Here is your May Wall Street’s Best Digest issue 841.

Earnings season is upon us! According to FactSet, this may be a quarter with the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. So far, 91% of companies in the S&P 500 have reported, and 86% have reported a positive EPS surprise and 76% have reported a positive revenue surprise. These positive surprises were led by Consumer Discretionary stocks, whose earnings grew by 50.3%.



That’s good news for the markets—which despite a small downturn a week ago—continues to hold its own. The Dow Jones Industrial Average is up about 1,400 points since our last issue. Our advisors are still cautiously bullish, and overall investment sentiment remains the same.



Job openings are up, unemployment claims are down, and Q2 GDP is forecast at a rousing 8.2%. That sounds like a strengthening economy to me!



And, as you know, earnings drive stock prices, and that bodes well for the remainder of 2021.



We begin this issue with an equipment rental company that weathered the pandemic very well, and is now in a position to see a big growth spurt as the economy gets back on track. Next, our Growth stocks include companies from the furniture, crypto, aviation, cruise line, and gaming industries. In Growth & Income, you’ll find ideas from the chemical, fertilizer, RV, consumer products, and motorcycle sectors.



Moving on to Financials, a sector that is quickly recovering, our contributors are recommending several banks, a research, and a FinTech company. In Technology, we offer a hardware, speaker components, and a semiconductor stock. Our Resources & Energy ideas include companies from the mining and production, as well as utility sectors.



We give you one Low-Priced Stock this month, heralding from the communications industry. And in High-Yield and REITs, you’ll see ideas in the communications and mortgage REIT sectors.



Lastly, our Funds & ETFs section includes some income, as well as growth ideas.



Don’t forget to register for my monthly webinars, along with Kate Stalter, my partner on the Wall Street’s Best Stocks and Wall Street’s Best ETF newsletters. The next one is June 8 at 2 p.m. And I hope to see you (virtually, at least!) at our August 17-19 Summit, entitled Smarter Investing, Greater Profits. You can register here.



Please note, our publication date for Wall Street’s Best Digest is changing to the second Thursday of the month, so please watch your inbox for our next issue in just a few weeks.



Please don’t hesitate to send me your feedback and questions. My new address is nancy@financialfreedomfederation.com.

Big picture, this year’s growth stock correction still looks normal, and encouragingly, we are now seeing some names bounce decently after the destruction of the prior two weeks. However, just going with the evidence, there’s still a lot of work to do, with few stocks in position to breakout and little in the way of upside power.

There will be another sustained rally (or two) down the road, but right now, we’re mostly biding our time, holding a lot of cash and fine tuning our watch list for whenever the buyers retake control.



In tonight’s issue, we dive into some precedent analysis that gives us confident in the big-picture point of view, and also highlight three new-ish additions to our watch list. In the Model Portfolio, we’re standing pat, but we could nibble if things continue to stabilize in the days ahead.

In the May Issue of Cabot Early Opportunities we acknowledge the increasingly choppy action in the market and the unprecedented nature of the current recovery.

Similar to last month, we focus on diversifying new buys across different end markets, offering up names with exposure to everything from mobile gaming to oil services to off-road suspension, and more. In short, there’s something for everyone and, we think, enough variety to capture the upside in a wide range of spring and summer market conditions.



Enjoy!

Despite the market coming under pressure in the last several weeks, the Cabot Profit Booster portfolio continues to perform spectacularly! And heading into expiration this Friday, our five May covered calls are all in terrific shape, and potentially on track to their full profits. As is always the case, I will update you where we stand with these positions on Friday morning.

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

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.

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!

We continue to see an unusual amount of rotation in the market, with crosscurrents sending sectors up one day and down the next. However, our portfolio looks healthy. We have a two rating changes today, but overall we are in good shape.

Many investors are aware that over the short-term, a stock share price can bounce all over the place, often with no apparent correlation to a company’s successes.

Even though there was some crazy action in the market last week the bulls remain in charge and many stocks are breaking out to fresh highs.

In recent months, I’ve helped investors unwind some of their Benjamin Graham Value stocks, while keeping those with sound fundamentals and good earnings growth prospects.

The overall market and most growth stocks have stabilized in recent days but there are still some yellow flags. Our 50%-plus cash position is a bit too high so we’re going to change that tonight by adding one new position and buying a bit more of another.

Earnings season has seen some huge reactions, and this week brought the drama to our portfolio. There have been sharp selloffs, but we’re not going to overreact. A few rating changes to the portfolio today, but overall we’re in good shape.

Our previous moves to put the portfolio in a defensive stance have given us some protection. But today’s slump in emerging market stocks has put our Buy signal in question and further weakened many of our stocks.

In recent days, there’s been a proliferation of articles and news commentaries about a tentative shift in the market’s multi-year preference of growth stocks over value stocks.

It’s been an eventful week in the market, as some big earnings blowups worsened the ongoing exodus from leading growth stocks and big tech names. We’ve also seen selling in small- and mid-cap stocks. As we navigate the rotation in the market, one of our positions broke down over technical weakness and we are selling 1/3 of that today.

This earnings season, shares of Facebook (FB), Twitter (TWTR) and Netflix (NFLX) got pummeled by investors, and mostly for good reason.

There was a lot going on in the market this week but news flow from our portfolio holdings was relatively quiet.

We’re going through a period of tremendous stock price volatility, very similar to the aftermath of a correction in the broader stock market, except this particular price action is affecting random individual stocks and industries.

This company, whose founder invented the MRI, just celebrated its 50-year anniversary.

We replaced this fund with more diversified fund.

We are replacing a fund in which 57% of assets are comprised of real estate with one that focuses on technology (36.54% of assets), industrials (23.91%) and healthcare (21.97%).

The cannabis sector has been trending down since the end of March, giving back its spectacular gains from the start of the year, and until now I’ve remained optimistic about our stocks, partially because of their outstanding fundamental growth metrics but also because Cabot’s two main trend-following indicators for the market were positive.

The shares of this cloud-based software company were recently initiated at RBC Capital and upgraded at Wedbush with an ‘Outperform’ rating.

As the futures indicated, the market is down sharply this morning, though the major indexes have bounced from their lows. As of 10:45 am, the Dow is sinking 454 points while the Nasdaq is down 118 points.

The market looks set to open down relatively sharply this morning, with the futures indicating opening losses in the 0.7% to 1% range for the major indexes. However, our focus is really on the overall evidence, which is clearly worsening.

Our second recommendation is some profit-taking in a mutual fund.

Our first idea is an ETF whose top five holdings are: L3Harris Technologies Inc (LHX, 8.25% of assets); Lockheed Martin Corp (LMT, 7.48%), United Technologies Corp, (UTX, 7.01%), Boeing Co (BA, 6.82%), and Honeywell International Inc (HON, 6.61%).

The shares of this global pharmaceutical company were just upgraded to ‘Buy’ at Citigroup.

You may have noticed media articles last Friday regarding U.S. listed Chinese stocks that had a negative impact on share prices.

The shares of this diagnostic company were recently upgraded by Benchmark to ‘Buy’ and Zacks reported that the shares are now ‘Oversold’, and noted that earnings estimates for the company have been increased five times in the past two months.

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.