The New Year promises to be a great one for dividend stocks. After underperforming the market in 2020, the stars are aligning to make 2021 the year of the dividend.

The distribution of the coronavirus vaccine promises to bring this pandemic to an end and unleash a full and robust recovery in 2021. Energy stocks that had been neglected in the market recovery have caught fire in anticipation of a full recovery in 2021.



A huge and overdue rally in the sector has paused temporarily ahead of a very promising year, giving us an opportunity to get into one of the very best stocks in the sector at a still cheap price.



Global energy giant Chevron (CVX) currently offers the rare combination of great value and momentum, as well as a fat yield. The stock has already moved higher, the rally has a long way to go.

This month we review how the capital markets performed in 2020 and provide our outlook for 2021. We look at the broad equity market and trends below the surface, including growth/value, large/small and sector returns. We also briefly discuss the global equity and commodity markets as well as the U.S. fixed income markets. Our outlook starts with a review of how our 2020 outlook turned out, then dives into what we see for 2021 for the S&P 500, touches upon the rising influence of the two “Easts” and our wariness about speculation, and concludes with some timeless perspective about investing.

The issue also reviews the high yield bond market. We follow the high yield bond market as it provides a different perspective on equity markets. Importantly, there is considerable overlap among high yield bond investors, turnaround investors and private equity investors who may acquire undervalued companies.



Each January, we highlight our “Top Five” stocks for the coming year, based on a combination of favorable risk/return and timeliness. For 2021, our Top Five includes Conduent (CNDT), Meredith Publishing (MDP), Newell Brands (NWL), Signet Jewelers (SIG) and Wells Fargo (WFC).



Our feature recommendation is Ironwood Pharmaceuticals (IRWD). The market views Ironwood as a failed pharmaceutical company but its low share valuation, steady/rising profits and the presence of an effective activist investor make the stock a stand-out value, in our view.



The letter also includes a summary of our recent sales of GameStop (GME) and Freeport-McMoran (FCX), our price target increases for Trinity Industries (TRN), Adient (ADNT), DuPont (DD) and General Motors (GM) as well as the full roster of our current recommendations.



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.

Last Friday was the expiration of our December covered call positions, and I’m happy to report it was yet another great month. Here were our final profits and yields:

Current Market Outlook


News of travel restrictions due to a new strain of the virus over in Europe hit the major indexes early today, but when it comes to our analysis, the reason for the initial selloff is secondary—the setup for an air pocket has been around for a couple of weeks as sentiment was elevated and most stocks and indexes were extended to the upside. Thus, today’s hiccups weren’t totally unexpected, but the damage was limited; at day’s end, the major indexes held up well and remain in intermediate-term uptrends, as do most stocks. Near term, further reverberations are likely, so we still think it best to pick your spots and stocks carefully, but with the major evidence still positive, we are too.

This week’s list has a nice mix of stocks benefiting from different trends (growth, reopening, cyclical, etc.). Our Top Pick is Elastic (ESTC), which has finally, decisively gotten going from a long 20-month IPO base.

Stock Name	Price	Buy Range	Loss Limit
Alcoa (AA)	22.12	21-22.5	18-18.7
Cardlytics (CDLX)	146.04	135-141	116-119
Coeur Mining (CDE)	9.88	9.5-10.0	8.2-8.5
Elastic (ESTC)	155.91	147-153	129-133
Floor & Décor (FND)	99.10	95-98	85-87
Kodiak Sciences (KOD)	149.51	136-142	117-120
PayPal (PYPL)	237.79	232-238	209-213
Redfin (RDFN)	78.54	72-75.5	60-63
Smartsheet (SMAR)	72.00	70-73	61-63
WESCO International (WCC)	75.16	72-75.5	62-64

Note: This is our final issue of Cabot Stock of the Week this year. Next week we get a little “vacation.”

But rest assured we’ll be keeping an eye on the market, where market trends remain very positive as we head toward the end of the year.



Today’s recommendation is a low-risk water company in a foreign country, so it may be the perfect diversification move if you’ve got a lot of U.S. growth stocks.



But to fit it into the portfolio, we’ve got to sell something, and the victim this week is Eli Lilly (LLY), which has brought us a decent profit in a fairly short time.



Full details in the issue.

The evidence remains mostly bullish, with the major indexes and a growing number of leading stocks acting well. To be fair, it’s not 1999 out there, as many stocks are suffering a lot of choppy action and sentiment is buoyant--that’s no reason to be negative, but we’re continuing with our step-by-step buying spree.

Last week, we started a new half position in CrowdStrike (CRWD), and tonight, we’re filling out our position in Novocure (NVCR), leaving us with around 20% in cash.

Hopefully, 2021 will remove some of the uncertainties that the virus has wrought, and the economy can begin to speed up its recovery. And while the markets have done very well this year, there are still pockets that are undervalued, many of which are represented in our pages this month.

In December’s Issue of Cabot Early Opportunities we look back at one of the strangest years in decades and discuss the seemingly counterintuitive strategy that drove huge portfolio gains.

Then we look at a fresh batch of names that seem ripe for the picking now and which could serve us well in the beginning of 2021. Our new stocks span clean energy, PC gaming, biotech, industrial supplies, and payment processing. As always, there should be something for everyone!

In this season of good cheer, we have a lot to be thankful for: 1) It looks like we can finally put this election to rest (thank goodness!); 2) the first coronavirus vaccine is being distributed across the country; and 3) hopefully, we’ll soon have another stimulus package.

Despite all the challenges, the markets have held up very well, and the Dow Jones Industrial Average has surpassed the big 30,000 mark several times in the last few weeks.

Unemployment continues to decline, with the rate dropping to 6.7% in November. Consumers are shopping for the holidays, with online Thanksgiving sales up 21.5%, to $5.1 billion. I know my finger is sure hitting the ‘buy’ button a lot more this year!

Hopefully, 2021 will remove some of the uncertainties that the virus has wrought, and the economy can begin to speed up its recovery. And while the markets have done very well this year, there are still pockets that are undervalued, many of which are represented in our pages this month.

We begin with our Spotlight Stock, the largest water company in Brazil, which is expanding to deliver services outside its borders. In my Feature article, I further explore that growth—as well as the rising need—for potable water in Latin America.

Moving on to Growth, our contributors have a number of ideas here, including companies in the e-commerce, ride sharing/food delivery, infrastructure, industrial equipment, and rent-to-own industries. Our Growth & Income picks include an alcoholic beverage manufacturer as well as a gas/chemical company.

In Healthcare, you’ll find stocks from the testing medial technology, biopharma, and cannabis sectors. Technology has been the big winner of 2021, and here we offer ideas in the printing equipment, audio & video, software, and electronics industries.

Our Resources & Utilities section has a couple of gold and utility companies. In High Yield and Preferred Stocks, you’ll find a host of companies offering better-than-market yields, from the banking, energy, franchising, shipping, and natural gas sectors.

This month, we include two Real Estate Investment Trusts, as well as a company offering a nice Special Dividend opportunity. Make sure you check the dates, so that you don’t miss out on this chance for extra cash flow.

Lastly, our Funds & ETFs are well-diversified, with ideas in the midcap value, emerging small caps, low-priced stocks, materials, and energy industries.

I hope you and your families enjoy a wonderful and safe holiday. I’m sticking close to home this year, but hope to enjoy some traveling in 2021. As always, please don’t hesitate to email me with your feedback and questions. My address is nancy@financialfreedomfederation.com.

Now that the stock market correction has finally arrived, this weekly update is going to be a little bit different than normal. I’m not going to bother researching and reporting changes in earnings estimates, unless a company (a) just reported quarterly results within recent days and (b) the quarterly results significantly changed the future EPS projections.

Trim your sails. The market’s recent slide has cracked the intermediate-term uptrend, and while the overall bull market is still intact, chances are the market is going to need some time to correct and consolidate going forward.

For investors lulled into a false sense of security by the low-volatility bull market of 2017, the past week has been a rude awakening. Even for investors who remember much longer and much deeper market corrections (and us professionals!) Monday’s sudden drop was a little scary.

The iShares EM Fund (EEM) is still well on top of its moving averages, which keeps the Emerging Markets Timer firmly positive.

Crista gives an update on the Section 232 investigation into the steel industry and describes what a normal stock market correction look like and how you should handle it. One rating change.

It was another good week for small caps, and the S&P 600 Small Cap Index keeps grinding higher. The 1% gain over the past week has the index well above its moving average lines and just slightly behind large caps in terms of year-to-date performance.

Many of our stocks are nearing their fair values, but I recommend that you continue to hold them. As I introduce more undervalued stocks in the coming weeks, you may replace some of your fully valued stocks with the new stocks.

Remain bullish, but keep your eyes open. The overall market looks fine, but remains extended to the upside, which makes finding lower-risk entry points more difficult. We continue to advise holding your uptrending stocks to give them a chance to turn into bigger winners.

The stock market remains hot, and while a pullback is always possible, the trend is firmly up. A lot of stocks are overextended short-term though, including some in our portfolio, so don’t be afraid to take partial profits where you have them, and be selective on the buy side.

We’re going through a highly unusual period in the history of the stock market during which earnings estimates keep rising for a broad spectrum of companies. That’s because we’re experiencing a growing economy, deregulation and lower income tax rates, all of which contribute to rising corporate profits.

A spin-off is in the works for this entertainment company, and analysts are forecasting the company will grow at an annual rate of 16.9% over the next five years.

This 5G player is forecasted to grow at an annual rate of 20% over the next five years.

The good news is that many cannabis companies have been releasing their second quarter reports and the results have been excellent.

In the past 30 days, eight analysts have raised their earnings estimates for this tech company.

Four stocks in our portfolios reported earnings this week.

The top five holdings in this fund are: Total System Services Inc (TSS. 3.93% of total assets); VeriSign Inc (VRSN, 3.62%); Roper Technologies Inc (ROP, 2.75%); Fiserv Inc (FISV, 2.43%); and WellCare Health Plans Inc (WCG, 2.22%).

The market has opened higher today following yesterday’s nice upside reversal. Recent support combined with some positive action among some growth stocks is encouraging.

This software company is forecasted to grow at an annual rate of 51% over the next five years.

One of the portfolio stocks is being sold.

Another sell recommendation whose quarterly earnings disappointed.

Our other two recommendations are to sell two previous ideas whose quarterly earnings disappointed.

Our first idea today, an aviation services company, beat analysts’ earnings estimates by $0.02 last quarter, and is forecasted to grow at an annual rate of 16.61% over the next five years.

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.