Growth stocks remain under pressure in the market; we sold two last week and I’m recommending selling three more today. When it comes to growth stocks, cutting losses short (and taking profits while you have them) is important.

Still, the market as a whole remains in an uptrend, so I remain bullish long-term. Plus, Cabot’s analysts continue to find plenty of attractive stocks, using a variety of methods. Today’s recommendation is actually a growth stock, boasting both accelerating revenue growth and an attractive chart pattern. This may be an ideal buying point.



Details inside.

Current Market Outlook


Last week, the selling that had been concentrated in growth names spread to the rest of the market through Wednesday, though a late-week bounce helped a bit. Still, not much has changed with the overall environment—growth stocks remain in the dumps, and while bounces are possible (many fell 20% to 30% in just the past three weeks), there’s a lot of damage to repair. The broad market is obviously in better shape, where we still see some good opportunities (mostly after bullish earnings pops), but even there the action is turning choppy and challenging, with news-driven moves, rotation and whipsaws. Overall, we’re fine taking a swing or two at stocks and sectors that are still in favor, but we also think it’s best to stay relatively cautious until we see broad buying power emerge.

This week’s list is almost all turnaround and cyclical-type stories, and our Top Pick is International Game Technology (IGT), which is benefiting from both the reopening of casinos and also the growth wave in sports betting.

Stock Name	Price	Buy Range	Loss Limit
AutoNation (AN)	105	101.5-104	91.5-93.5
Callaway Golf (ELY)	34	32.5-34.5	28.5-29.5
Camping World Holdings (CWH)	45	44-46	39-40
CF Industries (CF)	55	52.5-55	47-48.5
Cimarex Energy (XEC)	74	71.5-74.5	61-63
International Game Technology (IGT)	22	21-22.5	17.5-18.5
Leggett & Platt, Incorporated (LEG)	56	53-55	49-50
Summit Materials (SUM)	34	31.5-33	28.5-29.5
WestRock Company (WRK)	62	58.5-60.5	53-54
Yeti Holdings (YETI)	86	83.5-86.5	76-77

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

The market has been bouncing decently during the past four trading days, but our Cabot Tides remain clearly negative and most growth stocks are still in steep corrections. Longer-term we’re still optimistic the bull market will eventually resume, but until then, we’ll be patient. No rating changes to the portfolio tonight.

We’ve had a fierce six-day selloff, but the market has managed to find support and is rebounding this week. But I still advise caution as things are still dicey. Most of the positions in our portfolio are on Hold, but we’re adding one more to that list and selling half of one our weaker positions.

As earnings season unfolds, I’ll be very interested to learn more about the broader capital expenditure landscape. Americans haven’t experienced such a strong economy in many years. And frankly, younger adults have never experienced a strong economy!

I want to cover three things today: (1) possible reasons behind the stock market swoon, (2) what to expect over the next couple of months, and (3) what opportunities to look for both within and beyond our current portfolio.

The headline-making meltdown in U.S. stock markets on Wednesday, when the Dow fell 3.2% and the S&P shed 3.3%, made it clear that investors aren’t just worried about emerging markets.

The yield on the 10-year Treasury hit its highest level in seven years and remains elevated as this week progresses. This interest rate surge has created some unusual ripple effects across growth stocks, utilities, financials, and energy stocks. Thankfully our diversified portfolio is doing well so far and we have no rating changes, but the overall market might lead to some defensive moves in the future.

Stocks are churning in place, appearing unsure of how to proceed this month. The Dow Jones Industrial Average finally retraced its January 2018 record high. Will it advance promptly or establish a trading range? If we look back to recent patterns on the S&P 500 index, which retraced its January high in August, and we presume that the Dow might follow suit, then we’re in for some sideways trading on the Dow.

The iffy action we saw among growth stocks in September has turned into a severe selloff so far in October. Our Cabot Tides are still neutral, but we have to be cautious given the recent volatility. We did some selling yesterday so no further changes tonight.

The stock market managed to tread water for most of September but we’re seeing some renewed rotation as we start October. Selling is prevalent in growth stocks the past two days but the portfolio is holding up just fine with the short-term volatility. I have two ratings changes, moving one position to Hold and putting one back on Buy.

Big picture, things still look reasonably good out there. That said, we’ve seen persistent, but not severe, weakness in small-cap stocks since the beginning of September.

The iShares EM Fund (EEM) has climbed back atop both its 25- and 50-day moving Buy signal from the Cabot Emerging Markets Timer.

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 shares of this mega-tech company are now available in a Direct Stock Purchase Plan.

Two stocks blastoff after reporting earnings.

This ETF is a bet on declining interest rates. It has a current annual yield of 2.33%, paid quarterly.

Additional thoughts on one portfolio stock after reporting

This software company that’s changing the world through digital experiences moves from Hold to Buy.

This technology company is expected to grow at an annual rate of 20% over the next five years.

One of our portfolio stocks reported this morning and will host a conference call at 8:30 a.m. I’m including a quick overview now and will detail any learnings from the conference call later.

Gurus Ken Fisher and Jim Kramer have recently touted this cyclical stock, based on its global prospects.

This bioprocessing specialist reported Q3 results this morning that should be good enough to keep the stock stable, and hopefully get it moving back in the right direction.

Four portfolio stocks report earnings.

This annuity company is expected to grow at an annual rate of 15.39% over the next five years.

Three portfolio stocks report earnings and a fourth stock moves to Hold.

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.