Issues
This month we are changing things up a little and featuring a small company I suspect you’ve never heard of. It’s an up-and-coming Canadian media production and distribution company.
The company’s content has increasingly shown up on Netflix, AppleTV+, HBO Max, Amazon and Peacock. Much of the programming is for kids and families, which is where the growth and more significant deal flow is. But the company has also had many years of success in reality TV.
It is a speculative investment and trading liquidity is thin, so treat it appropriately and space out share purchases. Part of the strategy here is that we’re following a micro-cap fund that I respect into this trade, and their successful track record, philosophy and long-term holding strategy lends credibility beyond the increasingly visible presence of the company’s programming.
The company’s content has increasingly shown up on Netflix, AppleTV+, HBO Max, Amazon and Peacock. Much of the programming is for kids and families, which is where the growth and more significant deal flow is. But the company has also had many years of success in reality TV.
It is a speculative investment and trading liquidity is thin, so treat it appropriately and space out share purchases. Part of the strategy here is that we’re following a micro-cap fund that I respect into this trade, and their successful track record, philosophy and long-term holding strategy lends credibility beyond the increasingly visible presence of the company’s programming.
Growth stocks had worked to set themselves up nicely in recent weeks, but all of that has fallen by the wayside, with names getting obliterated this week before and after earnings.
Despite an already-cautious stance, we’ve sold three more stocks this week, though we are nibbling on one new name in tonight’s issue. Even so, we’re content to remain defensive until the bloodletting stops.
In tonight’s issue, we write about one of the factors that thankfully kept us cautious of late, as well as dive into the energy sector, where the bullish thesis is playing out
Despite an already-cautious stance, we’ve sold three more stocks this week, though we are nibbling on one new name in tonight’s issue. Even so, we’re content to remain defensive until the bloodletting stops.
In tonight’s issue, we write about one of the factors that thankfully kept us cautious of late, as well as dive into the energy sector, where the bullish thesis is playing out
Thank you for subscribing to the Cabot Undervalued Stocks Advisor. We hope you enjoy reading the May 2021 issue.
The stock market, so far in May, hasn’t continued the robust momentum of the first four months. Treasury Secretary Yellen’s comment about the possible need to boost interest rates to ward off inflation seems to be the catalyst. The market and the broad economy will likely respond differently if rates increase. We briefly outline on our asset allocation philosophy, which helps guide us when the market is edgy, in our economic comments.
Earning and proxy voting are in full swing. We’re updating the earnings as they come in.
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.
The stock market, so far in May, hasn’t continued the robust momentum of the first four months. Treasury Secretary Yellen’s comment about the possible need to boost interest rates to ward off inflation seems to be the catalyst. The market and the broad economy will likely respond differently if rates increase. We briefly outline on our asset allocation philosophy, which helps guide us when the market is edgy, in our economic comments.
Earning and proxy voting are in full swing. We’re updating the earnings as they come in.
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.
While some sectors of the market look tired (growth), other sectors and stocks (retail, materials, financials, energy) continue to make new highs and/or come alive. Fortunately, the Cabot Profit Booster portfolio has avoided the hyper-growth stocks that are under pressure, and is positioned in stocks that are in the strongest sectors.
We’re happy to see that the markets – despite a brief pullback – continue to rise. Home prices – as calculated for the Case-Shiller Index of 20 metropolitan areas – now stand at 246.04, up from 220 a year ago.
Consumer confidence and sentiment continue to increase, and that’s great for the economy. In the first quarter of 2021, GDP rose 6.4% – the second-fastest pace for growth since the second quarter of 2003!
This month, our Feature Recommendation is a French company that is the leading fiber telecom platform in rural France. The company has been awarded 4.5 million FTTH (fiber to the home) lines spread across 23 Public Initiative Networks. Additionally, investors will like the very nice 5.60% annual dividend yield.
We’re taking some more profits this month, with the sale of Unilever PLC (UL). Earnings performance has not been great, and it’s having a lot of trouble clearing resistance. We’ll take our 37.5% return to the bank and use it for our new recommendation.
We hope to see you on our May Platinum Club webinar; it’s scheduled for May 6 at 2pm. In the meantime, don’t hesitate to reach out to us if you have any questions.
Happy Investing!
Nancy Zambell and Kate Stalter
Consumer confidence and sentiment continue to increase, and that’s great for the economy. In the first quarter of 2021, GDP rose 6.4% – the second-fastest pace for growth since the second quarter of 2003!
This month, our Feature Recommendation is a French company that is the leading fiber telecom platform in rural France. The company has been awarded 4.5 million FTTH (fiber to the home) lines spread across 23 Public Initiative Networks. Additionally, investors will like the very nice 5.60% annual dividend yield.
We’re taking some more profits this month, with the sale of Unilever PLC (UL). Earnings performance has not been great, and it’s having a lot of trouble clearing resistance. We’ll take our 37.5% return to the bank and use it for our new recommendation.
We hope to see you on our May Platinum Club webinar; it’s scheduled for May 6 at 2pm. In the meantime, don’t hesitate to reach out to us if you have any questions.
Happy Investing!
Nancy Zambell and Kate Stalter
Current Market OutlookTo us, the major (and most disappointing) theme of the past few weeks has been the selling in stocks as they approach their old highs—selling on strength has been seen in growth stocks for a couple of months but it’s even seeping into many cyclical-type names, too. In other words, while selling pressures are controlled (the intermediate-term trend remains up), buyers aren’t exactly stepping up in a major way. Of course, the real question is whether earnings seasons causes the bulls to flex their muscles; so far, that hasn’t happened, but there are a ton of reports coming this week and next, so we’ll see how it goes. Not to sound like a broken record, but we continue to think keeping some cash on the sideline and aiming to enter mostly on pullbacks remains the best play. We’re again leaving our Market Monitor at a level 6.
This week’s list has a hodgepodge of names, many of which have reacted well to earnings, so if you’re going to buy strength, these are some top candidates. Our Top Pick is Crocs (CROX), one of the few growth-oriented names that has shown great power of late.
| Stock Name | Price | ||
|---|---|---|---|
| Academy Sports and Outdoors (ASO) | 31 | ||
| Bloomin’ Brands (BLMN) | 31 | ||
| Capital One Financial (COF) | 150 | ||
| Chart Industries (GTLS) | 154 | ||
| Crocs (CROX) | 98 | ||
| Fortinet Inc. (FTNT) | 203 | ||
| Matador Resources Company (MTDR) | 26 | ||
| Robert Half (RHI) | 88 | ||
| Scientific Games (SGMS) | 58 | ||
| United Parcel Service (UPS) | 212 |
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.
Today’s recommendation is a high-yielding stock that has a great history of performance—and as it’s still working its way back toward its high of February 2020, it’s attractive technically.
As for our current holdings, there are no changes. With the new addition, the portfolio is fully invested.
Details inside.
Today’s recommendation is a high-yielding stock that has a great history of performance—and as it’s still working its way back toward its high of February 2020, it’s attractive technically.
As for our current holdings, there are no changes. With the new addition, the portfolio is fully invested.
Details inside.
Explorer positions have a good week on the back of a market moving up on broadly upbeat first-quarter earnings, rising consumer confidence and, of course, stimulus and spending from Washington. The cash and liquidity has definitely buoyed the market but how it is put to work long term is critical.
This week’s recommendation is a rather aggressive small Canadian player in the commercial drone business.
This week’s recommendation is a rather aggressive small Canadian player in the commercial drone business.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the May 2021 issue.
With the stock market continuing to reach record highs, and with most stocks either participating in the rally or facing structural, fundamental challenges that they won’t likely overcome, finding new ideas can be a challenge. As contrarians, we want to look for stocks in places which others find too unconventional or uncomfortable, as bargains may be found there. One such place is in stocks with low share prices, generally under $10. We discuss five interesting turnarounds among this group.
Real estate investment trusts, or REITs, have surged since Pfizer announced on November 9, 2020 that they had developed an effective Covid vaccine. Yet some REITs haven’t fully participated. We review six laggards that have quite favorable risk/return traits.
Our feature recommendation is Dril-Quip (DRQ). This company manufactures highly-engineered drilling and production equipment for offshore oil and natural gas projects. The shares are heavily out-of-favor yet offer considerable upside, backed by a solid company with a large cash hoard and zero debt.
We mention our April 1st price target increase for Mohawk Industries (MHK) from 180 to 220. As several companies continue to show strong fundamental improvements, we are raising our price targets on Adient (ADNT), Western Digital (WDC) and Wells Fargo (WFC), while moving Jeld-Wen (JELD) to a HOLD. Also, we update our article from last month on high yield bonds.
Please feel free to send me your questions and comments. This newsletter is written for you. A great way to get more out of your 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.
With the stock market continuing to reach record highs, and with most stocks either participating in the rally or facing structural, fundamental challenges that they won’t likely overcome, finding new ideas can be a challenge. As contrarians, we want to look for stocks in places which others find too unconventional or uncomfortable, as bargains may be found there. One such place is in stocks with low share prices, generally under $10. We discuss five interesting turnarounds among this group.
Real estate investment trusts, or REITs, have surged since Pfizer announced on November 9, 2020 that they had developed an effective Covid vaccine. Yet some REITs haven’t fully participated. We review six laggards that have quite favorable risk/return traits.
Our feature recommendation is Dril-Quip (DRQ). This company manufactures highly-engineered drilling and production equipment for offshore oil and natural gas projects. The shares are heavily out-of-favor yet offer considerable upside, backed by a solid company with a large cash hoard and zero debt.
We mention our April 1st price target increase for Mohawk Industries (MHK) from 180 to 220. As several companies continue to show strong fundamental improvements, we are raising our price targets on Adient (ADNT), Western Digital (WDC) and Wells Fargo (WFC), while moving Jeld-Wen (JELD) to a HOLD. Also, we update our article from last month on high yield bonds.
Please feel free to send me your questions and comments. This newsletter is written for you. A great way to get more out of your 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.
The market is still trending higher. But it can’t continue at the recent pace. And a 10% or so correction is possible at any time, especially after such a strong move higher. While the short term is always unpredictable, I’m still bullish over the intermediate and longer term.
With the market looking topsy in the near term, it’s a great time to write covered calls. In this issue, I highlight two call writing opportunities on existing portfolio positions. These calls provide a great way to cash in on a high market without giving away too much upside potential.
With the market looking topsy in the near term, it’s a great time to write covered calls. In this issue, I highlight two call writing opportunities on existing portfolio positions. These calls provide a great way to cash in on a high market without giving away too much upside potential.
Updates
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!
We are continuing to fly a caution flag from the Cabot Emerging Markets Timer. We remain in a defensive stance as we wait for some good news to turn investors’ sentiment around.
Alerts
Our second recommendation is a sale of a previous idea
Our first idea is an energy company that has a current dividend yield of 3.12%, paid quarterly.
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.
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 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.