have the company sold to the highest bidder.
• Royalty income streams which provide downside protection.
• Much, much more.

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

The last two weeks have seen a massive rally into cyclical stocks, and a purge of growth stocks. Massive! Whether this trend will continue is anyone’s guess.

The good news for the Cabot Profit Booster portfolio is we have a relatively diverse portfolio. And as I eyeball our portfolio, I would say we have five cyclical stocks (AZEK, JCI, SONO, GS, APHA) and “only” two growth stocks (DT, AMKR), and the premiums we collected via our covered call sales have partially buffered us from big losses on those stocks that have been hit hard.

Current Market Outlook


The selling pressure that we saw emerge two weeks ago really picked up last week, with the vast majority of leading growth stocks cracking intermediate-term support. That said, the rest of the market has refused to follow the Nasdaq’s lead; there’s been some damage and plenty of wobbles, but so far the broader indexes have held up, and buying in many cyclical areas has picked up. Just going with the evidence, we’d be shying away from growth stocks while looking for opportunities in the strong sectors should they rest or shakeout. Our biggest thought, though, is that making money has become much harder during the past month and a half, with wild moves, rotation and volatility, so now’s a time to go slow and give some thought to capital preservation until we see the buyers really flex their muscles. We’re moving our Market Monitor to a level 5.

As expected, this week’s list is heavy on cyclical and re-opening themes, with many names showing excellent action. Our Top Pick is Marriott Vacations (VAC), which has soaring earnings estimates and a stock that just lifted out of a three-year base on huge volume.

Stock Name	Price	Buy Range	Loss Limit
Abercrombie & Fitch (ANF)	32	28.5-30.5	24.5-25.5
Affiliated Managers Group, Inc. (AMG)	139	134-140	119-123
Applied Materials (AMAT)	106	102-107	92-94
Diamondback Energy (FANG)	84	76-80	66-68
Lyft (LYFT)	64	58-62	51-53.5
Marriott Vacations (VAC)	184	177-183	154-158
The Middleby Corporation (MIDD)	166	162-167	144-147
Nucor Corporation (NUE)	66	63-65	56.5-57.5
PDC Energy (PDCE)	38	34-36.5	28-29.5
Texas Roadhouse (TXRH)	95	91.5-94	82.5-84

The Dow was up big today but growth stocks are still having a rough time, and I’m growing increasingly concerned that the broad market will eventually roll over, too. The news has been so good, and investors have become so bullish, that eventually we’re going to need a big correction.

Last week I recommended selling four stocks and this week I’m recommending selling two more.



In the meantime, I’ve got to recommend something to buy; that’s the name of the publication! So today’s recommendation is a little-known small company in a solid industry that will likely be substantially larger in years to come.



Details inside.

Tech stocks are having a tough week as interest rates and inflation fears creep up. This is uncomfortable for many because five companies, Microsoft, Apple, Amazon, Alphabet and Facebook, make up almost 25% of the market value of the S&P 500. My view is that this pullback is providing new entry points for some tech stocks that have been on a good run. For perspective, most non-tech stocks are weathering the increase in bond yields quite well.

Today, we’re selling two profitable ideas that have lost some momentum, and our new Explorer recommendation centers on turbulence on the high seas.

As we march toward spring it appears real-world risks are decreasing (more vaccines, lower case count, etc.) while the market risk for growth stocks has gone up (higher yields, volatility, etc.), at least in the short term.

As I scanned through dozens of charts and evaluated stories for this month’s addition my focus was repeatedly drawn to one stock. The chart is compelling, the story is enticing, and the recent Q4 report and forward guidance illustrate sound fundamentals, supported by long-term demand growth.



The stock appropriately balances the potential risks and rewards in the current market.



Enjoy!

Crista has three portfolio changes today.

Markets remain strong. The major stock market indexes all ended last week in the black and, after a brief pause Monday, advanced strongly yesterday. Earnings season has began and only rating change today moving a position to hold.

Earnings Season – Second quarter earnings season began late last week. Your brokerage firm probably provides quarterly earnings estimates on a thousand stocks. Call your advisor or use their website chat box to find out where to locate the quarterly earnings estimates.

Talk of trade wars continues to dominate stock market news but investors appear increasingly willing to shrug off related concerns. They do in the U.S. at least, where stocks are faring far better than in both the European Union and emerging markets.

If you own shares of Walt Disney (DIS), it’s time to decide whether you’re planning to hold it forever because you’re in love with the stock, or whether you’d rather trade it for an undervalued growth stock, thereby lowering your portfolio risk and increasing your chances of achieving capital appreciation.

The market’s bounce off support last week was encouraging, and while we remain in a news-driven, choppy environment, our current cash level is too high given the mostly positive evidence. Thus, tonight, we’re adding two new stocks leaving us with a cash position of 20%.

Markets ended last week with a strong performance, despite the mid-week holiday, which typically reduces trading. For now, I have no portfolio changes. If you’re looking to a do a little buying, we have plenty of options in every tier of the portfolio.

It’s earnings season! Hoo-boy, I’d better clear my calendar. Just a guess, but I think we’re going to see fantastic quarterly results from financial stocks that will catch investors with their…er, let’s just say “catch investors by surprise”. Financial stock share prices might have a very good couple of weeks!

Emerging market stocks have been attempting to find a bottom after a month of accelerating declines. The week has been fairly calm, with the iShares EM Fund (EEM) and many of our stocks showing some signs of basing.

In this weekly update, we have one stock that moves from Hold to Buy.

After a one-to-two-week pullback (the S&P 500 and Dow peaked back on June 12, while the Nasdaq high came a week later, on June 20) the broad market has found support for now, moving mostly sideways since our last update. Markets have been closed since 1 p.m. (Eastern time) Tuesday due to the Independence Day holiday.

We could see some funky trading action next week since the Wednesday Fourth of July holiday will mean a lot of people out of the office. But then the market will start looking forward to Q2 earnings reports, which will begin to come out in late July and early August. Stay the course as the volatility probably isn’t over hasn’t yet translated to lowered growth expectations.

One of the portfolio stocks reported last night and, as is typical, the company surpassed expectations and gave us a bare bones report.

One of the portfolio stocks reported a big earnings miss; increases dividend and moves from Strong Buy to Buy.

This healthcare company saw double-digit sales growth in its last quarter, and guidance for next quarter is very positive.

Coverage of the shares of this interactive fitness company were recently initiated at Bernstein with an ‘Outperform’ rating and at Bank of America, as a ‘Buy’.

This small-cap bank beat analysts’ earnings estimates by $0.05 last quarter.

One of the portfolio stocks is moving to Hold.

Crista reports on four portfolio stocks, two of which just reported earnings beats.

With a new government strategy for increasing domestic production and a mine with a long life, analysts expect this lithium producer to grow at a rate of 27.7% next year.

The weakness in growth stocks in general, and cloud-related stocks in particular, continued today, which caused one of our stocks to trip its loss limit.

Two portfolio stocks delivered strong earnings beats are their recommendations are raised to Strong Buy. A third stock delivered a strong earnings beat.

Wells Fargo recently initiated coverage on this luxury consignment website stock with an ‘Outperform’ rating.

One portfolio stock is up on news of a successful drug trial and another reported a strong earnings beat.

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.