Issues
The Cabot Profit Booster portfolio had a spectacular 2020, aided by great stock picks from Cabot Top Ten Trader Chief Analyst Mike Cintolo, “juicy” call premiums which we sold via our covered call strategy, and a generally strong market. Now that the calendar has flipped to 2021, we will stick to the plan, and manage our open positions with an eye out for risk, while continuing to sell covered calls on the best of stocks. This brings me to today’s recommendation …
The market sold off broadly this morning, and it certainly needed it. The market has been too strong for too long! But the main trend remains up and thus I continue to recommend that you be heavily invested.
Today’s recommendation is a search technology company with fast growth and great growth prospects, first recommended by Mike Cintolo.
As for our current holdings, I have two sell recommendations today, B&G Foods (BGS) and Zoom Video (ZM).
Full details in the issue.
Today’s recommendation is a search technology company with fast growth and great growth prospects, first recommended by Mike Cintolo.
As for our current holdings, I have two sell recommendations today, B&G Foods (BGS) and Zoom Video (ZM).
Full details in the issue.
Current Market OutlookAfter a prosperous last 12 months, 2021 got off to a sour start today, though that wasn’t totally surprising—early-January is known for crosscurrents and profit taking (especially after good years) as big investors un-hedge and reposition their portfolios. That doesn’t mean today’s weakness should be excused, but what counts most is what happens from here: Another couple of rounds of sharp selling in the leaders and major indexes (possibly coinciding with some intermediate-term breakdowns) would tell us the bears are making a stand, while a quick show of support in many key stocks will be a good sign. We’re keeping our eyes peeled, but so far, the trends of the market and the vast majority of stocks remains up, so we remain mostly bullish, though are continuing to pick our spots.
The first Top Ten list of the year is a mixed bag in terms of stocks and sectors. Our Top Pick is Bill.com (BILL), which is finding support after a normal, early-stage retreat.
| Stock Name | Price | ||
|---|---|---|---|
| AGCO Corporation (AGCO) | 102 | ||
| Arvinas, Inc. (ARVN) | 84 | ||
| Bill.com Holdings (BILL) | 138 | ||
| BridgeBio Pharma (BBIO) | 64 | ||
| CrowdStrike (CRWD) | 201 | ||
| Inari Medical (NARI) | 85 | ||
| Kohl’s (KSS) | 39 | ||
| Lam Research (LRCX) | 478 | ||
| Lemonade (LMND) | 113 | ||
| MongoDB (MDB) | 350 |
As we near the end of 2020, I’m thankful that 2020 was so very good to the leading marijuana stocks, and that we managed, overall, to ride the trend quite profitably.
As I write, the uptrend is intact and we remain fully invested, but as the calendar turns to 2021, there’s a chance that the trend (and the trend of the broad market as well) might turn down.
Thus I’m on alert.
But I learned long ago not to argue with the trend of the market, so until the trend changes, I recommend staying heavily invested.
Full details in the issue.
As I write, the uptrend is intact and we remain fully invested, but as the calendar turns to 2021, there’s a chance that the trend (and the trend of the broad market as well) might turn down.
Thus I’m on alert.
But I learned long ago not to argue with the trend of the market, so until the trend changes, I recommend staying heavily invested.
Full details in the issue.
It’s been a great year for growth stocks, and we’re glad to have easily outperformed the major indexes, adding to our longer-term track record. Whatever the exact numbers, we hope you enjoyed a prosperous 2020, and have a great and healthy New Year.
That said, we’re always looking ahead. Big picture, we remain bullish, but growth stocks have hit a bit of a pothole this week, which wasn’t totally unexpected. We’re not reacting to the action yet, though we’re also comfortable holding our 19% cash position and see what comes as the calendar flips.
That said, we’re always looking ahead. Big picture, we remain bullish, but growth stocks have hit a bit of a pothole this week, which wasn’t totally unexpected. We’re not reacting to the action yet, though we’re also comfortable holding our 19% cash position and see what comes as the calendar flips.
This is one of the two weeks a year where Cabot Top Ten Trader is not published, which means there won’t be a new Profit Booster covered call trade this week. That being said, I did want to note that our four open positions (AA, UBER, ADNT, CDE) are all in good shape.
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.
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.
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.
Updates
While things are a bit giddy in the short-term and we’re still in the midst of earnings season (three of our stocks release their numbers tonight or tomorrow), our trend-following indicators bullish and growth stocks are acting great. Thus, you should keep your optimist’s hat on.
After stumbling last Wednesday, the market is back on its feet, with the major indexes all hitting new highs in recent days. Technology stocks have led the way, a reversal of the Dow outperformance we’d seen over the past two weeks.
Many stocks are rising—either toward former highs, or surpassing recent highs—because the companies are growing profits very well. It’s not “Trump,” nor “irrational exuberance,” nor “a lack of other good investment markets.” It’s simply strong earnings growth.
It’s been another sideways week in small-cap land. The S&P 600 index is essentially unchanged from last week, and despite some cross-currents under the surface, is holding firm just above 910.
The iShares EM Fund (EEM) is holding above its moving averages, which keeps the Cabot Emerging Markets Timer a bright green. But the weakness in Chinese stocks is hitting the portfolio hard. In response, we have six moves today.
In this Weekly Update, I summarize the latest news for three companies that reported earnings in the past week.
The S&P 500 rose 15% year-to-date through October 20, and the Dow Jones Industrial Average rose 18% year-to-date. Those achievements are not remotely unusual when stocks are having a good year. However, it would be normal to expect price corrections along the way—corrections which have been curiously absent this year.
Even though the Dow, S&P 500 and Nasdaq hit all-time highs this week, news flow felt a little more negative, and the small-cap indices all moved slightly lower.
One major news item that hit one of our stocks.
Remain bullish, but be selective on new buys as earnings season revs up. The overall market remains in great shape, with all our market timing indicators solidly bullish. Short-term, a pullback wouldn’t be surprising, but the odds remain in favor of higher prices down the road.
Interest rates fell back this week after the odds of a December rate hike briefly fell below 90% (they’ve since rebounded). The trigger was a September inflation data release that showed consumer prices excluding food and energy rising just 1.7% year-over-year, and only 0.1% since August.
All investors should be aware of the quality-control scandal emanating from Kobe Steel, in which the company admitted falsifying data on its steel products for a currently-vague amount of time between one and 10 years. On October 11, I predicted that the scandal would be more extensive in reach than initially reported.
Alerts
Today, I’m creating a fourth portfolio category within Cabot Undervalued Stocks Advisor: Special Situations. This will be a portfolio for capital gain opportunities that do not conveniently fit into the other three portfolios.
Here’s a fund that employs a ‘smart beta’ style to increase performance.
Investing in up markets is easy. From the December low until recently, the strong market provided a huge tailwind that sent marijuana stocks soaring—and had our portfolio, at the peak, up 57.2% year-to-date.
Five analysts have raised their earnings estimates for this biopharma in the past 30 days.
Our Cabot Tides turned negative today, telling us the intermediate-term uptrend has broken.
This semiconductor stock has recently received two analyst upgrades: from KeyBanc, to ‘Overweight’, and Goldman Sachs, to ‘Buy’.
One stock announces first-quarter results and M&A activity and moves from Strong Buy to Hold and another announces first-quarter results, a dividend decrease and an intention to separate into two companies.
Zacks Research also recently recommended this genetic information company stock based on rising sales and increasing analyst price targets.
Three stocks in the portfolio reported earnings.
One portfolio stock reports a disappointing first quarter.
This construction company beat analysts’ estimates by $0.19 last quarter, and five analysts have raised their EPS forecasts for the company in the past 30 days.
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 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.