It’s not 1999 out there, and the environment remains tricky and narrow. But there’s also improvement being seen among growth stocks, with more and more stocks showing persistency and power. We’re still going slow, but we added two new half positions last week; we’d like to increase our exposure soon, but tonight will sit tight.

In tonight’s issue, we talk in depth about some of the improved evidence we’re seeing, write about all of our stocks and highlight a few tempting titles (including a new cloud software name that’s on our watch list—see Other Stocks of Interest).

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the July 2021 issue.

This month we look into major pharmaceutical stocks, which are selling at their widest discount to the market in decades. We discuss some reasons behind the market’s pessimism and why, for value investors with patience, the shares of five companies offer considerable appeal.



We also include our mid-year stock market update and mid-year bankruptcy review. Stocks have been remarkably strong so far this year and appear poised for more gains, yet we encourage value investors to remain selective and patient amidst the exuberance while keeping the long-term horizon in view.



Easy financial market conditions have helped shrink the number and size of bankruptcies to a fraction of their long-term average. We discuss this phenomenon and why investors in distressed securities should wait for conditions to become favorable again.



Our feature Buy recommendation, Organon & Company (OGN), is a recent spin-off from Merck. Investors have discarded the shares due to revenue concerns, but the bargain valuation and our more optimistic outlook make the shares appealing.



It was a busy month in the portfolio. We raised our price targets on Signet Jewelers (SIG), Molson Coors Beverage Company (TAP) and General Motors (GM), and moved four stocks to Sell: Biogen (BIIB), BorgWarner (BWA), The Mosaic Company (MOS) and Jeld-Wen Holdings (JELD).



Please join us for the our 9th Annual Smarter Investing, Greater Profits Online Conference, held on Tuesday, August 17 through Thursday, August 19. You can see presentations by all of our analysts, which will include updates in their areas of expertise and discussions of their best picks.



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 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, and the messy but real trend toward legalization in the U.S. continues, so it’s only a matter of time before these stocks enjoy their next upwave.



In the portfolio today there are no changes.



Full details in the issue.

The market bounced back last week in a significant way. For the week the S&P 500 added 2.57%, the Dow gained 3.37%, and the Nasdaq advanced by 2.23%.

Current Market Outlook


Just over a week ago, it looked like the market’s intermediate-term trend was going up in smoke as cyclicals cracked and growth stocks remained hit or miss. But, frankly, last week’s action was one of the more impressive few days we’ve seen in a while—most indexes roared back, we saw more stocks (growth and otherwise) pop on excellent volume and even some hard-hit areas rebounded nicely. To be clear, we don’t think the market is out of the woods; many cyclical names still look iffy, and it’s not like there are dozens of great-looking breakouts to sink your teeth into (yet). Thus, we still think picking your spots is important, but it’s also true that we’re seeing more good-looking patterns than we have in a while. We’re nudging up our Market Monitor to a level 7.

This week’s list features many of the names that have seen some persistency and power of late. Our Top Pick is Dynatrace (DT), which appears to be emerging from a big-picture, year-long consolidation.

Stock Name	Price	Buy Range	Loss Limit
Alnylam Pharmaceuticals (ALNY)	166	162.5-167.5	149-152
American Eagle (AEO)	37	35.5-37.5	32-33
CommScope (COMM)	21	20.5-21.5	18.5-19
Deckers Outdoor Corp. (DECK)	382	370-385	340-345
Dynatrace (DT)	60	57-59	51.5-52.5
Natera (NTRA)	117	113-116	102-104
Nutanix (NTNX)	39	37-38.5	32.5-33.5
Shopify (SHOP)	1495	1450-1500	1310-1340
Upwork (UPWK)	57	53.5-56	47-48.5
Vista Outdoor Inc. (VSTO)	45	42-44	37.5-38.5

Note: Because of the Independence Day holiday, next week’s issue of Cabot Stock of the Week will be published on Tuesday July 6.

The bull market rolls on, and our portfolio continues to deliver, so I continue to recommend that you be heavily invested in stocks that help achieve your investing goals.



Today’s featured stock is a young and small medical stock that few investors have heard of, but it’s growing fast and the stock is going the right way!



As for the current portfolio, we’re parting company with super-safe Realty Income (O), mainly because something’s got to go.



Details inside.



Also, I hope you’ll join me for the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. We have an incredible line-up of experts ready to share their best picks.

The S&P 500 has now gained 90% since its closing low in March 2020. This alone has made investors a bit cautious but all indications are that we are still in a bull market. Explorer recommendations did well this past week and today we go back to China for a new idea that many of you will know.

Despite last week’s overreaction to the Fed, the market will likely continue sideways for a while for two reasons. One, the market indexes had to take a breather after a massive 90% move higher from the pandemic lows. Two, investors look ahead and can’t decide what will drive the market six months from now after the economy slows and comparisons get tough.

In a sideways market, income is at a premium. Income is the only game in town when stock prices aren’t rising. Dividends roll in regardless of near-term market gyrations. Covered calls greatly enhance that income.



In times like this, a portfolio geared towards high income can provide strong returns while the overall market languishes. In this issue, I highlight two new covered call opportunities that will enable you to ring the register while the market wallows.

Monday, shortly after the market open, we exited the stock components of three of our June covered call positions (FNKO, IGT, RRC). With these sales, here are our profits for all four June positions:

Current Market Outlook


There are definitely some positives among the action out there—growth stocks, for instance, have continued their rally, with many “old” winners finally showing some power in both volume and price (including some names that have poked out to new highs). That said, the overall action in the market remains hectic: Cyclical stocks have cascaded for the most part while growth has ramped, with most major indexes we track now below key support. Moreover, on a daily basis rotation remains intense (like today), with stocks and sectors getting whipped around depending on what’s in favor on a given day. Again, it’s not bearish per se, but the environment is like Jell-O wobbling on a plate, making it tough to pinpoint entries and hold onto stuff. We’re OK with some buying, but until more investors row in the same direction, you should keep it smaller than normal and generally aim for dips.

This week’s list looks like 2020 all over again, with lots of technology and growth earnings spots. Our Top Pick is HubSpot (HUBS), which showed top-notch relative strength during the growth stock correction and has now started to power ahead.

Stock Name	Price	Buy Range	Loss Limit
10X Genomics (TXG)	198	189-198	172-175
Arrowhead Pharmaceuticals (ARWR)	90	86-90	74-76
Atlassian (TEAM)	267	256-263	235-239
Bill.com Holdings (BILL)	181	176-182	155-159
Biogen (BIIB)	381	370-385	325-335
Bonanza Creek Energy (BCEI)	48	45.5-47.5	40.5-41.5
HubSpot (HUBS)	575	560-580	505-515
Scientific Games (SGMS)	76	71-74	62-64
Sprout Social (SPT)	90	85-88	74-76
Zscaler (ZS)	216	207-214	186-190

Emerging market stocks, as tracked by the MSCI Emerging Market ETF (EEM) aren’t making much progress. But, and this is important, they aren’t losing much ground either.

The stock market slump that started last week has intensified in recent days, bringing the major indexes back to their October lows. I do have one rating change today, selling one third of a position, but the rest of the portfolio is in good shape given the housekeeping we did during last month’s selloff.

The S&P 500 index continues to bounce near recent lows, as it slowly works its way through its second 10% U.S. stock market correction of 2018

The major market indexes have been retracing their steps back to their late-October lows. With the trend down, it should come as no surprise that most of our stocks lost ground over the last five trading days, too.

There’s been plenty of volatility in recent weeks, but nothing has really changed with the market (trends are down) or our stance (highly defensive). We’re not heading to our Panic Room, though, as a strong rally from here could actually produce a Cabot Tides buy signal. In the Model Portfolio, we have no changes tonight, with three stocks and a cash position of around 76%.

After spiking last Wednesday, the major indexes have, predictably, pulled back over the past week. The market is likely to try to shake out weak hands a few more times before starting a sustained new uptrend. I have no rating changes today, but read on for brief updates on all our holdings.

Our portfolio stocks achieved another successful quarter of results, generally pleasing Wall Street with upside surprises as opposed to earnings disappointments or news of corporate difficulties. Nevertheless, 2018 has been a difficult year for stock investors, with the S&P 500 index delivering two 10% corrections. The best of companies can easily have their share prices languish for months on end, as we’ve seen all year.

The market’s volatility is a relatively normal correction. But for now, my plan is to keep making incremental moves to try to limit risk and pursue opportunities. Hopefully that will mean a number of positions move back to buy in November but there is one exception noted in today’s update.

The Cabot Emerging Markets Timer is heading in the direction of a new buy signal, but isn’t there yet.

The market has rallied since the last update; all sectors except for utilities are higher over the last five days. Materials, energy, financial and consumer discretionary stocks have led the rebound. While it’s certainly possible that the end of October marked the end of the correction, most corrections don’t end that neatly. No changes to the portfolio, but we do have plenty of good candidates lined up for when the market continues its advance.

The market has finally gotten off its knees, but our two main trend-following indicators are bearish and most stocks are still in rough shape. I advise you to remain patient and defensive but we could nibble on a stock if the market continues to power ahead. Since we sold a position on Monday, no rating changes to the portfolio tonight.

As we continue marching through earnings season, we’ve had 15 companies report thus far, with only one missing consensus estimates by any appreciable amount.

Three portfolio stocks report third-quarter results.

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.

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.